MPC LTD. v. THE DEPARTMENT

• Decision Date: 02 October 2002
• Docket Number: No. 22,158.,22,158.
• Citation: 62 P.3d 308,133 N.M. 217,2003 NMCA 21
• Parties: MPC LTD., d/b/a Manpower of New Mexico, a New Mexico corporation, Plaintiff-Appellant, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, and T. Glenn Ellington, Secretary of the New Mexico Taxation and Revenue Department, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

62 P.3d 308

133 N.M. 217

2003 NMCA 21

MPC LTD., d/b/a Manpower of New Mexico, a New Mexico corporation, Plaintiff-Appellant, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, and T. Glenn Ellington, Secretary of the New Mexico Taxation and Revenue Department, Defendants-Appellees.

No. 22,158.

Court of Appeals of New Mexico.

October 2, 2002.

Curtis W. Schwartz, Timothy R. Van Valen, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Santa Fe, NM, for Appellant.

Patricia A. Madrid, Attorney General, Bridget Jacober, Special Assistant Attorney General, Santa Fe, NM, for Appellees.

OPINION

SUTIN, Judge.

{1} MPC, Ltd. d/b/a Manpower of New Mexico (Manpower) appeals the district court's denial of a claim for refund of gross receipts tax assessed by the New Mexico Taxation and Revenue Department (the Department). Manpower asserted it was not liable for tax on its gross receipts (receipts) from clients to which it provided temporary staffing services. Employing statutory presumptions that receipts are taxable and the Department's assessment was correct, the district court held the receipts are taxable as reimbursements of payroll-related expenditures.

{2} Manpower contends the receipts are not subject to tax, pursuant to NMSA 1978, § 7-9-3(F)(2)(f) (2002), which excludes receipts received in a "disclosed agency capacity" from the definition of gross receipts. We hold the receipts are subject to tax and affirm the district court.

BACKGROUND

{3} Manpower locates, recruits, tests, and trains prospective employees, and maintains "a data base that has a broad range of skilled applicants." Based on the job description or needs provided by a client, Manpower matches the skills required with those of the persons in its database and then assigns the prospective employee to the client for work.

{4} The majority of Manpower's business with its clients is done verbally. Of its estimated 350 New Mexico clients, Manpower has about five to seven written contracts, most of which are national contracts. The contracts do not mention any joint employer status or requirement that the client is obligated for payroll if Manpower does not pay. Some written contracts state that Manpower is an independent contractor. For example, Manpower's Unysis contract states that Manpower is an independent contractor and not an agent of Unisys and also states that Manpower is responsible for employment taxes, discipline, and payroll taxes. Manpower's contract with Public Service Company of New Mexico states that Manpower is an independent contractor and that Manpower assumes all liability and agrees to protect the company from all suits.

{5} The client supervises the day-to-day activities of the assigned employee. The client does not pay the employee; rather, the client pays Manpower. Manpower then pays the employee's wages, benefits, and withholdings. (These payroll obligations will be referred to as "payroll" in this opinion.) The client does not pre-pay payroll or create a fund from which Manpower draws to pay payroll. Manpower's employees complete W-4 forms and Manpower issues W-2s. In addition to amounts representing payroll, the client also pays an amount that Manpower attributes to its overhead and profit. Manpower paid $904,066 for tax on its receipts used for payroll. Thereafter, it submitted a refund request to the Department. The Department took no action and the request was deemed denied. Manpower filed a refund action in district court pursuant to NMSA 1978, § 7-1-26 (2001) to recover the taxes paid.

{6} The district court found that Manpower was engaged in the selling of temporary staffing services under mostly oral contracts; that Manpower had employees whom Manpower used to provide temporary staffing services for its clients; that Manpower's clients could not direct Manpower to terminate an employee, but could only ask that the employee be removed from the job site; that, after Manpower provided its services and paid its own business-related expenses, Manpower billed its clients and collected the amounts set by contract, as opposed to collecting prepaid amounts from clients for expenses Manpower incurred in hiring its employees; that Manpower was acting as a principal on its own behalf and not as an agent on behalf of a principal; that Manpower's employees were an integral part of its business and not an integral part of the clients' businesses; that Manpower controlled for whom an employee worked, where and when the employee was to report to work, and the duration of the work assignment; and that the payroll was Manpower's own obligation and was not made as an intermediary or on behalf of its clients. {7} The district court also concluded that "Manpower did not meet its burden of overcoming the presumption of correctness that attaches to the ... Department's assessment of tax and the presumption that [Manpower's] receipts are taxable"; that "Manpower's receipt of payroll ... as a reimbursement of expenditures incurred in ... providing [its] services [constituted] gross receipts as defined by [Section 7-9-3(F)]"; and that the court was "not persuaded that Manpower engaged in any of the necessary elements needed to prove its case." The court upheld the Department's assessments, including interest and penalty.

