Was a restaurant group's chief accounting officer personally liable for subsidiaries' unpaid withholding tax because he controlled payroll payments?
Apply this to your situation
This page answers the general question as of 2010. Ezel answers yours, under current New Mexico tax law, with citations.
Plain-English summary
Bryan Templeton was personally liable for unpaid withholding tax of two Johnny Carino's restaurant entities because he controlled the bank account and signatures used to pay their employees. As chief accounting officer of the management company, he fit New Mexico's statutory definition of an employer with “control of the payment of wages.”
The published source contains a period inconsistency. Findings 58 and 59 identify assessment periods of May through July 2005 for the Las Cruces entity and June 2005 through October 2006 for the Albuquerque/Los Lunas entity. The final conclusion instead refers to “applicable periods in 2004 and 2005.” This summary reports the detailed findings and preserves the conflicting conclusion in the original text. The decision does not publish the assessment dollar amounts.
One management company controlled the restaurant entities' money
Sandia Food Group developed Johnny Carino's franchises and later restructured into SFG, LP, with related entities. Templeton served as chief accounting officer of SFG, LP.
Two leasehold entities were created for New Mexico restaurants:
- SFG-ABQ for Albuquerque and Los Lunas.
- SFG-LASC for Las Cruces.
Neither entity maintained its own operating bank accounts. Their revenue went to SFG, LP, and SFG, LP paid all obligations—including employee wages and withholding tax—from its accounts.
Templeton signed payroll and tax documents
Templeton's involvement went well beyond a job title:
- His electronic signature appeared on every paycheck issued to employees of both entities.
- All 39 withholding-tax payment checks for SFG-ABQ during the identified period were signed only by him.
- He signed 19 of 20 withholding-tax payment checks for SFG-LASC.
- He signed CRS returns, amended returns, pass-through returns, and a corporate income and franchise tax return.
- He applied for the New Mexico CRS numbers for both entities.
- Employees referred tax filing and payment decisions to him.
Templeton acknowledged that employees would not have been paid without his or founder Mark Day's signature.
Control of wage payment did not require control over every business decision
New Mexico's statute defined an employer to include an officer, agent, or employee having control of wage payment. The statute and Department regulations did not separately define that phrase.
The hearing officer looked to federal cases interpreting the same language. Those cases placed withholding responsibility at the point of control: the person or entity actually making payment or controlling the bank account from which wages were paid.
That test did not require authority to hire, fire, set wages, assign duties, or evaluate employees. Templeton's access to SFG, LP's accounts and his paycheck signatures were enough.
His connection to the subsidiaries was independently established
Templeton argued that he was not an officer, agent, or employee of the two leasehold entities and that Mark Day truly controlled the business.
The decision rejected both points. Templeton was listed as a director of SFG-ABQ and repeatedly signed as taxpayer, agent, or CAO for each entity. Even apart from those direct connections, he was CAO of SFG, LP—the entity that managed all subsidiary finances and actually paid the wages.
Day may also have exercised control, but multiple people could be at the point of control. Day's possible authority did not remove Templeton's own authority.
The decision also emphasized Templeton's business and finance education, 15 years of accounting and finance work at Mobil Oil, annual compensation of $100,000 to $125,000, personal investment of at least $50,000, lease guarantees, and ownership interests. It rejected the characterization that he was merely a naïve employee caught in another person's decisions.
Withholding liability and the 10% penalty remained
The Withholding Tax Act made the employer or withholder liable for amounts required to be deducted and paid, regardless of whether the amounts had actually been withheld.
Because Templeton controlled wage payment, he was liable for the restaurants' unpaid withholding tax, penalty, and interest. The decision held that the Department correctly used the former 10% penalty cap for the pre-2008 liabilities rather than applying the later 20% maximum retroactively.
Result: protest DENIED. Templeton remained liable for both assessments.
What this means for you
CFOs, controllers, and accounting officers
Personal withholding responsibility can follow actual bank and payroll authority, not just formal ownership or the power to hire and fire. Signing employee checks and controlling the payment account are especially important facts.
Groups using centralized payroll
Separate subsidiaries may not isolate withholding responsibility when a management company pools receipts, pays all obligations, and controls payroll for the group.
Officers sharing authority with a founder or owner
Another person's greater overall control does not necessarily eliminate your own status. The decision treated shared control as sufficient when the officer independently had authority over wage payments.
