Bill and Sherri McConnel

98-57

Taxpayers (husband and wife) were assessed gross receipts tax on business income reported on their 1994 federal income tax return. Taxpayers argued they were employees entitled to the deduction from gross receipts provided in Section 7-9-17. The Department agreed to abate tax on wife’s income if the Taxpayers amended their 1994 income tax return to reflect wife’s income as wages rather than as business income. The Taxpayers declined to file amended returns. Held: Taxpayers could not deduct husband’s income because he was an independent contractor, not an employee; Taxpayers could not deduct wife’s income because they were required to report their income consistently for both federal and state tax purposes. Taxpayers could not claim wife’s compensation as business income for federal income tax purposes and as employee wages for state gross receipts tax purposes. Taxpayers were also liable for penalty and interest assessed for late payment of gross receipts tax. Protest denied.