Were a medical staffing company's New Mexico receipts excluded as disclosed-agent reimbursements or deductible as health-care services?

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Plain-English summary

Ready Tech-Go's receipts from placing medical professionals at New Mexico health-care facilities were taxable gross receipts, not excluded reimbursements received as a disclosed agent. The staffing company also failed to qualify for the out-of-state-service exemption or health-care deductions, and it did not establish grounds to remove the civil negligence penalty.

Ready Tech-Go recruited medical professionals for temporary assignments, typically lasting 13 weeks. A facility selected a candidate and paid Ready Tech-Go an agreed hourly rate. Ready Tech-Go then agreed on a lower hourly wage with the professional, paid the worker weekly, billed the facility every seven to eight weeks, and kept the difference.

The facilities controlled schedules, orientation, daily supervision, and whether an assigned professional could continue working. But Ready Tech-Go treated the professionals as its employees, paid unemployment and workers' compensation coverage, and accepted responsibility for payroll taxes and benefits.

The Department originally assessed $368,428.10 for periods from March 2004 through March 2011. By the hearing, the Department's exhibit stated that the outstanding amount was:

• $279,494.80 gross receipts tax;
• $55,635.47 penalty; and
• $84,114.83 interest.

Total: $419,245.10.

Ready Tech-Go was not a disclosed agent

New Mexico excluded amounts received solely for another person in a disclosed agency capacity. Under the controlling MPC, Ltd. standard, the staffing company needed authority to bind the facility to an obligation enforceable by the employee and had to disclose that relationship and enforcement right to the employee.

Ready Tech-Go's contracts pointed the other way:

• they called Ready Tech-Go an independent contractor;
• several expressly said the supplied professionals were Ready Tech-Go's employees and not the facility's employees, subcontractors, or agents;
• the facilities could not hire the workers during the contract term without paying a penalty; and
• Ready Tech-Go remained responsible for wages, taxes, benefits, unemployment coverage, and workers' compensation.

Time cards signed by the employee and facility authorized Ready Tech-Go to bill the facility and warned that failure to comply could expose the facility to a penalty. The AHO read that language as governing liability between the facility and Ready Tech-Go, not as giving an employee the right to collect wages from the facility.

A survey of 19 former New Mexico workers did not establish disclosure. Only eight said they believed Ready Tech-Go was the facility's agent; the rest answered no, were uncertain, did not respond, or gave an indeterminate answer. More importantly, the survey did not show that employees had been told they could enforce a wage obligation against the facility.

Ready Tech-Go also billed a single rate. It did not separately state wage reimbursements on invoices or identify them as reimbursements in the manner required by Regulation 3.2.1.19(C).

The work was performed in New Mexico

Ready Tech-Go argued that amounts above the claimed wage reimbursements were for administrative services performed from its Nebraska office.

The AHO disagreed. The receipts arose from employees working at New Mexico health-care facilities. Under the place-of-performance regulation and similar staffing cases, the services were performed in New Mexico and did not qualify as services performed outside the state.

Health-care deductions did not cover staffing services

Sections 7-9-77.1 and 7-9-93 addressed specified payments for medical or health services provided by health-care practitioners and related providers.

Ready Tech-Go supplied staff; it did not itself provide medical services to Medicare beneficiaries. The facilities and practitioners delivered the health care. The company also did not trace receipts to qualifying managed health-care providers or insurers. It therefore failed to prove either deduction.

No informed mistake of law supported penalty relief

Ready Tech-Go presented no evidence of formal consultation or study before deciding that it owed no New Mexico gross receipts tax. The disclosed-agency statute and the closely analogous MPC, Ltd. staffing decision predated the audit periods.

Without informed advice or another indicator of non-negligence, the failure to report and pay tax met the civil-negligence standard. Interest continued until the principal was paid.

Result: protest DENIED. Ready Tech-Go was ordered to pay the remaining $419,245.10 in tax, penalty, and interest as of the hearing date.

What this means for you

Staffing companies

Client control over daily work does not by itself create the disclosed agency needed for gross-receipts-tax exclusion. Contracts must establish the agency, the client must be bound to the worker, and the worker must be told about the enforceable obligation.

Businesses claiming reimbursement treatment

Separately state genuine reimbursements on invoices and in the books. A single marked-up hourly rate that includes wages and the staffing company's margin looks like payment for the company's own service.

Remote administrative businesses

An out-of-state office does not make receipts exempt when the employees supplying the contracted service work in New Mexico.

Medical staffing and health-care businesses

Do not assume a deduction available to a practitioner, hospital, hospice, or nursing home automatically extends to the staffing firm that supplies personnel.

Common questions

Q: Who employed and paid the medical professionals?
A: Ready Tech-Go. It paid them weekly and handled payroll-related obligations.

Q: Did facility supervision make Ready Tech-Go an agent?
A: No. Control of daily work was insufficient without authority binding the facility to the worker and disclosure of the worker's enforcement right.

Q: What did the contracts say?
A: They generally described Ready Tech-Go as an independent contractor and the professionals as its employees, while disavowing agency or employment by the facility.

Q: Did the employee survey prove disclosure?
A: No. The responses were mixed and did not show that employees were expressly told they could enforce wage obligations against the facilities.

Q: Why did separate-reimbursement treatment fail?
A: Ready Tech-Go billed one hourly rate and did not separately identify claimed wage reimbursements on its invoices.

Q: Could the staffing company use health-care deductions?
A: No. It provided staffing, while the facilities and professionals provided the qualifying medical services. It also failed to trace receipts to the payors required by the statutes.

Q: Why was penalty upheld?
A: Ready Tech-Go did not show informed consultation or reasonable legal study supporting its decision not to file and pay New Mexico gross receipts tax.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-9-4 and 7-9-5 — gross receipts tax and presumption of taxability
• NMSA 1978, § 7-9-3.5(A)(1) and (A)(3)(f) — gross receipts and disclosed-agency exclusion
• NMSA 1978, § 7-9-13.1(A) — services performed outside New Mexico
• NMSA 1978, §§ 7-9-77.1(A) and 7-9-93(A) — health-care and managed-care deductions
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and civil negligence penalty
• Regulation 3.2.1.19(C)(1) and (2) NMAC — disclosed agency and separately stated reimbursements
• Regulation 3.2.1.18(D)(1) NMAC — place where services are performed
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — negligence and indicators of non-negligence

Cases cited:

• MPC, Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — disclosed-agency requirements for a staffing company
• Bogle Management Co. v. New Mexico Taxation & Revenue Department, No. A-1-CA-35641 — affirmative disclosure and place of staffing services
• Wing Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024 — strict proof of deductions
• C & D Trailer Sales v. Taxation and Revenue Department, 1979-NMCA-151 — no penalty relief without informed consultation

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Ready Tech-Go LLC
• Decision PDF: D&O 18-38

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
READY TECH-GO LLC No. 18-38
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L2136609088

v.

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

On November 21, 2017, Chief Hearing Officer Brian VanDenzen, Esq., conducted a merits

administrative hearing in the matter of the tax protest of Ready Tech-Go LLC (Taxpayer) pursuant

to the Tax Administration Act and the Administrative Hearings Office Act. At the hearing,

Attorneys Justin Sawyer and Timothy Van Valen appeared representing Taxpayer. Taxpayer Vice

President David Guenther appeared as a Taxpayer witness. Staff Attorney Peter Breen appeared,

representing the opposing party in the protest, the Taxation and Revenue Department

(Department). Department protest auditor Tom Dillon, CPA, appeared as a witness for the

Department. Taxpayer Exhibits #1-10 and Department Exhibits A, B, and D (C was not tendered)

were admitted into the record, as described in the detailed exhibit logs included in the record.

