New Mexico Court Rules Staffing Agencies are Obligated to Pay Gross Receipts Tax 

A New Mexico court ruled a psychiatric services provider was subject to the state’s gross receipts tax, contrary to New Mexico Statutes Sec. 7-9-77.1. The reason for this departure is due to the way the taxpayer was contracted.

Under New Mexico state law, receipts from any US government agency on certain medical services can be deducted from the taxpayer’s gross receipts. Practices that can be deducted include many different practices, from speech pathology to massage therapy. The taxpayer’s practice, child psychiatric services, would be considered an included exemption for gross receipts.

However, the taxpayer was contracted to perform such services by Staff Care, Inc, a staffing agency rather than a managed health care provider or health care insurer. The taxpayer first claimed that receipts were traceable to New Mexico government under 7-9-93(A). The court responded, claiming Staff Care is not a “managed healthcare provider” due to its lack of “an association of individual physicians.”

The taxpayer then claimed that Staff Care was a third-party and was therefore entitled to a deduction per NMAC. The court found this unsatisfactory, as Staff Care did not perform such services “for a health plan,” as required in a 2003 ruling. TPL, Inc., 2003-NMSC-007, ¶9. The taxpayer would have been subject to the claimed deductions had they been contracted with a managed healthcare provider or a healthcare insurer.

This case reiterates the importance of thorough understanding of state laws. The examination of state laws and guidance is necessary to fully understand what services are subject to deductions.

(Benvenuti v. New Mexico Taxation and Revenue Department, Court of Appeals of New Mexico, No. A-1-CA-39641, December 27, 2022, ¶401-987. New Mexico Statues Annotated ¶60-520, Medical, Dental, and Optical Supplies and Drugs, 1978)

Posted on February 10, 2023