I'm an independent contractor paid by an out-of-state company for work I actually do in New Mexico — do I owe New Mexico gross receipts tax?

Plain-English summary

Dr. Mohammed Abdul Muqeet Adnan was a New Mexico resident completing a medical fellowship. On the side he "moonlighted" as a physician at two New Mexico hospitals — Christus St. Vincent in Santa Fe and Lovelace Medical Center in Albuquerque — working as an independent contractor. He was hired through out-of-state medical staffing companies (CHG Companies in Utah; Moonlighting Solutions in North Carolina), which paid him and reported the income on Form 1099.

He never filed New Mexico gross receipts tax (GRT) returns. A "Schedule C mismatch" audit — the Department comparing his federal self-employment income against his (nonexistent) GRT filings — produced a 2016-2017 assessment of $13,037.16 in tax, $2,607.37 penalty, and $3,182.24 interest, totaling $18,826.77.

Dr. Adnan argued the money was exempt under NMSA 1978, Section 7-9-13.1, which exempts receipts from "services performed outside New Mexico the product of which is initially used in New Mexico." His theory: because the paying customers (the staffing companies) were out of state, his service was performed out of state. The Hearing Officer rejected that and denied the protest as to tax and penalty. What controls GRT is where the service is physically performed, not where the payer sits — and Dr. Adnan personally treated patients in New Mexico. The decision compared a lawyer whose fee is taxable "to the extent [the] services are performed in this state" (Regulation 3.2.1.18(H)), and contrasted ITT Educational Services (in-state school taxable) with Advance Schools (out-of-state correspondence school not taxable). As an independent contractor receiving 1099s, Dr. Adnan — not an employer — was responsible for reporting and paying GRT, and the Section 7-9-13.1 exemption simply didn't fit because his service was performed in New Mexico. The penalty was mandatory for negligent non-filing under Section 7-1-69.

The partial win: Dr. Adnan asked the Hearing Officer to review the Department's slowness. The Department took 98 days just to acknowledge his protest (it should be prompt — within about 21 days) and then filed its request for hearing 185 days later, blowing the 180-day deadline — 283 days total. Under Section 7-1B-8(E) and Regulation 22.600.3.18(E), the Officer halted the accrual of interest as of September 11, 2023, the date the Department should have acted. So the tax and penalty stood, but the interest stopped growing.

What this means for you

Independent contractors and gig workers paid by out-of-state companies

Where you do the work is what matters for New Mexico gross receipts tax — not where your client or the paycheck comes from. If you perform the service in New Mexico, the receipts are generally taxable even when an out-of-state company hires and pays you. Getting a 1099 instead of a W-2 means the GRT filing and payment duty is yours, not your payer's.

Physicians, nurses, and locum/travel professionals

Locum and staffing arrangements are common in medicine, but they don't move the tax situs offshore. A doctor who treats New Mexico patients at a New Mexico hospital is performing the service in New Mexico, so the commission or hourly pay for that work is subject to GRT — regardless of an out-of-state staffing agency in the middle.

Anyone with Schedule C income in New Mexico

This started as a routine data match: federal self-employment income with no matching GRT returns. If you report business income for New Mexico work, expect the Department to look for the gross receipts filings and to add penalty and interest when they're missing.

Taxpayers whose protest is sitting idle at the Department

There's a real remedy here. If the Department misses the statutory deadlines — prompt acknowledgment and a hearing request within 180 days — you can ask the Hearing Officer to stop interest from accruing under Section 7-1B-8(E). It won't erase the tax or penalty, but it can cap a growing interest bill. Raise it.

Tax professionals

The situs analysis turns on Section 7-9-3.5's "performing services in New Mexico" and Regulation 3.2.1.18(E)/(H), reinforced by ITT Educational Services (1998-NMCA-078) and Advance Schools (1976-NMSC-007); TPL, Inc. (2003-NMSC-007) frames the "product of the service" for Section 7-9-13.1, but the exemption fails at its first prong because performance was in-state. Note the independent-contractor framing (Talbott v. Roswell) and, most usefully, the Section 7-1B-8(E) interest stay computed as protest receipt + 21 days + 180 days (here February 22, 2023 → September 11, 2023), following In re Jimmy Lopez, D&O 24-03.

Common questions

Q: My client and my pay are out of state, but I do the work in New Mexico. Do I owe gross receipts tax?
A: Generally yes. New Mexico taxes receipts from services performed in the state, and the location of the payer does not change that. Performing the service in New Mexico makes the receipts taxable.

Q: Doesn't the Section 7-9-13.1 exemption cover this?
A: No. That exemption is for services performed outside New Mexico whose product is used inside the state. Dr. Adnan performed his medical services inside New Mexico, so the exemption's first requirement wasn't met.

Q: I got a 1099, not a W-2 — who pays the gross receipts tax?
A: You do. Independent contractors are responsible for reporting and paying gross receipts tax on their New Mexico business income; there is no employer withholding it for you.

Q: I didn't know I had to file — does that avoid the penalty?
A: No. Not knowing is treated as negligence by inaction, and the negligence penalty under Section 7-1-69 is mandatory even without intent to evade. Lack of intent to evade does not remove the civil penalty.

Q: Why did the interest stop but not the tax and penalty?
A: Because the Department broke its own protest deadlines — 283 days to get the case to a hearing. Section 7-1B-8(E) lets the Hearing Officer halt further interest for that delay, so interest was cut off as of September 11, 2023, while the tax and penalty remained due.