The main issue presented in this protest is whether Taxpayer’s receipts from providing

medical staffing services in New Mexico were received by Taxpayer in a disclosed agency

capacity and thus not subject to gross receipts tax. Secondarily, Taxpayer argued that its other

receipts were attributable to out-of-state sales, not subject to tax. Alternatively, Taxpayer argued

that even if its receipts were otherwise subject to gross receipts tax, those receipts may be

deducted under NMSA 1978, Section 7-9-77.1 (2007) or NMSA 1978, Section 7-9-93 (2007).

Finally, Taxpayer argued that even if found liable, it should not owe penalty because it made a
mistake of law in good faith and on reasonable grounds. After making findings of fact and

discussing the arguments and the pertinent legal authority in more detail throughout this decision,

it is clear that that Taxpayer’s receipts were not received in a disclosed agency capacity, not

deductible as an out-of-state service, and not deductible under either Section 7-9-77.1 or 7-9-93.

Therefore, since all of Taxpayer’s receipts were subject to gross receipts tax, Taxpayer’s protest

must be denied.

FINDINGS OF FACT

Jurisdictional and Procedural History 1

1. On September 6, 2012, under letter id. no. L2136609088, the Department assessed

Taxpayer $276,568.24 in gross receipts tax, $55,313.67 in penalty, and $36,546.19 in interest for a

total assessed liability of $368,428.10 for the combined reporting system reporting periods

between March 31, 2004 and March 21, 2011.

2. On September 26, 2012, pursuant to NMSA 1978, Section 7-1-24 (before 2013

amendments), the Department granted Taxpayer a 60-day extension to file a protest, giving

Taxpayer until December 5, 2012 to file a protest.

3. On December 4, 2012, Taxpayer protested the assessment.

4. On December 13, 2012, the Department acknowledged receipt of Taxpayer’s

protest.

1
Most of the procedural history is not germane to resolution of the protest. Nevertheless, given the age of the protest
such history provides important context.

In the Matter of Ready Tech-Go, LLC, page 2 of 33.

5. On March 20, 2015, the Department filed a request for hearing with the Hearings

Bureau 2. This was the first time that the Hearings Bureau knew of this case or had any role to play

in this matter.

6. On March 25, 2015, the Hearings Bureau set this matter for a telephonic scheduling

hearing on April 24, 2015.

7. After conducting the April 24, 2015, scheduling hearing, on April 27, 2015, the

Hearings Bureau issued a Scheduling Order and Notice of Administrative Hearing, setting this

matter for a merits hearing on October 15, 2015.

8. On September 14, 2015, the parties jointly moved to vacate the scheduling order

deadlines and for a continuance of the October 15, 2015 hearing date.

9. On September 18, 2015, the Administrative Hearings Office issued a continuance

order, amended scheduling order and notice of administrative hearing, vacating the October 15,

2015 merits hearing and resetting this matter for hearing on May 17, 2016.

10. On December 17, 2015, the parties filed a joint motion to vacate scheduling order

and for a continuance of the May 17, 2016 merits hearing date because of vacancies in the

Department’s Legal Service Bureau and because of Taxpayer’s attorney’s competing case load.

11. On December 31, 2015, the Administrative Hearings Office issued a second

continuance order, amended scheduling order and notice of administrative hearing, vacating the

May 17, 2016 merits hearing and resetting this matter for hearing on November 7, 2016.

2
On July 1, 2015, pursuant to the Administrative Hearings Office Act, NMSA 1978, Section 7-1B-1 through 9 (2015),
the Hearings Bureau left the Taxation and Revenue Department and became the independent Administrative Hearings
Office (AHO). For events before July 1, 2015, the Hearings Bureau will be used even though this decision is issued
under AHO’s caption. AHO will be used for events after July 1, 2015.

In the Matter of Ready Tech-Go, LLC, page 3 of 33.

12. At request of the parties, on August 8, 2016 certain deadlines under the December

31, 2015, second scheduling order were extended, while the hearing date of November 7, 2016,

remained unchanged.

13. On October 7, 2016, the Department filed a motion to compel discovery.

14. On October 18, 2016, Taxpayer filed its response to the motion to compel

discovery, requesting a two-week extension to provide the discovery and its intent to file a motion

for continuance in light of the recent departure of Taxpayer’s lead counsel on the case from the

representing law firm.

15. On October 19, 2016, the Administrative Hearings Office granted the Department’s

motion to compel, giving Taxpayer until October 31, 2016 to provide the requested discovery.

16. On October 27, 2016, Taxpayer, by and through its temporary counsel, filed an

opposed motion to reset scheduling order and continue pending deadlines in light of the departure

of Taxpayer’s previous lead counsel.

17. On October 28, 2016, the Department filed a response opposed to Taxpayer’s

motion for continuance.

18. On October 30, 2016, Taxpayer filed a reply to the Department’s response in

opposition to the continuance request.

19. On October 31, 2016, Taxpayer filed its motion to withdraw Ms. Chappelle from

representing Taxpayer, substitution in previous lead counsel Timothy Van Valen as counsel of

record, and requesting a continuance.

20. On November 3, 2016, a new Department attorney, Richard Pener, entered his

appearance in this matter.

In the Matter of Ready Tech-Go, LLC, page 4 of 33.

21. On November 4, 2016, the Administrative Hearings Office issued an order

allowing all substitutions of counsels, continuing the matter, and setting a new hearing date on

March 30, 2017.

22. On March 20, 2017, the parties filed a joint motion to continue the hearing because

the Department’s counsel was unable to adequately prepare for hearing in light of his caseload and

because Taxpayer’s attorney had a family medical emergency and a large caseload.

23. On March 29, 2017, the Administrative Hearings Office granted the continuance in

light of the family medical emergency addressed in the joint continuance request.

24. On June 14, 2017, the parties again jointly moved to continue the matter because of

a medical emergency involving Taxpayer’s lead counsel.

25. On June 23, 2017, the Administrative Hearings Office issued a continuance order

in light of the medical emergency circumstance, rescheduling this matter for hearing on November

21, 2017.

26. The merits hearings in this matter in fact finally occurred on November 21, 2017.

27. On December 21, 2017, the Department filed its final, written closing argument in

this matter.

28. On December 22, 2017, Taxpayer filed its final, written closing argument in this

matter, making this matter ripe for a decision at that time. 3

3
Under Kmart Props., Inc. v. Taxation & Revenue Dep't, 2006-NMCA-026, ¶55, 139 N.M. 177, 192 (overturned on
other grounds), delay in issuing decision beyond 30-days does not deprive hearing officer authority to decide a tax
protest case.

In the Matter of Ready Tech-Go, LLC, page 5 of 33.
Substantive Findings

29. Taxpayer is a LLC, with ReadyTech Go, Inc. as the parent company. All related

companies are referred to as RTG Medical.

30. Taxpayer is a medical staffing agency that provides medical professional staffing to

medical facilities across the country.

31. Taxpayer is located in Fremont, Nebraska.

32. Taxpayer has no offices in New Mexico or any other location other than Nebraska.

33. Taxpayer does all of its business over the telephone.

34. David Guenther is the Vice President of Operations and Chief Financial Officer for

Taxpayer, and has been since 2003.

35. Taxpayer staffed approximately 200 of its employees across the country during the

audit period.

36. Taxpayer staffed employees in New Mexico medical facilities throughout the audit

period.

37. Taxpayer did not establish, and Mr. Guenther could not recall, how many

employees Taxpayer staffed at New Mexico medical facilities during the audit.

