Could Thomas Nagle claim estimated 2006 wage-withholding credits without W-2s, and could New Mexico apply the later 20% penalty cap?

Plain-English summary

Thomas Nagle received one additional wage-withholding credit but could not claim an estimated credit for his former wife, and his negligence penalty was limited to the 10% cap in effect when the 2006 tax became due. The final principal income tax was $782, plus penalty and interest.

Nagle and his then-wife did not timely file their joint 2006 New Mexico personal income tax return. In March 2010, the Department assessed $2,516 of tax, $503.20 of penalty, and $548.47 of interest using wage data that did not show state withholding.

Before the hearing, Nagle found a wage statement through December 15, 2006. The Department credited $903.75 of withholding. Nagle then filed the 2006 return on August 30, 2011, and the Department accepted its $1,725 tax calculation before withholding credits.

That left two disputed credits: $39.25 for Nagle's last pay period and $203 that he estimated had been withheld from his former wife's wages.

His final-pay-period credit was proved

Nagle's wage statement covered pay through December 15, not the final pay period of the year. He testified that he received the same salary each pay period and that withholding was regular.

The hearing officer found that testimony credible. Combined with the December wage statement, it was enough to rebut the assessment as to the last pay period. The Department introduced no evidence showing that the additional $39.25 credit was wrong.

The decision therefore treated Nagle's total proved withholding as $943: the Department's $903.75 credit plus $39.25.

His former wife's estimated credit was not proved

Nagle calculated $203 by applying 1.5% to his former wife's reported wages. But she worked variable part-time hours for Bernalillo County, did not testify, and no W-2 or wage statement showed her actual withholding or exemption allowances.

Nagle said he was unwilling to ask his former wife for the records. The decision held that an assumed percentage could not establish an amount that depended on her withholding elections and actual payroll records.

With $1,725 of tax and $943 of proved withholding, $782 of principal tax remained due.

The later 20% penalty cap could not be used

Nagle did not dispute that failure to file and pay was negligent. The Department, however, calculated penalty using the 20% maximum that became effective in 2008.

The decision applied the earlier statute governing the 2006 obligation. Under that version, penalty accrued at 2% per month but stopped at 10% after five months. The later amendment contained no clear instruction making the 20% cap retroactive, so it could not add another 10% after the old maximum had already been reached in 2007.

Interest remained mandatory on the unpaid principal tax.

Result: protest granted in part and denied in part. Nagle received the $39.25 additional withholding credit and the penalty was limited to no more than 10% of principal tax. The claimed $203 credit for his former wife's wages was denied.

What this means for you

Employees missing an old W-2

Other credible payroll evidence may establish withholding when it shows a regular and specific pattern. Nagle succeeded for one pay period because he had a near-year-end wage statement and credible testimony about equal paychecks.

Joint filers relying on a spouse's payroll records

An estimate may fail when hours and withholding elections can vary. Obtain the actual W-2, wage statement, or other employer record for each spouse.

Taxpayers reviewing old penalty periods

Check which penalty statute governed when the filing and payment obligation arose. This decision refused to apply a later, higher maximum without clear retroactive language.

Common questions

Q: How much 2006 tax did the Department and Nagle agree was calculated before credits?
A: $1,725.

Q: Why was Nagle's extra $39.25 credit allowed without a W-2?
A: His December 15 wage statement and credible testimony showed equal pay and regular withholding through the final pay period, and the Department offered no contrary evidence.

Q: Why was the $203 credit for his former wife denied?
A: Her hours fluctuated, her withholding allowances were unknown, and there was no W-2, wage statement, or testimony establishing the actual amount withheld.

Q: What principal tax remained?
A: $782, calculated as $1,725 of tax minus $943 of proved withholding.

Q: Was penalty eliminated?
A: No. Negligence was not disputed. The decision limited the penalty to the former statute's 10% maximum instead of the later 20% cap.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• NMSA 1978, §§ 7-3-4 and 7-3-9 — credit for wage withholding
• NMSA 1978, § 7-2-12(A) — personal income tax return filing deadline
• NMSA 1978, § 7-1-10(A) and Regulation 3.1.5.8(A) NMAC — recordkeeping duty
• NMSA 1978, §§ 7-1-4.2 and 7-1-69 — accurate assessment and negligence penalty
• NMSA 1978, § 7-1-67(A) — mandatory interest

Cases and prior decision cited:

• MPC Ltd. v. New Mexico Taxation and Revenue Department, 2003-NMCA-021
• Wood v. State Educational Retirement Board, 2010 N.M. App. LEXIS 134 (N.M. Ct. App. Nov. 10, 2010)
• Psomas v. Psomas, 99 N.M. 606 (1982)
• Kewanee Industries, Inc. v. Reese, 114 N.M. 784 (1993)
• Hal M. Dean, D&O 01-31

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Thomas J. Nagle
• Decision PDF: D&O 11-21

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
THOMAS J. NAGLE No. 11-21
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0999557184

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on September 13, 2011, before

Monica Ontiveros, Hearing Officer. The Taxation and Revenue Department (“Department”) was

represented by Peter Breen, attorney for the Department. Mr. Thomas Dillon appeared and

testified as a witness for the Department. Mr. Thomas J. Nagle (“Taxpayer”) appeared at the

appointed time. The Department presented no exhibits and Taxpayer presented Exhibits 1 and 2

which were admitted into the record. Based on the evidence and arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Taxpayer was married in 2006. He and his former wife, Gayle M. Nagle, failed to

file a personal income tax return by April 16, 2007 for tax year 2006.

2. In 2006, Taxpayer was employed by Southern Wine & Spirits located in

Albuquerque, New Mexico.

3. During the tax period of 2006, Taxpayer was an employee receiving a salary from

Southern Wine & Spirits.

4. Ms. Nagle was employed on an hourly part time basis by Bernalillo County during

the tax period of 2006. Her hours fluctuated while employed by Bernalillo County.

5. The Department assessed Taxpayer on March 29, 2010 in the amount of $2,516.00

in principal personal income tax, $503.20 in penalty and $548.47 in interest.

6. On April 21, 2010, Taxpayer filed a protest to the assessment.

7. On April 23, 2010, the Department acknowledged the protest.

8. The Department requested a hearing in this matter on July 16, 2010.

9. On July 21, 2010, the Hearings Bureau mailed a Notice of Administrative Hearing

in this matter setting the hearing for March 1, 2011.

10. Taxpayer requested a continuance in this matter on February 25, 2011 and the

matter was reset for September 13, 2011.

11. The Department’s assessment was based on a tape match in which wage

information was provided to the Department from the Department of Labor. The wage

information did not include how much state income tax was withheld from the wages.

12. Taxpayer provided the Department with a wage statement or a pay stub through

pay period December 15, 2006 indicating that his year-to-date state income tax withholding was

$902.75.

13. The Department provided Taxpayer with a credit of $903.75 in withholding tax.

14. Mr. Dillon testified that after the adjustment, the amount of personal income

principal tax due was $1,613.25, plus penalty and interest.

15. On August 30, 2011, Taxpayer filed a return for tax year 2006. The 2006 return is

signed only by Taxpayer and not by Ms. Nagle.

16. At the time of the assessment, the Department used an amount on line 8, itemized

deductions, that was different than the amount Taxpayer used on his filed 2006 personal income

tax return.

In the Matter of Thomas J. Nagle
page 2 of 14

17. The Department was unaware that Taxpayer had filed a 2006 return until the

hearing. It was given an opportunity to review the return at the hearing.

18. At the hearing, the Department agreed to the amount of tax due on line 18 on the

2006 personal income tax return, or $1,725.00, less the withholding amount of $903.75.

19. At the hearing the Department agreed to all the amounts on the 2006 return except

for the amount on line 20, or $1,146.00, the amount of New Mexico income tax claimed to be

withheld by Taxpayer.

20. Since the Department agreed to the amount of tax due, and it had agreed to the

amount of withholding tax credit of $903.75, the amount of principal income tax due claimed by

the Department was $1,725.00 less a credit of $903.75 or $821.25.

21. Taxpayer argued that the amount of principal income tax due was $579.00 or the

amount shown on the 2006 return.

22. The amount in dispute is $242.25, or $39.25 in withholding tax for Taxpayer and

$203.00 in withholding tax for Mrs. Nagle.

23. The paychecks that Taxpayer received were “equal” and he earned the same salary

each month during tax year 2006.

24. In 2007, Taxpayer separated from his wife, Gayle M. Nagle. They divorced

sometime in February 2009.

25. The W-2s for both Taxpayer and Ms. Nagle could not be found by Taxpayer.

26. No W-2s for Ms. Nagle or Taxpayer were provided to the Department or at the

hearing.