Q: Can I rely on this decision for my own situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and is not a general ruling or advisory opinion of the Department. It does show how New Mexico decides where a service is taxed and when interest can be stayed.

Citations and references

Statutes and rules:

• NMSA 1978, § 7-9-13.1 (1989-2021) — exemption for services performed outside New Mexico whose product is used in New Mexico
• NMSA 1978, § 7-9-3.5 — definition of gross receipts, including receipts from performing services in New Mexico
• NMSA 1978, § 7-9-4; § 7-9-5(A) — imposition and presumption that business receipts are taxable
• NMSA 1978, § 7-1-17(C) (2007) — assessment is presumed correct
• NMSA 1978, § 7-1-69 (2007) — mandatory civil negligence penalty
• NMSA 1978, § 7-1-67 (2013) — mandatory interest on unpaid tax
• NMSA 1978, § 7-1B-8(A), (B), (E) (2019) — protest deadlines; hearing officer may halt interest for Department delay
• Regulation 3.2.1.18(E), (H); 3.2.1.14 NMAC — situs of services; source of payment does not control
• Regulation 22.600.3.18(E) NMAC — stay of interest accrual

Cases:

• ITT Educational Services, Inc. v. Taxation & Revenue Dep't, 1998-NMCA-078, 959 P.2d 969 (in-state school taxable)
• Advance Schools, Inc. v. Bureau of Revenue, 1976-NMSC-007, 547 P.2d 562 (out-of-state correspondence school not taxable)
• TPL, Inc. v. N.M. Taxation & Revenue Dep't, 2003-NMSC-007, 64 P.3d 474 ("product of the service")
• Talbott v. Roswell Hospital Corp., 2005-NMCA-109, 118 P.3d 194 (independent contractor definition)
• Talbridge Corp. v. N.M. Taxation & Revenue Dep't, 2024-NMCA-044, 550 P.3d 901 (services performed out of state generally not taxable)
• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 ("shall" makes penalty and interest mandatory)
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099; MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-021; Gemini Las Colinas, LLC v. N.M. Taxation & Revenue Dep't, 2023-NMCA-039 (presumption of correctness; burden of proof)
• In the Matter of the Protest of Jimmy Lopez, D&O No. 24-03 (2024) (interest stay for Department delay; non-precedential)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Mohammed Abdul Muqeet Adnan
• Decision PDF: D&O 25-01

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 MOHAMMED ABDUL MUQEET ADNAN

5 v. AHO Case Number 23.12-064A, D&O #25-01

6 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

7 DECISION AND ORDER

8 On May 3, 2024, Hearing Officer Ignacio V. Gallegos, Esq., conducted an administrative

9 hearing on the merits in the matter of the tax protest of Mohammed Abdul Muqeet Adnan

10 (Taxpayer) pursuant to the Tax Administration Act and the Administrative Hearings Office Act.

11 At the hearing conducted by video conference, Dr. Mohammed Abdul Muqeet Adnan appeared

12 on his own behalf. Staff Attorney Timothy Williams appeared, representing the opposing party

13 in the protest, the Taxation and Revenue Department (Department). Department protest auditor

14 Danny Pogan appeared as a witness for the Department. Both Taxpayer and Department exhibits

15 were presented and admitted as detailed in the Exhibit Log, by stipulation.

16 Based on the evidence in the record, and after making findings of fact, the hearing officer

17 finds that Taxpayer has failed to overcome the presumption of correctness that attached to the

18 Department’s assessment. Taxpayer, a doctor, contended that as an independent contractor he

19 worked for two companies located out-of-state, although the service was delivered to patients in

20 New Mexico. The Department showed that the service was delivered in New Mexico at New

21 Mexico hospitals. Without sufficient evidence in support of Taxpayer’s contention, the Taxpayer’s

22 protest is therefore DENIED as to the tax and penalty. However, for reasons of tardiness in bringing

23 the matter to hearing, the accrual of interest is halted as of September 11, 2023.

24 IT IS DECIDED AND ORDERED AS FOLLOWS:

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 1 of 20.
1 FINDINGS OF FACT

2 Procedural findings

3 1. On January 3, 2023, the Department issued a Notice of Assessment of Taxes and

4 Demand for Payment for the gross receipts tax reporting periods beginning January 1, 2016, and

5 ending December 31, 2017. The assessment was for audit gross receipts tax of $13,037.16,

6 penalty of $2,607.37, and interest of $3,182.24, for a total assessment due of $18,826.77.

7 [Administrative file; Letter ID# L1224570992].

8 2. On February 22, 2023, Taxpayer sent a letter of protest as well as Form ACD-

9 31094 to the Department’s protest office, alleging that Taxpayer performed services outside New

10 Mexico, and receipts generated were not taxable as gross receipts. Taxpayer provided 1099s and

11 the Department’s own publication, FYI-105 in his protest submission. [Administrative file].

12 3. On May 31, 2023, the Department issued a letter acknowledging a timely protest

13 of the Notice of Assessment. [Administrative file; Letter ID# L1702083696].

14 4. On December 1, 2023, the Department filed a Request for Hearing asking that the

15 Taxpayer’s protest be scheduled for a scheduling hearing, alleging the amount at protest was

16 $18,826.77. The Department, as part of the Request for Hearing packet, filed an Answer to

17 Protest asserting that the Taxpayer must report and pay gross receipts taxes on business income

18 for Taxpayer’s work as an independent contractor providing healthcare services in New Mexico.

