On July 30, 2015 the Department assessed the Taxpayer for gross receipts tax, penalty and interest for the reporting periods June 1, 2012 through December 31, 2012. The Taxpayer filed a timely protest with the Department which was received on October 5, 2015. During the time at issue the Taxpayer was a sole owner and proprietor of a handyman construction and maintenance service business. The Taxpayer’s wife assisted the Taxpayer with maintaing the records of the business and the filing of taxes. During the relevant periods the Taxpayer and the Taxpayer’s wife filed a married filing joint return and reported more business income on the federal Schedule C than was reported on gross receipts income filed on the CRS returns. Based on the mismatch information between the Federal Schedule C and the amount reported to New Mexico the Notice of assessment was issued by the Department. During the hearing the Taxpayer argued that gross receipts tax is not due for the material purchased for the services he provided as the materials were reimbursed expenditures that were purchased on behalf of his clients and that the materials and his services were separated out on the invoices provided to the Department. The hearing officer determined that with the invoices and spreadsheets provided the Taxpayer met the bookkeeping requirements. However, Taxpayer did not present sufficient or compelling evidence that he was a disclosed agent for the clients so Section 7-9-3.5 NMSA 1978 does not apply. During the time of issue, the Taxpayer’s wife was also engaged in her own business endeavors including contracting with an out-of-state company performing services in New Mexico, selling goods online to out-of-state buyers, and performing mystery shopping services but was not registered with the Taxation and Revenue Department as a business and did not have her own CRS number. The Taxpayer argued that the Taxpayer’s wife business endeavors were not subject to gross receipts tax as the services were performed for an out-of-state company. The Department agreed to a partial abatement for some of the business endeavors reported by the Taxpayer’s wife prior to the hearing. At the time of the hearing, the hearing officer determined that gross receipts tax applies to the services performed in New Mexico by the Taxpayer and the Taxpayer’s wife per the definition of gross receipts in Section 7-9-3.5 NMSA 1978. Lastly, the Taxpayer argued that the penalty and interest should be waived for the period at issue as there are good intentions to pay what is owed to the Department. It was determined by the hearing officer that interest will not be abated as the Department has no discretion to abate interest based on Section 7-1-67 NMSA 1978. It was also determined that the Department is unable to abate penalty per Section 7-1-69 NMSA 1978 as there was no evidence showing that the Taxpayer engaged in any formal consultation or study of the issue before reporting or paying CRS taxes. The Department is ordered to recalculate outstanding tax, penalty, and interest in light of the abatement allowed by the Department and the Taxpayer is ordered to pay the outstanding liability. The Taxpayer’s protest is denied.
Matthew Marshall RJ Handyman