Common questions
Q: Was Templeton the sole owner of the restaurants?
A: No. Mark Day owned the corporate general partner, but Templeton held management roles, partnership interests, investment exposure, and financial authority.
Q: Did Templeton need authority to hire or fire employees?
A: No. The decision focused on who controlled the account and signatures used to pay wages.
Q: Why were subsidiary debts assessed against him?
A: He was an officer or agent connected to the entities and, through SFG, LP, controlled the payment of their employees' wages.
Q: Could Mark Day also have been responsible?
A: Possibly, but the decision held that another person's control did not negate Templeton's control.
Q: What penalty cap applied?
A: The former 10% cap for the pre-2008 liabilities.
Citations and references
Statutes:
- NMSA 1978, §§ 7-3-3 and 7-3-6 (1999) — employer duty to withhold and pay state income tax
- NMSA 1978, § 7-3-5 (1999) — withholder liability regardless of actual deduction
- NMSA 1978, § 7-3-2(C) and (N) (2002) — employer and withholder definitions
- NMSA 1978, § 7-1-17(C) (2007) — presumption that an assessment is correct
- NMSA 1978, § 7-1-69 (2003 and 2008 versions) — negligence penalty and 10% cap
- 26 U.S.C. § 3401(d) — federal control-of-wage-payment language
Cases cited:
- Otte v. United States, 419 U.S. 43 (1974)
- Southwest Restaurant Systems, Inc. v. IRS, 607 F.2d 1237 (9th Cir. 1979)
- Consolidated Flooring Services v. United States, 38 Fed. Cl. 450 (1997)
- United States v. Total Employment Company, Inc., 305 B.R. 333 (M.D. Fla. 2004)
Source
- Listing: New Mexico Decisions & Orders
- Decision post: Bryan C. Templeton
- Decision PDF: D&O 10-03
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
BRYAN C. TEMPLETON No. 10-03
TO ASSESSMENT OF WITHHOLDING TAX
ISSUED UNDER LETTER ID L1159215872 & L0839744256
DECISION AND ORDER
A formal hearing on the above-referenced protest was held on October 8, 2009, before
Brian VanDenzen, Hearing Officer. The Taxation and Revenue Department (“Department”) was
represented by Tanya Noonan Herring, Special Assistant Attorney General. Bryan C. Templeton
(“Taxpayer”) appeared. Counsel Gary D. Eisenberg appeared representing Taxpayer. Based on
the evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:
FINDINGS OF FACT
-
In 1999, Mark Day founded the Texas C-Corporation Sandia Food Group, Inc.
-
Sandia Food Group, Inc., through Mark Day, possessed the franchise development rights.
-
The primary business of Sandia Food Group, Inc. was to develop and manage a series of
Johnny Carino’s Restaurant franchises.
- In March 2000, Taxpayer left Mobil Oil Company to join Sandia Food Group, Inc. as
Chief Operating Officer.
- At an unspecified time between March 2000 and 2004, Taxpayer was added as the
corporate secretary to Sandia Food Group, Inc.
- Taxpayer did the accounting and paid the bills for Sandia Food Group, Inc.
- Sandia Food Management, Inc., a Texas Corporation, was formed as the management
company for Sandia Food Group, Inc.
- Due to difficulty in obtaining financing and on the advice of an attorney, Sandia Food
Group, Inc. restructured from a C Corporation into a Limited Partnership at an unspecified time
between 2002 and 2004.
- The new corporate limited partnership that resulted from the restructuring was called
SFG, LP.
-
SFG, LP was a limited partnership with a corporate general partner, JCCR, Inc.
-
JCCR, Inc. was solely owned by Mark Day, the original founder of Sandia Food Group,
Inc.
- SFG, LP replaced Sandia Food Management, Inc. and Sandia Food Group, Inc. as the
operating entity for all the restaurants and their respective corporate structures.
-
Taxpayer was the Chief Accounting Officer (“CAO”) of SFG, LP.
-
SFG, LP received all revenues and paid all obligations for all restaurants and separate
corporate entities it managed.
- SFG, LP maintained all bank accounts for all restaurants and separate corporate entities it
managed.
- In order to obtain financing and segregate liabilities for its Albuquerque and Los Lunas
Johnny Carino’s Restaurants, SFG, LP created the leasehold entity SFG, Albuquerque GP 1
(“SFG-ABQ”).
- SFG-ABQ was a limited partnership where SFG-LP was the corporate general partner.