In the Matter of Thomas J. Nagle
page 3 of 14

27. Taxpayer is liable for payment of the 2006 personal income tax liability.

DISCUSSION

The issue to be determined is whether Taxpayer provided sufficient documents or

testimony to support his contention that the correct combined amount of tax withheld from his

income and his former wife’s income was $1,146.00 or the amount of withholding shown on the

filed 2006 return. There are no legal issues in dispute. The Department contends that Taxpayer

owes income tax of $821.25 (principal only) and Taxpayer claims that he owes income tax of

$579.00 in principal. The amount in dispute is $242.25, plus penalty and interest. At the hearing

Taxpayer did not dispute that he owed penalty and interest on the amount of principal tax due of

$579.00.

Burden of Proof.

Section 7-1-17(C) provides that any assessment of taxes made by the Department is

presumed to be correct. NMSA 1978, Section 7-1-17(C)(2007). Where an exemption or deduction

from tax is claimed, the statute must be construed strictly in favor of the taxing authority, the right to

the exemption or deduction must be clearly and unambiguously expressed in the statute, and the right

must be clearly established by the taxpayer. Wing Pawn Shop v. Taxation and Revenue Department,

111 N.M. 735, 740, 809 P.2d 649, 654 (Ct. App. 1991). Accordingly, it is Taxpayer’s burden to

present evidence and legal argument to show that it is entitled to an abatement, in full or in part, of

the assessment issued against it. When a taxpayer presents evidence sufficient to rebut the

presumption, the burden shifts to the Department to show that the assessment is correct. See MPC

Ltd. v. N.M. Taxation and Revenue Dep’t., 2003-NMCA-021, ¶ 13, 133 N.M. 217, 62 P.3d 308.

In the Matter of Thomas J. Nagle
page 4 of 14
Amount of Withholding Tax.

Payment of withholding taxes is governed by the Withholding Tax Act, Sections 7-3-1, et

seq., NMSA 1978. Section 7-3-9 is the specific statute which requires the Department to credit

against any state income tax liability for the taxable year the amount of tax withheld. During the

period at issue, that section read as follows:

The amount of tax deducted and withheld under the provisions of the
Withholding Tax Act [Chapter 7, Article 3 NMSA 1978] during the taxable
year shall be credited against any state income tax liability for that taxable
year.

NMSA 1978, Section 7-3-9 (1990). The withheld amount is treated as a collected tax. NMSA 1978,

Section 7-3-4 (1996). The Department cannot collect the tax from the employee a second time, even

when the employer has failed to pay over the amount of tax withheld. In this case, there is no

assertion by the Department that the employers of both Taxpayer and Ms. Nagle remitted the

withholding income tax to the State of New Mexico. The only issue is that the Department does not

know the amount of the withholding tax paid.

In 2006, Taxpayer was employed on a full time basis by Southern Wine & Spirits in

Albuquerque, New Mexico and Ms. Nagle was employed on a part time basis by Bernalillo

County. During the tax year 2006, Taxpayer was married to Gayle M. Nagle. Taxpayer credibly

testified that sometime in 2007, he became separated from Ms. Nagle and he left the residence. As

a consequence of the separation, the 2006 tax return was not filed by either Ms. Nagle or Taxpayer

on April 16, 2007 (April 15, 2007 was a Sunday) as required by NMSA 1978, Section 7-2-12(A)

(2003). This matter rests primarily on what amount was withheld from the incomes of Taxpayer

In the Matter of Thomas J. Nagle
page 5 of 14
and Ms. Nagle.

In explaining the basis of the assessment, Mr. Dillon testified that Taxpayer and his wife

were nonfilers for tax year 2006. The Department received information from the Department of

Labor which reported that Taxpayer and his wife had wage income for tax year 2006. The

Department used a zero withholding when calculating the amount of income tax due. Without

information on the amount of state income tax that had been withheld, the Department issued an

assessment based on a zero amount of withholding amount.

Sometime in 2011 prior to the hearing, Taxpayer found a wage statement for 2006. The

wage statement that Taxpayer found had a pay period ending December 15, 2006 and not

December 31, 2006. (For Taxpayer’s withholding, the last pay period would represent a credit of

$39.25. See Exhibit 2). On this wage statement, the amount withheld from Taxpayer’s income

was $902.75. Exhibit 2. Mr. Dillon provided an adjustment or credit in the amount of $903.75

against the amount of income tax calculated based on the income reported by the Department.

(There is a $1.00 difference in the two amounts.) Mr. Dillon testified that after this adjustment,

the total income tax due after this adjustment was $1,613.25, plus penalty and interest.