38. All Taxpayer’s medical personnel staffed at medical facilities are issued W-2’s

rather than 1099s.

39. Taxpayer paid payroll taxes on all its medical personnel employees in New

Mexico.

40. Taxpayer paid unemployment insurance and worker’s compensation insurance for

all employees working in New Mexico during the audit period.

In the Matter of Ready Tech-Go, LLC, page 6 of 33.

41. Taxpayer has never received any determination that it is a joint employer from the

Department of Labor or the IRS.

42. Taxpayer receives requests from medical facilities to find and staff medical

professionals at those facilities.

43. The medical facilities interview the medical professional candidates provided by

Taxpayer and other medical staffing companies like Taxpayer.

44. The medical facility decides which potential candidate to hire. If it is a medical

professional that Taxpayer identified, then the medical facility and Taxpayer reach a contract and

terms of payment over the typical 13-week contract period.

45. After the medical facility and Taxpayer agree on the rate of hourly pay, then

Taxpayer agrees with the medical professional on their rate of hourly pay.

46. Taxpayer keeps the difference in rate of hourly pay established with the client

medical facility and the rate of hourly pay Taxpayer pays its medical professional employees.

47. The client medical facility decides the start and completion date of the work under

the contract.

48. The facilities control the work schedule of the assigned medical personnel.

49. The client medical facility provides an orientation to Taxpayer’s medical

professional employees.

50. The medical professionals work at the client medical facility using the medical

facility’s uniforms.

51. The facilities have the ability to hire and fire the assigned medical personnel.

52. The facilities supervise the day-to-day job performance of the assigned medical

personnel.

In the Matter of Ready Tech-Go, LLC, page 7 of 33.

53. Taxpayer pays the medical professionals on a weekly basis.

54. Taxpayer bills the medical facilities every seven to eight weeks.

55. In its invoices to the client medical facility, Taxpayer does not separately state (or

bill) for reimbursement expenses.

56. It is not common within Taxpayer’s industry for employee staffing firms to

separately bill reimbursed salary costs for the employee to the client. Instead, the staffing firms

generally charge one set price to the medical facilities.

57. Taxpayer contracted with Santa Fe Imaging during the audit period. [Taxpayer Ex.

2]

58. Under Taxpayer’s contract with Santa Fe Imaging, the medical facility indemnifies

Taxpayer from all claims stemming under the agreement. [Taxpayer Ex. #2.2, ¶7, ¶9].

59. Under Taxpayer’s contract with Santa Fe Imaging, Taxpayer is an independent

contractor prohibited from representing itself as an agent of the medical facility for any purpose

other than the provision of the contracted services. [Taxpayer Ex. #2.2, ¶8].

60. Under Taxpayer’s contract with Santa Fe Imaging, “personnel supplied by

[Taxpayer] are deemed to be employees, subcontractors or agents of [Taxpayer], and will not, for

any purpose, be considered employees, subcontractors, or agents” of the medical facility.

[Taxpayer Ex. #2.2, ¶8].

61. Under Taxpayer’s contract with Santa Fe Imaging, the medical facility pays for the

services rendered under the contract. [Taxpayer Ex. #2.1].

62. Taxpayer contracted with Carlsbad Medical Center during the audit period.

[Taxpayer Ex. #3]

In the Matter of Ready Tech-Go, LLC, page 8 of 33.

63. Under Taxpayer’s contract with Carlsbad Medical Center, the medical facility

indemnifies Taxpayer from all claims stemming under the agreement. [Taxpayer Ex. #3.1, ¶8].

64. Taxpayer contracted with Hospital Services Corporation twice during the audit

period. [Taxpayer Ex. #4 & #5]

65. Hospital Services Corporation sent out a request for proposal for its staffing needs

for a 13-week period, specifying the hourly rate it was willing to pay for the positions it sought to

fill. [Taxpayer Ex. #4.2].

66. Under its agreement with Taxpayer, Hospital Services Corporation selected the

medical professionals from the referred pool of candidates. [Taxpayer Ex. 4.20-21 & #5.16]

67. Hospital Services Corporation provided the orientation for the selected medical

professionals under its agreement with Taxpayer. [Taxpayer Ex. 4.20 & #5.15]

68. Under its agreement with Taxpayer, Hospital Services Corporation had the ability

to reject the selected medical professional if the medical professional did not meet the job

requirements. [Taxpayer Ex. 4.20]

69. Under its agreement with Taxpayer, Hospital Services Corporation may not hire the

medical professional during the initial 13-week contract period without penalty. [Taxpayer Ex.

4.22-23 & 5.19]

70. Under Taxpayer’s 2010 contract with Hospital Services Corporation, the medical

facility indemnified Taxpayer from all claims stemming under the agreement. [Taxpayer Ex.

5.24]

71. Under Taxpayer’s contracts with Hospital Services Corporation, the parties

disavowed any agency relationship and established that Taxpayer was fully liable for tax

withholding and reporting requirements for its employees, employee benefits, worker’s

In the Matter of Ready Tech-Go, LLC, page 9 of 33.
compensation coverage and unemployment coverage for its employees. [Taxpayer Ex. 4.27 &

5.24].

72. Taxpayer contracted with Santa Fe Nursing Operations LLC during the audit

period. [Taxpayer Ex. #7]

73. Under Taxpayer’s contract with Santa Fe Nursing Operations LLC, the medical

facility indemnified Taxpayer from all claims stemming under the agreement. [Taxpayer Ex. #7.1]

74. Under Taxpayer’s contract with Santa Fe Nursing Operations LLC, Taxpayer is an

independent contractor of the facility and the supplied medical personnel are deemed employees

of Taxpayer and may not be considered employees, subcontractors or agents of the medical

facility. [Taxpayer Ex. #7.1, ¶7]

75. Taxpayer contracted with PHC-Las Cruces, Inc., during the audit period. [Taxpayer

Ex. #8]

76. Under Taxpayer’s contract with PHC-Las Cruces, Inc., the medical facility

provides the work environment, the orientation to the medical professional, and reviews the

performance of the medical professional. [Taxpayer Ex. #8]

77. Under Taxpayer’s contract with PHC-Las Cruces, Inc., the medical facility may not

hire Taxpayer’s medical professional employee during the agreement period without a penalty.

[Taxpayer Ex. #8].

78. Taxpayer’s contract with PHC-Las Cruces, Inc., indemnifies Taxpayer from all

claims stemming under the agreement. [Taxpayer Ex. #8.8]

79. Under Taxpayer’s contract with PHC-Las Cruces, Inc., Taxpayer is an independent

contractor of the facility. [Taxpayer Ex. #8.1]

In the Matter of Ready Tech-Go, LLC, page 10 of 33.

80. Taxpayer contracted with the Department of Veterans Affairs, but Mr. Guenther

could not recall whether this contract was relevant to the audit period. [Taxpayer Ex. #6]

81. In general, during the audit period, payment of the medical professional employees

came from the submission of time cards. The medical professional filled out and signed an official

time card under Taxpayer’s letterhead. A representative of the medical facility also signed the time

card. Below the representative of the medical facility’s signature line, the time card included the

statement that “the above signature approves [Taxpayer] to bill in full the contracted hospital for

the above stated hours. Failure to comply may make the client facility liable to the maximum

penalty allowed by law.” [Taxpayer Ex. #9]

82. Taxpayer’s agreement with its medical professional employees indicates that the

professional is an employee of Taxpayer. Although each agreement indicates the name of the

facility where the work will be performed, at no point does the written agreement disclose any sort

of agency relationship or whether the medical professional has any rights or remedies against the

facility. [Taxpayer Ex. #1].

83. Nevertheless, Mr. Guenther believes that the medical professionals understand that

ultimately it is the facility that pays them.