19 The failure to file and pay gross receipts taxes was discovered because Taxpayer reported

20 Schedule C income without filing corresponding gross receipts and compensating tax returns.

21 Later the same day, the Department submitted the Taxpayer’s protest letter to include with the

22 protest packet. [Administrative file].

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 2 of 20.
1 5. On December 6, 2023, the Administrative Hearings Office sent a Notice of

2 Telephonic Scheduling Hearing, giving the parties notice that a scheduling hearing would take

3 place by telephone on December 20, 2023. The Notice of Telephonic Scheduling Hearing was

4 sent to the parties’ addresses and email addresses. [Administrative file].

5 6. On December 20, 2023, the undersigned Hearing Officer conducted a telephonic

6 scheduling hearing. Taxpayer appeared at the scheduling hearing. The Department was

7 represented by Staff Attorney Timothy Williams. The parties did not object that the hearing

8 satisfied the 90-day hearing requirement of Section 7-1B-8 (F) (2019). [Administrative file;

9 Hearing Record of December 20, 2023].

10 7. On December 27, 2023, the Administrative Hearings Office issued a Scheduling

11 Order and Notice of Administrative Hearing, setting various deadlines and providing notice of a

12 merits hearing to take place May 3, 2024. [Administrative file].

13 8. Prior to the hearing, the Department and Taxpayer submitted their respective

14 proposed exhibits. [Administrative file].

15 9. The undersigned Hearing Officer conducted a merits hearing by video conference

16 on May 3, 2024. Taxpayer appeared at the merits hearing by video conference. The Department

17 was represented by Staff Attorney Timothy Williams, accompanied by protest auditor Danny

18 Pogan. The Hearing Officer preserved an audio recording of the hearing. [Administrative file;

19 Hearing Record of May 3, 2024].

20 Substantive findings

21 10. Dr. Mohammed Abdul Muqeet Adnan was, at times pertinent to the protest, a

22 resident of New Mexico. [Administrative file; Examination of Dr. Adnan].

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 3 of 20.
1 11. Dr. Adnan is a physician. Taxpayer was, at the times pertinent to this protest,

2 completing a medical fellowship program in New Mexico, occasionally taking on other work

3 (referred to as “moonlighting”) as his schedule allowed. [Administrative file; Examination of

4 Dr. Adnan].

5 12. As part of his “moonlighting,” Dr. Adnan performed services as a physician in

6 New Mexico at two New Mexico health care facilities: Christus St. Vincent Regional Medical

7 Center in Santa Fe, and Lovelace Medical Center in Albuquerque. He was compensated as an

8 independent contractor. The medical staffing companies who hired Taxpayer are located outside

9 of New Mexico, and they contracted with the New Mexico health care facilities at which Dr.

10 Adnan took patients. [Administrative file; Examination of Dr. Adnan; Taxpayer Exhibit 2, 3, 4,

11 5, 6, 7].

12 13. Taxpayer received a Form-1099-Misc from CHG Companies, Inc, located in Salt

13 Lake City, Utah for work performed in tax year 2016. The contract with CHG Companies, Inc.

14 indicated to Taxpayer that the laws of Utah apply. [Examination of Dr. Adnan; Taxpayer

15 presentation; Taxpayer Exhibit 3, 9].

16 14. Taxpayer received a Form-1099-Misc from CHG Companies, Inc, located in

17 Midvale, Utah for work performed in tax year 2017 [Examination of Dr. Adnan; Taxpayer

18 Exhibit 5].

19 15. CHG Companies, Inc., through Continental Casualty Company, provided general

20 liability insurance for Taxpayer, as an independent contractor, for work at Christus St. Vincent

21 Regional Medical Center in Santa Fe, New Mexico. [Examination of Dr. Adnan; Taxpayer

22 Exhibit 7].

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 4 of 20.
1 16. Taxpayer received a Form-1099-Misc from Moonlighting Solutions LLC, located

2 in Greensboro, North Carolina for work performed in tax year 2016. The contract with

3 Moonlighting Solutions, LLC indicated to Taxpayer that the laws of North Carolina apply.

4 [Examination of Dr. Adnan; Taxpayer presentation; Taxpayer Exhibit 2, 9].

5 17. Taxpayer received a Form-1099-Misc from Moonlighting Solutions LLC, located

6 in Greensboro, North Carolina for work performed in tax year 2017. [Taxpayer Exhibit 4].

7 18. Moonlighting Solutions, LLC, through Columbia Casualty Company, provided

8 general liability insurance for Taxpayer, as an independent contractor, for work at Lovelace

9 Medical Center in Albuquerque, New Mexico. [Examination of Dr. Adnan; Taxpayer Exhibit 6].

10 19. Dr. Adnan did not consult a certified public accountant before filing his federal

11 and state returns for the years at issue. [Examination of Dr. Adnan].

12 20. Danny Pogan is a retired protest auditor for the New Mexico Taxation and

13 Revenue Department, now working on contract with the Department. [Administrative file;

14 Examination of D. Pogan].

15 21. The assessment arose from a Schedule C mismatch audit. The Taxpayer did not

16 file gross receipts tax returns or pay gross receipts tax during the timeframes at issue.