At the hearing, Taxpayer testified that he filed an income tax return for tax year 2006 on

August 30, 2011. He credibly testified that in filing the return for 2006 in August 2011, he called

the Internal Revenue Service to determine what amount was reported as wage income for both he

and his former wife. He used this amount to prepare his federal return and his state return.

The Department was unaware that Taxpayer had filed a return and it was given an opportunity to

review the return. The return had an income tax due of $1,725.00. The Department did not

In the Matter of Thomas J. Nagle
page 6 of 14
contest the wage amount listed on the return, line 6, or the itemized deduction amount listed on

line 8. Exhibit 1. The Department further agreed that the amount of tax due was $1,725.00.

Using the numbers that the Department agreed to, the amount of income tax due was $1,725.00

less $903.75, for a total tax due of $821.25. Mr. Dillon testified that he thought the withholding

amount may be incorrect but without a wage statement for the last pay period or a W-2 for

Taxpayer and without a wage statement or W-2 for Ms. Nagle, he could not make any further

adjustments. Taxpayer argued that he was unwilling to get a W-2 or wage statement from his

former wife and he was unwilling to ask his employer for the final wage statement showing year-

to-date of withholding amounts.

Taxpayer argued that the Department did not need a W-2 or a wage statement for the last

pay period for himself or a W-2 or wage statement for Ms. Nagle because it should be able to

extrapolate the withholding amount using a percentage of 1.5% applied to the income. The

Department did not argue that this was an impermissible method of calculating the amount of

income tax withheld. It took the position that it simply did not know the amount of tax withheld.

Mr. Dillon testified that he was unable to retrieve information related to the amount of tax

withheld to credit the Taxpayer’s income tax liability. It was not made clear at the hearing

whether employers are filing a statement with the Department pursuant to Section 7-3-7(A)

(1990). Section 7-3-7(A) requires the employers to file with the Department the “total

compensation paid the employee and the total amount of tax withheld for the calendar year or

portion of a calendar year if the employee has worked less than a full calendar year.”

In the Matter of Thomas J. Nagle
page 7 of 14
Taxpayer’s Withholding.

The only issue is whether Taxpayer rebutted the presumption of correctness that attached

to the Department’s assessment or whether he is entitled to receive a credit of $39.25, the amount

of withholding for Taxpayer for the last pay period of 2006. Taxpayer presented his wage

statement through December 15, 2006 and he testified that his paychecks were the same or

“equal.” Taxpayer’s testimony was that he received the same salary every pay period and his

employer withheld the same amount of state income tax on his wages, which entitled him to an

additional credit against the tax of $39.25. Taxpayer argued that he should be provided this credit

against the tax because he worked the final pay period of December. Taxpayer credibly testified

that he was unable to find the W-2s and the final wage statement for tax year 2006. He also

testified that he did not want to ask his employer for a W-2 or a wage statement for 2006 because

he did not want to explain that he was a nonfiler. The Department did not contradict these

statements other than to argue that Taxpayer could not prove with certainty that he had

withholding taken out for this final pay period.

In closing the Department speculated that Taxpayer received bonuses and therefore, the

Department has no way of knowing what the amount of Taxpayer’s withholding was. Taxpayer

argued that his withholding would be higher had he received a bonus in 2006. The Hearing

Officer reopened the testimony to ascertain whether Taxpayer had received any bonuses for 2006.

The evidence submitted is sufficient to rebut the presumption of correctness. Taxpayer

provided a wage statement through December 15, 2006. Exhibit 2. He also provided testimony

about the regularity of the withholding. The Hearings Bureau in the past has accepted evidence

In the Matter of Thomas J. Nagle
page 8 of 14
other than W-2s or wage statements presented by the taxpayer as evidence of the amount of tax

withheld. See Hal M. Dean, Decision and Order No. 01-31. The burden shifts to the

Department to prove that Taxpayer is incorrect or made a false statement. See MPC Ltd. v. N.M.

Taxation and Revenue Dep’t., 2003-NMCA-021, ¶ 13, 133 N.M. 217, 62 P.3d 308. Since there

was no testimony or evidence presented by the Department, the Hearing Officer agrees with

Taxpayer that he has proven with sufficient evidence that he should be credited $39.25

withholding income tax against his income tax liability.

Gayle M. Nagle’s Withholding.

