Does a retiree owe New Mexico gross receipts tax on small amounts earned from side activities like salvaging metal, babysitting, tax prep, and caretaking?

Plain-English summary

Wayne F. Weaver lived on about $468 a month in Social Security and supplemented it with a patchwork of small activities: selling Amway products, taking apart worn-out appliances to salvage copper and other metals for a recycler, repairing and selling an old car, babysitting, preparing taxes, hauling homing pigeons for a club and releasing them on weekends, and — with his wife — providing caretaking and management for a self-storage facility as independent contractors. On his 1993 federal return he reported $13,706.65 of business income on Schedule C. Through its data-sharing agreement with the IRS, the Department learned of this and assessed $751.74 in gross receipts tax, plus penalty and interest, for 1993.

Before the hearing, the Department removed two items from the assessment: the sale of the old car, and the Amway sales (because Amway had already paid the tax on those). Mr. Weaver protested the rest, arguing his earnings were too small and were just his way of supporting himself without public assistance.

The Hearing Officer denied the protest:

• There is no de minimis threshold. The gross receipts tax is a privilege tax on "engaging in business" (§ 7-9-4), which is defined very broadly as any activity carried on for direct or indirect benefit (§ 7-9-3(E)), and all receipts of a person engaging in business are presumed taxable (§ 7-9-5). The Gross Receipts and Compensating Tax Act simply contains no minimum amount below which receipts escape tax, however sympathetic the situation.
• The occasional-sale exemption didn't fit. Section 7-9-28 exempts the isolated or occasional sale by someone not regularly engaged in that business. Mr. Weaver engaged in these activities regularly, so it didn't apply.
• The employee-wage exemption didn't fit. Section 7-9-17 exempts employees' wages, but he was an independent contractor, not an employee. He argued it was unfair that an employee doing the same work would be exempt, but the legislature has broad freedom to tax independent contractors and employees differently, and there is a rational basis for the distinction (Maloof).

What this means for you

People earning small amounts from side activities

New Mexico's gross receipts tax has no floor. If you regularly do something for money — salvaging and reselling materials, babysitting, tax prep, odd services — those receipts are presumed taxable no matter how small the total. Report and pay, or identify a specific exemption or deduction that fits. "It's only a little" is not, by itself, a defense.

Independent contractors vs. employees

This is a recurring New Mexico trap. An employee's wages are exempt from gross receipts tax (§ 7-9-17), but an independent contractor's compensation for the very same work is taxable. If you're paid as a contractor (no withholding, a 1099, you control how you do the work), plan to owe gross receipts tax on that income even though an employee wouldn't. The perceived unfairness isn't a legal defense — the distinction has been upheld.

When the occasional-sale exemption actually helps

Section 7-9-28 can exempt a genuinely one-off sale by someone not in that line of business — for example, selling a single personal item. It does not cover activities you do regularly. If reselling or a service is a recurring part of how you make money, treat it as a taxable business, not an occasional sale.

A note on IRS matching

The assessment here came from the Department matching the taxpayer's federal Schedule C income against its own records. Income you report to the IRS as self-employment can surface a New Mexico gross receipts tax obligation you didn't file for. Consistency between your federal Schedule C and your New Mexico reporting matters.

Common questions

Q: I only make a little on the side. Is there a minimum before I owe gross receipts tax?
A: No. New Mexico's gross receipts tax has no de minimis threshold. If you regularly engage in an activity for money, those receipts are presumed taxable regardless of how small the amount.

Q: I sold some scrap and did a few odd jobs — isn't that an occasional sale?
A: Only if you're not regularly engaged in it. The occasional-sale exemption (§ 7-9-28) covers isolated, one-off transactions. Recurring activities — even small ones — don't qualify.

Q: An employee doing this work wouldn't pay gross receipts tax. Why do I?
A: Because you're an independent contractor, not an employee. The employee-wage exemption (§ 7-9-17) doesn't reach contractor compensation, and courts have upheld taxing the two differently.

