Could a paid family caregiver deduct independent-contractor receipts without an NTTC because the healthcare company said it paid gross receipts tax?

Plain-English summary

A family caregiver could not deduct his independent-contractor receipts without an NTTC, even though the healthcare company told him it had paid gross receipts tax on the services. He had no certificate or proof of payment on his behalf, so the AHO upheld $9,323.92 tax, $1,864.80 penalty, and $971.79 interest.

Anthony Martinez provided care to his grandfather through a healthcare company participating in a federal program. The company treated Martinez as an independent contractor, issued Forms 1099, supplied a training manual, and required regular records and reports.

After Martinez's grandfather changed providers in 2013, Martinez continued the care through the new company. Martinez and the original healthcare company later became involved in litigation, and their relationship became acrimonious.

A mismatch between Martinez's federal business income and his unreported New Mexico gross receipts triggered an audit for 2011 through 2013.

No NTTC meant no deduction

Martinez received a 60-day audit notice with an April 5, 2016 certificate deadline. He asked the healthcare company for help. Its owner said the company had paid all gross receipts tax on the services, but refused to provide proof or issue an NTTC.

Martinez never obtained a certificate. Section 7-9-43 made denial mandatory when a seller lacked the required NTTC at the return due date and still failed to obtain it within the 60-day audit period. The decision emphasized the practical risk of waiting: records disappear, businesses fail, and cooperative relationships can deteriorate.

The healthcare company had the privilege to issue an NTTC but was not required to do so. Without the certificate, Martinez did not establish the deduction.

Alleged payment by the company did not establish relief

Martinez argued that taxing him would be double taxation because the company said it had paid tax on the same services. The AHO found no proof of what the company paid and explained that taxing separate entities on their own transactions was not necessarily prohibited double taxation.

Equitable recoupment also failed. Even assuming a single taxable event, Martinez did not show that tax had been assessed on inconsistent theories or that he and the healthcare company had the strict identity of interest required by the doctrine, such as an indemnity arrangement.

Penalty and interest followed the tax

The AHO found the negligence penalty mandatory because negligence included inadvertence, mistake, and erroneous belief. Interest was also mandatory because the tax had not been paid when due.

Result: protest DENIED. The full assessment remained.

What this means for you

Independent contractors and paid caregivers

Being paid through a healthcare company does not necessarily make the company's tax reporting cover your own receipts. Confirm your contractor status and gross receipts obligations when the work begins.

Subcontractors seeking a resale deduction

Obtain the NTTC during the transaction, while the buyer is cooperative and records are available. A later statement that the buyer paid tax is not a substitute for a timely certificate.

Accountants and tax professionals

For equitable-recoupment claims, collect proof of the actual tax payment, the theory on which each party was taxed, and the legal or contractual identity of interest. A bare allegation of duplicate tax is insufficient.

Common questions

Q: Was Martinez an employee of the healthcare company?
A: No. The decision treated him as an independent contractor, and the company issued Forms 1099.

Q: Did the company have to issue him an NTTC?
A: No. New Mexico law gave buyers the privilege to execute NTTCs but did not require them to do so.

Q: Did Martinez prove the company paid his tax?
A: No. The company refused to provide proof, and the record did not establish a payment on his behalf.

Q: Why was equitable recoupment unavailable?
A: There was no proof of inconsistent tax theories or a strict identity of interest between Martinez and the healthcare company.

Q: What amounts were upheld?
A: $9,323.92 gross receipts tax, $1,864.80 penalty, and $971.79 interest for 2011 through 2013.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-3.5 and 7-9-4 — gross receipts and engaging in business
• NMSA 1978, § 7-9-43 — NTTC requirements and buyer privilege
• NMSA 1978, § 7-1-28(F) — equitable recoupment
• NMSA 1978, §§ 7-1-3 and 7-1-17 — tax definition and assessment presumption
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and negligence penalty
• Regulation 3.1.11.10(C) NMAC — negligence

Cases cited:

• Proficient Food Co. v. New Mexico Taxation and Revenue Department, 1988-NMCA-042 — missing timely NTTC as a valid reason to deny a deduction
• New Mexico Sheriffs and Police Association v. Bureau of Revenue, 85 N.M. 565 (Ct. App. 1973) — separate-party taxation and double-taxation argument
• Teco Investments, Inc. v. Taxation and Revenue Department, 1998-NMCA-055 — equitable-recoupment elements
• City of Carlsbad v. Grace, 1998-NMCA-144 — purpose of equitable recoupment
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory meaning of “shall”

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Anthony Martinez
• Decision PDF: D&O 16-48

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
ANTHONY MARTINEZ, No. 16-48
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L1506998832

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on September 22, 2016 before

Hearing Officer Dee Dee Hoxie. Hearing Officer Chris Romero was also present. The Taxation

and Revenue Department (Department) was represented by Ms. Melinda Wolinsky, Staff Attorney.

Ms. Milagros Bernardo, Auditor, also appeared on behalf of the Department. Mr. Anthony

Martinez (Taxpayer), Mr. Steve Barela, and Mr. Ralph Apodaca appeared for the hearing. The

Taxpayer, Mr. Barela, and Ms. Bernardo testified. The Department’s exhibits “A” and “E” were

admitted. A more detailed description of exhibits submitted at the hearing is included on the

Administrative Exhibit Coversheet. The Hearing Officer took notice of all documents in the

administrative file. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On April 27, 2016, the Department assessed the Taxpayer for gross receipts tax, penalty,

and interest for the tax periods from January 1, 2011 through December 31, 2013. The

assessment was for $9,323.92 tax, $1,864.80 penalty, and $971.79 interest.

2. On May 13, 2016, the Taxpayer filed a formal protest letter.

3. On July 1, 2016, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

4. On July 6, 2016, the Hearings Office issued a notice of hearing.

5. On August 5, 2016, a telephonic scheduling hearing was conducted. The hearing was

held within ninety days of the protest.

6. On August 8, 2016, the Hearings Office issued the scheduling order and notice of

hearing.

7. A healthcare company was providing services to the Taxpayer’s grandfather through a

federal program.

8. The Taxpayer was working as an independent contractor for the healthcare company so

that he could be paid for providing services to his grandfather.

9. The healthcare company issued 1099s to the Taxpayer.

10. The healthcare company provided a training manual and required that certain items be

recorded and reported on a regular basis.

11. The Taxpayer coordinated with his grandfather for working hours and what services

would be provided in general.

12. In 2013, the Taxpayer’s grandfather became dissatisfied with the healthcare company and

switched to another provider. The Taxpayer also ceased to be an independent contractor

with the healthcare company and began working as an independent contractor for the new

provider so that he could continue to help his grandfather.

13. The Taxpayer and the healthcare company became involved in lawsuit at some point after

their split, and there has been animosity between them.

14. The Department audited the Taxpayer when it found the mismatch of business income on

his federal return and no gross receipts reported to New Mexico.

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Letter ID No. L1506998832
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15. The Taxpayer received the audit notice (the 60-day letter), which informed him that he

had 60 days to obtain any nontaxable transaction certificates (NTTC). The deadline for

obtaining the NTTCs was April 5, 2016.

16. The Taxpayer contacted the healthcare company. The owner of the company told him

that the company paid all of the gross receipts on the services that he provided to his

grandfather. However, the company refused to provide any proof of tax payments and

refused to issue a NTTC to the Taxpayer.

17. The Taxpayer is still not in possession of any NTTCs.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for the assessment. The

Taxpayer argued that the services were provided by the healthcare company and that they owed

the tax. The Taxpayer argued that the healthcare company paid the tax on those services. The

Taxpayer argued that the healthcare company helped other independent contractors who were

audited, but refused to help him because of their acrimonious relationship since his grandfather

stopped using their services. The Taxpayer argued that he should not be penalized because the

healthcare company refused to help him and refused to issue NTTCs to him. The Taxpayer

argued that requiring him to pay gross receipts taxes was double taxation.

