When amended corporate returns revealed 1995-1996 underpayments and 1997-1999 overpayments, did interest on the earlier tax continue until the 2008 amendments or stop as each later overpayment was applied?

Plain-English summary

Burlington Northern Santa Fe Corp. (BNSF) correctly stopped interest on its 1995 and 1996 corporate income tax underpayments as later-year overpayments were applied to them. The decision abated the Department's additional $628,926.63 interest assessment.

A federal audit changed BNSF's income for 1995 through 1999. In November 2008, the company filed amended New Mexico returns showing:

• $6,484 of additional tax for 1995;
• $539,115 of additional tax for 1996;
• a $134,268 overpayment for 1997;
• a $75,754 overpayment for 1998; and
• a $269,253 overpayment for 1999.

BNSF paid $347,202 when it filed the amendments, representing the tax and interest it calculated as still due. It calculated interest on the 1995 and 1996 liabilities only until the later overpayments were made and applied, then on the remaining balance until the final 2008 payment.

The Department instead ran interest on the entire earlier liability until the amended returns were filed in 2008.

Section 7-1-29(E) set the deemed-payment date

Section 7-1-29(E) allowed an overpayment identified to a return to be applied to other liabilities. It then stated that the liability receiving the overpayment “shall be deemed paid” in the period when the overpayment was made.

The decision treated that language as mandatory. BNSF's 1997, 1998, and 1999 payments exceeded the tax actually due for those years and were identified to their respective returns. When applied to the 1995 and 1996 liabilities, they became deemed payments in those later periods.

Interest therefore stopped on the corresponding portions of the earlier liability in 1997, 1998, and 1999 rather than continuing through 2008.

Amended returns still counted as returns

The Department argued that the 2008 filings were refund claims rather than returns and that the payments were not known to be overpayments when originally made.

The decision rejected both points. Section 7-1-3(R) defined a return to include a refund claim and amendments or supplements. The overpayment definition focused on whether the amount paid exceeded the tax actually due at the time of payment, not whether everyone recognized the excess then.

The statute also did not require the payment and amended return to be filed at the same time.

The statutory amendment displaced the older Amoco rule

The Department relied on Amoco Production Co., which had found no statutory basis for applying one period's overpayment to an earlier period's underpayment. The decision held that the later enactment of Section 7-1-29(E) supplied the legislative remedy that Amoco had said was necessary.

BNSF's remaining tax was paid in 2008. Its interest calculation—from the original due dates to the successive deemed-payment dates and final payment—was correct.

Result: protest granted; the $628,926.63 interest assessment was abated.

What this means for you

Corporations amending multiple tax years

Analyze overpayments and underpayments together. Under the statute applied here, a later-year overpayment credited to another liability was treated like a payment in the overpayment year for interest purposes.

Taxpayers discovering an overpayment only later

The overpayment did not need to be recognized when the original payment was made. What mattered was that the amount exceeded the tax actually due and was identified to a particular return.

Tax professionals calculating interest

Interest compensates the state while revenue is unpaid. Once an overpayment is legally applied and the liability is deemed paid, interest stops on that portion even if amended returns documenting the result are filed later.

Common questions

Q: Why did the Department assess extra interest?
A: It calculated interest on the full 1995-1996 underpayments through the November 2008 amended returns, without stopping for the 1997-1999 overpayments.

Q: When were the earlier liabilities deemed paid?
A: To the extent of each applied overpayment, in the periods when the 1997, 1998, and 1999 overpayments were made. The remaining balance was paid in 2008.

Q: Did an amended return count as a return?
A: Yes. The statutory definition included refund claims and amendments or supplements to returns.

Q: Did BNSF have to know in 1997-1999 that it was overpaying?
A: No. The decision said the statute required only that the amount paid exceed the tax actually due at the time.

Q: Why did Amoco not control?
A: Section 7-1-29(E) was enacted after that case and directly addressed applying overpayments to other liabilities and their deemed-payment dates.