84. Although there was no evidence of the total number of employees staffed in New

Mexico during the entire audit period, Taxpayer did a survey of nineteen employees who had

worked in New Mexico during the audit period. [Taxpayer Ex. #10]

a. Eight employees (42%) believed that Taxpayer was an agent of the facility at which

the employee worked. [Taxpayer Ex. #’s 10.1, 10.6, 10.7, 10.8, 10.9, 10.10, 10.16,

and 10.16]

In the Matter of Ready Tech-Go, LLC, page 11 of 33.
b. Three employees (16%) indicated that Taxpayer was not an agent of the facility.

[Taxpayer Ex. #’s 10.11, 10.13, & 10.15]

c. Three employees (16%) provided mixed or non-responsive answers of whether

Taxpayer was an agent of the facility. [Taxpayer Ex. #’s 10.3, 10.5, & 10.19]

d. Five employees (26%) provided no answer (or an indeterminable/illegible answer

in the case of Ex. #10.2) about whether Taxpayer was an agent of the facility.

[Taxpayer. Ex. #’s 10.2, 10.4, 10.12, 10.14, & 10.17]

85. Taxpayer presented no other evidence of an express statement to its employees of

the existence of an agency relationship between Taxpayer and the client medical facility or the

employee’s right of action against the client medical facility.

86. As of the date of hearing, the Department alleged that Taxpayer owed $279,494.80

in assessed gross receipts tax, $55,635.47 in penalty, and $84,114.83 in interest, for a total

outstanding liability of $419,245.10. [Department Ex. D]

DISCUSSION

In this case, Taxpayer provides staffing of medical professionals to various medical

facilities across the country, including numerous facilities in New Mexico, during the audit period.

If one of Taxpayer’s medical professional employees matches a staffing need at a facility, the

facility contracts with Taxpayer to use Taxpayer’s services for a 13-week term. The facility pays

Taxpayer a fixed hourly rate for the services provided by Taxpayer’s employees at the facility

during that period. Taxpayer in turn pays it employees that are staffing the facility a lesser hourly

rate and pockets the difference between the facility’s rate and the rate of pay to the employee.

When the Department assessed gross receipts tax on all of Taxpayer’s receipts earned in New

Mexico under this arrangement, Taxpayer timely protested the assessment under the Tax

In the Matter of Ready Tech-Go, LLC, page 12 of 33.
Administration Act. For unexplained reasons, the Department took four years to request a hearing

on that protest 4. At that protest hearing, and in subsequent written closing argument, Taxpayer

challenged the imposition of gross receipts tax and penalty on the numerous grounds summarized

in the introductory paragraph. Ultimately, after reviewing the applicable law in relation to the

evidence presented, the hearing officer denies Taxpayer’s protest.

Presumption of Correctness.

The statutory presumption of correctness under the Tax Administration Act frames any

analysis of Taxpayer’s protest issues. Under NMSA 1978, Section 7-1-17 (C) (2007), the

assessment issued in this case is presumed correct. Consequently, Taxpayer has the burden to

overcome the assessment. See Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Unless

otherwise specified, for the purposes of the Tax Administration Act, “tax” is defined to include

interest and civil penalty. See NMSA 1978, §7-1-3 (X) (2013). Under Regulation 3.1.6.13 NMAC,

the presumption of correctness under Section 7-1-17 (C) extends to the Department’s assessment

of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-

NMCA-50, ¶16, 139 N.M. 498, 503 (agency regulations interpreting a statute are presumed proper

and are to be given substantial weight). Accordingly, it is Taxpayer’s burden to present some

countervailing evidence or legal argument to show that it is entitled to an abatement, in full or in

part, of the assessment. See N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-

099, ¶8. “Unsubstantiated statements that the assessment is incorrect cannot overcome the

presumption of correctness." See MPC, Ltd. v. N.M. Taxation & Revenue Dep't, 2003 NMCA 21,

4
Delay in action is not a defense to enforcement in a tax action. See Ranchers-Tufco Limestone v. Revenue, 1983-
NMCA-126, ¶13. Moreover, as the findings of fact make clear, both parties bear shared responsibility for the
prehearing delay in this matter, as both parties repeatedly requested continuances for health and resource reasons.

In the Matter of Ready Tech-Go, LLC, page 13 of 33.
¶13, 133 N.M. 217; See also Regulation 3.1.6.12 NMAC. When a taxpayer presents sufficient

evidence to rebut the presumption, the burden shifts to the Department to show that the assessment

is correct. See MPC, Ltd., 2003 NMCA 21, ¶13.

Gross Receipts Tax and the Disclosed Agency Relationship Exception.

Taxpayer’s main argument at protest is that Taxpayer’s receipts from providing medical

staffing services to medical facilities in New Mexico were received by Taxpayer in a disclosed

agency capacity and thus excluded from taxable gross receipts under NMSA 1978, Section 7-9-

3.5(A)(3)(f) (2007). As part of this argument in its brief, Taxpayer asserted that it had the

authority to bind the healthcare facility to an obligation with the healthcare professionals as

evidenced by the time cards and facility approval of those time cards, the indemnification clauses,

and the facilities’ day-to-day control of the workers. Taxpayer also argued that the agency

relationship was disclosed because the healthcare professionals were aware that Taxpayer was

acting as an agent for the healthcare facilities, as shown by the employee survey and the statement

on the time cards. Finally, as part of this main argument, Taxpayer claims that Regulation 3.2.1.19

(C)(2) is ultra vires of Section 7-9-3.5(A)(3)(f) (2007). Taxpayer’s argument on the disclosed

agency relationship are not ultimately persuasive either factually or legally.

For the privilege of engaging in business, New Mexico imposes a gross receipts tax on the

receipts of any person engaged in business. See NMSA 1978, § 7-9-4 (2002). The term “gross

receipts” is broadly defined to mean

the total amount of money or the value of other consideration received from
selling property in New Mexico, from leasing or licensing property employed
in New Mexico, from granting a right to use a franchise employed in New
Mexico, from selling services performed outside New Mexico, the product of
which is initially used in New Mexico, or from performing services in New
Mexico.

In the Matter of Ready Tech-Go, LLC, page 14 of 33.
NMSA 1978, Section 7-9-3.5 (A) (1) (2007). “Receipts include payments received for one’s own

account and then expended to meet one’s own responsibilities.” MPC LTD v. TRD, 2003-NMCA-

021, ¶14, 133 N.M. 217. There is a statutory presumption that all receipts of a person engaged in

business are taxable. See NMSA 1978, § 7-9-5 (2002). “Engaging in business” is defined as

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

NMSA 1978, § 7-9-3.3 (2003). See also Comer v. State Tax Comm'n, 1937-NMSC-032, ¶37, 41

N.M. 403 (gross receipts applies to “all activities or acts engaged in (personal, professional and

corporate) or caused to be engaged in with the object of gain, benefit[,] or advantage either direct

or indirect."). Here, Taxpayer was engaged in the business of providing temporary staffing

employees working in New Mexico for remuneration, subjecting Taxpayer to gross receipts tax

under the engaging in business definition contained under Section 7-9-9.3 and the presumption of

taxability provision of Section 7-9-5 unless Taxpayer can demonstrate some deduction or

exemption from the gross receipts tax.

NMSA 1978, Section 7-9-3.5(A) (3) (f) states that excluded from gross receipts are

“amounts received solely on behalf of another in a disclosed agency capacity.” Under Regulation

3.2.1.19(C)(1) NMAC, “(a)n agency relationship exists if a person has the power to bind a

principal in a contract with a third party so that the third party can enforce the contractual

obligation against the principal.” Regulation 3.2.1.19(C)(2) NMAC requires that any

reimbursements for expenses incurred as an agent be separately stated on the respective invoice

and marked as reimbursements in the agent’s books and records.