2
- Taxpayer applied for and obtained CRS number 02-966068-00-8 from the State of New
Mexico for SFG-ABQ. [Department S1]
-
Taxpayer is listed as a corporate Director of SFG-ABQ. [Department N]
-
All accounts receivable from SFG-ABQ were sent to SFG, LP, and were deposited into
SFG, LP’s bank account.
- All accounts payable for SFG-ABQ were paid by SFG, LP from SFG, LP’s bank
accounts.
- All employees working at SFG-ABQ d/b/a Johnny Carino’s Restaurant in Albuquerque
and Los Lunas were paid with checks issued from SFG, LP and drawn against SFG, LP’s bank
accounts.
- Taxpayer electronically signed all paychecks for the employees working at SFG-ABQ
d/b/a Johnny Carino’s Restaurant in Albuquerque and Los Lunas.
- The employees of SFG-ABQ only received their pay checks and got paid because either
Mr. Day or Taxpayer signed their paychecks, and would not have gotten paid otherwise.
- All withholding taxes that were paid for SFG-ABQ during the relevant period were paid
for by SFG, LP with checks drawn against SFG, LP’s bank accounts.
- All thirty-nine withholding tax payment checks issued by SFG, LP for SFG-ABQ to the
Department between February 06, 2004 and April 29, 2005 were signed only by Taxpayer.
[Department J]
- Taxpayer filed and signed all four CRS combined filings for SFG-ABQ between February
25, 2006 and July 13, 2006. [Department K]
3
- In 2003, Taxpayer signed SFG-ABQ’s 2002 New Mexico Income and Information Return
for Pass-Through Entities. [Department R]
- In 2004, Taxpayer signed SFG-ABQ’s 2003 New Mexico Income and Information Return
for Pass-Through Entities. [Department Q]
- On December 29, 2004, Taxpayer signed SFG-ABQ’s 2003 New Mexico Corporate
Income and Franchise Tax Return, listing his position as “CAO”. [Department O]
- Between June 30, 2005 and July 31, 2006, Taxpayer was listed and signed as the
“Taxpayer or Agent” on nine separate monthly CRS Returns for SFG-ABQ, more than any other
person during that time period. [Department F6, F7, F8, F9, F10, F11, F12, F13, F14]
- Although Taxpayer was not listed as the “Taxpayer or Agent” for SFG-ABQ’s monthly
CRS reporting period ending August 31, 2005, Taxpayer did obtain and sign two personal money
orders totaling $1200 for payment of taxes to the Department. [Department F3]
- On January 20, 2006, Taxpayer filed and signed ten amended CRS returns for SFG-ABQ
for monthly periods beginning in March and continuing through December of 2005, listing
himself as “Taxpayer or Agent” with the title “CAO”.
- In order to obtain financing and segregate liabilities for its Las Cruces Johnny Carino’s
Restaurant, SFG, LP created the leasehold entity SFG, Las Cruces GP 1 (“SFG-LASC”).
-
SFG-LASC was a limited partnership where SFG-LP was the corporate general partner.
-
Taxpayer applied for and obtained CRS number 02-948221-00-6 from the State of New
Mexico for SFG-LASC. [Department S1]
- SFG-LASC did not have or maintain its own bank accounts
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- All accounts receivable from SFG-LASC were sent to SFG, LP, and were deposited into
SFG, LP’s bank account.
- All accounts payable for SFG-LASC were paid by SFG, LP from SFG, LP’s bank
accounts.
- All employees working at SFG-LASC dba Johnny Carino’s Restaurant in Las Cruces
were paid with checks issued from SFG, LP and drawn against SFG, LP’s bank accounts.
- Taxpayer electronically signed all paychecks for the employees working at SFG-LASC
d/b/a Johnny Carino’s Restaurant in Las Cruces.
- The employees of SFG-LASC only received their pay checks and got paid because either
Mr. Day or Taxpayer signed their paychecks, and would not have gotten paid otherwise.
- All withholding taxes that were paid for SFG-LASC during the relevant period were paid
for by SFG, LP with checks drawn against SFG, LP’s bank accounts.
- Of the twenty withholding tax payment checks issued by SFG, LP for SFG-LASC to the
Department between March 19, 2004 and May 15, 2006, nineteen were signed by Taxpayer.
[Department I].