17 [Administrative file; Examination of D. Pogan].

18 22. The protest auditor reviewed the Taxpayer’s returns to determine if there were

19 any applicable deductions. [Administrative file; Examination of D. Pogan].

20 23. Interest has accrued since the issuance of the initial assessment. [Administrative

21 file; Examination of D. Pogan].

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 5 of 20.
1 24. The protest auditor determined that no deduction should apply because the

2 Taxpayer did not provide evidence to support a deduction. [Administrative file; Examination of

3 D. Pogan].

4 DISCUSSION

5 Taxpayer Dr. Adnan is a physician who was living in New Mexico during the timeframes

6 at issue. Taxpayer sold his services to an out-of-state service provider who resold his service to

7 hospitals in New Mexico. Taxpayer was an independent contractor. Taxpayer argued that his

8 services were provided to an out-of-state customer, though his patients were in New Mexico. As

9 such, Taxpayer argued that the income he received was exempt from tax and therefore he did not

10 have to file or pay gross receipts returns and taxes. For reasons detailed below, the Taxpayer’s

11 evidence failed to overcome the presumption of correctness which attached to the assessment.

12 Presumption of correctness

13 Under NMSA 1978, Section 7-1-17 (C) (2007), the assessment issued in this case is

14 presumed correct. Accordingly, it is a taxpayer’s burden to present some countervailing evidence

15 or legal argument to show that they are entitled to an abatement, in full or in part, of the

16 assessment issued in the protest. See N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-

17 NMCA-099, ¶8. When a taxpayer presents sufficient evidence to rebut the presumption, the

18 burden shifts to the Department to show that the assessment is correct. See MPC Ltd. v. N.M.

19 Taxation & Revenue Dep't, 2003-NMCA-21, ¶13, 133 N.M. 217.

20 The Taxpayer’s burden established under the presumption of correctness is a burden of

21 producing evidence that tends to support Taxpayer’s position. Gemini Las Colinas, LLC v. New

22 Mexico Taxation & Revenue Department, 2023-NMCA-039, ¶ 16, 531 P.3d 622. Once the

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 6 of 20.
1 Taxpayer has produced the evidence in support of Taxpayer’s position, the Department may present

2 its evidence in support of the assessment, then it is the responsibility of the Hearing Officer to weigh

3 the evidence and determine the outcome of the protest. Id., ¶ 17.

4 The burden is also on taxpayers to prove that they are entitled to an exemption or

5 deduction, if one should potentially apply. See Pub. Serv. Co. v. N.M. Taxation & Revenue Dep't,

6 2007-NMCA-050, ¶141 N.M. 520, 157 P.3d 85; See also Till v. Jones, 1972-NMCA-046, 83

7 N.M. 743, 497 P.2d 745. “Where an exemption or deduction from tax is claimed, the statute must

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

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

10 by the taxpayer.” See Sec. Escrow Corp. v. State Taxation & Revenue Dep't, 1988-NMCA-068,

11 ¶8, 107 N.M. 540, 760 P.2d 1306; see also Wing Pawn Shop v. Taxation & Revenue Dep't, 1991-

12 NMCA-024, ¶16, 111 N.M. 735, 809 P.2d 649; see also Chavez v. Comm'r of Revenue, 1970-

13 NMCA-116, ¶7, 82 N.M. 97, 476 P.2d 67.

14 Receipts under the Gross Receipts and Compensating Tax Act.

15 The assessment in this protest arises from an application of the Gross Receipts and

16 Compensating Tax Act, NMSA 1978, Sections 7-9-1 through 7-9-117, which imposes a tax for the

17 privilege of engaging in business, on the receipts of any person engaged in business in New Mexico.

18 See NMSA 1978, Section 7-9-4 (2010). The Department issued its assessment following a

19 comparison between the Taxpayer’s income reported on his federal Schedule Cs for tax years 2016

20 and 2017 and the Taxpayer’s gross receipts tax CRS-1 returns for the same time frame. The

21 comparison revealed Taxpayer had not filed CRS-1 returns to report gross receipts, nor did

22 Taxpayer pay gross receipts taxes for the years at issue.

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 7 of 20.
1 The statutory definition of “gross receipts” under NMSA 1978, Section 7-9-3.5 (A)(1)

2 (effective June 15, 2007, to June 30, 2019) states, in pertinent part: “‘gross receipts’ means the total

3 amount of money or the value of other consideration received from selling property in New Mexico,

4 … or from performing services in New Mexico.” There is a statutory presumption that all receipts

5 of a person engaged in business activities are taxable. See NMSA 1978, Section 7-9-5(A) (2019).

6 The activity of providing independent contractor services as a physician was engaging in business

7 which triggers the statutory presumption that all receipts of a person engaging in business are

8 taxable. See NMSA 1978, Section 7-9-3(P) (2019), Section 7-9-3.3 (2019), and Section 7-9-5(A)

9 (2019). Yet, despite the general presumption of taxability, a taxpayer may qualify for the benefits of

10 various deductions and exemptions.

11 Here, facts are not in dispute. Taxpayer performed medical services while living and

12 working in New Mexico, at New Mexico hospitals, for New Mexican patients. Payment by

13 Taxpayer’s employer for his services, however, did not come from the patients nor from the

14 hospitals at which he worked, but through two distinct third-party medical staffing companies, with

15 offices located outside of New Mexico. Taxpayer claims that this arrangement resulted in an

16 exemption under NMSA 1978, Section 7-9-13.1 (effective 1989 to June 30, 2021)1, which provides

17 an exemption for “receipts from selling services performed outside New Mexico the product of

18 which is initially used in New Mexico.”

