Could an independent medical provider recover gross receipts tax because the clinic also billed patients and paid tax, but gave her no NTTC?

Plain-English summary

Carole Ann Kirby was not entitled to a refund of gross receipts tax paid on commissions from medical services she performed as an independent contractor. The clinic's separate billing and tax payment did not eliminate Kirby's liability, and she had no nontaxable transaction certificate supporting a service-for-resale deduction.

Kirby, a registered nurse and naturopath, contracted with the Whole Life Clinic in 2005. She received 50% of the money generated by her personal services and paid her own business expenses, including disability, health, and professional-liability insurance.

The clinic reported $52,335.15 of nonemployee compensation to Kirby on Form 1099-MISC. She reported it as Schedule C business income, claimed $21,674 of business expenses, and paid New Mexico gross receipts tax on the clinic payments.

After the clinic's business manager told her that other contractors were not paying the tax, the clinic wrote that it billed patients, collected money, and charged tax under its own name for all of Kirby's production. Kirby relied on the letter and sought a refund. But the clinic had no NTTC to give her, and the Department denied the claim.

Kirby's medical services were a taxable business activity

Section 7-9-4 imposed gross receipts tax on any person engaging in business in New Mexico. Kirby contracted to perform medical services for a monetary commission, which the hearing officer found fell within the broad definition of engaging in business.

The clinic and Kirby were separate entities. Each engaged in business and each was responsible for tax on its own receipts.

Separate receipts were not the same transaction taxed twice

Kirby argued that taxing her commission and the clinic's patient receipts amounted to double taxation. The decision said the tax fell on receipts of different taxpayers from separate transactions.

New Mexico provided deductions to reduce pyramiding across successive transactions, but a taxpayer had to satisfy the specific statutory conditions.

The resale deduction required an NTTC

Section 7-9-48 allowed receipts from selling services for resale to be deducted only when the buyer provided the seller an NTTC and resold the service in its ordinary business.

The clinic did not provide Kirby an NTTC. Its inability or unwillingness to do so did not establish the deduction. Exemptions and deductions had to be clearly supported, and failure to follow statutory or regulatory requirements waived the claimed benefit.

Result: protest DENIED. Kirby's receipts were taxable, and she did not qualify for a refund under the service-for-resale deduction or any other deduction or exemption.

What this means for you

Independent medical professionals

Being paid by a clinic rather than directly by patients did not prevent the provider from being independently engaged in business in this decision.

Contractors whose customer also pays tax

The customer's tax payment on its receipts does not automatically satisfy the contractor's obligation on separate receipts.

Service providers seeking a resale deduction

Obtain the required NTTC from the buyer. A contract, commission arrangement, or buyer letter describing its billing practices did not substitute for the certificate here.

Taxpayers filing refund claims

The taxpayer must establish the legal basis for the deduction or exemption. Advice from the contracting business did not create a refund right absent the statutory documentation.

Common questions

Q: Why was Kirby considered engaged in business?
A: She contracted to provide medical services to the clinic for a monetary commission.

Q: Did the clinic's billing and tax payment cover Kirby's receipts?
A: No. The clinic and Kirby were separate taxpayers with separate receipts.

Q: Was this prohibited double taxation?
A: No. The hearing officer said the taxes were imposed on receipts of different taxpayers from successive transactions.

Q: Why did the service-for-resale deduction fail?
A: Section 7-9-48 required the clinic to provide Kirby an NTTC, and it did not.

Q: Could the clinic's explanatory letter replace an NTTC?
A: No. The decision found no legal basis for the refund without the certificate required by statute.

