If the New Mexico tax department takes a long time to finish an audit, can a trucking company get out of paying the interest that piled up on taxes it had underreported?

Plain-English summary

Chaparral Van Lines, a trucking company, was audited for the weight distance tax and IFTA (fuel) tax it owed on 1997–1999. The company had thrown out most of its mileage and fuel records after six months (the retention period the federal DOT required), so the auditors built the assessment from a sample. After the company protested, the Department revised the numbers downward, and Chaparral agreed it owed the reduced tax — it withdrew that part of the protest. What it kept fighting was the interest.

The company's argument was simple: the Department took too long to finish the audit, and that delay let extra interest pile up, so it shouldn't have to pay it.

The Hearing Officer denied the protest. Under Section 7-1-67, interest on a late-paid tax "shall" be paid — the word "shall" makes it mandatory, with no exceptions. Interest is not a punishment; it compensates the state for the time value of money it was owed but did not have. And the delay argument misunderstands New Mexico's self-reporting system: it was the taxpayer's job to figure out and report its own liability, not to wait for an audit. The company could have reviewed its records and filed amended returns at any point, which would have stopped interest from running. Because Chaparral — not the state — had the use of the unpaid tax money the whole time, the interest was properly assessed.

What this means for you

Trucking companies and motor carriers

Weight distance tax and IFTA are self-reported. If you underreport, interest runs from the original due date until you pay, regardless of when — or how slowly — the state audits you. Keeping records only for the six months the federal DOT requires can leave you unable to rebut a sampled assessment, and it does nothing to stop interest from accruing on the underpayment.

Any taxpayer waiting on a slow audit

An audit that drags on does not freeze your interest. Interest keeps running because you still hold money that belongs to the state. If you think you underpaid, the way to stop the clock is to review your own records and file amended returns and payment — not to wait and later blame the Department's timing.

Accountants and tax professionals

The decision applies the settled New Mexico rule (Vivigen, Tiffany Construction) that departmental audit delay is not a defense to tax, penalty, or interest. Note the useful distinction here: the Department did abate the penalty in the revised audit, but interest under Section 7-1-67 has no equivalent discretionary escape — it is mandatory whenever tax is paid late.

Common questions

Q: Can I avoid interest if the state took years to finish auditing me?
A: No. Interest under Section 7-1-67 is mandatory and runs from the original due date until payment. The Department's delay in auditing is not a defense, because you had the use of the unpaid money and could have paid at any time.

Q: How could the company have limited the interest?
A: By reviewing its own records and filing amended returns with payment. Interest stops running when the Department receives the corrected returns and the additional tax — waiting for the audit only lets it keep accruing.

Q: Is interest the same thing as a penalty?
A: No. A penalty can be abated for reasonable cause and was abated here. Interest simply compensates the state for the time value of money and is required whenever tax is paid late, so it was not abated.

Q: Does this decision apply to my situation?
A: Not automatically. A Decision and Order resolves one taxpayer's protest on its own facts and the law in effect at the time. It illustrates how New Mexico treats interest and audit delay, but your facts may differ.

Citations and references

Statutes:

• Section 7-1-3 NMSA 1978 — "tax" includes related interest and civil penalty
• Section 7-1-13(B), (E) NMSA 1978 — self-reporting; interest runs from the original due date even with an extension
• Section 7-1-17 NMSA 1978 — assessment (including interest) presumed correct
• Section 7-1-67 NMSA 1978 — mandatory interest on late-paid tax

Cases cited:

• Vivigen, Inc. v. Minzner, 117 N.M. 224 (audit delay is no defense to tax, penalty, or interest)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16 (taxpayer's self-reporting duty)
• El Centro Villa Nursing Center v. Taxation and Revenue Dep't, 108 N.M. 795
• State v. Lujan, 90 N.M. 103 ("shall" is mandatory)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Chaparral Van Lines
• Decision PDF: D&O 02-21

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
CHAPARRAL VAN LINES, INC. No. 02-21
MTD NO. 042349-1
WEIGHT DISTANCE & IFTA ASSESSMENTS
DATED DECEMBER 17, 2001

DECISION AND ORDER

A formal hearing on the above-referenced protest was held September 4, 2002, before

Margaret B. Alcock, Hearing Officer. Chaparral Van Lines, Inc. (“Taxpayer”) was represented

by its president, John Skillin. The Taxation and Revenue Department ("Department") was

represented by Javier Lopez, Special Assistant Attorney General. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. In December 1999, the Department began an audit of the Taxpayer’s payment of

IFTA and weight distance taxes for the period January 1997 through December 1999.

2. In March 2000, the Department’s auditors met with John Skillin, president of the

company, and Jackie Hudman, the office secretary, to obtain information concerning the

Taxpayer’s accounting system and discuss the records needed to complete the audit.

3. Mr. Skillin told the auditors that the two employees responsible for the Taxpayer’s

accounting system and for filing tax returns had resigned the previous week. Mr. Skillin said that

neither he nor Ms. Hudman were familiar with the methods used to record, maintain and report

mileage and fuel information.

4. When the auditors asked to see the Taxpayer’s mileage and fuel records for the

period January 1997 forward, Mr. Skillin told them that they only kept these records for six

months. This was the retention period required by the federal Department of Transportation and

the Taxpayer’s employees assumed that the State of New Mexico had the same requirement.

5. The auditors used the records available to determine a sample error rate for the

second, third and fourth quarters of 1999 and then applied that error rate to the rest of the audit

period.