19 Territoriality is essential in a determination of taxability. States have broad jurisdiction over

20 the economic activity within the territory of the state. Receipts for services performed in New

21 Mexico are taxable as gross receipts. See Section 7-9-3.5 (2019); see also Regulation 3.2.1.14

22 (A)(4) NMAC (9/25/2018). Receipts for services performed outside the state are generally not

1
This exemption has been limited significantly after the enactment of revisions in 2021.

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 8 of 20.
1 taxable in New Mexico as gross receipts. See Talbridge Corporation v. New Mexico Taxation &

2 Revenue Department, 2024-NMCA-044, ¶ 11, 550 P.3d 901; see also Regulation 3.2.1.18 (E)

3 (effective 2012-2021). The location of the performance of the service is the starting point.

4 Taxpayer argued that since the payment for his services came from outside of New Mexico,

5 his service was performed for the customer, the payor, therefore the service transaction was

6 performed outside of New Mexico. Regulation 3.2.1.18 (E) and (H) (effective 2012-2021) provide

7 negative examples which are analogous to the Taxpayer’s claim.

8 Regulation 3.2.1.18 (E)(4) provides this example:

9 L, an Albuquerque attorney, is retained by a Colorado firm to negotiate and draw
10 up oil and gas leases for lands in southern Colorado. To accomplish this objective,
11 L goes to Pueblo, Colorado, and there negotiates and draws the leases. Receipts
12 from the fee are not includable in L’s gross receipts because the service was
13 performed entirely outside the state of New Mexico.

14 In the context of gross receipts taxation, the practice of medicine and the practice of law are

15 analogous as personal services. The physical locations of the people providing the service and those

16 receiving the service are important. Similarly, Regulation 3.2.1.18 (H) provides that “[r]egardless of

17 the source of payment… the fees of attorneys are subject to the gross receipt tax to the extent that

18 their services are performed in this state.” These regulations appear to preclude Taxpayer’s

19 argument that the source of payment from outside of New Mexico justifies an exemption from gross

20 receipt tax for the services he personally provided in Santa Fe and Albuquerque, New Mexico.

21 Nevertheless, for the sake of argument, presume the Taxpayer’s theory of the case is correct

22 and his service was provided to the company paying for it at the company’s headquarters outside of

23 New Mexico. In such an instance, the service, under Taxpayer’s theory of the protest, would not be

24 taxable under the definition of gross receipts which requires that the service be provided “in New

25 Mexico.” NMSA 1978, Section 7-9-3.5 (A)(1) (effective June 15, 2007, to June 30, 2019). This

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 9 of 20.
1 presumption which Taxpayer encourages contradicts longstanding jurisprudence. See ITT

2 Educational Services, Inc. v. Taxation & Revenue Department, 1998-NMCA-078, 959 P.2d 969 (a

3 brick-and-mortar school in New Mexico, operated by a corporation outside of New Mexico,

4 providing educational services in New Mexico was subject to GRT); cf. Advance Schools,

5 Incorporated v. Bureau of Revenue, 1976-NMSC-007; 547 P.2d 562 (correspondence school

6 outside of New Mexico did not incur gross receipts for the educational service provided from

7 outside New Mexico). In both ITT and Advance Schools, the courts focused on where the service

8 contracted for was performed. Applying the same rationale to the facts of the case before the

9 hearing officer, the service contracted for (i.e., medical services) was conducted in New Mexico,

10 and would therefore be subject to gross receipts tax reporting and payment.

11 Next, considering the exemption of Section7-9-13.1, there are two aspects to the statute:

12 first, the performance of the service must be outside the state, and second, the product of the service

13 must be delivered in New Mexico. In the case of TPL, Inc. v. New Mexico Taxation & Revenue

14 Department, 2003-NMSC-007, 64 P.3d 474, the New Mexico Supreme Court attempted to identify

15 or define what the service was, and what the product of the service was, before applying the

16 exemption. In TPL, the court found that the “product of the service” is generally “the direct result or

17 consequence flowing from the service.” Id. at ¶ 12. The court went on to say, that the “product of

18 the service” depends on “what benefit the buyer received – what the buyer paid for.” The court also

19 acknowledged that some benefits are intangible, using the example of the service resulting from a

20 patient of a psychologist. Id.

21 Had this been a standard arrangement that may have existed in the mid-20th century, where a

22 doctor sees a patient, and the patient pays for the visit, this would be a different discussion. But here,

23 the direct buyer is not the patient. The direct buyer here is the medical staffing company, who

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 10 of 20.
1 supplies the doctor to the hospital and the doctor then sees patients who do not pay the doctor, but

2 the patients and their insurers pay the hospital for services rendered. The hospital then pays the

3 staffing service an hourly rate for the doctor’s time. So, from the perspective of the staffing

4 company buyer, the benefit received is not a medical service, but the revenue generated from

5 providing a medical professional to satisfy a staffing need in a medical facility in New Mexico.

6 With that in mind, the ultimate benefit the staffing company receives is the benefit of entering

7 contracts with hospitals which generate revenue from placements, i.e., the “product of the service.”