Numerous New Mexico cases have addressed, within the context of gross receipts tax,

whether an agency relationship exists and whether such relationship is sufficient to exclude certain

In the Matter of Ready Tech-Go, LLC, page 15 of 33.
receipts derived from that relationship from the gross receipts tax. In 1971, in the case Westland

Corporation v. Commission of Revenue, 1971-NMCA-083, ¶38, 83 N.M. 29, the New Mexico

Court of Appeals remanded the matter because it did not find cause to impose gross receipts tax on

the receipts of a person whom served as a “friendly agent” for the limited purpose of “receiving

and paying out sums for debts or obligations owing” from another company.

In Carlsberg Mgmt. Co. v. State, 1993-NMCA-121, 116 N.M. 247, a case that Taxpayer

cited for support in this protest, the New Mexico Court of Appeals again considered agency in the

gross receipts tax context. The Carlsberg case involved a property management group that

managed an apartment complex for that property’s owner. See id., ¶3. The rent at the apartment

complex was subsidized by a federal agency. See id. The Carlsberg taxpayer claimed that the

federal agency mandated the form of the agreement in place between that taxpayer and the owner.

See id. The agreement in Carlsberg referred to that taxpayer as “agent.” See Carlsberg, ¶4. Under

an agency theory, the Carlsberg taxpayer argued that money it received from the owner’s

reimbursing of the payment of employee wages were not subject to gross receipts tax. See

Carlsberg, ¶5-11.

In Carlsberg, the New Mexico Court of Appeals indicated “that a principal’s control over

the agent is the key characteristic of an agency relationship.” See Carlsberg, ¶12. Further, the New

Mexico Court of Appeals noted that it was a factual determination whether there was an agency

relationship between the principal and the agent. See Carlsberg, ¶16. The New Mexico Court of

Appeals began that factual determination by looking at the terms of the agreement in place. See id.

When the contract is unambiguous, the language of the contract determines the intent of the parties

without further interpretation. See Carlsberg, ¶17. The New Mexico Court of Appeals found in

Carlsberg that the contract created an unambiguous agent-principal relationship. See id. The

In the Matter of Ready Tech-Go, LLC, page 16 of 33.
Carlsberg’s Court of Appeals rejected the Department’s requirement that an agent be disclosed,

and instead adopted a California rule that “if a party only receives money… of [] another’s

employment-related obligations, then an agency relationship exists sufficient to avoid taxation of

those funds as gross receipts.” See Carlsberg, ¶15. The Court of Appeals ultimately determined in

Carlsberg that the level of control the owner of the apartment complex wielded over that taxpayer

vis-à-vis that taxpayer’s employees left that taxpayer with no control over the payment of the

employees, and thus that taxpayer never possessed any interest in the funds in question used to pay

the employees. See Carlsberg, ¶19. The Carlsberg decision also noted that an indemnification

clause requiring the owner to pay that taxpayer for employment related expenses supported its

holding. See id.

In 1995, in the case Brim Healthcare, Inc. vs. State, 1995-NMCA-055, 119 N.M. 818, the

New Mexico Court of Appeals again had an opportunity to consider whether an agency

relationship existed suffice to shield that taxpayer’s claimed reimbursements from the imposition

of gross receipts tax. In rejecting that taxpayer’s claim of an agency relationship, the Court of

Appeals in Brim, ¶10, found numerous reasons why the facts in that case were distinguishable

from Carlsberg. The most significant distinguishing factor was the lack of an indemnification

clause in the agreement at issue in Brim. See id. But another distinction cited in Brim was that the

contracts at issue expressly noted that the taxpayer was “not an agent… but rather is an

independent contractor.” Ultimately, the Brim Court of Appeals affirmed the hearing officer’s

conclusion that the money was not received as “reimbursement of expenses as an agent.” id. at 18.

While the Carlsberg Court of Appeals expressly rejected the Department’s previous policy

and regulation allowing for exemption of gross receipts only when there is a disclosed agency

relationship, see Carlsberg, ¶19, subsequent legislative action has limited the Carlsberg holding.

In the Matter of Ready Tech-Go, LLC, page 17 of 33.
See MPC LTD v. TRD, 2003-NMCA-021, ¶14, 133 N.M. 217. At the time the Court of Appeals

issued its decision in Carlsberg, the gross receipts tax definition contained no provision excluding

from gross receipts tax receipts received solely on behalf of another in a disclosed agency

capacity. Since that case, the Legislature has expressly added the disclosed agency capacity

language into Section 7-9-3.5 (A) (3) (f). In 2003, the Court of Appeals in MPC, Ltd. again

looked at agency relationships in the gross receipts context, albeit for the first time under the

Legislature’s express “disclosed agency” exception to the gross receipts definition. In so doing,

the Court of Appeals cautioned that Carlsberg and Brim were both decided before the

Legislature’s adoption of the “disclosed agency” language under Section 7-9-3.5(A) (3) (f), and

therefore those cases only had limited instructive value. See MPC, Ltd., 2003-NMCA-021, ¶34.

MPC, Ltd. addressed a taxpayer (Manpower) that provided temporary staffing services to

its clients in New Mexico. See id. ¶1. Manpower had mostly verbal contracts with its clients, but

did have a few written agreements in place. See id. ¶4. Manpower’s clients supervised the

activities of the assigned employees, but the client did not pay the employees. Instead, the clients

paid Manpower, which in turn then paid the employee’s wages, benefits, and withholdings. See id.

¶5. Manpower claimed these receipts should not be included in gross receipts because it “received

the amounts purely as a conduit between its clients and its employees.” id. ¶8. These facts are

remarkably similar to the facts at issue in this protest.

Manpower’s argument in MPC, Ltd. required the Court of Appeals to consider both a

regulation addressing joint employers 5 and the statutory and regulatory disclosed agent

5
A great deal of the analysis in MPC, Ltd. focused on a regulation and issue addressing a joint employer relationship.
That issue is not relevant here, as Taxpayer does not claim or present evidence that it is a joint employer. In fact,
during the Department’s cross-examination, Mr. Guenther testified that it has not sought nor received any ruling from
the Department of Labor or the IRS finding Taxpayer as a joint employer.

In the Matter of Ready Tech-Go, LLC, page 18 of 33.
requirements. In addition to addressing how the Legislative addition of the disclosed agency

exclusion under Section 7-9-3.5 (A) undermined the Carlsberg holding, see id. ¶24, the Court of

Appeals in MPC, Ltd. also considered the Department’s Regulation 3.2.1.19(C)(1) NMAC

interpreting Section 7-9-3.5(A) (3) (f). The Court of Appeals in MPC, Ltd., ¶36, construed

Regulation 3.2.1.19(C)(1) NMAC to mean that:

(1) the agent [taxpayer] has the authority to bind the principal (the client)…
to an obligation (to the employee) created by the agent [taxpayer], and (2)
the beneficiary of that obligation (the employee) is informed by contract
that he or she has a right to proceed against the principal (the client) to
enforce the obligation.

The MPC, Ltd., ¶37, Court of Appeals continued by stating:

Section 7-9-3(F)(2)(f) requires a disclosure to the employee of an agency
relationship. This breaks down into the requirements that there be a
relationship by which the principal is liable (and knows he is liable) to the
employee for payroll if the agent fails to pay, and that the agent disclose
this relationship and obligation to the employee.