- Taxpayer filed and signed all seven CRS combined filings for SFG-LASC between
February 25, 2006 and July 13, 2006. [Department K]
- Between May 31, 2005 and July 31, 2006, Taxpayer was listed and signed as the
“Taxpayer or Agent” on at least five separate monthly CRS Returns for SFG-LASC, more than
any other person during that time period. [Department E1, E7, E8, E14, E15]
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- Although Taxpayer was not listed as the “Taxpayer or Agent” for SFG-LASC’s monthly
CRS reporting period ending August 31, 2005, Taxpayer obtained and signed two personal
money orders totaling $1200 for payment of taxes to the Department. [Department E4]
- On January 20, 2006, Taxpayer filed and signed ten amended CRS returns for SFG-
LASC for monthly periods beginning in March and continuing through December of 2005,
listing himself as “Taxpayer or Agent” with the title “CAO”.
- Taxpayer has a bachelor’s degree in business from Baylor University, a Master in
Business Administration from North Texas University, and worked in accounting and financing
positions at Mobile Oil for 15-years.
- Taxpayer received annual compensation for his management work for SFG, LP in the
amount of $100,000-$125,000 per year during the relevant period of time, more than most other
employees associated with the business.
-
Taxpayer personally guaranteed lease obligations of the SFG, LP. [Department T]
-
Taxpayer personally provided SFG, LP with at least $50,000 for franchise development
rights, which increased the Taxpayer’s interest in SFG, LP.
- Taxpayer was a listed limited partner in at least eight corporate entities under the Sandia
Food Group, Inc. umbrella.
-
Mr. Day died on July 19, 2006.
-
SFG, LP and SFG, Inc. filed for bankruptcy in late July, 2006.
-
In the bankruptcy petition filed for SFG, Inc., Taxpayer listed himself as “President” of
SFG, Inc.
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- SFG, LP and SFG, Inc. were unsuccessful in their attempt to reorganize in bankruptcy,
and consequently, were unable to continue operation of any of the Johnny Carino’s Restaurants.
- On January 11, 2007, the Department assessed Taxpayer for SFG-LASC’s unpaid
withholding tax, penalty, and interest for filing periods May 31, 2005 through July 31, 2005.
[Department A]
- On February 1, 2007, the Department assessed Taxpayer for SFG-ABQ’s unpaid
withholding tax, penalty, and interest for filing periods of June 30, 2005 through October 31,
2006.
- Taxpayer timely filed written notice of protest to both of the assessments issued in this
matter.
DISCUSSION
Taxpayer challenges the assessment of withholding tax, penalty and interest against him as
a result of the unpaid withholding tax obligations of SFG-ABQ and SFG-LASC. Taxpayer argues
that he was not a corporate officer, agent, or employee of either SFG-ABQ or SFG-LASC, the
entities subject to the Department’s assessments. Taxpayer further argues that even if he was a
corporate officer, agent or employee of those entities, Taxpayer was not in “control of the payment
of wages” for either SFG-ABQ or SFG-LASC. According to Taxpayer, only Mr. Mark Day was
truly in control of everything associated with SFG, Inc., SFG-LP, and all their associated subsidiary
entities.
7
I. Presumption of Correctness and Burden of Proof.
Under NMSA 1978, §7-1-17(C) (2007), both assessments issued in this case are
presumed to be correct. Consequently, the Taxpayer has the burden to overcome the assessment
of Withholding Tax, Penalty, and Interest for SFG-ABQ and SFG-LASC.
II. Withholding Tax Act.
New Mexico’s Withholding Tax Act (NMSA 1978, §7-3-1, et seq.) requires “every
employer” who deducts and withholds federal income tax from an employee’s wages to also deduct
and withhold state income tax and pay that amount over to the state. See NMSA 1978, §§ 7-3-3
and 7-3-6 (1999). Under the Withholding Tax Act, “every withholder or pass-through entity shall
be liable for amounts required to be deducted and withheld… regardless of whether the amounts
were in fact deducted and withheld.” NMSA 1978, §7-3-5 (1999). NMSA 1978 §7-3-2(N)
(2002) defines a withholder as “a payor, an employer or any person required to deduct and
withhold.” The term “employer” under NMSA 1978, §7-3-2(C) (2002)
means a person, or an officer, agent or employee of that person, having
control of the payment of wages, doing business in or deriving income from
sources within the state for whom an individual performs or performed any
service as the employee of that person, except that if the person for whom
the individual performs or performed the services does not have control over
the payment of the wages for such services, "employer" means the person
having control of the payment of wages.