{8} Manpower contends on appeal that it does not owe tax because it received the amounts "purely as a conduit" between its clients and its employees. Manpower contends this is consistent with, and based upon, the Department's regulation, 3.2.1.19(E)(2) NMAC (2002), which states that funds that pass through the hands of a "joint employer" for the purpose of federal labor law are not subject to tax.

{9} Manpower thus asserts the district court erred in determining that Manpower's payment of payroll was its own obligation. Manpower also attacks two other findings of fact on the ground they lack substantial evidence; namely, the findings that Manpower was acting as a principal on its own behalf and not as an agent on behalf of a principal, and that Manpower's employees were an integral part of its business and not an integral part of its clients' businesses.

{10} Further, Manpower attacks the district court's conclusions of law that Manpower did not overcome the statutory presumptions of correct tax assessment and taxability, that the receipts were for performing services rather than acting as the disclosed agent of another, and that Manpower failed to prove the tax assessment did not apply. In essence, Manpower contends its evidence was not only sufficient to rebut the presumptions, but the evidence established that Manpower received the receipts solely as a disclosed agent of its clients, and the evidence "overwhelmingly" established that Manpower was a joint employer with each of its clients pursuant to which the employees had legally enforceable rights against the client for payroll if Manpower did not pay. Further, Manpower contends that the Department's evidence did not disprove Manpower's joint employer status with its clients.

DISCUSSION

Standard of Review

{11} A statutory tax refund action is a civil action initiated by a complaint setting forth the circumstances and demanding a refund. See § 7-1-26(C)(2). The district court's findings of fact are reviewed by this Court to determine whether they are supported by substantial evidence. Creson v. Amoco Prod. Co., 2000-NMCA-081, ¶ 10, 129 N.M. 529, 10 P.3d 853. Questions of law, such as interpretation of a statute, are reviewed by this Court de novo, without deference to the district court's decision. Id.; Johnson v. Yates Petroleum Corp., 1999-NMCA-066, ¶ 3, 127 N.M. 355, 981 P.2d 288. Findings that are not directly attacked are deemed conclusive and are binding on appeal. See Rule 12-213(A)(3) NMRA 2002; Stueber v. Pickard, 112 N.M. 489, 491, 816 P.2d 1111, 1113 (1991).

Presumptions and Burden

{12} There exists a statutory presumption that all receipts are taxable. NMSA 1978, § 7-9-5(A) (2002). The taxpayer claiming that receipts are not taxable bears the burden of proving the assertion. TPL, Inc. v. Taxation & Revenue Dep't, 2000-NMCA-083, ¶ 8, 129 N.M. 539, 10 P.3d 863, cert. granted, 129 N.M. 519, 10 P.3d 843 (Sept. 13, 2000); ITT Educ. Servs., Inc. v. Taxation & Revenue Dep't, 1998-NMCA-078, ¶ 5, 125 N.M. 244, 959 P.2d 969; Brim Healthcare, Inc. v. Taxation & Revenue Dep't, 119 N.M. 818, 820, 896 P.2d 498, 500 (Ct.App.1995); Wing Pawn Shop v. Taxation & Revenue Dep't, 111 N.M. 735, 741, 809 P.2d 649, 655 (Ct.App.1991).

{13} There also exists a statutory presumption of correctness of the Department's tax assessment. NMSA 1978, § 7-1-17(C) (1992). "The effect of the presumption of correctness is that the taxpayer has the burden of coming forward with some countervailing evidence tending to dispute the factual correctness of the assessment made by the secretary. Unsubstantiated statements that the assessment is incorrect cannot overcome the presumption of correctness." 3.1.6.12(A) NMAC (2002). A taxpayer may rebut the presumption, shifting the burden to the Department to show the correctness of the tax assessment. See Archuleta v. O'Cheskey, 84 N.M. 428, 431, 504 P.2d 638, 641 (Ct.App.1972).

The Tax and the Disclosed Agency Capacity Exception

{14} Tax is imposed for the privilege of engaging in business and for services performed in New Mexico. See NMSA 1978, § 7-9-4(A) (1990); § 7-9-3(F). "The tax is imposed upon gross receipts, which means `the total amount of money or the value of other considerations received from selling property or from performing services.'" Brim, 119 N.M. at 820, 896 P.2d at 500 (quoting N.M. Enters., Inc. v. Bureau of Revenue, 86 N.M. 799, 800, 528 P.2d 212, 213 (Ct.App.1974)). Receipts include payments received for one's own account and then expended to meet one's own responsibilities. Id. However, no tax is imposed on amounts received "solely on behalf of another in a disclosed agency capacity." § 7-9-3(F)(2)(f); see Carlsberg...