Citations and references

Statutes:

• NMSA 1978, § 7-1-3 — definitions of tax, overpayment, and return
• NMSA 1978, § 7-1-17 — presumption that Department assessments are correct
• NMSA 1978, § 7-1-67(A) — interest on tax not paid when due
• NMSA 1978, § 7-1-29(E) — application of overpayments and deemed-payment period

Cases:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989)
• Amoco Production Co. v. N.M. Taxation and Revenue Dep't, 118 N.M. 72, 878 P.2d 1021 (Ct. App. 1994)
• Hess Corp. v. N.M. Taxation and Revenue Dep't, 2011-NMCA-043, 149 N.M. 527, 252 P.3d 751
• Marbob Energy Corp. v. N.M. Oil Conservation Commission, 2009-NMSC-013, 146 N.M. 24, 206 P.3d 135
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977)
• Dresser Industries, Inc. v. United States, 73 F. Supp. 2d 682 (N.D. Tex. 1999)
• Fluor Corp. v. United States, 126 F.3d 1397 (Fed. Cir. 1997)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Burlington Northern Santa Fe Corp.
• Decision PDF: D&O 12-01

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
BURLINGTON NORTHERN SANTA FE CORP., No. 12-01
TO ASSESSMENT ISSUED UNDER
ID NO. L1172702080

DECISION AND ORDER

A formal hearing on the above-referenced protest was held November 10, 2011, before

Dee Dee Hoxie, Hearing Officer. The Taxation and Revenue Department (Department) was

represented by Ms. Amy Chavez-Romero, Staff Attorney. Mr. Andrick Tsabetsaye, Auditor, also

appeared on behalf of the Department. Mr. Douglas Hinds, Esq. and Ms. Suzanne Waldrep

appeared as employee representatives for the hearing on behalf of Burlington Northern Santa Fe

Corp. (Taxpayer). The Hearing Officer took notice of all documents in the administrative file.

The parties agreed to waive the 30-day limit on the decision. The parties stipulated to the facts

and each filed a Motion for Summary Judgment prior to the hearing. The parties advised that

taking evidence at the hearing would not be required due to the stipulations. The parties

supplemented their motions with oral argument at the hearing. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer was subjected to federal audit for the tax years of 1995 through 1999.

2. On November 3, 2008, the Taxpayer filed amended New Mexico corporate income tax

returns for tax years 1995 through 1999 to reflect the final IRS adjustments on income for

those tax years.

3. The amended return for 1995 showed an additional tax liability of $6,484. The amended

return for 1996 showed additional tax liability of $539,115. The amended return for 1997

showed an overpayment of $134,268. The amended return for 1998 showed an

overpayment of $75,754. The amended return for 1999 showed an overpayment of

$269,253.

4. When the Taxpayer filed its amended returns, the Taxpayer paid $347,202, which was the

tax and interest that it had determined was still owed.

5. The Taxpayer calculated the interest from the due dates of the taxes for the 1995 and

1996 years until the overpayments in 1997, 1998, and 1999 and until the final payment of

tax in November 2008.

6. On April 1, 2009, the Department assessed Taxpayer for an additional $628,926.63 in

interest for the 1996 tax year.

7. The Department calculated the interest from the due dates of the taxes for the 1995 and

1996 years until the amended return was filed in November 2008.

8. On April 8, 2009, Taxpayer filed a timely protest to the assessment.

9. On June 21, 2011, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

10. On July 6, 2011, the Hearings Bureau mailed Notice of Hearing to the parties, showing

that the hearing was set for November 10, 2011.

11. On October 17, 2011, the Department filed a Motion for Summary Judgment.

12. On October, 27, 2011, the Taxpayer filed a Motion for Summary Judgment.

13. On November 4, 2011, the Department filed its Response to the Taxpayer’s motion.

In the Matter of Burlington Northern Santa Fe Corp., page 2 of 8

14. On November 8, 2011, the Department advised the Hearing Officer that there was not any

dispute as to issues of fact and that the parties had agreed to stipulate to the facts and to

supplement their filed motions with oral argument at the hearing.

DISCUSSION

The issue to be decided is whether the interest accrued from the due date of the tax until

the overpayments in 1997, 1998, 1999, and the final payment in 2008, or whether the interest

accrued from the due date of the tax until the amended return was filed without regard to

previous overpayments.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

7-1-3. See also, El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M.

