Could an excellent filing and payment history excuse penalties for one missed electronic return and one payment made a day late?

Plain-English summary

Tent Rock's strong compliance history did not excuse a forgotten electronic return or a payment made one day late. New Mexico's penalty provisions treated both inadvertent omissions as negligence, and the statute contained no automatic first-mistake waiver.

For February 2013, Tent Rock paid its gross receipts and withholding taxes on time but forgot to submit the electronic CRS return. It filed as soon as the Department notified it.

For July 2013, Tent Rock filed the return on time but forgot to pay. The payment was due Monday, August 26 and arrived August 27.

A good history was not a statutory exception

Tent Rock had historically filed returns and paid taxes on time. Its office manager argued that the law should forgive penalty or interest for a single mistake when a taxpayer otherwise had an excellent record.

The decision found no such provision in the Tax Administration Act. The office manager also confirmed that none of the regulation's listed indications of nonnegligence applied.

Failing to act where action was required and inadvertence both fell within the definition of negligence. Penalty therefore applied to the missing February return and the late July payment.

Interest applied for the single late day

Interest was not punitive; it compensated the state for the time value of unpaid tax. Because the July principal was paid one day after its due date, the mandatory-interest statute applied through the payment date.

Result: protest DENIED. The order upheld:

• February 2013: $861.56 gross receipts tax penalty and $49.88 withholding tax penalty, totaling $911.44.
• July 2013: $318.14 gross receipts tax penalty, $25.66 withholding tax penalty, and $1.42 combined interest, totaling $345.22.

The total penalty and interest was $1,256.66.

What this means for you

Businesses with strong compliance records

A good history helps explain an error but did not independently establish penalty relief under the provisions applied here. Document a specific reasonable-cause or nonnegligence ground.

Electronic filers

Payment and return submission are separate obligations. Confirm that both transmissions were accepted for every reporting period.

Businesses paying near a deadline

One day matters for interest. Calendar the actual due date and verify settlement rather than relying only on preparation of the return.

Common questions

Q: Was the February tax itself late?
A: No. Payment was timely; the electronic return was not.

Q: Was the July return late?
A: No. The return was timely, but payment arrived one day after the deadline.

Q: Did Tent Rock intentionally disregard the rules?
A: The decision described the errors as inadvertent, but intent was not required for civil-negligence penalty.

Q: How much interest arose from the late July payment?
A: $1.31 on gross receipts tax and $0.11 on withholding tax, totaling $1.42.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17(C) — assessment presumption
• NMSA 1978, § 7-1-69(A) — penalty for negligent failure to file or pay
• NMSA 1978, § 7-1-67(A) — mandatory interest
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — negligence and indications of nonnegligence

Cases cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — inadvertent error as negligence
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory effect of “shall”

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Tent Rock Inc.
• Decision PDF: D&O 14-11

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
TENT ROCK INC. No. 14-11
TO ASSESSMENTS ISSUED UNDER
LETTER ID NOS. L1814693328 and L0740951504

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on January 23, 2014, before

Monica Ontiveros, Hearing Officer. Originally, this matter was assigned to Dee Dee Hoxie,

hearing officer. At the hearing, the Taxation and Revenue Department (“Department”) was

represented by Peter Breen, attorney for the Department. Ms. Sonya Varela, protest auditor,

appeared as a witness for the Department. Tent Rock Inc. (“Taxpayer”) was represented by its

office manager, Molly White, who appeared at the appointed time. There were no exhibits

introduced into the record.

Based on the aforementioned pleadings, the testimony and evidence introduced at the

hearing, and the arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On November 8, 2013, the Department assessed Taxpayer in gross receipts tax in

the amount of $861.56 in penalty and $49.88 in penalty for withholding tax for the tax period

ending February 28, 2013. Letter Id No. L0740951504.

2. On November 8, 2013, the Department assessed Taxpayer in gross receipts tax in

the amount of $318.14 in penalty and $1.31 in interest and $25.66 in penalty and $.11 cents in

interest for withholding tax for the tax period ending July 31, 2013. Letter Id No. L1814693328.

3. Taxpayer filed a protest to the assessments on November 14, 2013.

4. On December 30, 2013, the Department requested a hearing in this matter.

5. On December 31, 2013, the Hearings Bureau mailed a Notice of Administrative

Hearing setting the hearing for January 23, 2014 before Dee Dee Hoxie, hearing officer.

6. Taxpayer has a history of always paying its combined reporting system1 (CRS)

taxes on a timely basis.

7. For the tax period ending February 28, 2013, Taxpayer paid its CRS taxes in a

timely manner.

8. Taxpayer forgot to submit a CRS electronic return in a timely manner for the tax

period ending February 28, 2013.

9. Taxpayer submitted a CRS electronic return for the tax period ending February

28, 2013 as soon as the Department notified Taxpayer that it had failed to properly file a return.

10. For the tax period ending July 31, 2013, Taxpayer filed a CRS electronic return in

a timely manner.

11. Taxpayer forgot to submit a timely payment of its CRS taxes for the tax period

ending July 31, 2013.

12. Taxpayer paid its CRS taxes for the tax period ending July 31, 2013 on August

27, 2013. The CRS taxes were due on Monday, August 26, 2013.

DISCUSSION

The sole issue to be determined is whether the Department properly assessed Taxpayer

for penalty and interest for the tax periods ending February 28, 2013 and July 31, 2013.

Taxpayer argued that because it has always paid its taxes in a timely manner, there should be a

provision that allows forgiveness of penalty and/or interest for one mistake.

1
The combined reporting system includes gross receipts and withholding taxes.

In the Matter of the Protest of Tent Rock, Inc.
Page 2 of 7
Burden of Proof and Standard of Review.