Additionally, when interpreting Regulation 3.2.1.19 (C)(2), the Court of Appeals noted

that it imposed additional bookkeeping requirements that must be met in order to exclude receipts

received as part of a disclosed agency capacity from gross receipts. See MPC, Ltd., ¶36. In

discussing Regulation 3.2.1.19 (C) (2), the Court of Appeals did not find that provision ultra vires

to Section 7-9-3.5. In fact, the Court of Appeals accepted without limitation the bookkeeping

requirements of Regulation 3.2.1.19 (C) (2) as a condition of the disclosed agency exclusion from

tax. As such, there is no basis to accept Taxpayer’s argument and invitation in this protest to find

Regulation 3.2.1.19 (C) (2) ultra vires. See also Bogle Management Co., Inc. v. Tax. and Rev.

Dep’t., No. A-1-CA-35641, (NM Ct. App. 2017) (unpublished memorandum opinion, non-

precedential; relying heavily on MPC, Ltd. in analyzing similar issue and rejecting invitation to

invalidate the same regulation). MPC, Ltd. formed the basis of a recent 2017 New Mexico Court

In the Matter of Ready Tech-Go, LLC, page 19 of 33.
of Appeals unpublished memorandum decision resolving a similar case as this protest. See Bogle

Management, No. A-1-CA-35641. While it is clear that Taxpayer disagrees with the analysis and

the ultimate conclusion of the disclosed agency issue in MPC, Ltd., the clear holding in MPC,

Ltd., and its recent application by the Court of Appeals in Bogle, established that MPC, Ltd.,

remains controlling in resolving the disclosed agency issue in dispute in this protest.

Within this legal framework, Taxpayer’s arguments regarding disclosed agency are not

supported by the findings of fact and do not meet the standard set by the controlling legal authority

in MPC, Ltd. Contrary to Taxpayer’s characterizations of the factual record, the hearing officer

does not find that Taxpayer could bind its healthcare facility clients to an obligation to pay the

healthcare professionals and that healthcare professionals were informed of their right to proceed

against the healthcare facilities to enforce the obligation.

It is true that most of the contracts included an indemnification clause, which does provide

some support for Taxpayers contention, like in Carlsberg. However, like in Brim, ¶18, virtually

every contract at issue clearly established that Taxpayer was not an agent of the healthcare

facilities and could not bind the healthcare facilities. The contracts established that the healthcare

professionals were the employees of Taxpayer. Indeed, Taxpayer paid the healthcare professionals

hourly wages that Taxpayer determined, paid the unemployment and worker’s compensation

taxes, managed the wage withholdings, managed payroll taxes, and issued each healthcare

professional a W-2 at the end of the year. The medical facilities in fact were prohibited from hiring

the healthcare professionals during the typical 13-week contract term without penalty, a significant

limitation on the client healthcare facilities’ control over Taxpayer’s employees.

Taxpayer’s assertion that the healthcare facilities controlled the healthcare professionals’

day-to-day work, while certainly true, like in MPC, Ltd., ¶34, is not particularly persuasive in

In the Matter of Ready Tech-Go, LLC, page 20 of 33.
resolution of the protest. And Taxpayer’s assertion minimizes the control Taxpayer had over the

healthcare professionals. The healthcare professionals were Taxpayer’s employees. Taxpayer

received the bids for positions from the facilities and tried to match Taxpayer’s medical

professionals for placement at the healthcare facilities. Once Taxpayer referred one of its

healthcare professionals as a match for the healthcare facility’s positions, the healthcare facility

interviewed Taxpayer’s healthcare professional (and competing staffing agencies’) candidates,

selected which healthcare professional fit the position, provided the orientation to the healthcare

professional, provided the workplace and equipment, and set the hours of work during the 13-

week contract period. In turn, Taxpayer set the wages for the healthcare professionals, paid the

employee benefits, withheld the personal income taxes, managed the payroll taxes, and paid the

workers compensation and unemployment insurance for the workers. The healthcare facilities

could only hire the healthcare employees without financial penalty after the 13-week contract

expired. In fact, this ability of Taxpayer to impose penalties for the client’s poaching of an

employee before the 13-week contract expired gave Taxpayer a level of control over the

employees far higher than the taxpayer found to be an agent in Carlsberg, ¶16, making the facts of

this case distinguishable from that case.

Despite Taxpayer’s argument about the importance of the healthcare facilities apparent

day-to-day control of the healthcare professionals, the facts of this protest as they relate to control

are quite similar to those in MPC, Ltd. Like in MPC, Ltd., Taxpayer’s healthcare facility clients

manage the day-to-day activities of Taxpayer’s healthcare professionals. See MPC, Ltd., ¶5. It

was Taxpayer, like Manpower in MPC, Ltd., that paid the employees’ wages, benefits, and

withholdings. See id. In other words, the apparent control Taxpayer relies on heavily in this

protest bears striking similarity to the facts of MPC, Ltd., and like the Court of Appeals in MPC,

In the Matter of Ready Tech-Go, LLC, page 21 of 33.
Ltd. determined, that control alone is insufficient to establish a disclosed agency exclusion from

gross receipts tax.

Indeed, the facts and arguments made in MPC, Ltd. closely parallel the facts and

arguments made in this protest even beyond the question of control. Taxpayer’s reliance on the

time cards and the surveys are quite similar to Manpower’s assertion in MPC, Ltd. that all of its

clients and employees “all knew the details of the relationship and whom was doing what for

whom.” MPC, Ltd., ¶26.The Court of Appeals in MPC, Ltd. found that such general knowledge

alone was insufficient to trigger the disclosed agency exclusion from gross receipts. See also

Bogle Management, No. A-1-CA-35641, ¶18 (unpublished, non-precedential memorandum

opinion; finding that long-standing relationship between all parties and alleged clear knowledge of

the agency relationship was insufficient in the absence of an affirmative statement disclosing the

agency relationship).

Taxpayer misplaces its reliance on the time cards because it significantly overreads the

liability statement contained on the time cards. Taxpayer argues that because both the employee

and a representative of the medical facility signed each time card, which contained a liability

statement, Taxpayer was binding the facility to pay the employees and informing the employees of

their right to collect against the facility for non-payment. The liability statement on the time card

was located under the facility signature line, and stated that “[t]he above signature approves

[Taxpayer] to bill in full the contracted hospital for the above stated hours. Failure to comply may

make the client facility liable to the maximum penalty allowed by law.”

Contrary to Taxpayer’s argument, this statement appears to be addressing the liability

between Taxpayer and the facility rather than between Taxpayer’s employees and the facility. The

first sentence allows Taxpayer to bill in full for the time worked. Taxpayer’s argument requires

In the Matter of Ready Tech-Go, LLC, page 22 of 33.
reading “medical professional employees” into the liability statement, particularly into the second

sentence, which already has an ambiguous application. However, the medical employees are

simply not referenced in either sentence. The application of the second sentence is ambiguous on

its face, but in conjunction with the first statement, appears to establish that if the facility fails to

pay the billed hours, it could be liable to Taxpayer for the full amount allowed by law. Even if the

second sentence were somehow intended to address the employees, it does not meet the MPC, Ltd.

and Bogle standard of expressly advising the employees that Taxpayer is the agent of the facility

and that the employees have the ability to enforce their obligation against the facility.

Because of this ambiguity in conjunction with other evidence in this case supporting a

contrary interpretation of the liability clause, the time card is not the panacea that Taxpayer wishes

it to be. Taxpayer paid the employee wages on weekly basis while Taxpayer only billed the

facilities every seven to eight weeks. Regardless of whether the facilities in fact ever paid

Taxpayer, Taxpayer had already paid the wages to the employees. By considering this factual

backdrop, the ambiguity about the application of the second sentence of the time card liability

clause appears resolved: since the pattern is Taxpayer’s employees were already paid, in the event

that the facility ever subsequently failed to pay the hours billed, it would be Taxpayer not the

employees that would pursue legal action against the facility. The liability clause does not

establish that the employees themselves had any rights to pursue collection against the facilities,

let alone that they were expressly informed of such rights.

