Dr. Edward E. Gilmour

00-23

The Taxpayer was assessed gross receipts tax based upon receipts reported to the IRS on his Federal Schedule C as receipts from engaging in business. Taxpayer argued that the receipts were wages, which were deductible, pursuant to Section 7-9-17. Taxpayer was a psychiatrist, working for a hospital. He was initially engaged as an independent contractor by the hospital. The hospital reported his compensation on a Form 1099, he was paid on an hourly basis, he was allowed to maintain a private practice, he was required to carry his own malpractice insurance, he accrued no sick or annual leave or other similar employee benefits and the Taxpayer received no reimbursement for his expenses incurred in traveling to the hospital’s various clinics. The hospital directed which clinics the Taxpayer would work at and the times of such work. The hospital scheduled the Taxpayer’s appointments to see patients and provided the working environments at which the Taxpayer performed his services. Later in the same tax year, the Taxpayer became an acknowledged employee of the hospital. The only manner in which the Taxpayer’s relationship with the hospital changed was that he accrued sick and annual leave, his compensation was subjected to withholding taxes and the Taxpayer was offered insurance under the hospital’s health plan. Based upon the control exercised over the Taxpayer’s work schedule and places of work, and the fact that almost nothing changed when he became an acknowledged employee of the hospital, it was concluded that the Taxpayer qualified as an employee of the hospital during the time that the hospital treated him as an independent contractor. The Hearing Officer rejected the Department’s argument that because the Taxpayer, as a medical professional, was required to exercise independent medical judgment in treating the hospital’s patients, the Taxpayer should be treated as an independent contractor.  Although the Taxpayer was found to be an employee, the Taxpayer was held to be ineligible to claim the deduction for wages paid to employees for his receipts. This was based upon the fact that the Taxpayer had reported his compensation as receipts from engaging in business on a Federal Schedule C and claimed deductions against those receipts for expenses incurred in his work for the hospital.  Taxpayers must report their taxes to the state in a manner which is consistent with the manner they report to the Federal government. Should the Taxpayer amend his federal return to treat his receipts and expenses related to those receipts consistently with his claim that those receipts were wages received as an employee, he is entitled to claim the deduction for such wages. Taxpayer’s protest was granted in part and denied in part.