Taxpayer also argued that $203.00 was withheld from Ms. Nagle’s income for 2006 tax

year. To deduce this amount of withholding, Taxpayer used a 1.5% calculation based on the

reported wages to the Internal Revenue Service. Ms. Nagle did not testify nor did Taxpayer

present a W-2 or any wage statements supporting this assertion. Ms. Nagle was a part time

employee, whose hours fluctuated and there was no testimony offered as to the number of

exemptions claimed by her in 2006. While the Department did not dispute the percentage

calculation used by Taxpayer, it took the position that Taxpayer did not present documents to

support the $203.00 in withholding tax for Ms. Nagle.

Generally, Taxpayers “shall maintain books of account or other records in a manner that

will permit the accurate computation of state taxes or provide information required by the statute

under which he is required to keep records.” NMSA 1978, Section 7-1-10(A)(2001). The

Department’s regulations provide that “(t)he adequacy or inadequacy of taxpayer records is a

matter of fact to be determined by the secretary or secretary’s delegate. Taxpayers have a duty to

In the Matter of Thomas J. Nagle
page 9 of 14
provide the secretary or secretary’s delegate, upon request, with books of account and other

records upon which to establish a basis for taxation.” Regulation 3.1.5.8(A) NMAC (2000).

Taxpayer argued that while he had been ordered by the Second Judicial District Court in

the Divorce Decree to pay the 2006 New Mexico income tax liability, he had no way in which to

request a copy of Ms. Nagle’s W-2 or a copy of her wage statement. Taxpayer agreed that he had

an obligation to report the income and file the 2006 return per the Divorce Decree. Taxpayer had

a corresponding duty to prepare a return using correct withholding information from a W-2 or

wage statement. Taxpayer should have requested a copy of Ms. Nagle’s W-2 statement or a final

wage statement indicating the amount of withholding from her salary. Since he was unwilling to

request a wage statement or a W-2 from Ms. Nagle, a credit cannot be given for an amount that is

not determinable. Again, a taxpayer is required to “maintain books of account or other records in

a manner that will permit the accurate computation of state taxes or provide information required

by the statute under which he is required to keep records.” NMSA1978, Section 7-1-10(A)(2001).

In this case, Taxpayer failed to present sufficient evidence that $203.00 had been withheld

from Ms. Nagle’s income, and therefore Taxpayer failed to overcome the presumption of

correctness to claim a credit in the amount or $203.00. (Taxpayer made an assumption that Ms.

Nagle had to have had an amount withheld for tax year 2006. The amount of withholding is

dependent on the number of exemption allowances the employees claim. See New Mexico

Taxation and Revenue Department FYI-104).

Civil Penalty.

At the hearing, Taxpayer argued that he was not contesting the penalty. The Department

In the Matter of Thomas J. Nagle
page 10 of 14
imposed a civil penalty of 20% under NMSA 1978, § 7-1-69 (2008) rather than under NMSA 1978

Section 7-1-69 (2003, prior to amendments through 2007), in effect prior to January 1, 2008. The

Hearing Officer interprets Taxpayer’s argument regarding penalty to be that Taxpayer is not

contesting that he was negligent. (Taxpayer’s original protest letter indicates that he was protesting

the entire assessment.) The Taxpayer’s Bill of Rights requires that an assessment not be “incorrect,

erroneous, or illegal,” therefore, the accuracy of the computation of total penalty amount assessed is

an issue for consideration in this protest. NMSA 1978, Section 7-1-4.2 (2003). Even when a

Taxpayer is liable for civil negligence penalty, as in here, a Taxpayer is not required to pay a

miscalculated or incorrect amount of penalty. See id.

The Hearings Bureau has taken the position that if the year in which the tax is due predates

the effective date of changes or prior to January 1, 2008, then while a taxpayer may be negligent, the

Department may only apply a 10% penalty to the amount of tax owed. This interpretation of the

statute is based on the only change in NMSA 1978 Section 7-1-69 (2003, prior to amendments

through 2007), in effect prior to January 1, 2008, versus NMSA 1978, § 7-1-69 (2008), which was

in effect January 1, 2008. The change in the statute represents an increase in the maximum possible

penalty amount not to exceed an amount of 20% from the previous 10% maximum limit. Under

both the previous version and the amended version of the penalty provision, the Department was

to apply two percent per month penalty from the time the tax was due and not paid until the

penalty reached its statutorily prescribed “not to exceed” limit of either 10% under the previous

version (which effectively means a five-month period of time from the time the tax was due but

not paid) or 20% under the amended version (which effectively means a ten-month period of time

In the Matter of Thomas J. Nagle
page 11 of 14
from the time the tax was due but not paid). Under both the previous and amended versions of the

penalty provision, the Legislature prohibits the Department from imposing any additional penalty

beyond the “not to exceed” limit.