Citations and references

Statutes:

• NMSA 1978, § 7-9-3.3 — definition of engaging in business
• NMSA 1978, § 7-9-4 — gross receipts tax imposed on persons engaging in business
• NMSA 1978, § 7-9-48 — deduction for selling a service for resale

Cases cited:

• Ft. Smith Lumber Co. v. Arkansas, 251 U.S. 532 (1920)
• New Mexico State Board of Public Accountancy v. Grant, 61 N.M. 287, 299 P.2d 464 (1956)
• Amarillo-Pecos Valley Truck Line, Inc. v. Gallegos, 44 N.M. 120, 99 P.2d 447 (1940)
• House of Carpets, Inc. v. Bureau of Revenue, 84 N.M. 747, 507 P.2d 1078 (Ct. App. 1973)
• New Mexico Enterprises, Inc. v. Bureau of Revenue, 86 N.M. 799, 528 P.2d 212 (Ct. App. 1974)
• Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 809 P.2d 649 (Ct. App. 1991)
• Proficient Food v. New Mexico Taxation & Revenue Department, 107 N.M. 392, 758 P.2d 806 (Ct. App. 1988)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Carole Ann Kirby
• Decision PDF: D&O 06-18

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
CAROLE ANN KIRBY; CRS ID 03-036936-00-3 No. 06-18
TO DENIAL OF CLAIM FOR REFUND
ISSUED UNDER LETTER ID L0893413632

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on October 26, 2006, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department (“Department”) was

represented by Susanne Farr, Special Assistant Attorney General. Carole Ann Kirby (“Taxpayer”)

represented herself. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a registered nurse and naturopath.

2. On January 1, 2005, the Taxpayer entered into a written contract to perform medical

services as an independent contractor for the Whole Life Clinic, Integrated and Biological Medicine

(“the Clinic”) in Santa Fe, New Mexico.

3. Under the terms of the contract, the Taxpayer received 50% of “all personal

production,” which was defined as “monies created by the associate that are billed as a fee for their

personal service.” The Taxpayer was responsible for all of her own business expenses, including

disability, health, and professional liability insurance.

4. For the 2005 tax year, the Clinic provided the Taxpayer with a Form 1099-MISC

reporting nonemployee compensation of $52,335.15.

5. The Taxpayer reported the $52,335.15 of nonemployee compensation as business

income on Schedule C to her 2005 federal income tax return and claimed $21,674 of business

expenses against that income.

6. The Taxpayer also paid New Mexico gross receipts tax on the payments she received

from the Clinic.

7. The Taxpayer was subsequently advised by the Clinic’s business manager that she

did not have to pay gross receipts tax and that none of the Clinic’s other contractors were paying the

tax.

8. On March 1, 2006, the Clinic provided the Taxpayer with a letter stating as follows:

Carole Ann Kirby is a independent contractor at the Whole Life Clinic, and is paid a
commission based upon her production for the clinic. She does not personally bill
out services for patients and does not collect monies or CRS taxes. The front office
at the Whole life Clinic bills for service, collects and charges tax under its name
solely. This includes 100% of all Carole’s production.

The letter further stated that based on the Clinic’s understanding of state tax law, the Taxpayer “does

not need to pay CRS Tax, since they are already applied to the Whole Life Clinic’s revenue.”

9. On March 5, 2006, in reliance on the Clinic’s letter, the Taxpayer filed a claim for

refund of the gross receipts tax she paid during 2005.

10. On May 2, 2005, the Department asked the Taxpayer for additional information,

including copies of any nontaxable transaction certificates (“NTTCs”) supporting her claim.

11. When the Taxpayer asked the Clinic whether it could provide her with an NTTC, she

was told that the Clinic did not have any NTTCs.

12. On June 15, 2006, the Department denied the Taxpayer’s claim for refund.

13. On July 10, 2006, the Taxpayer filed a written protest to the denial of her claim for

refund.

2
DISCUSSION

The issue to be determined is whether the Taxpayer is entitled to a refund of the gross

receipts tax she paid on her compensation from performing services as an independent contractor for

the Clinic. Relying on information she received from the Clinic, the Taxpayer believed that she paid

the tax in error and that her receipts were being taxed twice. The Department disagreed, arguing that

the Taxpayer’s sale of services to the Clinic and the Clinic’s resale of those services to its patients

were two separate transactions, each of which was subject to tax.