III. Meaning of “Control of the Payment of Wages”.
The New Mexico Withholding Tax Act does not provide a definition or test for what is
meant by the term “control of the payment of wages”. The Department has not promulgated any
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regulatory definition or test for the term “control of the payment of wages.” Neither party cited
to any New Mexico case law that discusses or defines “control of the payment of wages.”
Without a clear statutory or regulatory definition or test for the term “control of the
payment of wages”, the plain meaning of the language employed by the statute controls. See
Dona Ana Sav. & Loan Ass'n v. Dofflemeyer, 115 N.M. 590, 592, 855 P.2d 1054, 1056,
1993 N.M. LEXIS 184 (N.M. 1993). Webster’s Dictionary defines control as “an act or instance
of controlling; also: power or authority to guide or manage”. See MERRIAM WEBSTER’S
COLLEGIATE DICTIONARY (10th ed. 1994). However, to the extent that this definition of
control suggests managerial functions are necessary for control, this definition appears too broad
in light of federal case law addressing the term “control of the payment of wages.”
In the Federal realm, there are numerous sources that reference the term “control of the
payment of wages.” Internal Revenue Service (“IRS”) Code 26 U.S.C. §3401 deals with the
Federal withholding tax requirements. Similarly to the New Mexico Withholding Tax Act, under
the IRS Code an “employer” is defined as either the “person for whom an individual performs or
performed any service”, or if that person for whom the service was performed lacks control over
the payment of wages, then the employer is the person having “control of the payment of such
wages” for services rendered. 26 U.S.C. §3401(d).
Taxpayer argues that 26 U.S.C. §3491(d) is distinguishable from the New Mexico
Withholding Tax Act because the IRS Code deals with determining the “control of payment of
wages” when there are multiple potential employer groups versus when there is only one
employer group. While it is true that the IRS Code may encompass a broader definition of what
constitutes an “employer”, the IRS Code uses the exact same language—“control of the payment
9
of wages”—as the New Mexico Withholding Act to describe the touchstone factor of
determining the “employer” for purposes of withholding taxes. Consequently, any discussion
related to the federal “control of the payment of wages” standard is applicable to analyzing the
exact same language under the New Mexico Withholding Tax Act.
The United States Supreme Court considered “control of the payment of wages” in Otte v.
United States, 419 U.S. 43 (1974). In that case, a bankruptcy trustee claimed not to be the
“employer” required to withhold tax under IRS Code 26 U.S.C. §3402. Looking to the employer
definition under 26 U.S.C. §3401, the Supreme Court found that the use of control of payment of
wages was “obviously intended to place responsibility for withholding at the point of control.”
id. at 50. Despite the trustee’s argument, the Supreme Court did not find it necessary to
determine whether the bankruptcy trustee, the bankruptcy referee, or the bankrupt estate had
specific control, only that one among them was at the point of control of payment of wages, and
thus was an “employer” for the purposes of 26 U.S.C. §3401 (d)(1).
Southwest Restaurant Systems, Inc. v. IRS, 607 F.2d 1237 (9th Cir. 1979) also addressed
“control of the payment of wages” under the IRS Code. Of particular relevance, Southwest
Restaurant dealt with four separate corporations operating four restaurants in Phoenix, Arizona.
The four separate corporations were owned primarily by the same two people who acted as the
president and the treasurer in each of the respective corporations. The four corporations relied
upon a certified public account to manage all their accounts. Wages for all four separate
accounts were paid from one common bank account shared by the four corporations. The
certified public accountant had signature authority over all the bank accounts of the four
corporations, including the common account used to pay the wages of the employee’s of the four
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separate corporations. The pay checks were all electronically signed by the certified public
account. The Ninth Circuit found that it was not relevant that the certified public accountant
lacked control over hiring, firing, determining rate of pay, assigning job duties, or evaluating
employee performances. See id. at 1239. The Ninth Circuit held in Southwest Restaurant that it
was enough that the certified public account had control of the payment of wages for the four
separate corporations even if she lacked other indicia of control over managerial decisions. See
id. at 1240.