The employee survey, while certainly interesting, is not nearly as strong of evidence as

Taxpayer suggests. First, there is no evidence about the sample size of the survey and whether it

was in fact representative of all of Taxpayer’s employees in New Mexico during the audit period.

Second, the results themselves were far more mixed than Taxpayer’s arguments assumed. Only a

In the Matter of Ready Tech-Go, LLC, page 23 of 33.
plurality of the people surveyed believed there was an agency relationship, with nearly as many

people expressing either uncertainty about the question or a belief that no such relationship

existed. Finally, and perhaps most importantly, regardless of the employee’s beliefs, the survey

does not make clear that the employees were informed that Taxpayer was the disclosed agent of

the client medical facilities, and that the employees had a potential cause of action against the

facilities in the event of the failure to pay wages to the employees.

Because the contracts make clear that no agency relationship existed between Taxpayer

and the medical facilities, thus preventing Taxpayer from binding the medical facilities to a third

party, Taxpayer resorts to arguing that the bargained for, arms-lengths contractual terms must be

ignored in favor of the substance of the transaction. While that might be true in other contexts,

particularly in employment law where such approach makes far more sense, it has not been found

to be compelling when analyzing when a taxpayer can avoid gross receipts tax under the disclosed

agency exclusion. See MPC, Ltd. Even in Carlsberg, ¶7, which was legislatively reversed, the

Court of Appeals stated that when the contract language is unambiguous, the language of the

contract determines the intent of the parties regarding an agency relationship without further

interpretation. See also Benz v. Town Ctr. Land, LLC, 2013-NMCA-111, ¶ 31, 314 P.3d 688.

Despite Taxpayer’s attempt at repacking the facts of this protest into something distinct

from MPC, Ltd., or challenging the legal analysis in MPC, Ltd., the salient similarities between the

facts and arguments here and in MPC, Ltd., dictate the application of the Court of Appeals holding

MPC, Ltd.: in the absence of a clear, affirmative statement disclosing the agency relationship,

there is insufficient evidence to overcome the presumption of correctness or to establish the

disclosed agency exclusion from gross receipts tax. Taxpayer’s arguments related to the doctrines

of ratification and apparent authority fail to persuade, as they fall outside of the analytical

In the Matter of Ready Tech-Go, LLC, page 24 of 33.
framework of the disclosed agent taxation issue established by the controlling case MPC, Ltd.

Moreover, Taxpayer admitted that consistent with industry practice, its billings did not clearly

indicate which amounts were being billed as reimbursements, as required by Regulation 3.2.1.19

(C) (1) NMAC in order to meet the regulatory definition of a disclosed agent. The fact that it

would be contrary to industry practice does not change the regulatory requirements. On those

grounds, Taxpayer further did not satisfy the requirements of Section 7-9-3.5(A) (3) (f) and

Regulation 3.2.1.19(C)(1) NMAC, as interpreted in MPC, Ltd., ¶36. Therefore, there is no legal or

factual basis to find that the receipts are exempted from taxation under the disclosed agent

exclusion from gross receipts tax.

Services Performed in New Mexico.

Taxpayer also argues that money it received beyond its claimed reimbursements are not

subject to gross receipts under NMSA 1978, Section 7-9-13.1 because those receipts represented

consideration for performing service outside of New Mexico. Section 7-9-13.1(A) provides that

“exempted from the gross receipts tax are the receipts from selling services performed outside

New Mexico the product of which is initially used in New Mexico.”

Taxpayer’s argument fails to persuade. While Taxpayer argues that it had no offices in

New Mexico (or anyplace other than Nebraska for that matter), Taxpayer had New Mexico

employees that it placed at New Mexico healthcare facilities during the audit period. Rather than

related to the situation exempted under Section 7-9-13 where a taxpayer performed services outside

of the state, the product of which is initially used in New Mexico, in this case Taxpayer’s payroll

services were related to the payment of services performed by its employees in New Mexico. See

Decision and Order in the Matter of the Protest of Adecco USA, Inc., No. 14-16 (non-precedential,

but insightful). Further, the services are deemed performed in New Mexico under Regulation

In the Matter of Ready Tech-Go, LLC, page 25 of 33.
3.2.1.18(D)(1) NMAC. See Bogle Management, No. A-1-CA-35641, ¶22-23 (unpublished, non-

precedential memorandum opinion; citing same regulation as basis of finding administrative

services in similar fact pattern are deemed performed in New Mexico).

Taxpayer Not Entitled to Health Care Services Deduction.

Taxpayer argued that even if it was otherwise subject to gross receipts tax, its receipts were

deductible from gross receipts tax under NMSA 1978, Section 7-9-77.1 (2007) and NMSA 1978,

Section 7-9-93 (2007). “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.” Wing Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M.

735 (internal citation omitted); See also TPL, Inc. v. N.M. Taxation & Revenue Dep't, 2003-NMSC-7,

¶9, 133 N.M. 447. After reviewing the language of the two deductions and the facts of this case,

Taxpayer did not carry its burden to establish entitlement to the two cited deductions.

In pertinent part, Section 7-9-77.1 (A) allows a deduction for “receipts of a health care

practitioner from payments by the United States government or any agency thereof for provision

of medical and other health services by a health care practitioner or of medical or other health and

palliative services by hospices or nursing homes to medicare beneficiaries…” Similarly, Section

7-9-93 (A) provides that:

Receipts from payments by a managed health care provider or health care insurer
for commercial contract services or medicare part C services provided by a health
care practitioner that are not otherwise deductible pursuant to another provision of
the Gross Receipts and Compensating Tax Act may be deducted from gross
receipts, provided that the services are within the scope of practice of the person
providing the service. Receipts from fee-for-service payments by a health care
insurer may not be deducted from gross receipts. The deduction provided by this
section shall be separately stated by the taxpayer.

In the Matter of Ready Tech-Go, LLC, page 26 of 33.
While these deductions might apply to Taxpayer’s healthcare facility clients, they would

not extend to the staffing company providing healthcare professionals to the facility because of the

nature of services rendered. Taxpayer cites In the Matter of the Protest of HealthSouth

Rehabilitation, Decision and Order No. 16-16 (May 11, 2016; non-precedential) in support of its

argument. But Healthsouth has little bearing on the analysis of these deductions under the facts of

this protest, as Taxpayer is not in the business of performing medical service to medicare

beneficiaries. Healthsouth addressed which form of entity that provided healthcare services could

be eligible for the deduction and in no way suggests that an entity engaged solely in providing

staffing services to a medical facility might be able to claim these disputed deductions. Taxpayer

is engaged in the business of providing staffing to medical facilities. It is the facilities, not the

staffing company, that provide the services potentially subject to the deduction under Section 7-9-

77.1 and 7-9-93.

Even if it arguably could be said that these deductions might apply to a third-party staffing

company, Taxpayer made no effort in this case to detail that its receipts were traceable to

payments from a managed health care provider or health care insurer, a requirement of Section 7-

9-93. Given that Taxpayer bore that burden of establishing entitlement to the deduction, failure to

present any such evidence on those statutory requirements means that Taxpayer is not entitled to

the deduction under Section 7-9-93.

Penalty.

Taxpayer argued that in the event it was found liable for the assessed tax principal, penalty

should nevertheless be abated because any error it made in this matter resulted from a mistake of law

made in good faith and on reasonable grounds.