Q: My Amway and car sales were dropped — why not the rest?
A: The Department removed the Amway sales because Amway had already paid the tax, and it removed the one-time car sale. The other activities were regular, taxable receipts with no exemption that applied.

Q: Does this decision apply to my situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It illustrates that New Mexico's gross receipts tax has no small-earnings exemption, but your facts may differ.

Citations and references

Statutes:

• § 7-9-4 NMSA 1978 — the gross receipts tax is a privilege tax on engaging in business in New Mexico
• § 7-9-3(E) NMSA 1978 — "engaging in business" means carrying on any activity with the purpose of direct or indirect benefit
• § 7-9-5 NMSA 1978 — all receipts of a person engaging in business are presumed subject to the gross receipts tax
• § 7-9-28 NMSA 1978 — exemption for the isolated or occasional sale or lease of property or a service by a person who is neither regularly engaged nor holding himself out as engaged in that business
• § 7-9-17 NMSA 1978 — exemption for employees' wages, salaries, and other remuneration for personal services
• § 7-1-24 NMSA 1978 — timely written protest

Case cited:

• Michael J. Maloof & Co. v. Bureau of Revenue, 80 N.M. 485, 458 P.2d 89 (1969) — the legislature has broad freedom to classify and tax different activities and taxpayers differently, so long as there is a rational basis

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Wayne F. Weaver
• Decision PDF: D&O 97-39

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
WAYNE F. WEAVER NO. 97-39
ID. NO. 02-323056- 00 8,
PROTEST TO ASSESSMENT NO. 2088223

DECISION AND ORDER

THIS MATTER came on for formal hearing before Gerald B. Richardson, Hearing
Officer, on September 17, 1997. Mr. Wayne Weaver, hereinafter, “Taxpayer”, represented
himself at the hearing. The Taxation and Revenue Department, “Department”, was represented
by Margaret B. Alcock, Special Assistant Attorney General. Following the hearing, the record
was held open to allow the Department to research an issue in its records and to notify the
Hearing Officer if adjustments to the assessment could be made. The Department provided this
information on September 24, 1997 and the matter was considered submitted for decision at that
time. Based upon the evidence and the arguments presented, IT IS DECIDED AND ORDERED
AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer receives $468 a month from Social Security to support himself and
   his wife. In order to supplement this income the Taxpayer engages in a number of other
   activities.
2. For tax year 1993, the Taxpayer reported that he received $13,706.65 in gross
   income from his various income generating activities on Schedule C of his federal personal
   income tax return, which is the schedule for reporting income or loss from a business.
3. The Department has an agreement with the Internal Revenue Service (“IRS”) to
   share information about Taxpayers who reside in New Mexico. Pursuant to this agreement, the
   Department received information concerning the Taxpayer’s 1993 federal personal income tax
   return.
4. As a result of the information received from hereinafter the IRS, on November 22,
   1996, the Department issued Assessment No. 2088223 to the Taxpayer assessing $751.74 in
   gross receipts tax, $75.18 in penalty and $347.68 in interest for calendar year 1993.
5. On December 17, 1997 the Taxpayer filed a written protest to the assessment with
   the Department.
6. The Taxpayer’s income producing activities consisted of the following. The
   Taxpayer sells Amway products. The Taxpayer also takes apart worn out appliances and
   salvages copper and other metals and sells them to a metal recycling business. The Taxpayer
   repaired and sold an old car. The Taxpayer does baby sitting and tax preparation. The Taxpayer
   performs services for a homing pigeon club where he hauls pigeons to remote destinations and
   releases them on weekends. Finally, the Taxpayer and his wife perform caretaking and
   management services for a self-storage facility as independent contractors for the facility.
7. The Department has made adjustments to its original assessment by removing the
   Taxpayer’s receipts from the sale of an automobile and by removing the Taxpayer’s receipts from
   selling Amway products from the tax base upon which tax was assessed because the tax on those
   sales has been paid by Amway.

