Could Gail Stefl avoid gross-receipts penalty and interest because medical and mental-health problems, intense work stress, and a temporary tax-office closure contributed to late payment?

Plain-English summary

Gail Stefl's medical and mental-health problems did not justify abating penalty because they did not make her unable to pay gross receipts tax or unable to obtain someone else's help. Work stress and a temporary closure of her usual tax office also did not remove negligence.

Stefl worked as a consultant in 2013 and knew she owed gross receipts tax. She did not pay it that year.

The tax principal was later adjusted to $3,087.17 and paid while the protest was pending. The only remaining dispute was $617.40 penalty and $105.53 interest.

The illness exception required actual inability

Stefl had lingering health and mental problems from a 2005 injury. She had difficulty focusing on more than one thing and handling changes in routine.

In 2013 she was absorbed in a large, complex legislative transition for work. The tax office where she usually paid was temporarily closed for renovation. She argued that these conditions, rather than an intent to avoid tax, caused the late payment.

Regulation 3.1.11.11 allowed illness-related nonnegligence only when injury or prolonged illness made a taxpayer unable to pay and unable to procure another person to act.

Stefl remained employed, paid her living expenses, and contributed money to family members. The hearing officer found that her conditions may have contributed to the lapse but did not incapacitate her under the regulatory standard.

Lack of bad intent did not decide negligence

Civil penalty applied to negligent late payment even without intentional tax avoidance. Negligence included inaction, inadvertence, carelessness, and failure to exercise ordinary business care.

Because Stefl knew the obligation and retained the capacity to handle it or obtain assistance, penalty was properly assessed.

Interest was mandatory on tax not paid by the due date and compensated the state for the time value of the unpaid revenue.

Result: protest DENIED. The $617.40 penalty and $105.53 interest remained due.

What this means for you

Taxpayers dealing with health conditions

Document dates, functional limitations, and why the condition prevented both personal action and obtaining assistance. A diagnosis alone may not satisfy the tax rule's incapacity test.

Consultants and sole proprietors under heavy workload

Use recurring deadlines, electronic payment, and a backup person. Intense client work does not suspend tax obligations.

Taxpayers disrupted by an office closure

Identify alternative filing and payment channels promptly. A change in routine may explain a mistake without legally excusing it.

Common questions

Q: Did Stefl know gross receipts tax was due?
A: Yes.

Q: What medical standard did the hearing officer apply?
A: The condition had to prevent payment and prevent the taxpayer from obtaining another person to handle it.

Q: Was Stefl found incapacitated?
A: No. She remained working, paid expenses, and supported family members.

Q: Had the tax principal been paid?
A: Yes, during the protest.

Q: What remained due at hearing?
A: $617.40 penalty and $105.53 interest.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-67 and 7-1-69 — mandatory interest and civil negligence penalty
• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and inclusion of penalty and interest in “tax”
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — negligence and illness-related nonnegligence

Cases cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — assessment presumption and negligence
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory interest language

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Gail Stefl
• Decision PDF: D&O 15-15

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
GAIL STEFL, No. 15-15
TO THE ASSESSMENT ISSUED UNDER
ID NO. L1970895824

DECISION AND ORDER

A formal hearing on the above-referenced protest was held April 24, 2015, before Dee

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

represented by Ms. Melinda Wolinsky, Staff Attorney. Ms. Veronica Galewaler, Auditor, also

appeared on behalf of the Department. Ms. Gail Stefl (Taxpayer) appeared for the hearing and

represented herself. The Hearing Officer took notice of all documents in the administrative file.

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

FOLLOWS:

FINDINGS OF FACT

1. On October 29, 2014, the Department assessed the Taxpayer for gross receipts tax,

penalty, and interest for the tax period ending on December 31, 2013. The assessment

was for $2,944.88 tax, $552.81 penalty, and $65.10 interest.

2. On January 21, 2015, the Taxpayer filed a formal protest letter.

3. At some point, the amount of tax owed was amended and determined to be $3,087.17.

Penalty and interest were also adjusted.

