Were penalty and interest due when a business proved it mailed its gross-receipts and withholding returns and payments before the deadline?

Plain-English summary

The hearing officer granted Mico Services' protest and ordered the Department to abate all penalty and interest assessed on its April 2010 gross-receipts and withholding taxes. The business proved that it mailed both returns and full payment on May 11, 2010, before the May 25 deadline.

The payment check had not cleared when Mico reviewed its records in February 2011. Mico immediately contacted the Department, learned that the Department had no record of the filing or payment, stopped the original check, and refiled and repaid within two days. The Department then assessed $6,598.98 in gross-receipts-tax penalty, $560.52 in withholding-tax penalty, $1,034.54 in gross-receipts-tax interest, and $87.87 in withholding-tax interest.

The parties stipulated that Mico properly mailed the original filing and payment. The hearing officer found Mico's witnesses credible and held that the proof of proper, timely mailing overcame the assessment's presumption of correctness. The Department offered no evidence that the mailing was not received. On the particular facts—including Mico's volume of 200 to 250 checks a month and its usual 100 to 150 outstanding checks—the hearing officer also found that waiting until February to investigate the uncashed check was not negligence.

What this means for you

Businesses filing and paying by mail

Evidence of a properly addressed and timely mailing can be decisive when the Department later says it has no record of a return or payment. Here, the parties stipulated to the mailing, the taxpayer's witnesses were credible, and the Department presented no contrary evidence.

Bookkeepers and controllers

An uncashed tax check should be investigated, but this decision did not impose a fixed monitoring deadline. It evaluated Mico's actual process and check volume and found ordinary business care under those unique facts.

Accountants and tax professionals

Once Mico rebutted the assessment's presumption of correctness, the burden shifted to the Department. The Department's regulation about mailings that are never received did not defeat Mico's case because the stipulation established a proper mailing and the Department did not prove nonreceipt.

Common questions

Q: Was the original April 2010 tax paid on time?
A: Yes. The hearing officer held that the properly mailed May 11, 2010 return and payment were timely for the May 25 due date.

Q: Did the fact that the check never cleared prove the Department did not receive it?
A: No. The hearing officer treated the uncashed check as possible evidence of nonreceipt, but Mico explained that Department checks sometimes remained outstanding for months, and the Department offered no evidence about its payment processing.

Q: Was Mico negligent for waiting until February 2011 to investigate?
A: No, on these facts. Mico tracked outstanding checks monthly, wrote 200 to 250 checks per month, commonly had 100 to 150 outstanding checks, and said checks of similar size often remained outstanding for months.

Q: How much was abated?
A: The order abated $6,598.98 and $560.52 in penalties plus $1,034.54 and $87.87 in interest, a total of $8,281.91.

Q: Does the decision contain a date inconsistency?
A: Yes. The findings and discussion identify the original mailing date as May 11, 2010, which was before the May 25, 2010 deadline. Conclusion of Law 2 says May 11, 2011; that appears inconsistent with the rest of the decision, so this summary uses the repeatedly stated 2010 date.

Citations and references

• NMSA 1978, §§ 7-1-9 and 7-1-13 — filing and payment by mail
• NMSA 1978, §§ 7-1-3 and 7-1-17 — assessment and burden of proof
• NMSA 1978, §§ 7-1-67(A) and 7-1-69 — interest and penalty
• Regulation 3.1.4.10(C) NMAC — treatment of mailings not received
• Garmond v. Kinney, 91 N.M. 646, 579 P.2d 178 (1978)
• MPC Ltd. v. N.M. Taxation and Revenue Department, 2003-NMCA-021
• State Farm Fire and Casualty Co. v. Price, 101 N.M. 438, 684 P.2d 524 (Ct. App. 1984)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Mico Services, LLC
• Decision PDF: D&O 12-05

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
MICO SERVICES, LLC, No. 12-05
TO ASSESSMENTS ISSUED UNDER
ID NO. L2025293376

DECISION AND ORDER

A formal hearing on the above-referenced protest was held January 17, 2012, before Dee

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

represented by Mr. Nelson Goodin, Chief Legal Counsel. Ms. Sonia Varela, Auditor, also

appeared on behalf of the Department. Mico Services, LLC (Taxpayer) appeared for the hearing

and was represented by and through its accountant, Mr. Jimmy Waechter, CPA, and its President,

Mr. Johnny Vega, and its Office Manager, Ms. Deanna Stratton. The Hearing Officer took notice

of all documents in the administrative file. The parties stipulated to several facts. Taxpayer #1,

2, and #3 were admitted. Mr. Waechter, Mr. Vega, and Ms. Stratton testified at the hearing.

Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer was engaged in business in New Mexico in April 2010 and was required to

file its gross receipts monthly. The April 2010 filing was due no later than May 25, 2010.

2. The Taxpayer filed its April 2010 monthly return and remitted payment in full for gross

receipts tax and for withholding tax by mailing the documents to the Department on May

11, 2010. Mailing was the filing method regularly used by the Taxpayer.

3. In February 2011, the Taxpayer was preparing its annual income tax return. At that time,

the Taxpayer noticed that the check remitted for its April 2010 gross receipts tax had not

been cashed.

4. The Taxpayer immediately contacted the Department and inquired about the status of its

April 2010 return and payment. The Department advised the Taxpayer that they did not

show a return or payment for that month.

5. The Taxpayer placed a stop-payment on the check, re-filed the April 2010 report, and

remitted another check for the tax. The payment and re-filed report were done within two

days of when the Taxpayer learned that the Department did not have a record of the April

2010 report.