When a taxpayer fails to pay taxes due to the State because of negligence or disregard of

In the Matter of Ready Tech-Go, LLC, page 27 of 33.
rules and regulations, but without intent to evade or defeat a tax, NMSA 1978 Section 7-1-69

(2007) requires that

there shall be added to the amount assessed a penalty in an amount equal to
the greater of: (1) two percent per month or any fraction of a month from
the date the tax was due multiplied by the amount of tax due but not paid,
not to exceed twenty percent of the tax due but not paid.

(italics added for emphasis).

The statute’s use of the word “shall” makes the imposition of penalty mandatory in all instances

where a taxpayer’s actions or inactions meets the legal definition of “negligence.” See Marbob

Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24 (use of the

word “shall” in a statute indicates provision is mandatory absent clear indication to the contrary).

Regulation 3.1.11.10 NMAC defines negligence in three separate ways: (A) “failure to exercise that

degree of ordinary business care and prudence which reasonable taxpayers would exercise under like

circumstances;” (B) “inaction by taxpayer where action is required”; or (C) “inadvertence,

indifference, thoughtlessness, carelessness, erroneous belief or inattention.” Taxpayer meets this

definition of negligence, and thus is potentially subject to civil negligence penalty under Section 7-9-

69.

However, in instances where a taxpayer might otherwise fall under the definition of civil

negligence generally subject to penalty, Section 7-1-69 (B) provides a limited exception: “[n]o

penalty shall be assessed against a taxpayer if the failure to pay an amount of tax when due results

from a mistake of law made in good faith and on reasonable grounds.” Here, there is no evidence

that Taxpayer engaged in any formal consultation or study of the issue before determining that it

believed it owed no New Mexico CRS taxes. See C & D Trailer Sales v. Taxation and Revenue

Dep’t, 1979-NMCA-151, ¶8-9, 93 N.M. 697 (penalty upheld where there was no evidence that the

In the Matter of Ready Tech-Go, LLC, page 28 of 33.
taxpayer “relied on any informed consultation” in deciding not to pay tax). See also In the Matter of

the Protest of Santa Fe Tow and Emergency Lock & Key, Decision and Order No. 15-21 (June 30,

2015) (non-precedential; hearing officer abated penalty on a disclosed agent case when that

taxpayer presented evidence that a CPA had advised the receipts were non-taxable reimbursements

under the disclosed agency exclusion).

To support its claim for the good-faith, mistake of law abatement of penalty, Taxpayer cites

a previous decision and order of this hearing officer addressing a similar disclosed agency fact

pattern, In the Matter of the Protest of ATC Healthcare Services Inc., Decision & Order 16-55 (Nov.

30, 2016; non-precedential and currently under appeal). See also In the Matter of the Protest of Bogle

Management Co., Inc., Decision & Order 16-17 (May 16, 2016; non-precedential; affirmed on

appeal; hearing officer abated penalty under similar fact pattern). While ATC dealt with a virtually

identical disclosed agent issue, there was an additional issue related to franchise fees that was a

critical factor in the subsequent abatement of penalty in that case. In ATC, that taxpayer’s treatment

of the non-taxation of franchise fees was actually correct for part of the audit period until a court

decision was legislatively overruled. Since the treatment of the franchise fees was correct for part of

the assessed audit period, it followed that ATC had reasonable legal grounds to not pay the tax, and

thus the mistake of law provision clearly applied. Unlike the franchise fee issue in ATC, in this protest

there was no period of overlap. In this protest, the audit period commenced after the Legislature had

affectively overruled Carlsberg by adding the disclosed agent language into statute and the year after

the Court of Appeals issued its decision in MPC, Ltd.

To illustrate the importance of the franchise fee component in the abatement of penalty in

ATC, since issuance of ATC, this hearing officer has also declined to abate penalty under a similar

legal analysis. See In the Matter of the Protest of All Medical Personnel, Inc., Decision & Order 17-

In the Matter of Ready Tech-Go, LLC, page 29 of 33.
35 (August 8, 2017; non-precedential). Similarly, another hearing officer at the Administrative

Hearings Office recently declined to abate penalty on a disclosed agent case In the Matter of the Del

Corazon LLC., Decision & Order 18-15 (April 27, 2018; non-precedential).

Given the presumption of correctness that attaches to penalty, the absence of any proof that

Taxpayer made an informed decision or consultation about whether the receipts were non-taxable as

reimbursements, and the fact that none of the audit period predates that Legislative overruling of

Carlsberg or the Court of Appeals issuance of MPC, LTD., the hearing officer is not persuaded that

Taxpayer made a mistake of law in good faith and on reasonable grounds in this case. Penalty

remains due and owing as assessed in this matter.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest of the Department’s assessment and

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

B. Under NMSA 1978, Sec. 7-9-5 (2002), all of Taxpayer’s receipts in New Mexico

are presumed subject to New Mexico’s gross receipts tax.

C. Taxpayer did not overcome the presumption of correctness of the amount of tax

principal, penalty, and interest that attached to the assessment under NMSA 1978, Section 7-1-17

(C) (2007) and Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428.

D. Taxpayer failed to establish legally and factually that it was a disclosed agent of its

clients, as interpreted by Regulation 3.2.1.19(C)(1) NMAC and MPC, Ltd. v. TRD, 2003-NMCA-

021, 133 N.M. 217, and thus the receipts in question are not excludable from gross receipts

taxation under NMSA 1978, Section 7-9-3.5(A) (3).

E. Taxpayer did not carry its burden of establishing its right and entitlement to the

claimed deductions under NMSA 1978, Section 7-1-77.1 or NMSA 1978, Section 7-9-93. See

In the Matter of Ready Tech-Go, LLC, page 30 of 33.
Wing Pawn Shop v. Taxation and Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735

(internal citation omitted).

F. Under NMSA 1978, Section 7-1-67 (2007), Taxpayer is liable for accrued interest

under the assessment. Interest continues to accrue until the tax principal is satisfied.

G. Under NMSA 1978, Section 7-1-69 (2007), Taxpayer is liable for civil negligence

penalty because Taxpayer’s inaction in failing to file and pay gross receipts tax during the relevant

period met the definition of civil negligence under Regulation 3.1.11.10 NMAC.

H. Taxpayer did not establish a good faith, mistake of law made on reasonable grounds

that would allow for abatement of penalty under Section 7-1-69 (2007).

I. None of the indicators of nonnegligence found under Regulation 3.1.11.11 NMAC

allow for abatement of penalty under the facts established in this protest.

For the foregoing reasons, Taxpayer’s protest IS DENIED. Taxpayer is ordered to pay the

remaining assessed tax, penalty, and interest. As of the date of hearing, Taxpayer owed

$279,494.80 in assessed gross receipts tax, $55,635.47 in penalty, and $84,114.83 in interest, for a

total outstanding liability of $419,245.10

DATED: November 21, 2018

Brian VanDenzen, Esq.
Chief Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

In the Matter of Ready Tech-Go, LLC, page 31 of 33.
NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates the

requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

Hearings Office may begin preparing the record proper. The parties will each be provided with a

copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

statement from the appealing party. See Rule 12-209 NMRA.

In the Matter of Ready Tech-Go, LLC, page 32 of 33.
CERTIFICATE OF SERVICE

On November 21, 2018, a copy of the foregoing Decision and Order was mailed to the

parties listed below in the following manner:

First Class Mail Interoffice Mail

INTENTIONALLY BLANK

John Griego
Legal Assistant
Hearing Bureau
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of Ready Tech-Go, LLC, page 33 of 33.