The Department argued that the Taxpayer was engaged in business by providing services

as an independent contractor for the healthcare company. The Department argued that the

Taxpayer’s receipts were taxable. The Department argued that the healthcare company is not

required to issue NTTCs to its independent contractors. The Department argued that there was

no evidence that the healthcare company paid the gross receipts taxes for the Taxpayer. The

Department agreed that the Taxpayer would have been able to deduct his sale of services as a

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Letter ID No. L1506998832
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subcontractor for the healthcare company if he had a properly executed and timely NTTC;

however, since the Taxpayer did not have a NTTC, he could not take the deduction. The

Department argued that it is not double taxation to tax the Taxpayer on his receipts for the

services that he rendered.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-

070, 108 N.M. 795. Therefore, the assessment issued to the Taxpayer is presumed to be correct,

and it is the Taxpayer’s burden to present evidence and legal argument to show that he is entitled

to an abatement.

The burden is on the Taxpayer to prove that he is entitled to an exemption or deduction.

See Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶ 32, 141 N.M.

520. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. “Where 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.” Sec. Escrow Corp. v. State Taxation

and Revenue Dep’t., 1988-NMCA-068, ¶ 8, 107 N.M. 540. See also Wing Pawn Shop v.

Taxation and Revenue Dep’t., 1991-NMCA-024, ¶ 16, 111 N.M. 735. See also Chavez v.

Commissioner of Revenue, 1970-NMCA-116, ¶ 7, 82 N.M. 97.

Gross Receipts Tax.

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Letter ID No. L1506998832
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Anyone engaging in business in New Mexico is subject to the gross receipts tax. See

NMSA 1978, § 7-9-4. Gross receipts tax applies to the total amount of money received from

selling property or services. See NMSA 1978, § 7-9-3.5. It was undisputed that the Taxpayer

was providing services to his grandfather as an independent contractor for the healthcare

company. Therefore, the Taxpayer was subject to the gross receipts tax.

NTTCs.

A taxpayer engaged in business may be able to deduct certain gross receipts when they

are provided with NTTCs from buyers. See NMSA 1978, § 7-9-43 (2011). A taxpayer should

be in possession of NTTCs when the taxes from the transaction are due, but may also produce

NTTCs within a 60-day deadline set by the Department. See NMSA 1978, § 7-9-43.

The Taxpayer admitted that he received the 60-day letter, which had a deadline of April

5, 2016. The Taxpayer is still not in possession of any NTTCs. When the transaction takes

place, the parties should have ready access to all documentation and have an interest in

cooperation, which makes that the ideal time to obtain a NTTC. See id. Usually, 60-day letters

are issued months or years after the transactions occur. With time, items can be lost, businesses

can fail, paperwork can be destroyed, relationships can become acrimonious, and the motivation

for cooperation can evaporate. By failing to obtain a NTTC at the time of the transaction, the

Taxpayer subjected himself to the numerous risks that years later he would not be able to obtain

a NTTC from the healthcare company, which is precisely what occurred. When a taxpayer “is

not in possession of the required [NTTCs] within sixty days from the date that the notice…is

given…, deductions claimed by the seller or lessor that require delivery of these nontaxable

transaction certificates shall be disallowed”. NMSA 1978, § 7-9-43 (A) (emphasis added). The

Anthony Martinez
Letter ID No. L1506998832
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word “shall” indicates that the denial of the deduction is mandatory, not discretionary. See

Marbob Energy Corp. v. N.M. Oil Conservation Comm’n, 2009-NMSC-013, ¶ 22, 146 N.M. 24.

A right to a deduction must be established by the taxpayer claiming the deduction, and

the failure of the taxpayer to possess a NTTC in the right form and within the time prescribed by

the Department is a valid reason to deny the deduction. See Proficient Food Co. v. N.M.

Taxation and Revenue Dep’t., 1988-NMCA-042, ¶ 22, 107 N.M. 392 (holding that the

Department had properly denied the deduction when the taxpayer had not received the proper

form from the buyer within the time limit). Buyers have the privilege of executing NTTCs to

sellers, but they are not required to do so. See NMSA 1978, § 7-9-43 (D). Even if the healthcare

company paid gross receipts taxes on the services it provided to the Taxpayer’s grandfather, it is

not considered double taxation when two separate entities are taxed on their own transactions,

and double taxation is not necessarily prohibited. See N.M. Sheriffs and Police Ass’n. v. Bureau

of Revenue, 85 N.M. 565, 567, 514 P.2d 616 (Ct. App. 1973).