8 Where would the product of such a service be initially used? At the hospital, located in New

9 Mexico. By this train of logic, one may be able to rationalize the utility of the statutory exemption

10 provided by NMSA 1978, Section 7-9-13.1. But, to do so, disregards the status of the doctor as an

11 “independent contractor.”

12 In the practice of the healing arts, a practitioner must use their own skill, knowledge, and

13 experience with a patient to provide independent and individualized assessments and advice. In the

14 realm of taxation, there are two main classifications for individuals who receive compensation in

15 exchange for services: employees receiving form W-2; and independent contractors receiving

16 1099s. IRS Publication 15-A states “People such as doctors, veterinarians, and auctioneers who

17 work in an independent trade, business, or profession in which they offer their services to the public

18 are generally not employees … The general rule is that an individual is an independent contractor if

19 you, the person for whom the services are performed, have the right to control or direct only the

20 result of the work and not the means and methods of accomplishing the result.” Likewise, in New

21 Mexico, “[a]n independent contractor is defined as ‘a person who contracts with another to do

22 something for him but who is not controlled by the other nor subject to the other’s right to control

23 with respect to his physical conduct in the performance of the undertaking.’” Talbott v. Roswell

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 11 of 20.
1 Hospital Corp., 2005-NMCA-109, ¶ 10, 118 P.3d 194. Because of the skill and knowledge

2 necessary to assess and treat patients, doctors using individualized skill must be free to make

3 choices in the care of patients without substantial oversight from an employer, and as such, can be

4 independent contractors. The Taxpayer’s service agreements and insurance coverage with CHG

5 Companies and Moonlighting Solutions both identified the Taxpayer as an independent contractor.

6 In the realm of taxation, for W-2 employees, the employer withholds state and federal taxes (among

7 other payments) from the employee’s total earnings and remits those payments to the government.

8 For independent contractors, however, the responsibility to save and pay state and federal taxes is

9 that of the independent contractor, rather than the employer, and the employer provides a Form

10 1099 to the independent contractor instead of a W-2. See IRS Publication 15-A. In addition to

11 income taxes, independent contractors bear the responsibility for reporting and paying gross receipts

12 taxes for the privilege of engaging in business in New Mexico. That is what should have occurred in

13 this case.

14 The exemption for “receipts from selling services performed outside New Mexico the

15 product of which is initially used in New Mexico.” NMSA 1978, Section 7-9-13.1 (effective 1989

16 to June 30, 2021) is not applicable here, because the service of providing medical treatment was

17 performed in New Mexico, not outside of New Mexico.

18 Finally, there was a hint that Taxpayer’s services may be deductible as a sale of a service for

19 resale, under NMSA 1978, Section 7-9-48 and Regulation 3.2.206 NMAC. However, Taxpayer did

20 not argue the applicability, nor did Taxpayer provide non-taxable transaction certificates or other

21 evidence that another taxpayer would be paying the gross receipts tax.

22 Penalty.

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 12 of 20.
1 Dr. Adnan did not know he was required to file and pay gross receipts tax returns but had no

2 obvious intention to evade a tax. Under NMSA 1978, Section 7-1-69 (2007), when a taxpayer fails

3 to pay taxes due to the State because of negligence or disregard of rules and regulations, but without

4 intent to evade or defeat a tax, the Department must impose a civil negligence penalty on that

5 taxpayer. “There shall be added to the amount assessed a penalty” under the statute. Id.

6 The use of the word “shall” makes the imposition of penalty mandatory in all instances

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

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

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

10 Negligence can be found in several ways. Regulation 3.1.11.10 NMAC (1/15/01) defines

11 “negligence” as “failure to exercise that degree of ordinary business care and prudence which

12 reasonable taxpayers would exercise under like circumstances; inaction by taxpayers where action is

13 required; inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.”

14 Not filing gross receipts tax returns or paying the taxes on time is certainly negligence by inaction

15 where action is required under this definition. Imposition of penalty was proper.

16 Interest.

17 NMSA 1978, Section 7-1-67 (2013) provides that interest accrues on deficient tax principal.

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

19 NMSA 1978, Section 7-1-67 (A). By the use of the word “shall” the legislature intended that the

20 assessment of interest is mandatory. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n.,

21 2009-NMSC-013, ¶ 22, 146 N.M. 24; see also NMSA 1978, Section 12-2A-4 (A) (1997). Likewise,

22 under Regulation 3.1.6.13 NMAC, the presumption of correctness under Section 7-1-17 (C)

23 extends to the Department’s assessment of penalty and interest. See Regulation 3.1.6.13 NMAC

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 13 of 20.
1 1/15/01); see also Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-

2 50, ¶16, 139 N.M. 498, 503 (agency regulations interpreting a statute are presumed proper and are

3 to be given substantial weight). Taxpayer’s evidence was insufficient to overcome the presumption

4 of correctness that attached to the assessment of interest imposed against delinquent tax. See

5 Regulation 3.1.6.12(A) NMAC; see also Gemini Las Colinas, LLC v. New Mexico Taxation &

6 Revenue Department, 2023-NMCA-039, ¶ 16.

7 Nevertheless, the legislature also enacted time deadlines to ensure timely disposition of tax

8 protests. See NMSA 1978, Section 7-1B-8 (2019). The Department’s failure to adhere to statutory

9 time deadlines can result in the stay of accrual of interest. See NMSA 1978, Section 7-1B-8 (E).

