Could a caregiver deduct receipts for services resold by an agency without obtaining the required nontaxable transaction certificate within 60 days?

Plain-English summary

Karen Houser could not deduct receipts from caregiving services sold for resale because she never obtained the required nontaxable transaction certificate, or NTTC. The buyer's failure to supply the certificate did not excuse the statutory 60-day deadline.

Houser worked in 2001 as an independent contractor for Angels of Assistance, an agency that provided in-home caregiving services to the public. Her accountant advised her to obtain an NTTC, but the agency told her she did not need one and that the issue would never arise.

Houser reported the agency payments as Schedule C business income but did not register, report, or pay gross receipts tax on them. After receiving federal income information, the Department opened a limited audit and told her she had 60 days to produce any NTTCs supporting her deductions.

The agency's owner promised to request certificates but never provided one. The Department assessed $828.92 of gross receipts tax and $0.68 of interest, followed by another $390.15 interest assessment.

The agency and caregiver were separate taxpayers

Section 7-9-4 imposed gross receipts tax on anyone engaging in business in New Mexico. The decision held that Houser's paid caregiving services fell within the broad definition of engaging in business.

The agency's payment of tax on receipts from its clients did not satisfy Houser's separate obligation. Each party was a separate taxpayer liable on its own gross receipts.

Resale alone did not establish the deduction

Section 7-9-48 allowed a deduction for selling a service for resale only if the buyer delivered an NTTC to the seller. The fact that the agency resold Houser's services to the public was not enough by itself.

Section 7-9-43 gave an audited seller a second chance to obtain missing certificates. But if the seller did not possess them within 60 days after the Department's notice, deductions requiring those certificates had to be disallowed.

The reason for missing the deadline did not change the result

Houser argued that the failure was outside her control because the agency did not keep its promise to provide an NTTC. The hearing officer found the statutory language mandatory and the reason for failing to obtain the document irrelevant.

New Mexico's self-reporting system placed responsibility on Houser, as the seller, to determine the tax consequences and maintain the documentation supporting her deductions.

Result: protest DENIED. Houser was subject to gross receipts tax and did not qualify for the service-for-resale deduction or any other deduction or exemption.

What this means for you

Independent contractors selling through an agency

The agency's tax payment on its customer receipts does not necessarily cover the contractor's receipts. Each seller may have a separate gross receipts tax obligation.

Service providers claiming a resale deduction

Confirm that the buyer delivers the required NTTC. A resale relationship alone did not establish the deduction in this decision.

Taxpayers receiving an audit notice

Treat an NTTC production deadline as firm. The decision enforced the 60-day period even though the buyer failed to cooperate.

Common questions

Q: Why was Houser engaged in business?
A: She performed caregiving services for monetary payment, an activity within the statute's broad definition.

Q: Did the agency's payment of gross receipts tax protect Houser?
A: No. The decision treated the agency and Houser as separate taxpayers, each liable on its own receipts.

Q: Why did the service-for-resale deduction fail?
A: Section 7-9-48 required the buyer to deliver an NTTC, and Houser never obtained one.

Q: Could Houser submit the certificate after the audit deadline?
A: The decision said the deduction had to be disallowed when the required NTTC was not possessed within 60 days of the Department's notice.

Q: Did it matter that the agency had promised to provide the NTTC?
A: No. The hearing officer held that the reason for missing the mandatory deadline was irrelevant.

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, § 7-9-43 — possession of nontaxable transaction certificates
• NMSA 1978, § 7-9-48 — deduction for selling a service for resale

Cases cited:

• 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)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Karen Houser
• Decision PDF: D&O 06-19

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
KAREN E. HOUSER, ID NO. 03-319275-00-7 No. 06-19
TO ASSESSMENTS ISSUED UNDER LETTER
ID NOs. L1854706176 & L0537774592

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on November 15, 2006, before

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

was represented by Susanne Farr, Special Assistant Attorney General. Karen E. Houser

(“Taxpayer”) represented herself. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. During 2001, the Taxpayer worked as an independent contractor performing

services for Angels of Assistance (“AOA”), which was in the business of providing in-home

caregiving services to the public.

2. At the time she began working for AOA, the Taxpayer’s accountant advised her to

obtain a nontaxable transaction certificate (“NTTC”) from AOA.

3. When the Taxpayer asked AOA for an NTTC, she was told that she did not need

one and that the issue would never come up.

4. The Taxpayer reported her income from AOA as business income on Schedule C

to her 2001 federal income tax return.

5. As part of an information-sharing program with the Internal Revenue Service, the

Department received information concerning the business income reported on the Taxpayer’s
2001 federal income tax return. When the Department investigated, it found the Taxpayer was

not registered with the Department and had not reported or paid gross receipts tax on this

income.

6. October 4, 2004, the Department notified the Taxpayer that it was conducting a

limited scope audit of her 2001 tax reporting and asked her to explain why she had not paid gross

receipts tax on the business income reported on Schedule C to her 2001 federal income tax

return.