Building further upon Southwest Restaurant, the United States Court of Federal Claims
held in Consolidated Flooring Services v. U.S., 38 Fed. Cl. 450, 458-459 (1997) that regardless
of lack of control over other managerial decisions like hiring, firing, and determining wages, the
person with control of the account from which wages are paid is the person in control of the
payment of wages under IRS Code 26 U.S.C. §3401 (d)(1). Summarizing Otte, Southwest
Restaurant, and Consolidated Flooring Services, the District Court in U.S. v. Total Employment
Company, Inc., 305 B.R. 333, 339 (M.D. Fl. 2004) found that the person in control of the
payment of wages is “the person or entity actually making payment or having control of the bank
account from which payment is made.”
The analysis of Total Employment Company of “control of the payment of wages” is
compelling to the analysis in New Mexico: the person with control of the payment of wages, and
thus the employer under NMSA 1978, §7-3-2(C) (2002), is the person or entity actually making
payment or having control of the bank account from which payment of wages is made.
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IV. Taxpayer was an officer, agent, employer, or employee for SFG-ABQ and SFG-LASC.
Taxpayer first argues that the Department failed to establish that he was an officer, agent,
employer, or employee for the person that was the employer, of either SFG-ABQ or SFG-LASC.
Without this connection between the Taxpayer and the two assessed entities at issue in this
matter, Taxpayer further asserts that he cannot be held liable for unpaid withholding tax, penalty,
and interest under the New Mexico Withholding Tax Act. Taxpayer’s argument is not
persuasive.
The evidence does not support Taxpayer’s claim that he was not an officer, agent, or
employer, or employee of SFG-ABQ and SFG-LASC. The evidence establishes by the
preponderance that Taxpayer was an officer, agent and/or an employee of the person that was the
employer for SFG-ABQ. Taxpayer is listed as a corporate Director of SFG-ABQ, making him an
officer in that entity. Taxpayer also applied for and obtained CRS number 02-966068-00-8 from
the State of New Mexico for SFG-ABQ, the type of activity usually done by either a corporate
officer or an agent of the corporation. Additionally, numerous other findings of fact support the
conclusion that Taxpayer was an officer and agent for SFG-ABQ: All thirty-nine withholding
tax payment checks issued for SFG-ABQ to the Department between February 06, 2004 and
April 29, 2005 were signed by Taxpayer, a sign that Taxpayer was acting as agent; Taxpayer filed
and signed all four CRS combined filings for SFG-ABQ between February 25, 2006 and July 13,
2006; In 2003 and 2004, Taxpayer signed SFG-ABQ’s New Mexico Income and Information
Return for Pass-Through Entities; Taxpayer signed SFG-ABQ’s 2003 New Mexico Corporate
Income and Franchise Tax Return, listing his position as “CAO”; Between June 30, 2005 and
12
July 31, 2006, Taxpayer was listed and signed as the “Taxpayer or Agent” on nine separate
monthly CRS Returns for SFG-ABQ, more than any other person during that time period.
The evidence also establishes by the preponderance that Taxpayer was an officer, agent
and/or an employee of the person that was the employer of SFG-LASC. Again, on behalf of
SFG-LASC, Taxpayer applied for and obtained CRS number 02-948221-00-6 from the State of
New Mexico for SFG-LASC, an action consistent with being an agent for SFG-LASC. More
evidence also supports that Taxpayer was an officer, agent, employer, or employee of SFG-
LASC: Taxpayer signed nineteen of the twenty withholding tax payments for SFG-LASC to the
Department between March 19, 2004 and May 15, 2006; Taxpayer filed and signed all seven
CRS combined filings for SFG-LASC between February 25, 2006 and July 13, 2006; Between
May 31, 2005 and July 31, 2006, Taxpayer was listed and signed as the “Taxpayer or Agent” on
at least five separate monthly CRS Returns for SFG-LASC, more than any other person during
that time period; Taxpayer listed himself as “Taxpayer or Agent” with the title “CAO” on ten
amended CRS returns for SFG-LASC for monthly reporting periods beginning in March and
continuing through December of 2005.
Taxpayer introduced a Stipulated Protective Order of Honorable Judge Clay Campbell of
the Second Judicial District Court. That Stipulated Protective Order finds that Taxpayer was not
an officer/agent of SFG-ABQ and SFG-LASC for discovery purposes, but this order is not
despositive to this proceeding. That Stipulated Order is not a factual finding made by the court
as part of its final decision. Rather it is a procedural discovery order reached by the stipulation
between the parties without any evidence that the court conducted a hearing and took evidence
on the merits of the order. In light of the other evidence presented in this matter that establishes
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that Taxpayer was an officer, agent, or employee, a stipulated protective discovery order does not
alter the factual finding in this proceeding that Taxpayer was an officer, agent, or employee of
SFG-ABQ and SFG-LASC.