10 Regulations allow the hearing officer, upon request of the taxpayer or on their own initiative, to

11 review whether the Department satisfied applicable statutory requirements, and if finding the

12 Department did not, to stay the accrual of interest. See Regulation 22.600.3.18 (E) (8/25/2020). In

13 this instance, the Taxpayer asked for review and the Department argued for finding the Department

14 in compliance with the time deadlines.

15 Beginning with the date of the Taxpayer’s protest, submitted to the Department on February

16 22, 2023. Thereafter, on May 31, 2023, the Department issued a letter acknowledging a timely

17 protest of the Notice of Assessment – a delay of 98 days. Then, on December 1, 2023, the

18 Department filed a Request for Hearing – an additional delay of 185 days. The total delay

19 between the Taxpayer’s submission of the protest and the Department’s request for hearing was

20 283 days. The Hearing Officer, in a separate Decision and Order, expressed dismay at a delay of

21 309 days and sua sponte halted the accrual of further interest, following NMSA 1978, Section 7-1B-

22 8 (E) (2019) and Regulation 22.600.3.18 (E) NMAC (8/25/2020). See In the Matter of the Protest of

23 Jimmy Lopez, D & O #24-03 (non-precedential).

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 14 of 20.
1 A review is warranted here. There are two deadlines of note under the 2019 statute, “[i]f the

2 hearing officer finds that the taxation and revenue department failed to comply with the deadlines

3 set forth in Subsections A and B of this section, the hearing officer may order that no further interest

4 may accrue on the protested liability.” NMSA 1978, Section 7-1B-8 (E) (2019); see also Regulation

5 22.600.3.18 (E) (8/25/2020).

6 Beginning with Section A of the statute, the Department is required to promptly issue an

7 acknowledgement of the protest. Here, the Taxpayer’s protest form was dated February 22, 2023,

8 however, there is no received stamp showing the date the Department received the form. The

9 Department issued an acknowledgement of protest on May 31, 2023. A simple calculation indicates

10 that the acknowledgment of protest was dated 98 days after the protest was sent to the Department.

11 A determination of “promptness” is certainly a subjective standard, and the hearing officer may take

12 into account a variety of factors that might contribute to a delay. Regulation 22.600.3.18 (E)

13 (8/25/2020). The statute provides “[i]f the department determines that the protest has not been filed

14 in accordance with that section [7-1-24 NMSA 1978], the department shall, within twenty-one days

15 of the receipt of the protest, inform the taxpayer of the deficiency and provide the taxpayer within

16 twenty-one days of the taxpayer being informed, one opportunity to correct it.” There is no evidence

17 on record that the Department found fault with the initial submission of the protest for the tax years

18 in question, therefore, a prompt acknowledgment should have occurred within this 21-day grace-

19 period. The record is void as to whether there was any behind-the-scenes activity that might have

20 justified a delay of longer than 21-days such as, for example, holding an informal conference or

21 making amendments to the protest. Because of the relatively uncomplicated nature of the case and

22 no evidence of behind-the-scenes activity, a delay of 98 days cannot be found to be prompt, as it

23 should have occurred within 21-days of the receipt of the protest.

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 15 of 20.
1 Turning then to Section B, the Department has one hundred eighty (180) days from the date

2 of the protest, within which to request a hearing. Regulations identify the date, on which the 180

3 days begin, to be the date of the prompt acknowledgment of protest. See Regulation 22.600.3.8

4 NMAC. In this case, the Taxpayer’s initial protest was stamped as sent to the Department on

5 February 22, 2023. The Department issued an acknowledgment of protest outside the 21-day

6 boundary of promptness articulated by the Legislature, on May 31, 2023, then submitted its request

7 for hearing on December 1, 2023. A simple calculation indicates that the request for hearing was

8 filed 185 days after the actual acknowledgement of protest, and a total of 283 days from the initial

9 protest. By filing the request for hearing after the expiration of the 180-day deadline, the

10 Department did not comply with the statutory deadline expressed under 7-1B-8 (B). Therefore, the

11 Hearing Officer finds that the Department failed to comply with deadline set forth in Subsection B

12 of Section 7-1B-8.

13 New Mexico law imposes time limits to expedite the adjudication of protests. The law

14 allows “[i]f the hearing officer finds that the taxation and revenue department failed to comply with

15 the deadlines set forth in Subsections A and B of this section, the hearing officer may order that no

16 further interest may accrue on the protested liability.” NMSA 1978, Section 7-1B-8 (E) (2019).

17 Here, the Department’s acknowledgment of the protest was not prompt, a violation of Section A.

18 Likewise, the Department’s filing of the request for hearing, was greater than 180 days from its

19 actual issuance of the acknowledgement of protest letter, so it also violated Section B. Therefore,

20 the Department failed to comply with the deadlines as set forth by the legislature, and the imposition

21 of a stay of accrual of interest is justified.

22 The date at which the halting or suspension of accrual of interest shall be effective, is,

23 according to the regulation, “the day after the date on which TRD should have, but did not act, or

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 16 of 20.
1 from another date considering the unique circumstances at issue in the protest.” Regulation

2 22.600.3.18 (E).

