Michael L. Flure

00-24

Taxpayer was assessed gross receipts on receipts reported on his Federal Schedule C. Taxpayer claimed that the compensation reported on his Schedule C was actually compensation received in the capacity of an employee and was therefore exempt from gross receipts tax pursuant to Section 7-9-17 NMSA 1978. Taxpayer worked as a general utility and office worker at a construction company, which reported his compensation as nonemployee compensation on a form 1099.  The company set his hours, determined his job tasks and otherwise controlled the details of his work.  The Taxpayer did not understand the significance of how his compensation was reported and was confused as to how to report and pay his federal income taxes.  He went to the IRS offices and was directed to a person who helped him fill out his federal tax return and used a Schedule C to report the Taxpayer’s compensation from his work although the Taxpayer stated at the time that he was an employee. Because of the degree of control exercised over the Taxpayer by the construction company, it was concluded that he was an employee. The Department argued that the Taxpayer was not entitled to claim exemption for his wages because he reported his compensation on Schedule C as gross receipts from a business or profession and taxpayers must report consistently for both state and federal purposes. This case presented good grounds for an exception to the consistent filing requirement because the Taxpayer had received no tax benefit from the manner in which he reported his income for federal purposes because he claimed no deductions against the income reported. Additionally, the Taxpayer had consistently maintained that he was an employee and did not knowingly or intentionally represent that the income was income from self-employment by reporting the income on Schedule C.  Protest granted.