795, 779 P.2d 982 (Ct. App. 1989). Therefore, the assessment issued to the Taxpayer is presumed

to be correct, and it is the Taxpayer’s burden to present evidence and legal argument to show that

it is entitled to an abatement of interest. There was no dispute on the material facts, and the

arguments were made on cross motions for summary judgment solely on the legal issues.

Assessment of Interest.

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 parties agreed that interest was owed on the 1995 and 1996

tax years, but disagreed as to the time period to which interest should accrue.

Interest Period.

In the Matter of Burlington Northern Santa Fe Corp., page 3 of 8
The Taxpayer argued that Section 7-1-29 (E) applied and that the tax was deemed paid

when the overpayments occurred in 1997, 1998, and 1999. The Taxpayer applied interest on the

tax outstanding from the due date until the overpayments in 1997, 1998, and 1999 were made.

The Taxpayer also applied interest on the amount of tax still outstanding until the final payment

was made in 2008. The Department argued that Section 7-1-29 (E) does not apply. The

Department applied interest on the entire amount of the outstanding tax from the due date until

the 2008 amended return was filed. The Department explained that it credited the tax due against

the liabilities under Section 7-1-29 (C) at the time that the amended return was filed.

The Department argued that the Amoco case controlled. See Amoco Production Co. v.

N.M. Taxation and Revenue Dep’t., 118 N.M. 72, 878 P.2d 1021 (Ct. App. 1994) (holding that

there was not a statutory basis for applying overpayments of tax from one reporting period to

underpayments from another prior reporting period). The Department also cited to prior tax

hearing decisions that relied on Amoco. The Taxpayer pointed out that Section 7-1-29 has been

amended since the Amoco case was decided. See NMSA 1978, § 7-1-29 (2006). The tax hearing

decisions that the Department cited all involved facts that occurred prior to the amendment of the

statute. The Taxpayer argued that the new subsection (E) in Section 7-1-29 was specifically

legislated to remedy the situation that occurred in Amoco.

There does not seem to be any caselaw on the applicability of Section 7-1-29 (E).

Statutes are to be interpreted in accordance with legislative intent and in a manner that does not

lead to an absurd, unreasonable, or unjust result. See Amoco, 118 N.M. at 74. See also Hess

Corp. v. N.M. Taxation and Revenue Dep’t., 2011-NMCA-043, 149 N.M. 527, 252 P3d. 751.

The first step in statutory interpretation is to look at the plain language of the statute and to

refrain from further interpretation if the plain language is not ambiguous. See Marbob Energy

In the Matter of Burlington Northern Santa Fe Corp., page 4 of 8
Corp. v. N.M. Oil Conservation Comm’n., 2009-NMSC-013, 146 N.M. 24, 206 P.3d 135). The

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

time value of unpaid revenues. Section 7-1-29 (E) allows the Department to apply a payment

identified to a particular return that exceeds the amount due to the taxpayer’s other liabilities,

even if the taxpayer does not apply for refund. See NMSA 1978, § 7-1-29 (E) (2006). “The

liability to which an overpayment is applied pursuant to this section shall be deemed paid in the

period in which the overpayment was made”. Id. (emphasis added). The word “shall” indicates

that the provision is mandatory, not discretionary. See State v. Lujan, 90 N.M. 103, 105, 560 P.2d

167, 169 (1977). The plain language of Section 7-1-29 (E) supports the Taxpayer’s interpretation

of the statute.

The Department argued that subsection (E) did not apply because there was not a

payment identified with a particular return because the returns were amended in 2008 and the

payments were made in 1997, 1998, and 1999. The Department also argued that the amended

returns filed for 1997, 1998, and 1999 were not returns. The Department argued that they were

claims for refund that should be distinguished from returns. The Department’s interpretations are

untenable in light of the statutory definition of return. The Taxpayer correctly pointed out that

returns are defined as “any tax or information return, declaration of estimated tax or claim for

refund, including any amendments or supplements to the return”. NMSA 1978, § 7-1-3 (R)

(2009). Moreover, the statute does not require that the payment be made at the time that the

return is filed. See NMSA 1978, § 7-1-29 (E) (2006). It is inappropriate to read language into a

statute that is not there. See Amoco, 118 N.M. at 75. The Taxpayer made payments in 1997,

1998, and 1999 that were identified to particular returns. When the amended returns were filed,

In the Matter of Burlington Northern Santa Fe Corp., page 5 of 8
it was determined that the payments made in 1997, 1998, and 1999 exceeded the amount due

pursuant to those returns.

