Can New Mexico waive penalty and interest on a gross receipts tax payment that was one day late because of a bookkeeper's error, when the state received the hand-delivered payment on the same day a timely mailed one would have arrived?

Plain-English summary

Harry's Roadhouse, a New Mexico business, had to pay $293.27 in penalty and $183.29 in interest for paying its October 2000 CRS taxes one day late — even though a bookkeeper's delay caused the lateness, the business had an exemplary 10-year filing record, and the state received the hand-delivered payment the same day a timely mailed check would have arrived. New Mexico's interest and penalty statutes are mandatory, and a hearing officer cannot waive them on fairness grounds.

New Mexico businesses report gross receipts, compensating, and withholding taxes together each month on a Combined Reporting System (CRS) return, due by the 25th of the following month. The business's October 2000 return was due November 27, 2000 (the 25th was a Saturday). Its bookkeeper prepared the return too late to mail on time, so owner Harry Shapiro hand-delivered the return and payment to the Department on November 28 — one day late. On December 15, 2000, the Department issued Assessment No. 2608481 for $293.27 of penalty and $183.29 of interest, and the business protested.

Interest is mandatory — "shall be paid"

Section 7-1-67 provided that interest "shall be paid" on any tax not paid by its due date. The hearing officer explained that "shall" makes the assessment of interest mandatory, not discretionary, with no exceptions. It did not matter that the Department physically received the late hand-delivered payment on the same day it would have received a timely payment mailed on the due date; the tax still was not paid by the statutory due date.

The daily-interest amendment did not apply yet

The business argued it should benefit from a 2000 amendment that changed interest from a monthly to a daily computation. But the Legislature made the daily method apply only to reporting periods beginning on or after January 1, 2001 (2000 N.M. Laws, ch. 28, §§ 11, 15). The October 2000 period predated that date, so the older monthly computation controlled.

The penalty applies to negligence, including a bookkeeper's error

Section 7-1-69 imposes a penalty of 2% per month (up to 10%) when a taxpayer fails to pay on time "due to negligence or disregard of rules and regulations." Regulation 3.1.11.10 NMAC defines negligence to include inadvertence, carelessness, and inaction where action is required. The bookkeeper's failure to prepare the return on time was negligence, and New Mexico courts have upheld penalties even for inadvertent, unintentional late payments (Arco Materials; El Centro Villa Nursing Center).

A good record is not a legal defense

The business asked the hearing officer to waive or reduce the penalty based on its exemplary 10-year history and the substantial CRS taxes it had paid over the years. The hearing officer held that the Legislature — not the Department — sets tax policy and gave no authority to waive a penalty on equitable grounds such as past compliance (State ex rel. Taylor v. Johnson; State ex rel. Helman v. Gallegos). A hearing officer must apply the statute as written.

Result: protest DENIED. The penalty and interest stood.

What this means for you

New Mexico businesses filing monthly CRS/gross receipts returns

Interest and most negligence penalties are automatic once a payment is late — even by a single day. Same-day hand delivery after the deadline does not cure lateness; under Section 7-1-13(B) a return and payment count as on time only if mailed or delivered on or before the due date.

Employers who delegate filing to a bookkeeper or payroll service

You remain responsible. An employee's or contractor's failure to file on time is treated as the taxpayer's own negligence and supports a penalty.

Anyone hoping a clean history will excuse one slip

A hearing officer cannot waive statutory penalty or interest for equity, hardship, or a long record of on-time payments. Those are policy choices reserved to the Legislature.

Watch which version of a tax law applies

When a statute changes, its effective-date language controls. A more favorable amendment may not reach a reporting period that closed before the change took effect.

Common questions

Q: How late was the payment?
A: One day — the return and payment were due November 27, 2000, and were hand-delivered November 28, 2000.

Q: How much were the penalty and interest?
A: $293.27 in penalty and $183.29 in interest, under Assessment No. 2608481.

Q: The state got the money the same day it would have anyway — why still owe interest?
A: Interest under Section 7-1-67 is mandatory once a payment misses the statutory due date, regardless of when the Department actually receives it.

Q: Does blaming the bookkeeper avoid the penalty?
A: No. A bookkeeper's late preparation of the return is treated as the taxpayer's own negligence under Regulation 3.1.11.10 NMAC.

