Could a designated Special Payment taxpayer avoid penalty when it hand-delivered New Mexico bank checks on the usual due date instead of one business day earlier?

Plain-English summary

Santa Fe Hotel's hand-delivered checks were late under New Mexico's special-payment rules even though they arrived on the date the hotel had historically used. The one-day timing error was inadvertent rather than intentional, but inadvertence still met the regulatory definition of negligence.

This amended order superseded an initial decision issued June 12, 2014 and corrected a clerical error in the findings.

The Department had notified the hotel in December 2007 that it would become a “Special Payment” taxpayer on January 1, 2008. For that category, a check drawn on a New Mexico bank had to reach the Department's Santa Fe office at least one business day before the ordinary due date.

The hotel delivered on the 25th instead of the 24th

The general manager had long hand-delivered the hotel's combined reporting system returns and checks on the 25th of each month. For the August 2008 reporting period, however, the special-payment deadline was September 24.

The hotel delivered its return and New Mexico bank check on September 25. Its payment history also showed personal delivery on the 25th for periods from January through August 2008.

Lack of a counter warning did not excuse the error

The general manager did not recall receiving the December notice, but all correspondence ordinarily crossed his desk and Department records did not show that the letter was returned or undeliverable.

He argued that employees accepting the monthly returns could easily have told him payment was due a day earlier. The decision acknowledged that point but held that taxpayers in New Mexico's self-reporting system had a duty to determine the tax consequences and deadlines themselves.

The fact that the Department had accepted prior payments on the 25th without assessing penalty or interest also did not change the deadline.

Inadvertence supported civil penalty

The decision found that the hotel certainly had not intentionally failed to pay on time. But the civil penalty provision did not require intent. Its definition of negligence included inadvertence, and the hotel produced no evidence fitting the regulation's nonnegligence provisions.

Result: protest DENIED. The assessments included $1,694.84 penalty and $11.55 interest, totaling $1,706.39, across late gross receipts, compensating, and withholding tax payments. The decision's legal analysis focused on penalty; the final order denied the protest of both assessment letters.

What this means for you

Special Payment taxpayers

Confirm whether your payment method changes the deadline. Under the provision applied here, a New Mexico bank check had to be delivered one business day before the regular due date.

Businesses hand-delivering returns

Acceptance at a Department counter does not necessarily prove timeliness or waive later penalty. Keep the designation letter and calendar the specialized deadline separately.

Businesses with reviewed returns

The hotel said its CRS reports were prepared internally and reviewed by a CPA, but the payment-timing responsibility still remained with the taxpayer.

Common questions

Q: Was the tax principal itself unpaid?
A: The assessment amounts described in the order were penalty and interest for untimely payments, not unpaid principal.

Q: Why was September 25 late?
A: The hotel's special-payment status required direct delivery by September 24 when using a check drawn on a New Mexico bank.

Q: Did the hotel intentionally pay late?
A: No. The decision found no intentional failure, but held that inadvertence still qualified as negligence.

Q: Why is this labeled an amended decision?
A: The June 13 order states that it superseded the June 12 decision to correct a clerical error in the findings.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-13.1(B) — special-payment taxpayer deadline
• NMSA 1978, §§ 7-1-17(C) and 7-1-3(X) — assessment presumption and definition of tax
• NMSA 1978, § 7-1-69 — civil negligence penalty
• Regulations 3.1.6.13, 3.1.11.10, and 3.1.11.11 NMAC — penalty presumption, negligence, and nonnegligence

Cases cited:

• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — taxpayer's duty to determine tax consequences
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — inadvertence within 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: Santa Fe Hotel Ltd. Partnership
• Decision PDF: D&O 14-25

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
SANTA FE HOTEL LTD. PARTNERSHIP No. 25
TO ASSESSMENT ISSUED UNDER LETTERS
ID NO. L1354364288 and L0817493376

AMENDED
DECISION AND ORDER

This Amended Decision and Order supersedes the initial Decision and Order that was

issued on June 12, 2014. The Amended Decision and Order is entered to correct a clerical error

in the Findings of Fact.

