On August 16, 2012, the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the CRS reporting periods from January 31, 2004 through August 31, 2010. On November 13, 2012, after having been granted an extension to protest, the Taxpayer filed a protest of the assessment. The Taxpayer is a Georgia corporation with its principal place of business in New York. In 1998, the Taxpayer entered into a franchise agreement with a New Mexico company. Under the agreement, the New Mexico company operated a franchise in New Mexico that offered and sold temporary medical healthcare personnel services, programs, products and activities in accordance with the Taxpayer’s developed style, system and technique of business operations. The Taxpayer terminated the franchise agreement on May 12, 2009. The Taxpayer was the legal employer of the New Mexico company’s temporary employees and processed payroll and issued tax forms, but the company was responsible for recruitment, training, testing and selection of employees, hiring and firing them, determining salary and benefits, and setting rates for their customers to pay the healthcare workers. Beginning on October 8, 2010, the Department conducted an audit of the Taxpayer for the reporting periods from January 1, 2004 through August 31, 2010. As a result of the audit, the Department issued the assessment to the Taxpayer. There were five issues involved in the protest. First, is money the Taxpayer received from the company’s clients received in a disclosed agency capacity and not subject to gross receipts tax? Second, is money the Taxpayer received from the company for the granting of a franchise and license to use a trademark before June 27, 2007 subject to gross receipts tax? Third, is money received after June 27, 2007 for the same purpose not subject to gross receipts tax under the definition of “property” in Section 7-9-3(J)? Fourth, is money the Taxpayer received from Indian Health Services deductible under Section 7-9-93 NMSA 1978? Fifth, if the Taxpayer is liable for the assessed tax, is it entitled to an abatement of penalty for non-negligence under Section 7-1-69 NMSA 1978? As to the first issue, the hearing officer found that the Taxpayer failed to establish that it collected receipts as a disclosed agent. Regarding the second and third issues, the hearing officer found that the franchise royalties prior to June 27, 2007 were not subject to tax, but subject to gross receipts tax after that time. The Taxpayer’s receipts from providing temporary employees to Indian Health Service facilities were found to be deductible, as was already indicated in the audit narrative. On the last issue, the hearing officer concluded that the Taxpayer was not subject to penalty as it established that it made a mistake of law, in good faith and on reasonable grounds. The hearing officer ordered assessed tax related to the pre-June 27, 2007 franchise fees and royalties, as well as all assessed penalty to be abated. The Taxpayer was ordered to pay all remaining assessed tax and interest. The Taxpayer’s protest was granted in part and denied in part.
ATC Healthcare Services Inc.