DISCUSSION

New Mexico’s gross receipts tax is imposed for the privilege of engaging in business in
New Mexico. Section 7-9-4 NMSA 1978. “Engaging in business” is broadly defined at Section
7-9-3(E) to mean “carrying on or causing to be carried on any activity with the purpose of direct
or indirect benefit.” Additionally, Section 7-9-5 provides that, “[T]o prevent evasion of the gross
receipts tax and to aid in its administration, it is presumed that all receipts of a person engaging
in business are subject to the gross receipts tax.” Given the broad definition of engaging in
business it is apparent that the Taxpayer’s activities to supplement his income, even though they
don’t generate much income, qualify as receipts from engaging in business. Thus the
presumption of taxability applies and the burden of proving that its receipts are not subject to tax
requires that the Taxpayer demonstrate that some exemption or deduction from tax which would
apply to prevail in disputing the Department’s assessment of tax.

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The Taxpayer feels that his activities are so minimal and inconsequential, and represent
his efforts to support himself and his wife without going on any kind of public assistance, that
surely the legislature did not intend to subject him to tax. Regrettably, there is no de minimis
exemption or deduction provided in the Gross Receipts and Compensating Tax Act which would
apply to the Taxpayer’s situation. Thus, if any relief can be provided to the Taxpayer, it must be
in the form of some other deduction or exemption.
There is an exemption provided at Section 7-9-28 for the occasional sale of property or
services. It provides as follows:
Exempted from the gross receipts tax are the receipts from the
isolated or occasional sale of or leasing of property or a service by
a person who is neither regularly engaged nor holding himself out
as engaged in the business of selling or leasing the same or similar
property or service.

This exemption, however, would not apply to any of the Taxpayer’s activities at issue, since the
Taxpayer regularly engages in these activities.
The Taxpayer also argues that his compensation for his caretaking and management
activities should not be taxable because there is an exemption provided at Section 7-9-17 NMSA
1978 Taxpayer for the receipts of employees from wages, salaries or other forms of remuneration
for personal services. The Taxpayer does not actually argue that he falls within the terms of the
exemption because he does not claim to be an employee of the self-storage facility, but he feels
that it is unfair that he is subject to gross receipts tax on his compensation while an employee
doing the same things would not be subject to gross receipts tax on his compensation. While he
may not feel that New Mexico’s statutory scheme which exempts the compensation of employees
but not independent contractors is fair, it is well established that in the field of taxation, more
than in other areas, the legislature is given the greatest freedom to classify and tax different
activities and taxpayers differently. Michael J. Maloof & Co. v. Bureau of Revenue, 80 N.M.
485, 458 P.2d 89 (1969). Thus, there is no legal infirmity in the distinction drawn by the
legislature as long as there is some rational basis to justify the distinction. The tax law
recognizes many differences between employees and independent contractors. Employees are
subject to income tax upon their entire compensation from employment whereas independent
contractors may deduct their expenses of conducting business from their gross income to arrive at
their net income subject to income tax. Employees are under the control of their employers for

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their activities as employees while independent contractors exercise far more independence in
how they perform their jobs for the persons for whom they render personal services. These
distinctions are sufficient to justify the differential tax treatment found in New Mexico’s
statutory scheme.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2088223 pursuant
   to Section 7-1-24 NMSA 1978 and jurisdiction lies over both the parties and the subject matter
   of this protest.
2. The Gross Receipts and Compensating Tax Act contains no de minimis level of
   receipts before a taxpayer’s receipts are subject to gross receipts tax.
3. There are no exemptions or deductions which would apply to insulate the
   Taxpayer’s activities from the imposition of gross receipts tax under the facts and circumstances
   of this case.
   For the foregoing reasons, the Taxpayer’s protest IS HEREBY DENIED.
   DONE, this 27th day of October, 1997.

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