Q: Could the hearing officer waive the penalty for a good 10-year record?
A: No. Only the Legislature can create equitable exceptions; the hearing officer must apply the statute as written.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-13(B) — a return and payment are timely if mailed on or before the due date
• NMSA 1978, § 7-1-67 — interest on late-paid taxes ("shall be paid"; 15% a year, 1.25% per month or fraction)
• NMSA 1978, § 7-1-69 — negligence penalty (2% per month, up to 10%)
• NMSA 1978, § 7-1-17 — a Department assessment is presumed correct
• NMSA 1978, § 7-1-3 — "tax" includes related interest and civil penalty
• NMSA 1978, § 7-1-24 — 30-day period to file a protest
• Regulation 3.1.11.10 NMAC — definition of taxpayer negligence
• 2000 N.M. Laws, ch. 28, §§ 11, 15 — daily-interest amendment, effective for periods beginning on or after January 1, 2001

Cases cited:

• State ex rel. Helman v. Gallegos, 117 N.M. 346, 871 P.2d 1352 (1994)
• State ex rel. Taylor v. Johnson, 1998-NMSC-015, 961 P.2d 768
• Arco Materials, Inc. v. Taxation & Revenue Department, 118 N.M. 12, 878 P.2d 330 (Ct. App. 1994), rev'd on other grounds by Blaze Construction Co. v. Taxation & Revenue Department, 118 N.M. 647, 884 P.2d 803 (1994)
• El Centro Villa Nursing Center v. Taxation & Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989)
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Harry's Roadhouse
• Decision PDF: D&O 02-25

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
HARRY’S ROADHOUSE No. 02-25
ID NO. 02-204206-00-7
ASSESSMENT NO. 2608481

DECISION AND ORDER

A formal hearing on the above-referenced protest was held October 21, 2002, before

Margaret B. Alcock, Hearing Officer. Harry’s Roadhouse (“Taxpayer”) was represented by its

owner, Harry Shapiro. The Taxation and Revenue Department ("Department") was represented by

Peter Breen, Special Assistant Attorney General. Based on the evidence and arguments presented, IT

IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is engaged in business in New Mexico and is registered with the

Department for payment of gross receipts, compensating and withholding taxes, which are required

to be paid monthly under the Department’s combined reporting system (“CRS”).

2. In 2000, the Taxpayer hired a bookkeeper who was responsible for reporting and

paying the Taxpayer’s monthly CRS taxes, which are due on or before the 25th day of the month

following the month in which the taxable event occurs.

3. Pursuant to Section 7-1-13(B) NMSA 1978, a return and payment are timely if they

are mailed on or before the due date.

4. The Taxpayer’s bookkeeper was late in preparing the CRS return for the October

2000 reporting period, which was due on November 27, 2000 since November 25, 2000 was a

Saturday.

5. Because it was too late to mail the October 2000 return and payment by the statutory

due date, the Taxpayer’s owner hand-delivered them to the Department on Tuesday, November 28,

2000.

6. On December 15, 2000, the Department issued Assessment No. 2608481 to the

Taxpayer, which included $293.27 of penalty and $183.29 of interest on the late payment of the

Taxpayer’s October 2000 CRS taxes

7. On January 18, 2000, the Taxpayer mailed a written protest to the Department,

protesting the assessment of penalty and interest. The protest was accepted as timely after the

Taxpayer applied for and was granted a retroactive extension of time to file a protest beyond the 30-

day period set out in Section 7-1-24 NMSA 1978.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for the interest and penalty assessed

on its late payment of CRS taxes for the October 2000 reporting period. The Taxpayer does not

dispute that its return and payment were not mailed or delivered to the Department by the statutory

due date. The Taxpayer nonetheless maintains that it should be excused from payment of penalty and

interest for the following reasons: (1) the state did not lose any revenue as a result of the Taxpayer’s

late payment because the Department received the Taxpayer’s hand-delivered payment on the same

day that it would have received a timely payment mailed on the statutory due date; (2) the Taxpayer

should be given the benefit of the amendment to Section 7-1-67 NMSA 1978 which became

effective January 1, 2001 and requires interest on late payments to be calculated on a daily—rather

than a monthly—basis; and (3) the Taxpayer has had an exemplary reporting history over a period of

ten years and should be allowed one mistake without having to pay the penalty and interest imposed

by New Mexico’s tax statutes.

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Burden of Proof. 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.

Assessment of Interest. Section 7-1-67 NMSA 1978 governs the imposition of interest.

During the period at issue, the statute provided, pertinent part:

A. If any tax imposed is not paid on or before the day on which it becomes
due, interest shall be paid to the state on such 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....

B. Interest due to the state under Subsection A or D of this section shall be at
the rate of fifteen percent a year, computed at the rate of one and one-fourth
percent per month or any fraction thereof....

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 for each month—or fraction of a month—that taxes are not timely

paid and has provided no exceptions to the mandate of the statute.