The second reason why Taxpayer’s argument fails to persuade is because whether or not
Taxpayer was an agent, officer, employer, or employee of SFG-ABQ and SFG-LASC, the
evidence is clear that Taxpayer was the Chief Accounting Officer for SFG, LP, the company that
totally controlled and managed all aspects of the entities SFG-ABQ and SFG-LASC. As
Taxpayer testified, SFG-ABQ and SFG-LASC were merely subsidiary leasehold entities of SFG,
LP. Neither SFG-ABQ nor SFG-LASC maintained their own bank accounts or finances. All
receipts and income from SFG-ABQ and SFG-LASC was deposited directly into SFG, LP’s bank
accounts. All bills and obligations of SFG-ABQ and SFG-LASC were paid out of SFG, LP’s
bank accounts. Just like in Southwest Restaurant, where control over the payment of wages was
found against a person who did not work for the respective separate entities but nevertheless
electronically signed the paychecks drawn against a collective bank account shared by the
separate entities, the employees of SFG-ABQ and SFG-LASC were paid with checks
electronically signed by the Taxpayer and drawn against SFG, LP’s bank accounts. SFG, LP.
was entirely in control of the operations and management of SFG-ABQ and SFG-LASC. In his
capacity as C.A.O. of SFG, LP, Taxpayer directed, managed, and controlled the tax obligations
of SFG-ABQ and SFG-LASC regardless of whether he was named employer, or the employee of
the person who was the employer, of those two subsidiary leasehold entities.
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V. Taxpayer was in “control of the payment of wages” for SFG-ABQ and SFG-LASC.
Taxpayer next argues that even if he had a connection to SFG-ABQ and SFG-LASC, he
was not the person in “control of the payment of wages,” as only Mr. Day was truly in control.
Taxpayer’s argument again fails to persuade. While Mr. Day certainly may have been in control
of decisions like hiring, firing, setting wages, determining job obligations, and making strategic
decision, the evidence overwhelmingly establishes that Taxpayer was a person having control of
the bank account from which payment of wages for SFG-ABQ and SFG-LASC were made.
Again, looking towards the federal definition of the person “control of the payment of
wages”, that person is the person or entity actually making payment or having control of the bank
account from which payment of wages is made. In this case, SFG, LP was the entity that actually
made the payment of wages for the SFG-ABQ and SFG-LASC. As CAO of SFG, LP, the
Taxpayer had access and signing privileges over SFG, LP.’s bank accounts. Neither SFG-ABQ
nor SFG-LASC even had their own bank accounts from which they could have paid their
employees. Just like in Southwest Restaurant, all paychecks for the employees of SFG-ABQ and
SFG-LASC were drawn against SFG, LP’s bank accounts. Just like in Southwest Restaurant,
Taxpayer’s electronic signature was on every paycheck issued to the employees of SFG-ABQ
and SFG-LASC. Compellingly, Taxpayer acknowledged that but for his or Mr. Day’s signature
on the paychecks, the employees of SFG-ABQ and SFG-LASC would not have gotten paid. That
testimony is nearly the very essence of “control of payment of wages”: an act or omission by the
Taxpayer or Mark Day determined whether the employees of SFG-ABQ and SFG-LASC were
paid.
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Moreover, Taxpayer was the person who had the control and authority to make decisions
related to the payment of taxes. For both SFG-ABQ and SFG-LASC, Taxpayer was listed and
signed as the “Taxpayer or Agent” on most of CRS tax returns, signed the checks for most of tax
payments, and amended many of the tax filings. Other employees at SFG, LP referred Ms.
Rosina Romero, Senior Revenue Agent for the Department, specifically to the Taxpayer anytime
a decision needed to be made about the filing, late filing, or non-payment of taxes for any of the
associated entities. The evidence clearly demonstrates that the authority and responsibility for
payment of taxes for all the relevant entities was part of the Taxpayer’s duties as C.A.O. for SFG,
LP.