6. In December 2000, at the Department’s request, Mr. Skillin signed a waiver of the

statute of limitations for the 1997 tax year.

7. On December 17, 2001, the Department assessed the Taxpayer for $4,057.47 of

underreported IFTA taxes, plus $10,045.23 of interest for reporting periods January 1997 through

December 1999. No penalty was assessed.

8. On December 17, 2001, the Department assessed the Taxpayer for $4,547.73 of

underreported weight distance taxes, plus $2,334.64 of interest and $454.79 of penalty for

reporting periods January 1997 through December 1999.

9. On January 15, 2002, the Taxpayer filed a written protest to the Department’s

assessments, stating its position that there were several errors in the method the auditors used to

determine mileage driven by the Taxpayer’s trucks during the audit period.

10. The Department reviewed the Taxpayer’s position and subsequently made several

adjustments to the audit, reducing the assessment of IFTA taxes to $2,181.32, plus interest and

reducing the assessment of weight distance taxes to $3,939.21, plus interest, and abating the

penalty.

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11. As a result of these adjustments, the Taxpayer withdrew its protest to the

assessment of tax principal, but decided to proceed with its protest of interest.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for the interest assessed on its

underreporting of taxes during the period January 1997 through December 1999. The Taxpayer

does not dispute that it underpaid both IFTA and weight distance taxes during the audit period

and is liable for the amount of tax principal ultimately agreed upon by the parties. The Taxpayer

argues, however, that it should not have to pay interest on the underpayment because the

Department’s delay in completing the audit caused an unnecessary amount of additional interest

to accrue.

Section 7-1-17 NMSA 1978 provides that any assessment of tax by the Department is

presumed to be correct. Section 7-1-3 NMSA 1978 defines tax to include not only the amount of

tax principal imposed but also, unless the context otherwise requires, “the amount of any interest

or civil penalty relating thereto." See also, El Centro Villa Nursing Center v. Taxation and

Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989). Accordingly, the

Department’s assessment of interest is presumed to be correct, and it is the Taxpayer’s burden to

present evidence showing it is entitled to an abatement.

Section 7-1-67 NMSA 1978 governs the imposition of interest on late payments of tax and

provides, in pertinent part:

A. If a tax imposed is not paid on or before the day on which it becomes
due, interest shall be paid to the state on that amount from the first day
following the day on which the tax becomes due, without regard to any
extension of time or installment agreement, until it is paid... (emphasis
added).

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The legislature’s use of the word “shall” indicates that the assessment of interest is mandatory

rather than discretionary. State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977). The legislature has

directed the Department to assess interest whenever taxes are not timely paid and has provided no

exceptions to the mandate of the statute. The assessment of interest is not designed to punish

taxpayers, but to compensate the state for the time value of unpaid revenues. Even taxpayers

who obtain a formal extension of time to pay tax are liable for interest from the original due date

of the tax to the date payment is made. See, Section 7-1-13(E) NMSA 1978.

In this case, the Taxpayer argues that it should be excused from the payment of interest

because the Department took too long to complete its audit, causing additional interest to accrue.

This argument is based on a misunderstanding of New Mexico’s self-reporting tax system. It is

the obligation of taxpayers, who have the most accurate and direct knowledge of their activities, to

determine their tax liabilities and accurately report those liabilities to the state. See, Section 7-1-

13(B) NMSA 1978; Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 17, 558 P.2d

1155, 1156 (Ct. App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977). A taxpayer may not

sit back and wait for the Department to conduct an audit before paying taxes due to the state.

In Vivigen, Inc. v. Minzner, 117 N.M. 224, 228, 870 P.2d 1382, 1386 (Ct. App. 1994), the

court of appeals specifically rejected the argument that the Department’s delay in auditing a

taxpayer provides a basis for excusing the taxpayer from payment of the tax, penalty or interest

found to be due:

Vivigen complains about the delay of eighteen months from the time of
the audit notice to the time of the field audit. It contends that "for an
unreasonable period of time, Vivigen was deprived of any opportunity to
review its tax situation or to effect any tax planning whatsoever." Vivigen

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seems to be complaining that the Department did not definitively tell it
that it needed to pay compensating taxes on out-of-state purchases so that
it could have avoided taxes, interest, and penalties for compensating taxes
accrued from and after February 1989. Any necessary notice, however,
was provided by New Mexico statutes. In any event, the notice of audit in
itself should have induced Vivigen to review applicable state tax laws.

Here, the interest assessed against the Taxpayer resulted from the Taxpayer’s own errors in

determining the amount of its tax liability. The Department’s audit did not cause the Taxpayer’s

underreporting, nor did it prevent the Taxpayer from making an independent review of its tax

payments and filing amended returns to correct its earlier errors. Had the Taxpayer done so,

interest would have stopped running upon the Department’s receipt of the amended returns and

additional tax payments.

Section 7-1-67 NMSA 1978 requires interest to be paid for any period of time during

which the state is denied the use of tax funds to which it is legally entitled. Because the

Taxpayer—not the state—had the use of the tax funds at issue in this case, interest was properly

assessed by the Department and there is no basis for abatement.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the Department’s December 17, 2001

assessments of weight distance and IFTA taxes, and jurisdiction lies over the parties and the subject

matter of this protest.

2. The Taxpayer did not make timely payment of taxes due to the state, and interest

was properly assessed pursuant to Section 7-1-67 NMSA 1978.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED September 10, 2002.

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