New Mexico Rules that Out-of-State Staffing Company Owes Gross Receipts Tax

June 28, 2023

By: Betsy Goldstein, SALT Manager

At a glance

The main takeaway: An out-of-state medical company was subject to New Mexico’s gross receipts tax and was not entitled to deduct payments it received from the hospitals that it paid to the medical professionals they placed within those facilities.
Assess the impact: Gross receipts tax can pose unique challenges for businesses, especially those that are collecting money from one party for the sole purpose of reimbursing another party, because they contain limited exclusions.
Take the next step: Aprio’s State and Local Tax (SALT) team can help you understand the consequences of gross receipts tax and provide recommendations to minimize your obligations.

Schedule a free consultation today to learn more!

The full story:

On April 7, 2023, the New Mexico Administrative Hearings Office issued a tax decision addressing whether a medical staffing company owed New Mexico Gross Receipts Tax (GRT).¹

The taxpayer, Vista Staffing Solutions, Inc. (Vista or the Company) is a medical staffing agency based in Utah, and it did not have an office or any employees in New Mexico. Vista provides medical staffing services to medical providers, such as hospitals and health care facilities (Facility) located across the country, including in New Mexico.

Understanding how Vista’s business operates

First, Vista will recruit and find a qualified medical professional candidate to place at a Facility based on the Facility’s needs. Then, the Facility will decide if it would like to utilize the candidate. If so, the operators will determine the dates needed for the medical professional and will oversee the day-to-day job functions and management of the medical professional. The agreements specify that the medical professionals have an independent contractor relationship with both Vista and the Facilities.

Vista invoices the Facility for the medical professional’s services as well as for Vista’s placement services, and Vista pays the medical professional for its services. Vista maintains internal records that break out the medical professional’s compensation from receipt for its own services, but it does not show this breakout on its invoices to the Facilities.

Vista was audited for the period of January 2, 2010, to May 31, 2017. Vista derived over $40 million in gross receipts from services provided to Facilities in New Mexico, but it never filed a GRT return during the audit period. As a result, Vista was assessed with over $2 million in tax, penalty and interest for GRT during this period.

The ruling explained

Unlike a traditional sales tax, which is imposed on the sale of a taxable good or service, the GRT is a tax on any person that “engages in business” in New Mexico, and it is measured by gross receipts. “Engaging in business” is defined as “carrying on or causing to be carried on any activity with the purposes of direct or indirect benefit.”² Sellers are permitted and often pass the tax on to customers by separately stating the tax on the invoice; thus, to consumers, this tax functions similarly to a sales tax.

New Mexico gross receipts are considered receipts from the following:

Selling property in New Mexico;
Leasing or licensing property employed in New Mexico;
Granting a right to use a franchise employed in New Mexico;
Selling services performed outside of New Mexico, the product of which is initially used in New Mexico; or
Performing services in New Mexico.³

Vista made several arguments in favor of dismissing or reducing the assessment, a few of which are explained below.

Vista argued that it derived revenue from “recruiting” services performed outside of New Mexico, as evidenced by the fact that it had no office or employees in the state during the audit period. The hearing officer disagreed, concluding that Vista generated receipts based on the successful placement of a medical professional in the state of New Mexico and not the recruiting services that take place beforehand from outside of the state since Vista is not paid by the Facility until after the placement is successfully made.
Vista also argued that it should not be taxed on its receipts from Facilities that related to the compensation it paid to the medical professionals. First, Vista claimed that it was acting on behalf of the medical professionals in a disclosed agency capacity, but the hearing officer dismissed this on the basis that the agreements do not clearly establish such a relationship. Second, Vista asserted that those amounts should not be a “consideration” since they did not represent any value or provide any benefit to the Company. However, the hearing officer noted that Vista did benefit by requiring the money to flow this way and prohibiting the Facilities and the medical professionals from contracting directly, as it allowed Vista to maintain and expand its market in the state.
Finally, Vista claimed that taxing these receipts would represent double taxation since the medical professionals would also be subject to GRT on those same amounts. The hearing officer dismissed this contention, noting that this is the very nature of a gross receipts tax and is not prohibited since each of the parties are distinct taxpayers.

Gross receipts taxes pose unique challenges for businesses since they are typically imposed directly on the business (and some do not provide or allow for the tax to be separately passed along to customers) and they generally contain limited and narrow deductions/exclusions. Thus, for businesses that operate on thin margins or that are often collecting money from one party for the sole purpose of reimbursing another, these taxes can have a significant impact on overall profitability.

The bottom line

Aprio’s SALT team has experience with these types of taxes and the challenges they present. We work with businesses to help them understand the consequences of these taxes and provide recommendations for minimizing their obligations based on the facts and circumstance of each situation. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

This article was featured in the June 2023 SALT newsletter.

¹ Vista Staffing Solutions Inc. v. New Mexico Taxation and Revenue Department, Case Number 19.03-207A, D&O 23-09, April 7, 2023.

² NMSA 1978, Section 7-9-3.3 (2003).

³ NMSA 1978, Section 7-9-3.5(A)(1) (2007).