Equitable recoupment.

An assessment may be abated when another person paid the amount of the tax “on behalf

of the taxpayer on the same transaction; provided that the requirements of equitable recoupment

are met.” NMSA 1978, § 7-1-28 (F) (2013). Generally, equitable recoupment allows a party to

use a claim or defense that would otherwise be barred by a statute of limitations when the claim

arises from the same transaction. See City of Carlsbad v. Grace, 1998-NMCA-144, ¶ 16, 126

N.M. 95. The purpose of the doctrine of equitable recoupment is to prevent the unjust

enrichment of one party due to another’s mistake and to bypass harsh applications of a

procedural bar on limitations periods. See id. at ¶ 20-21.

Anthony Martinez
Letter ID No. L1506998832
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In tax transactions, there are three elements that must be met for equitable recoupment to

apply. See Teco Investments, Inc. v. Taxation and Revenue Dep’t., 1998-NMCA-055, ¶ 8, 125

N.M. 103. There must be 1) a single taxable event, 2) taxes assessed on that single event on

inconsistent theories, and 3) a strict identity of interest. See id. Separate parties may still have a

strict identity of interest. See id. at ¶ 10-11. In this case, there was a single taxable event: the

provision of services to the Taxpayer’s grandfather. However, there is no evidence that the taxes

allegedly paid by the healthcare company were anything other than gross receipts taxes, and the

Taxpayer was assessed for gross receipts taxes. Therefore, there was not tax assessed on that

single event on inconsistent theories. Moreover, there was no evidence, such as an agreement to

indemnify, that there was a strict identity of interest between the Taxpayer and the healthcare

company. Therefore, the elements of equitable recoupment have not been met.

Assessment of Penalty.

Penalty “shall be added to the amount assessed” when a tax is not paid on time due to

negligence. See NMSA 1978, § 7-1-69 (2007) (emphasis added). Again, the word “shall”

indicates that the assessment of penalty is mandatory, not discretionary. See Marbob Energy

Corp., 2009-NMSC-013, ¶ 22. Negligence includes inadvertence, mistake, and erroneous belief.

See 3.1.11.10 (C) (2001). Therefore, the penalty was properly assessed.

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). See Marbob Energy Corp, 2009-NMSC-013, ¶ 22. The

assessment of interest is not designed to punish taxpayers, but to compensate the state for the

time value of unpaid revenues. Because the tax was not paid when it was due, interest was

properly assessed.

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Letter ID No. L1506998832
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CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Assessment issued under Letter ID

number L1506998832, and jurisdiction lies over the parties and the subject matter of this protest.

B. The Taxpayer was engaged in business as an independent contractor and was

providing services. The Taxpayer was subject to the gross receipts tax. See NMSA 1978, § 7-9-3.5

and § 7-9-4.

C. The Taxpayer was not in possession of a timely, properly executed NTTC; therefore,

the Taxpayer was not entitled to take a deduction. See NMSA 1978, § 7-9-43.

D. The Taxpayer did not prove that the healthcare company paid gross receipts taxes on

his behalf and failed to prove the elements of equitable recoupment. See NMSA 1978, § 7-1-28.

See also Teco Investments, Inc. v. Taxation and Revenue Dep’t., 1998-NMCA-055, ¶ 8, 125

N.M. 103.

E. The Taxpayer failed to prove that he was not negligent; therefore, penalty was

properly assessed. See NMSA 1978, § 7-1-69.

F. The tax was not paid when it was due, so interest was properly assessed. See NMSA

1978, § 7-1-67.

G. The Taxpayer failed to overcome the presumption of correctness. See NMSA 1978,

§ 7-1-17.

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

DATED: September 30, 2016.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Anthony Martinez
Letter ID No. L1506998832
page 8 of 9
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

Anthony Martinez
Letter ID No. L1506998832
page 9 of 9