4. On February 27, 2015, the Department filed a Request for Hearing asking that the

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

5. On March 5, 2015, the Hearings Bureau issued a notice of hearing for March 19, 2015.

The hearing date was set within ninety days of the protest.

6. On March 19, 2015, the Taxpayer requested a continuance of the hearing due to illness.

7. On March 19, 2015, the request for continuance was granted, and the delay of the hearing

was attributable to the Taxpayer.

8. On March 19, 2015, the Hearings Bureau sent amended notices of hearing.

9. While the protest was pending, the Taxpayer paid the tax principal. At the time of the

hearing, the Taxpayer’s outstanding balance on the assessment was for $617.40 in

penalty and $105.53 in interest.

10. The Taxpayer conceded that the tax was due and limited her protest to penalty and

interest.

11. The Taxpayer was working on contract as a consultant with a company in 2013.

12. The Taxpayer knew she should be paying gross receipts tax at that time.

13. The Taxpayer failed to pay her gross receipts tax in 2013.

14. The Taxpayer has lingering health and mental problems from an injury sustained in 2005.

The Taxpayer has trouble focusing on more than one thing at a time and does not deal

well with changes in routine.

15. In 2013, the tax office where the Taxpayer usually went to pay her gross receipts tax was

closed for a period of time to allow for renovation.

16. The Taxpayer’s work involved a very large and complex legislative transition, and the

Taxpayer was focused solely on her work for a substantial period of time.

17. The Taxpayer argued that she was not trying to avoid paying her taxes and that her failure

to pay them on time was due to stress and her medical conditions.

Gail Stefl
Letter ID No. L1970895824
page 2 of 5
DISCUSSION

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

tax period ending on December 31, 2013.

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 Ctr. v. Taxation and Revenue Department, 1989-NMCA-

070, 108 N.M. 795. 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 she is

entitled to an abatement of penalty and interest.

Assessment of Penalty.

The Taxpayer argued that she should not have to pay penalty. The Taxpayer argued that

she did not intentionally neglect her taxes. The Taxpayer argued that the stress of her work, a

temporary closure of a tax office, and her medical condition caused her to fail to pay her taxes on

time. The Department argued that the Taxpayer had a history of paying her gross receipts tax

late, even before her injury, and that the Taxpayer was negligent. Penalty is due when tax is not

paid on time, even when the failure is due to negligence and not an intentional avoidance of

taxation. See NMSA 1978, § 7-1-69. Negligence includes a failure to use ordinary business

care, inaction when action is required, inadvertence, thoughtlessness, carelessness, and

inattention. See 3.1.11.10 NMAC (2001). A taxpayer might not be negligent when the failure to

pay her taxes is due to an injury or prolonged illness, but only if the situation renders the

Gail Stefl
Letter ID No. L1970895824
page 3 of 5
taxpayer unable to pay the taxes and unable to procure the services of another person to do so on

her behalf. See 3.1.11.11 NMAC (2001).

The Taxpayer was not incapacitated. The Taxpayer was working, was paying her living

expenses, and was contributing funds to other family members in 2013. Although her medical

problems may have contributed to her failure to pay her taxes, those issues did not rise to a level

that rendered the Taxpayer unable to pay her taxes or unable to procure the services of another.

The Taxpayer was negligent. Therefore, penalty was properly assessed to the Taxpayer.

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 word “shall” indicates that the assessment of interest is

mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n.,

2009-NMSC-013, ¶ 22, 146 N.M. 24. The assessment of interest is not designed to punish

taxpayers, but to compensate the state for the time value of unpaid revenues. Because the tax

was not paid when it was due, interest was properly assessed.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notice of Assessment of gross

receipts tax issued under Letter ID number L1970895824, and jurisdiction lies over the parties and

the subject matter of this protest.

B. The Taxpayer conceded that she owed the tax.

C. The Taxpayer was negligent in failing to pay her taxes on time, and was properly

assessed for penalty and interest.

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

Gail Stefl
Letter ID No. L1970895824
page 4 of 5
DATED: May 5, 2015.

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

Gail Stefl
Letter ID No. L1970895824
page 5 of 5