A hearing was held on the above captioned matter on March 27, 2014, before Richard

Jacquez, Esq., Hearing Officer, in Santa Fe. Mr. Paul Margetson, General Manager, Santa Fe

Hotel LTD Partnership (“Taxpayer”) appeared pro se. The Taxation and Revenue Department of

the State of New Mexico (“Department”) was represented by Elena Romero Morgan, Staff

Attorney, Taxation and Revenue Department. Protest Auditor Sonya Varela appeared as a

witness for the Department. In addition to the documents contained in the Administrative File

articulated during the beginning of the hearing, Taxpayer Exhibit #1, Letter Prepared by Mr.

Margetson, Department Exhibit A, Filing History for Taxpayer and Department Exhibit B, Letter

to Taxpayer Dated December 18, 2007, are admitted into the record. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On October 16, 2008, under letter identification number L0817493376, the

Department assessed the Taxpayer for $1,610.93 in penalty on untimely payment of gross
receipts, $11.00 in interest for untimely gross receipts payments, $3.49 in penalty for untimely

paid compensating tax, and $0.02 in interest for untimely paid compensating tax.

2. On October 16, 2008, under letter identification number L1354364288, the

Department assessed the Taxpayer for $80.42 in penalty for untimely paid withholding tax, and

$0.53 in interest for untimely paid withholding tax.

3. On February 25, 2009, the Taxpayer protested the Department’s assessment.

4. On March 16, 2009, the Department acknowledged the receipt of the Taxpayer’s

protest and granted the Taxpayer a retroactive extension to file a protest to the assessments issued

on October 16, 2008.

5. On November 5, 2013, the Department requested a hearing in this matter.

6. On November 7, 2013, the Hearings Bureau mailed of Notice of Administrative

Hearing setting the hearing for March 27, 2014.

7. On December 18, 2007, the Department sent a letter to the Taxpayer advising the

Taxpayer that effective January 1, 2008, the Taxpayer would be subject to the special tax payer

provisions outlined in NMSA 1978, Section 7-1-13.1 (B) (2005).

8. As a “Special Payment” taxpayer, the Taxpayer was required to pay taxes at least

one business day before the due date directly to the Department in Santa Fe if paying by check

drawn against a New Mexico bank. See NMSA 1978, Section 7-1-13.1 (B) (2005).

9. For the combined reporting system reporting period ending August 31, 2008,

taxes were due for a “Special Payment” taxpayer if paid by check drawn against a New Mexico

bank on or before September 24, 2008.

10. In paying its tax liability under the combined reporting system for August 1, 2008

through August 31, 2008 reporting period, the Taxpayer hand delivered its return and tax

In the Matter of the Protest of Santa Fe Hotel LTD Partnership, page 2 of 6
payment to the Department on September 25, 2008. The payment was made by check drawn on

a New Mexico financial institution.

11. For the periods beginning January 1, 2008 through August 31, 2008, of the

combined reporting system reporting period, the Taxpayer personally delivered a check for

payment of taxes on the 25th day of each month.

DISCUSSION

The sole issue to be determined is whether the Taxpayer should be held liable for penalty

and interest for failing to make timely payment of taxes under the special payment provisions of

Section 7-1-13.1.

Presumption of Correctness and Burden of Proof.

Under NMSA 1978, Section 7-1-17(C) (2007), the assessment issued in this case is

presumed to be correct. 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 (X). Any penalty assessed is also presumed to be correct. 3.1.6.13

NMAC (1/15/01). Consequently, the Taxpayer has the burden to overcome the assessment and

establish that he or she was not required to pay the assessment. See Archuleta v. O'Cheskey, 84

N.M. 428, 431, 504 P.2d 638, 641 (NM Ct. App. 1972).

Assessment of Penalty.