The Department also argued that there were not overpayments made in 1997, 1998, and

1999 because the payments made in 1997, 1998, and 1999 were not known to be overpayments at

that time. The Department argued that to be an overpayment the payment must be made in

excess of the tax due as noted in the original return filed. Again, the Department’s interpretation

is untenable in light of the statutory definition of a return. See NMSA 1978, § 7-1-3 (R) (2009).

There is no distinction between an originally filed return and an amended return. See id.

Moreover, an overpayment is defined as “an amount paid…in excess of tax due from the person

to the state at the time of the payment”. NMSA 1978, § 7-1-3 (K) (2009) (emphasis added). The

statute is clear and unambiguous. See id. It does not require that the payment made be identified

as an overpayment at the time it is made, nor does it require that the payment be made in excess

of the tax believed to be due at the time of the payment; it is simply an amount paid in excess of

that which was actually due. See id. See also Amoco, 118 N.M. at 75 (prohibiting reading

language into a statute that is not there).

As a matter of law, Section 7-1-29 (E) applies to the Taxpayer. Due to statutory changes,

Amoco does not apply. See Amoco, 118 N.M. at 76 (indicating that a legislative remedy would

be necessary). The payments made in 1997, 1998, and 1999 were in excess of the tax due at the

time those payments were made, and the payments were identified to particular returns. Those

overpayments were applied to the Taxpayer’s other liabilities for the 1995 and 1996 tax years.

Consequently, the liabilities for the 1995 and 1996 tax years were “deemed paid” in 1997, 1998,

1999 to the extent of the overpayments for those years. See NMSA 1978, § 7-1-29 (E) (2006).

See Dresser Industries, Inc. v. U.S., 73 F.Supp.2d 682 (D.N.D. Tex) (1999) (holding that tax is

In the Matter of Burlington Northern Santa Fe Corp., page 6 of 8
deemed paid if an overpayment of one year is credited against a deficiency of another year and

that the deemed payment is treated the same as if it were a cash payment). The remaining

outstanding tax was paid in 2008 when the amended returns were filed. The Taxpayer properly

calculated the interest to the dates in 1997, 1998, 1999, and 2008 when the taxes were deemed

paid and were fully paid. See Fluor Corp. v. U.S., 126 F.3d 1397 (Ct. App. Fed. Cir.) (1997)

(holding that interest runs from the due date of the tax until the time that the tax is deemed paid).

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely written protest to the Notice of Assessment of interest

for the 1996 tax year under respective Letter ID number L1172702080, and jurisdiction lies over

the parties and the subject matter of this protest.

2. Due to statutory changes, Amoco does not apply to the Taxpayer.

3. Section 7-1-29 (E) applies to the Taxpayer, and the 1995 and 1996 liabilities were

deemed paid in 1997, 1998, and 1999 to the extent of the overpayments made in those years.

4. The Taxpayer paid the remaining tax balance in 2008 when it filed its amended

returns and properly remitted the interest owed from the 1995 and 1996 due dates of the tax until

the deemed payments of 1997, 1998, and 1999, and until the final payment of the tax in 2008.

For the foregoing reasons, the Taxpayer’s protest IS GRANTED. The Department is

ordered to abate the assessment against the Taxpayer.

DATED: December 28, 2011.

DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630
In the Matter of Burlington Northern Santa Fe Corp., page 7 of 8
NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, §7-1-25, the parties have the right to appeal this decision by

filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the date shown

above. See Rule 12-601 NMRA. If an appeal is not filed within 30 days, this Decision and

Order will become final.

CERTIFICATE OF SERVICE

On ___, 20, a copy of the foregoing Decision and Order was mailed

to Douglas Hinds, AVP and General Tax Counsel, BNSF Railway Company, PO Box 961101, Fort

Worth, TX 76161-0101, and delivered through interoffice mail to Amy Chavez-Romero, Staff

Attorney, Taxation and Revenue Department, Santa Fe, New Mexico.

In the Matter of Burlington Northern Santa Fe Corp., page 8 of 8