7. The Department’s October 4, 2004 notice advised the Taxpayer that, pursuant to

NMSA 1978, § 7-9-43, she must be in possession of all NTTCs required to support her

deductions within 60 days from the date of the letter. The 60-day period expired on December 3,

2004.

8. After receiving the Department’s notice, the Taxpayer contacted the owner of

AOA and asked her to provide the Taxpayer with an NTTC to support the Taxpayer’s deduction

of her receipts from performing services for AOA.

9. The owner said that she would request NTTCs from the Department, but never

followed through on her promise and never provided the Taxpayer with an NTTC.

10. On December 16, 2004, the Department assessed the Taxpayer for $828.92 of

gross receipts tax and $0.68 of interest for reporting periods ending on June 30 and December 31,

2001; on February 7, 2005, the Department assessed the Taxpayer for $390.15 of additional

interest for the same periods.

11. On February 14, 2005, pursuant to a retroactive extension of time granted by the

Department, the Taxpayer filed a written protest to the assessments.

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DISCUSSION

The issue presented is whether the Taxpayer's failure to have an NTTC from Angels of

Assistance (“AOA”) in her possession within the 60-day period provided in the Department's

notice of limited scope audit forecloses her from deducting her receipts from performing services

for AOA during 2001. The Taxpayer argues that she should not be liable for gross receipts tax

on her receipts because: (1) AOA collected and paid tax on its resale of the Taxpayer’s services;

and (2) the Taxpayer’s inability to produce an NTTC from AOA was due to circumstances

beyond her control.

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 contracted with AOA to

provide caregiving services in return for a monetary payment. Because the performance of such

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.

Although the Taxpayer believed that AOA’s payment of gross receipts tax on the amounts it

collected from its clients relieved the Taxpayer of her obligation to pay tax on her receipts, that is

not the case. AOA and the Taxpayer are separate taxpayers, each of which is engaged in business

and each of which is liable for gross receipts tax. 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

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of Revenue, 86 N.M. 799, 528 P.2d 212 (Ct. App. 1974). Nonetheless, in an effort to minimize

the taxation of successive transactions, the Gross Receipts and Compensating Tax Act provides

several deductions from gross receipts for taxpayers who meet the statutory requirements set by the

legislature. One such deduction is set out in NMSA 1978, § 7-9-48, which states:

Receipts from selling a service for resale may be deducted from gross
receipts ...if the sale is made to a person who delivers a nontaxable
transaction certificate to the seller.... (emphasis added).

Based on this language, the fact that the Taxpayer’s services were sold to AOA for resale to the

public is not sufficient to support a deduction under § 7-9-48. The requirements of the statute are

very specific. The buyer of services must deliver an NTTC to the seller before the seller is entitled

to claim a deduction from gross receipts. The requirements for obtaining NTTCs are set out in

NMSA 1978, § 7-9-43, which provides, in pertinent part:

All nontaxable transaction certificates...should be in the possession of the
seller or lessor for nontaxable transactions at the time the return is due for
receipts from the transactions. If the seller or lessor is not in possession of
the required nontaxable transaction certificates within sixty days from the
date that the notice requiring possession of these nontaxable transaction
certificates is given the seller or lessor by the department, deductions
claimed by the seller or lessor that require delivery of these nontaxable
transaction certificates shall be disallowed.

While taxpayers “should” have possession of required NTTCs at the time of the transaction at issue,

the statute gives taxpayers audited by the Department a second chance to obtain these NTTCs.

Taxpayers who rely on this provision must recognize, however, that they run the risk of having their

deductions disallowed if they are unable to meet the 60-day deadline set by the legislature. The

reason why a taxpayer cannot obtain an NTTC is irrelevant. The language of the statute is

mandatory: if a seller is not in possession of required NTTCs within 60 days from the date of the

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Department's notice, "deductions claimed by the seller ... that require delivery of these nontaxable

transaction certificates shall be disallowed." (emphasis added).

In response, the Taxpayer points out that circumstances outside her control prevented her

from obtaining the NTTC required by § 7-9-48. AOA failed to provide the Taxpayer with an

NTTC at the time it purchased her services and failed to respond to the Taxpayer’s requests for a

certificate during the 60-day period allowed by the Department’s audit notice. While this series

of events is unfortunate, the Taxpayer's attempt to shift responsibility for documenting her gross

receipts tax deductions to AOA is inconsistent with New Mexico's self-reporting tax system.

Every person is charged with the reasonable duty to ascertain the possible tax consequences of her

actions. Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App.

1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977). The incidence of the gross receipts tax is

on the seller, and it was the responsibility of the Taxpayer—not AOA—to determine whether she

had the documentation needed to support her deductions. The Taxpayer's failure to obtain an

NTTC within the 60-day period provided in § 7-9-43 leaves the Department no choice but to

disallow her deductions.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely, written protest to the assessments issued under Letter

IDs L1854706176 and L0537774592, and jurisdiction lies over the parties and the subject matter of

this protest.

B. The Taxpayer was engaged in the business of providing caregiving services to AOA

during 2001 and was subject to gross receipts tax on the payments she received from AOA.

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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 November 20, 2006.

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