By arguing that a 20% amount should apply the Department is impermissibly retroactively

applying the amended penalty provision to increase a previously reached “not to exceed” limit of

10% by an additional 10% under the amended penalty provision without clear legislative intent

allowing it to do so. As the New Mexico Court of Appeals recently indicated, “a statute or

regulation is considered retroactive if it…affixes new disabilities to past transactions.” Wood v.

State Educ. Ret. Bd., 2010 N.M. App. LEXIS 134 (N.M. Ct. App. Nov. 10, 2010), citing Coleman v.

United Eng'rs & Constructors, Inc., 118 N.M. 47, 52, 878 P.2d 996, 1001 (1994), [bold for

emphasis].

A statute may only be applied retroactively if there is a clear, unambiguous legislative intent

to do so. See Psomas v. Psomas, 99 N.M. 606, 609, 661 P.2d 884, 887 (1982). Absent such clear

intent for a retroactive application, a statute only applies prospectively. See id. The Department has

never presented any evidence, nor does the plain language of the statute contain any evidence, that

the Legislature intended NMSA 1978 Section 7-1-69 (2007) to apply retroactively to obligations

that originated before the January 1, 2008 effective date of that revision. Given the Legislature’s

silence on the question of retroactivity of NMSA 1978 Section 7-1-69 (2007), case law suggests

that the amended statute should only apply prospectively. See Psomas; See also N.M. Elec. Serv.

Co. v. Jones, 80 N.M. 791, 793, 461 P.2d 924, 926 (Ct. Appl. 1969) (“where an ambiguity or doubt

exists as to the meaning or applicability of a tax statute, it should be construed most strongly against

In the Matter of Thomas J. Nagle
page 12 of 14
the taxing authority and in favor of those taxed”). Moreover, in a case closely on point, the New

Mexico Supreme Court has also found that the Department may not retroactively apply a modified

penalty regulation against a taxpayer for an obligation that predates the effective date of the

modified regulation. See Kewanee Industries, Inc. v. Reese, 114 N.M. 784, 845 P.2d 1238 (1993).

In this case, the old penalty statute in effect at the time of the Taxpayer’s failure to file and

pay tax is the applicable penalty amount or 10%. Taxpayer’s failure to file and pay tax the 10%

penalty was applied at 2% for five months and fully applied by September 2007. After that date,

under the old penalty statute, no further civil penalty could be imposed because of the not to exceed

language of the statute, regardless if the tax still remained due. Consequently, since the maximum

penalty amount had been reached in 2007, the Department is prohibited from applying 20% penalty

to the amount due.

Interest.

Taxpayer conceded that he owed interest on the amount of principal income tax he owed.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is due.

NMSA 1978, § 7-1-67 (A). The word “shall” indicates that the assessment of interest is mandatory,

not discretionary. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167, 169 (1977). The

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

value of unpaid revenues. Because the principal amount of tax was not paid when it was due,

interest was properly assessed.

CONCLUSIONS OF LAW

A. Thomas J. Nagle, Inc. filed a timely written protest to the principal, penalty and

In the Matter of Thomas J. Nagle
page 13 of 14
interest assessed under Letter ID L0999557184, and jurisdiction lies over the party and the subject

matter of this protest.

B. The amount of tax due for tax year 2006 is $1,725.00.

C. The amount of withholding income tax paid was $903.75, plus $39.25 or $943.00.

D. Mr. Nagle was negligent in not filing and paying his income tax for tax year 2006.

E. The amount of income tax due is $782.00, plus penalty at a rate to be calculated at

no more than 10% of the principal amount of tax owed pursuant to NMSA 1978, Section 7-1-69

(2003), and interest.

F. Taxpayer was unable to either rebut the presumption or prove by a preponderance

of the evidence that an additional amount of withholding income tax in the amount of $203.00 had

been deducted from Ms. Nagle’s income.

G. Interest should be applied to the principal amount of tax due in accordance with

this Decision.

For the foregoing reasons, Thomas J. Nagle’s protest is GRANTED IN PART AND

DENIED IN PART.

DATED: September 18, 2011.

In the Matter of Thomas J. Nagle
page 14 of 14