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). 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. See, TPL, Inc. v. Taxation and Revenue Dep’t,

2000-NMCA-083, ¶8, 129 N.M. 539, 542, 10 P.2d 3d 863, 866, cert. granted, 129 N.M. 519, 10

P.3d 843, rev’d on other grounds, 2003-NMSC-7, 133 N.M. 447, 64 P.3d, 474. When a taxpayer

presents sufficient evidence 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, 219-220, 62 P.3d 308, 310-311; Grogan v. New Mexico

Taxation and Revenue Department, 2003-NMCA-033, ¶11, 133 N.M. 354, 357-58, 62 P.3d

1236, 1239-40. Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case

is presumed to be correct.

Consequently, Taxpayer has the burden to show that the Department’s assessment is

incorrect. See Archuleta v. O'Cheskey, 1972-NMCA-165, ¶7, 84 N.M. 428, 431, 504 P.2d 638,

641. Taxpayer did not present evidence to rebut the presumption of correctness.

Civil Penalty.

Civil penalty is imposed when a taxpayer is “negligent” or disregards the Department’s

rules and regulations in not filing a return or paying tax when it is due. Section 7-1-69(A) states

that:

(e)xcept as provided in Subsection C of this section, in the case of failure due to
negligence or disregard of department rules and regulations, but without intent
to evade or defeat a tax, to pay when due the amount of tax required to be
paid, to pay in accordance with the provisions of Section 7-1-13.1 NMSA 1978
when required to do so or to file by the date required a return regardless of

In the Matter of the Protest of Tent Rock, Inc.
Page 3 of 7
whether a tax is due, there shall be added to the amount assessed a penalty in an
amount equal to the greater of:

(1) two percent per month or any fraction of a month from the date the
tax was due multiplied by the amount of tax due but not paid, not to exceed
twenty percent of the tax due but not paid;

(Emphasis added). NMSA 1978, Section 7-1-69 (A) (1) (2007). The Department’s regulation

provides that “negligence” includes “failure to exercise ordinary business care and prudence

which reasonable taxpayers would exercise under like circumstances; inaction where action is

required; inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or

inattention” for either failing to file a return on time or failing to make a payment on time.

Regulation 3.1.11.10 NMAC (2001). Inadvertent error is defined as “negligence.” See El Centro

Villa Nursing Ctr. v. Taxation & Revenue Dep’t, 1989-NMCA-070, ¶14, 108 N.M. 795, 799, 779

P.2d 982, 986.

Ms. White argued for legislative change. She argued that there should be a provision

within the Tax Administration Act that allows for forgiveness of penalty and/or interest if there

has been an omission or a mistake made by the taxpayer and if the taxpayer has an excellent

history of paying and filing its returns. There is no provision within the Tax Administration Act

that allows the forgiveness of penalty and/or interest if a taxpayer makes an error and if the

taxpayer has an excellent paying and reporting history. There is no dispute that historically,

Taxpayer has made payments and has filed its returns in a timely manner.

By Ms. White’s own admission, Taxpayer made an inadvertent error in not filing and

reporting Taxpayer’s CRS February 2013 return and not paying its July 31, 2013 taxes when due

in a timely manner. At the hearing, the Hearing Officer listed all of the indications of

nonnegligence. Ms. White confirmed that there were no indications of nonnegligence that

In the Matter of the Protest of Tent Rock, Inc.
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applied to Taxpayer. See Regulation 3.1.11.11 NMAC (2001) defining indications of

nonnegligence. Therefore, Taxpayer is liable for penalty for both the failure to file the return

timely (February 2013 return) and the failure to pay the CRS payment timely (July 2013).

Interest.

New Mexico law is very clear on the imposition of interest when the principal

amount of tax is unpaid when due, even if the payment is received one day late. Section

7-1-67(A) (2007) states that 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) (2007). The word

“shall” is interpreted to mean that the Department does not have discretion and must

assess interest if principal tax is due and owing. Marbob Energy Corporation v. NM

Oil Conservation Commission, 2009-NMSC-013, ¶22, 146 N.M. 24, 32, 206 P.3d 135,

143. 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 for the July 2013 return, interest was properly assessed on

the principal amount until the date it was paid. In this case, the principal amount was

due on August 26, 2013 and it was paid on August 27, 2013. Therefore, Taxpayer owes

the interest amount calculated through date of payment of the principal for the tax

period ending July 31, 2013.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely written protest of the Notices of Assessment Letter Id Nos.

L1814693328 and L0740951504 for gross receipts tax penalty and interest and withholding tax

penalty and interest for the tax periods ending February 28, 2013 and July 31, 2013.

B. Jurisdiction lies over the parties and the subject matter of this protest.

In the Matter of the Protest of Tent Rock, Inc.
Page 5 of 7
C. Taxpayer was negligent in not filing its CRS return for the tax period ending

February 28, 2013; accordingly, it owes penalty.

D. Taxpayer was negligent in not paying its CRS taxes when due for the tax period

ending July 31, 2013; accordingly, it owes penalty and interest.

E. Interest is due and owing on the principal amount of tax due until the date the

principal was paid, even if the payment was made one day late.

F. The total amount due is $911.44 for the tax period ending February 28, 2013 and

$345.22 for the tax period ending July 31, 2013.

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

DATED: April 3, 2014

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

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, §7-1-25 (1989), Taxpayer has 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 NMRA, 12-601 of the Rules of Appellate Procedure. If an appeal is not filed

within 30 days, this Decision and Order will become final. A copy of the Notice of Appeal

should be mailed to John Griego, P. O. Box 630, Santa Fe, New Mexico 87504-0630. Mr.

Griego may be contacted at 505-827-0466.

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