Taxpayer argues that Mr. Day made poor decisions, that the Taxpayer was naïve in trying
to correct Mr. Day’s errors, and that the Department is merely pursuing Taxpayer in this case
because Mr. Day is now deceased. However, Taxpayer is not a naïve and uneducated individual
that Mr. Day exploited. Taxpayer has both an undergraduate degree in business and a Master’s
in Business Administration. Taxpayer also had many years of experience working in financing
and accounting at Mobil Oil Company before agreeing to join in Mr. Day’s ventures. Nor is
Taxpayer just a simple employee paying the costs for ownership’s mismanagement of the
business. Taxpayer acknowledged that he was paid more than most in the business for his role as
Chief Accounting Officer. Taxpayer personally invested a great deal of money into the business
that increased his share of partnership in the business, something beyond the expectation for an
ordinary employee. Taxpayer provided personal guarantors in order to obtain loans and secure
financing for the business. Taxpayer was in a position to benefit from any success in the
business, and to influence and make decisions related to the financial operations of the business.
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Taxpayer’s level of education, experience, and personal investment indicate that despite
Taxpayer’s victim narrative, the Taxpayer was a sophisticated and integral part of the ownership
and management of the business.
Finally, Taxpayer argues that because Mr. Day was in most control of the business, the
Department should have assessed Mr. Day’s estate rather than the Taxpayer. The evidence
certainly established that Mr. Day was also in control of the business. But the evidence does not
support that Mr. Day controlled the payment of wages. Unlike Taxpayer, Mr. Day’s signature
was not on the pay checks, was not on the tax forms, was not on the checks for withholding tax
paid to the Department. Regardless of Mr. Day’s over control of the company, the fact remains
that the Taxpayer was in control of the bank account from which the wages were paid, signed the
paychecks electronically, and took direct responsibility for tax issues of SFG-ABQ and SFG-
LASC. Even if Mr. Day shared control of the payment of wages, that does not change the fact
that Taxpayer also controlled the payment of wages. The United States Supreme Court in Otte
did not find it necessary to distinguish between multiple parties with potential the control of the
payment of wages. It is enough that the Taxpayer had control of the payment of wages.
Because Taxpayer had control of the payment of wages for the employees of SFG-ABQ
and SFG-LASC, Taxpayer falls within the definition of “employer” under the New Mexico
Withholding Tax Act, NMSA 1978, §7-3-2 (C) (2002). As an employer, Taxpayer was legally
required to withhold taxes for SFG-ABQ and SFG-LASC’s employees. Consequently, Taxpayer
is liable for SFG-ABQ’s and SFG-LASC’s unpaid withholding tax, penalty, and interest for the
tax years 2005 and 2006.
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VI. Application of Penalty.
The Department properly capped the penalty at 10% in both assessments issued in this
case. At the time the taxes were due but not paid for tax years 2005 and 2006, the applicable
penalty statute capped the maximum penalty at 10%. See NMSA 1978, Section 7-1-69 (2003).
The penalty provision related to the due but unpaid taxes in both assessments had been exhausted at
the 10% cap before the January 1, 2008 effective date of NMSA 1978, Section 7-1-69 (2008).
Without evidence of legislative intent for retroactive application of NMSA 1978, Section 7-1-69
(2008), the due but unpaid taxes in this case for tax years 2005 and 2006 were subject to the 10%
penalty cap pursuant to NMSA 1978, Section 7-1-69 (2003). See Psomas v. Psomas, 99 N.M. 606,
609, 661 P.2d 884, 887 (1982), which stands for the proposition that in the absence of clear intent
by the Legislature to apply a new or amended statute retroactively, a statute operates prospectively;
See also Kewanee Industries, Inc. v. Reese, 114 N.M. 784, 845 P.2d 1238 (1993), where the New
Mexico Supreme Court declined to retroactively apply a modified penalty regulation enacted after
the applicable tax year.
CONCLUSIONS OF LAW
A. Bryan C. Templeton filed a timely, written protest to the assessments of withholding
tax issued under letter numbers L1159215872 & L0839744256, and jurisdiction lies over the
parties and the subject matter of this protest.
B. Bryan C. Templeton was an “employer” for SFG-ABQ and SFG-LASC because as
Chief Accounting Officer with signing authority over the bank accounts from which wages were
paid, he controlled the payment of wages for the employees of SFG-ABQ and SFG-LASC.
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D. Bryan C. Templeton is liable for the unpaid withholding taxes assessed against him
for the applicable periods in 2004 and 2005.
For the foregoing reasons, the Taxpayer’s protest IS DENIED.
DATED: March 18, 2010.
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