3 Generally, there is a 21-day grace period from the receipt of a tax protest. See Section 7-

4 1B-8 (A). During this time, a protest may be evaluated by the Department for adherence to

5 Section 7-1-24 requirements. If there is no issue with the protest, the prompt acknowledgement

6 should be before the expiration of the 21-day grace period. The request for hearing should be

7 submitted to the Administrative Hearings Office within 180-days thereafter. Since there have

8 been no reasons articulated or provided in the record for additional delay, the Department should

9 have acted to request a hearing within 201 days after receipt of the Taxpayer’s protest. The

10 receipt of the protest was February 22, 2023. Adding 201 days to that date, the Department’s

11 request for hearing should have occurred on or before September 11, 2023. The date on which the

12 stay shall cease to accrue is the date “on which TRD should have, but did not act.” Regulation

13 22.600.3.18 (E). The accrual of interest shall be halted as of September 11, 2023, the date on which

14 the Department should have but did not act.

15 Conclusion

16 The Taxpayer provided medical services in New Mexico. Under the broad umbrella of the

17 gross receipts tax, payment received as payment for a medical service is expressly taxable, as “fees

18 derived from … the business of… selling … any… service.” Section 7-9-3.5 (A)(2)(b). The

19 Taxpayer’s work as an independent contractor was compensated and reported to the IRS using

20 Form 1099-Misc, and Taxpayer was responsible for reporting and paying gross receipts on his

21 business income, as reported on his federal Schedule C. Taxpayer did not qualify for the benefits of

22 the exemption under Section 7-9-13.1.

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 17 of 20.
1 However, because the Department delayed 283 days between the protest and the request for

2 hearing, with no activity to show it acted promptly, the accrual of interest is halted, as of September

3 11, 2023. The protest is denied in part and granted in part.

4 CONCLUSIONS OF LAW

5 A. The Taxpayer filed a timely written protest to the Notice of Assessment of Tax and

6 Demand for Payment issued under Letter ID number L1224570992, and jurisdiction lies over the

7 parties and the subject matter of this protest. See NMSA 1978, Section 7-1-24 (D) (2019); see also

8 NMSA 1978, Section 7-9-1, et seq. (“Gross Receipts and Compensating Tax Act”).

9 B. The hearing was timely set and held within 90-days of the Department’s request for

10 hearing under NMSA 1978, Section 7-1B-8 (F) (2019). Parties did not object that the scheduling

11 hearing satisfied the 90-day hearing requirement of Section 7-1B-8 (F). See also Regulation

12 22.600.3.8 (J) NMAC (8/25/20).

13 C. Any assessment of tax made by the Department is presumed to be correct.

14 Therefore, it is the taxpayer’s burden to come forward with evidence and legal argument to establish

15 that the Department’s assessment should be abated, in full or in part. See NMSA 1978, Section 7-1-

16 17 (C) (2007).

17 D. “Tax” is defined to include not only the tax program’s principal, but also interest and

18 penalty. See NMSA 1978, Section 7-1-3 (Z) (2019). Assessments of penalties and interest therefore

19 also receive the benefit of a presumption of correctness. See Regulation 3.1.6.13 NMAC (1/15/01).

20 E. Taxpayer bears the burden of overcoming the presumption of correctness that

21 attached to the Department’s Assessment. Taxpayer presented no evidence that his independent

22 contractor services as a physician were performed outside of New Mexico, and was unable to

23 overcome the presumption of correctness. See NMSA 1978, Section 7-1-17 (C) (2007); see also

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 18 of 20.
1 Regulation 3.1.8.10 NMAC (08/30/2001); see also Gemini Las Colinas, LLC v. New Mexico

2 Taxation & Revenue Department, 2023-NMCA-039, ¶ 16, 531 P.3d 622; see also Regulation

3 3.1.6.12 NMAC; see also MPC Ltd. v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-021, ¶13,

4 133 N.M. 217, 62 P.3d 308; see also Regulation 3.1.6.12 (A) NMAC (1/15/01).

5 F. The Taxpayer’s evidence and legal argument, weighed against the Department’s

6 evidence and legal argument was insufficient to find by a preponderance of evidence that

7 Taxpayer was entitled to a deduction under Section 7-9-13.1 (effective 1989 to June 30, 2021).

8 See NMSA 1978, Section 7-1-18 (C) (2021); see also Gemini Las Colinas, LLC v. New Mexico

9 Taxation & Revenue Department, 2023-NMCA-039, ¶ 29, 531 P.3d 622.

10 G. The Department failed to issue a prompt acknowledgement of protest and a timely

11 request for hearing on the protest without good cause shown. See NMSA 1978, Section 7-1B-8

12 (A) and (B); see also Regulation 22.600.3.18 (E). The accrual of additional interest is halted as

13 of the date on which the Department should have but did not act. See Regulation 22.600.3.18 (E).

14 For the foregoing reasons, the Taxpayer’s protest IS DENIED IN PART AND

15 GRANTED IN PART.

16 DATED: January 8, 2025

17
18 Ignacio V. Gallegos
19 Hearing Officer
20 Administrative Hearings Office
21 Post Office Box 6400
22 Santa Fe, NM 87502

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 19 of 20.
1 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

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

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

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

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

13 CERTIFICATE OF SERVICE

14 On January 8, 2025, a copy of the foregoing Decision and Order was submitted to the

15 parties listed below in the following manner:

16 First Class Mail and E-Mail First Class Mail E-Mail
17
18
19 INTENTIONALLY BLANK

In the Matter of the Protest of Mohammed Abdul Muqeet Adnan, page 20 of 20.