In this case, the Taxpayer raises two arguments in support of its protest to the assessment of

interest. First, the Taxpayer argues that no interest is due because the Department received the late

payment the Taxpayer hand-delivered on November 28, 2000 on the same day that it would have

received a timely payment mailed on November 27, 2000. This is undoubtedly true. It does not

change the fact that the Taxpayer failed to pay its October 2000 CRS taxes by the statutory due date.

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Accordingly, interest was properly assessed under Section 7-1-67(A) NMSA 1978. Despite the

Taxpayer’s plea for equity, the Department’s hearing officer is required to apply the state’s tax laws as

written. As the New Mexico Supreme Court stated in State ex rel. Helman v. Gallegos, 117 N.M.

346, 352, 871 P.2d 1352, 1358 (1994): “If the meaning of a statute is truly clear, it is the

responsibility of the judiciary to apply it as written and not second guess the Legislature's policy

choices.” The same rule applies to administrative hearing officers.

Second, the Taxpayer argues that it should be given the benefit of the Legislature’s 2000

amendment to Section 7-1-67 NMSA 1978, which deleted the language requiring interest to be

computed “at the rate of one and one-fourth percent per month or any fraction thereof” and replaced

it with a directive that interest be computed “on a daily basis.” See 2000 N.M. Laws, ch. 28, § 11.

Although the Legislature could have made this change effective immediately, it chose not to do so.

Instead, § 15 of the law specifically states that the old rate of interest applies to reporting periods

ending on or before January 1, 2001, and the new rate of interest applies to reporting periods

beginning on or after January 1, 2001. The Department is bound by the Legislature’s clear statement

on this issue. Interest on the Taxpayer’s late payment of taxes for the October 2000 reporting period

was properly computed on a monthly basis.

Assessment of Penalty. Section 7-1-69 NMSA 1978 governs the imposition of penalty.

Subsection A imposes a penalty of two percent per month or any fraction of a month, up to a

maximum of ten percent, that a taxpayer fails “due to negligence or disregard of rules and

regulations” to pay taxes or file required tax reports in a timely manner. Taxpayer negligence for

purposes of assessing penalty is defined in Regulation 3.1.11.10 NMAC as:

A. failure to exercise that degree of ordinary business care and
prudence which reasonable taxpayers would exercise under
like circumstances;

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B. inaction by taxpayers where action is required;

C. inadvertence, indifference, thoughtlessness, carelessness,
erroneous belief or inattention.

New Mexico case law confirms that penalty is properly assessed even when a taxpayer’s late

payment is based on inadvertent error or unintentional failure to pay the tax due. Arco Materials,

Inc. v. Taxation & Revenue Department, 118 N.M. 12, 16, 878 P.2d 330, 334 (Ct. App. 1994) rev'd

on other grounds by Blaze Construction Co. v. Taxation & Revenue Department, 118 N.M. 647, 884

P.2d 803 (1994); El Centro Villa Nursing Center v. Taxation & Revenue Department, 108 N.M. 795,

797-798, 779 P.2d 982, 984-985 (Ct. App. 1989).

In this case, the Taxpayer’s late payment of CRS taxes was due to the negligence of its

bookkeeper, who failed to prepare the return and payment in time to meet the statutory due date.

The Taxpayer asks the hearing officer to waive or reduce the penalty based on the Taxpayer’s

exemplary reporting history and the substantial amount of CRS taxes it has paid to the state over the

last ten years. These are not factors the hearing officer can consider. In State ex rel. Taylor v.

Johnson, 1998-NMSC-015 ¶ 022, 961 P.2d 768, 774-775, the New Mexico Supreme Court made the

following observations concerning the power of administrative agencies:

Generally, the Legislature, not the administrative agency, declares the policy
and establishes primary standards to which the agency must conform. See
State ex rel. State Park & Recreation Comm'n v. New Mexico State Authority,
76 N.M. 1, 13, 411 P.2d 984, 993 (1966). The administrative agency's
discretion may not justify altering, modifying or extending the reach of a law
created by the Legislature....

In this case, the Legislature has directed the imposition of penalty whenever a late payment results

from the taxpayer’s negligence. The Legislature has not granted the Department or its hearing

officer authority to waive the penalty based on equitable grounds, including a taxpayer’s past

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reporting history. Because the Taxpayer’s late payment of its October 2000 CRS taxes was due to

negligence, there is no basis for abating the penalty assessed.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2608481, and

jurisdiction lies over the parties and the subject matter of this protest.

2. The Taxpayer was late in paying its October 2000 CRS taxes to the state, and interest

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

3. The Taxpayer was negligent in failing to pay its October 2000 CRS taxes on time, and

penalty was properly assessed pursuant to Section 7-1-69 NMSA 1978.

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

DATED October 22, 2002.

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