Did an extension until August 15, 2003 to pay Zelma Kingsley's 2002 New Mexico income tax also stop interest from accruing after the April 15 due date?

Plain-English summary

Zelma Kingsley's extension to pay her 2002 New Mexico personal income tax prevented penalty but did not stop interest. New Mexico statutes expressly required interest on unpaid tax even when the Department granted more time to file or pay.

Kingsley filed her 2002 return on February 17, 2003. It showed $281 due, which surprised her because she had previously received refunds.

Unable to pay by April 15, she called the Department on April 10 and received an extension until August 15, 2003. The employee did not tell her that interest would continue to accrue.

The Department later assessed the $281 tax, an $11.24 penalty, and $5.77 of interest. Kingsley protested because she believed the extension postponed the consequences of late payment. The Department abated the penalty before the hearing, leaving only interest in dispute.

The extension statute preserved interest

Section 7-1-13(E) allowed the secretary or a delegate to extend a tax payment or return-filing date for good cause. The same provision stated that no extension prevents interest from accruing as otherwise required by law.

Section 7-1-67(A) likewise required interest when tax was not paid by its due date, "without regard to any extension of time or installment agreement," until payment.

Together, those provisions made the result mandatory: the extension could relieve penalty, but not interest.

Incomplete advice did not override the statutes

The hearing officer called the employee's failure to explain interest unfortunate. Even so, an employee's omission could not change the clear statutory rule.

The PIT-1 instructions also stated that an extension to file did not extend the time to pay and that interest would continue to accrue. Kingsley filed online and did not receive printed instructions, but the decision noted that the instructions were available through the Department's website and district offices.

Interest compensated the state for delayed revenue

The decision explained that interest was not a punishment. It compensated the state for the time value of tax that should have been paid by April 15, 2003.

Kingsley's reasons for delay did not change the fact that the state lacked use of the money after the original due date.

Result: protest DENIED. The penalty had been abated, but interest remained due from the original payment deadline until the tax was paid.

What this means for you

Individuals asking for more time to pay

Confirm whether the extension affects filing, payment, penalty, and interest separately. More time to pay does not necessarily freeze the balance.

Taxpayers relying on oral Department advice

Request written terms and check the governing statute. An employee's failure to mention a statutory charge did not eliminate it.

Online filers

Open and retain the current form instructions even when software submits the return. Filing electronically did not change the interest rule.

People comparing penalty and interest

Penalty may depend on fault or an approved extension; statutory interest generally compensates for the period the tax remains unpaid.

Common questions

Q: How much tax did Kingsley owe?
A: $281 for tax year 2002.

Q: What extension did she receive?
A: Until August 15, 2003 to pay the tax.

Q: Was the penalty removed?
A: Yes. The Department abated the $11.24 penalty.

Q: Why did interest remain?
A: Sections 7-1-13(E) and 7-1-67(A) required interest despite an extension.

Q: Did the employee's failure to warn her eliminate interest?
A: No. Oral silence could not override the statutes.

Citations and references

Statutes:

• NMSA 1978, § 7-1-13(E) — extensions do not prevent interest accrual
• NMSA 1978, § 7-1-67(A) — interest on tax unpaid after the due date, regardless of an extension or installment agreement

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Zelma Kingsley
• Decision PDF: D&O 03-21

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
ZELMA KINGSLEY No. 03-21
PERSONAL INCOME TAX ASSESSMENT FOR
2002, ISSUED UNDER LETTER ID L0640933888

DECISION AND ORDER

A formal hearing on the above-referenced protest was held October 28, 2003, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department ("Department") was

represented by Bridget A. Jacober, Special Assistant Attorney General. Zelma Kingsley (“Taxpayer”)

represented herself. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer was a New Mexico resident during the 2002 tax year and filed her

New Mexico personal income tax return on February 17, 2003.

2. The Taxpayer was surprised to find that she owed $281.00 of tax for the 2002 tax

year since she had always received tax refunds in the past.

3. The Taxpayer was unable to pay the tax she owed by the April 15, 2003 due date.

4. On April 10, 2003, the Taxpayer called the Department and asked for an extension of

time to pay her taxes.

5. The Department employee with whom the Taxpayer spoke granted her an extension

of time until August 15, 2003 to pay the tax due. The employee did not tell the Taxpayer that New

Mexico law requires interest to be paid on any amount of unpaid tax, even when the Taxpayer has

obtained an extension of time to file or pay that tax.

7. The Department’s instructions to New Mexico Personal Income Tax Form PIT-1

advises taxpayers that “An extension of time to file your return does NOT extend the time to pay. If

tax is expected to be due, interest will continue to accrue.”

8. The Taxpayer filed on-line and did not receive a copy of the Department’s PIT-1

instructions in the mail.

9. On June 4, 2003, the Department assessed the Taxpayer for the $281.00 of income

tax reported on her 2002 PIT-1, together with $11.24 of penalty and $5.77 of interest.

10. On June 8, 2003, the Taxpayer filed a written protest to the assessment based on the

fact that she had been granted an extension of time to pay until August 15, 2003. The Taxpayer also

objected to the Department’s addition of penalty and interest, arguing that she was never told that

there would be a penalty to extend the tax due date.

11. The Department subsequently abated the penalty assessed against the Taxpayer.

DISCUSSION

The issue to be decided is whether a taxpayer who has been granted an extension of time to pay

tax due to the state is excused from the payment of interest on that tax. The answer is found in NMSA

1978, § 7-1-13(E), which states that:

The secretary or the secretary’s delegate may, for good cause, extend in favor
of a taxpayer … the date on which payment of any tax is required or on which
any return required by provision of the Tax Administration Act shall be filed,
but no extension shall prevent the accrual of interest as otherwise provided by
law…. (emphasis added)

and in NMSA 1978, § 7-1-67(A), which states as follows:

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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These statutes make it clear that interest accrues on all taxes due to the state, even when the taxpayer

has obtained an extension of time to pay the tax. The effect of the extension is to relieve the taxpayer

from payment of penalty, not interest.

In this case, Ms. Kingsley objected to the imposition of interest because the Department

employee with whom she spoke did not explain that interest would accrue on her delayed tax payment.

The Department’s failure to specifically inform Ms. Kingsley of her liability for interest was

unfortunate, but cannot override the clear language of New Mexico’s tax statutes. In addition, while

the Department’s instructions could be worded more clearly, the language concerning the accrual of

interest is sufficient to have alerted the Taxpayer to the possibility that interest would be charged on tax

paid after the statutory due date. Although Ms. Kingsley said she never received the Department’s

instructions in the mail, she could have obtained the instructions from the Department’s web site or

from any district office.

The assessment of interest is not designed to punish taxpayers, but to compensate the state

for the time value of unpaid revenues. Here, the state should have received Ms. Kingsley’s income

taxes on April 15, 2003. By failing to pay her taxes by that date—however good her reasons may

have been—Ms. Kingsley deprived the state of money to which it was legally entitled. Accord-ingly,

interest is due on Ms. Kingsley’s 2002 income tax liability from April 15, 2003, the original due date

of the tax, until the date it is paid.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the Department’s assessment of interest

on her 2002 personal income tax, and jurisdiction lies over the parties and the subject matter of this

protest.

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2. Pursuant to NMSA 1978, §§ 7-1-13 and 7-1-67, the Department’s granting of an

extension of time for the Taxpayer to pay her 2002 personal income tax does not excuse the Taxpayer

from the payment of interest on that tax.

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

DATED October 29, 2003.

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