6. On March 9, 2011, the Department assessed the Taxpayer for penalty and interest for the

tax period ending on April 30, 2010. The assessment was for gross receipts tax penalty of

$6,598.98, withholding tax penalty of $560.52, gross receipts tax interest of $1,034.54,

and withholding tax interest of $87.87.

7. On March 8, 2011 and on March 28, 2011, the Taxpayer filed formal protest letters.

8. On August 23, 2011, the Department filed a Request for Hearing asking that the

Taxpayer’s protest be scheduled for a formal administrative hearing.

DISCUSSION

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

receipts tax and on withholding tax for the tax period ending in April 2010 due to negligence.

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

In the Matter of Mico Services, LLC, page 2 of 6
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 rebut that

presumption. 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 (filed October 2, 2002).

Assessments of Penalty and Interest.

Penalty may be assessed when a taxpayer fails to pay a tax when it is due, even if the

failure is due to negligence. See §7-1-69 NMSA 1978 (2008). 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).

Therefore, the threshold question is whether the tax was paid when it was due.

Timeliness of Payment.

Returns and payments may be filed by mail. See NMSA 1978, § 7-1-13 (2007). All

authorized mailings are timely if they are mailed on or before the date on which they are due.

See NMSA 1978, § 7-1-9 (1997). The party relying on service by mail has the burden of proving

that the mailing was done. See Myers v. Kapnison, 93 N.M. 215, 216, 598 P.2d 1175, 1176 (Ct.

App. 1979). “A properly addressed letter that is mailed is presumed to be received.” Garmond

v. Kinney, 91 N.M. 646, 647, 579 P.2d 178, 179 (1978).

I found the Taxpayer’s witnesses to be very credible. The Department did not present any

evidence at the hearing. The parties stipulated that the Taxpayer properly mailed its return and

payment for April 2010 on May 11, 2010, which was before its due date. The Taxpayer also

explained that it regularly files its returns and is very diligent in paying its taxes in a timely

In the Matter of Mico Services, LLC, page 3 of 6
manner. Consequently, there was sufficient evidence to overcome the presumption of

correctness and to show that the Taxpayer did pay its April 2010 tax liability by its due date.

The burden then shifted to the Department to show that the return and payment were not

received. See State Farm Fire and Casualty Co. v. Price, 101 N.M. 438, 443, 684 P.2d 524, 529

(Ct. App. 1984) (holding that the presumption that a properly addressed letter was received may

be rebutted by evidence that the letter was not received). See also MPC Ltd. v. N.M. Taxation

and Revenue Dep’t., 2003-NMCA-021, ¶ 13. The Department argued that if a mailing is not

received by the Department its contents are not timely under Regulation 3.1.4.10 (C). Regulation

3.1.4.10 (C) (2) NMAC (2000) indicates that a mailing not received by the Department is not

timely. However, the same subsection goes on to explain that an improperly addressed mailing

that is never received by the Department will not be credited with its original postmarked date.

See id. See also State ex rel. Quintana v. Schnedar, 115 NM 573, 855 P.2d 562 (1993) (noting that

provisions of a statute must be read together with other statutes in material parts). See also Johnson

v. NM Oil Conservation Com’n, 1999-NMSC-021, 127 NM 120 (holding that canons of

construction that apply to statutes also apply to rules and regulations). The stipulation was that the

return and payment were properly mailed. Moreover, the Department presented no evidence to

show that the Taxpayer’s April 2010 return and payment were not received. The only credible

evidence presented that might go to show that the return and payment were not received was the

fact that the Taxpayer’s check had not been cashed by February 2011. However, the Taxpayer

explained that it was not unusual for checks to the Department to remain outstanding for several

months. The Department presented no evidence on its payment processing.

The Department argued that the Taxpayer was negligent since it did not inquire about the

outstanding check until February 2011. The Department argued that the Taxpayer did not

In the Matter of Mico Services, LLC, page 4 of 6
exercise ordinary business care. The Taxpayer explained that it keeps track of outstanding

checks on a monthly basis, but that the checks are listed only by number and amount, and not by

payee. The Taxpayer also explained that it writes between 200 and 250 checks each month on

average. The amounts of the checks are frequently in the range of the check that was written to

the Department for the April 2010 tax period, and that it typically has 100 to 150 checks that are

listed as outstanding on every monthly statement. The Taxpayer explained that it is not usual for

several checks to remain outstanding for several months. Given the unique facts of this case, the

Taxpayer was not negligent and did exercise ordinary business care.

Based upon the totality of the evidence, the Taxpayer’s April 2010 return and payment

were made before their due date by timely, proper mailing. The Department failed to overcome

the presumption that the Taxpayer’s properly mailed return and payment were received.

Therefore, penalty and interest should not be assessed.

CONCLUSIONS OF LAW

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

and interest on gross receipts tax and on withholding tax for the April 2010 tax period under Letter

ID number L2025293376, and jurisdiction lies over the parties and the subject matter of this protest.

2. The Taxpayer presented sufficient evidence to overcome the presumption of

correctness, and showed that they filed their report and made payment in full for the April 2010

tax period by mailing them to the Department on May 11, 2011.

3. The Department failed to show the correctness of the assessment after the

presumption was overcome. Therefore, the assessment was improper.

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

ordered to abate the assessment against the Taxpayer.

In the Matter of Mico Services, LLC, page 5 of 6
DATED: February 14, 2012.

DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of Mico Services, LLC, page 6 of 6