In 2006, the Taxpayer worked as an employee in the film and ski industries, as well as an independent contractor in the film industry. Under its tape match program with the IRS, the Department found a discrepancy between the Taxpayer’s reported 2006 IRS schedule C business income and his reported New Mexico gross receipts tax liability. After giving the Taxpayer credit for properly executed NTTCs, the Department assessed the Taxpayer for gross receipts tax, penalty and interest on the remaining portion of the business income detected by the tape match. The Taxpayer protested the assessment. At the hearing, the Taxpayer produced W-2’s for his employee wages and 1099-MISCs for his business receipts. However, there was a discrepancy in the numbers between the Taxpayer’s 2006 1040 tax return, the Taxpayer’s Schedule C, and the documents the Taxpayer provided at hearing. The Taxpayer further acknowledged that he had included some unspecified employee W-2 wage income on his Schedule C, which might be the source of the discrepancy in numbers between his 2006 filings and the documents at hearing. The Taxpayer could not demonstrate which portion of his Schedule C business income came from his employee wages and did not amend his 2006 federal return to correct any discrepancy in the numbers. Although employee wage income are legally exempt from gross receipts tax, the Taxpayer did not factually establish he was entitled to further exemption from gross receipts tax and did not overcome the presumption of correctness because he could not demonstrate which portion of his Schedule C business income was attributable to employee wages. The Taxpayer’s protest was denied.
Kevin St. John