When a taxpayer fails to pay taxes due to the State as a result of negligence or disregard

of rules and regulations, but without intent to evade or defeat a tax, NMSA 1978 Section 7-1-69

(2007) requires that

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

In the Matter of the Protest of Santa Fe Hotel LTD Partnership, page 3 of 6
tax due but not paid, not to exceed ten percent of the tax due but
not paid. (italics added for emphasis)

The statute’s use of the word “shall” makes the imposition of penalty mandatory in all instances

where a taxpayer’s failure to act timely meets the legal definition of “negligence” even if a

taxpayer’s actions or inactions were unintentional. See Marbob Energy Corp. v. N.M. Oil

Conservation Comm’n, 2009-NMSC-013, ¶22, 146 N.M. 24 (use of the word “shall” in a statute

indicates provision is mandatory absent clear indication to the contrary).

Regulation §3.1.11.10 NMAC (1/15/01) defines negligence in three separate ways: (A)

“failure to exercise that degree of ordinary business care and prudence which reasonable taxpayers

would exercise under like circumstances;” (B) “inaction by taxpayer where action is required; or

(C) “inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.”

Mr. Margetson explained that since the Taxpayer was incorporated in 1991, all Combined

Reporting System (“CRS”) reports were prepared internally and reviewed by a certified public

account for accuracy. Mr. Margetson testified that on the 25th day of each month he would hand

delivery both the CRS reports and payment to the Department. Mr. Margetson explained that

from January 2008 through August 2008, no one from the Department ever advised him that his

payments were late when he hand delivered the CRS reports and payments on the 25th day of

each month.

Ms. Varela testified that on December 17, 2007, the Department mailed a letter to the

Taxpayer advising the Taxpayer that effective January 1, 2008, the Taxpayer would be required

to follow the provisions set forth in in NMSA 1978, Section 7-1-13.1 (B) (2005). Mr. Margetson

testified that he did not recall ever receiving the letter. However, Mr. Margetson testified that as

the general manager for the Taxpayer all correspondence would come across his desk and then he

In the Matter of the Protest of Santa Fe Hotel LTD Partnership, page 4 of 6
would distribute all mail to the appropriate individual. Ms. Varela testified that upon reviewing

the annotations of the Taxpayer’s account, there was no record of the December 17, 2007, letter

being undeliverable or returned to the Department.

While the Hearing Officer understands the Taxpayer’s argument that any of the

Department’s employees who accepted the CRS report and payment could have easily explained

to him that his payment needed to be delivered on the 24th day of each month, this does not

relieve the Taxpayer of the special payment tax provisions. Under New Mexico’s self-reporting

tax system, “every person is charged with the reasonable duty to ascertain the possible tax

consequences” of his or her actions. Tiffany Construction Co. v. Bureau of Revenue, 1976-

NMCA-127, ¶5, 90 N.M. 16. The Department mailed notice to the Taxpayer prior to the special

payment provisions taking effect, and there was no reason for the Department to believe that the

Taxpayer did not receive the notice letter. Furthermore, the fact that the Taxpayer made previous

payments on the 25th day of each and was not assessed any penalty or interest for making a late

payment is irrelevant to the issue before the Hearing Officer.

As the Taxpayer payment history shows, the Taxpayer certainly did not intentionally fail

to timely pay the taxes in this instance. However, civil penalty is imposed for negligence as

opposed to an intentional act or omission. The Taxpayer’s failure to deliver the check to Santa

Fe on the day it was due falls within the definition of negligence because it qualifies as

“inadvertence.” See El Centro Villa Nursing Center v. Taxation and Revenue Department, 108

N.M. 795, 799, 779 P.2d 982, 986 (Ct. App. 1989).

The Taxpayer presented no evidence under Regulation §3.1.11.11 NMAC (1/15/01) to

demonstrate nonnegligence. As such, the Department is legally required by statute to impose

penalty.

In the Matter of the Protest of Santa Fe Hotel LTD Partnership, page 5 of 6
CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the assessment of penalty and interest

under Assessment letter identification numbers L0817493376 and L1354364288, and jurisdiction

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

2. The Taxpayer is liable for civil penalty because inadvertence qualifies as negligence

under the civil penalty provision.

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

DATED: June 13, 2014

Richard Jacquez
RICHARD JACQUEZ
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of Santa Fe Hotel LTD Partnership, page 6 of 6