NMSA 1978, § 7-9-4 imposes an excise tax on the gross receipts of any person engaging in

business in New Mexico. The definition of “engaging in business” is quite broad and includes

“carrying on or causing to be carried on any activity with the purpose of direct or indirect benefit.”

NMSA, 1978, § 7-9-3.3. The statute makes no distinction between activities engaged in by large

corporations and activities engaged in by small “mom and pop” operations or by individuals acting

as independent contractors. In this case, the Taxpayer entered into a contract to provide medical

services to the Clinic in return for a monetary commission. Because the performance of medical

services comes within the broad classification of “any activity,” her work meets the statutory

definition of engaging in business and she is liable for gross receipts tax on her income from those

services.

The Taxpayer questions whether her payment of gross receipts tax would result in double

taxation. Contrary to popular belief, there is no prohibition against double taxation. Ft. Smith

Lumber Co. v. Arkansas, 251 U.S. 532, 533 (1920) (the United States Constitution does not forbid

double taxation). See also, New Mexico State Board of Public Accountancy v. Grant, 61 N.M. 287,

299 P.2d 464 (1956); Amarillo-Pecos Valley Truck Line, Inc. v. Gallegos, 44 N.M. 120, 99 P.2d 447

(1940). In construing the Gross Receipts and Compensating Tax Act, the New Mexico Court of

3
Appeals has also held that double taxation does not exist when the taxes complained of are imposed

on the receipts of different taxpayers. See, e.g., House of Carpets, Inc. v. Bureau of Revenue, 84

N.M. 747, 507 P.2d 1078 (Ct. App. 1973); New Mexico Enterprises, Inc. v. Bureau of Revenue, 86

N.M. 799, 528 P.2d 212 (Ct. App. 1974). That is the case here. The Taxpayer and the Clinic are

separate entities, each of which is engaged in business in New Mexico and each of which is liable for

payment of gross receipts tax.

Even though taxing successive transactions is not double taxation, the New Mexico legislature

has provided a number of statutory deductions to prevent the pyramiding or stacking of gross receipts

tax. Pursuant to NMSA 1978, § 7-9-48, receipts from selling services for resale may be deducted if—

and only if—the buyer of the service provides the seller with an NTTC and resells the service in the

ordinary course of the buyer’s business. In this case, the Taxpayer does not qualify for the deduction

because she did not receive an NTTC from the Clinic.

The fact that the Clinic was either unable or unwilling to provide the Taxpayer with an NTTC

is irrelevant. The law provides that when an exemption or deduction from tax is claimed, the statute

must be construed strictly in favor of the taxing authority, the right to the exemption or deduction must

be clearly and unambiguously expressed in the statute, and the right must be clearly established by the

taxpayer. Wing Pawn Shop v. Taxation and Revenue Department, 111 N.M. 735, 740, 809 P.2d 649,

654 (Ct. App. 1991). The law also provides that a taxpayer waives the right to a deduction when he or

she fails to follow the requirements prescribed by statute or regulation. Proficient Food v. New Mexico

Taxation & Revenue Department, 107 N.M. 392, 397, 758 P.2d 806, 811 (Ct. App. 1988). In this case,

the Taxpayer did not obtain an NTTC from the Clinic as required by § 7-9-48. For this reason, there is

no legal basis for granting her claim for refund of the gross receipts taxes she paid on her commissions

from performing services for the Clinic.

4
CONCLUSIONS OF LAW

A. The Taxpayer filed a timely protest to the Department’s denial of her claim for refund

of gross receipts tax issued under Letter ID L0893413632, and jurisdiction lies over the parties and the

subject matter of this protest.

B. The Taxpayer was engaged in the business of providing medical services to the Clinic

during 2005 and was subject to gross receipts tax on the payments she received from the Clinic.

C. The Taxpayer did not qualify for the deduction in NMSA 1978, § 7-9-48 or for any

other deduction or exemption.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED October 31, 2006.

5