My employee misread the due date and we paid our withholding tax a few days late — can New Mexico waive the penalty and interest?

Plain-English summary

Hyundai Corporation USA was required to withhold and remit New Mexico withholding tax. For the reporting period ending June 30, 2016, its withholding payment of $746,694 was due July 25, 2016 — the Withholding Tax Act (Section 7-3-6) requires withheld taxes to be paid by the 25th day of the month following the month withheld.

An employee, Ms. Kim, was responsible for the return and payment. She wrongly believed the deadline was the last day of the month and submitted the payment on July 28, 2016 — three days late. The company was also experiencing internal network problems (modifications it had made to its own computer network unexpectedly blocked access to government websites, including the Department's taxpayer-access site), and Ms. Kim ended up submitting the payment from her personal home computer. But the Hearing Officer found the network issue was not the cause of the lateness; her erroneous belief about the due date was.

On August 12, 2016, the Department assessed a negligence penalty of $14,933.88 plus interest. Hyundai protested, asking for leniency (it did not dispute that the payment was late). Hearing Officer Chris Romero denied the protest:

• Interest is mandatory. Under Section 7-1-67, when a taxpayer fails to pay on time, interest "shall be paid" from the first day after the due date until the tax is paid. "Shall" leaves the Department no discretion (Marbob Energy), regardless of the taxpayer's good faith or the reason for non-payment.
• The negligence penalty is mandatory too. Under Section 7-1-69, a 2%-per-month penalty (up to 20%) applies when the failure to pay is due to negligence — even without intent to evade. Regulation 3.1.11.10 NMAC defines negligence to include an "erroneous belief" and "inattention," so an unintentional mistake still counts. New Mexico's El Centro Villa Nursing Center case confirms the penalty is appropriate even for inadvertent error.
• The reliance-on-a-professional escape did not apply. The one route to abatement here — Regulation 3.1.11.11(D), for a taxpayer who reasonably relied on the advice of competent tax counsel or an accountant after full disclosure — requires evidence of such reliance. There was none: Ms. Kim (who had left the company and did not testify) simply misread the deadline, and no one knew of any professional advice she relied on. The good-faith-mistake-of-law exception in Section 7-1-69(B) likewise did not fit a plain misreading of the due date.

Result: the assessment was presumed correct (Section 7-1-17(C); the presumption reaches penalty and interest under Regulation 3.1.6.13), Hyundai did not overcome it, and the protest was denied — leaving $14,933.88 in penalty.

What this means for you

Employers who withhold New Mexico tax

New Mexico withholding tax is due on the 25th day of the month after the month you withheld — not the end of the month. Getting that date wrong, even by a few days, is treated as negligence and triggers a penalty. For a large payment, initiate it a few days early so the Department actually receives it by the 25th.

Anyone hoping "we meant well" will excuse a late payment

It usually won't. Interest is never discretionary, and the negligence penalty applies to honest, unintentional mistakes — an "erroneous belief," "carelessness," or "inattention" all meet the regulation's definition of negligence. Good intentions and even genuine financial hardship do not, on their own, get the penalty waived.

Accountants and tax professionals

The practical takeaway is the narrow shape of the penalty-abatement door. Section 7-1-69(B) (good-faith mistake of law on reasonable grounds) and Regulation 3.1.11.11(D) (reasonable reliance on competent tax counsel or an accountant after full disclosure) are the levers — but they require actual, provable reliance on professional advice. An in-house employee's own misreading of a filing deadline, with no professional advice behind it, does not qualify. If you want the abatement, document the advice and the full disclosure that produced it.

Common questions

Q: We paid only three days late and in good faith. Why is there still a penalty?
A: Because the negligence penalty is mandatory whenever the late payment results from negligence, which New Mexico defines to include an erroneous belief or inattention — even unintentional. Good faith alone is not a defense.

Q: Can the interest be waived if the lateness wasn't really our fault?
A: No. Section 7-1-67 says interest "shall" be paid from the day after the due date until the tax is paid. The Department has no authority to abate it, regardless of the reason.

Q: Our late payment was caused by a computer/network problem. Does that help?
A: Not here. The Hearing Officer found the actual cause was the employee's misunderstanding of the due date, not the network issue — so the network problem did not excuse the lateness.

Q: When exactly is New Mexico withholding tax due?
A: By the 25th day of the month following the month the tax was withheld (Section 7-3-6). A payment made after the 25th is late even if made before the end of that month.

Citations and references

Statutes:

• § 7-1-67 NMSA 1978 — interest on unpaid tax is mandatory ("shall"), running from the day after the due date until paid
• § 7-1-69 NMSA 1978 — civil negligence penalty of 2% per month, capped at 20%; subsection (B) excuses only a good-faith mistake of law on reasonable grounds
• § 7-1-17(C) NMSA 1978 — a Department assessment is presumed correct
• § 7-1-3(X) NMSA 1978 — "tax" includes interest and civil penalty
• § 7-3-6 NMSA 1978 — Withholding Tax Act; withheld taxes due by the 25th of the following month
• § 7-1B-8(A) NMSA 1978 — a protest hearing must be held within 90 days

Regulations:

• Regulation 3.1.11.10 NMAC — defines negligence to include an erroneous belief, inattention, carelessness, or inaction where action is required
• Regulation 3.1.11.11(D) NMAC — penalty abatement for reasonable reliance on competent tax counsel or an accountant after full disclosure
• Regulation 3.1.6.13 NMAC — the presumption of correctness extends to assessed penalty and interest

Cases cited:

• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 — the statutory word "shall" makes a provision mandatory absent a clear contrary indication
• El Centro Villa Nursing Center v. Taxation & Revenue Dep't, 1989-NMCA-070, 108 N.M. 795 — the civil negligence penalty is appropriate even for inadvertent error
• Chevron U.S.A., Inc. v. State ex rel. Dep't of Taxation & Revenue, 2006-NMCA-050, 139 N.M. 498 — agency regulations interpreting a statute are presumed proper and given substantial weight
• Archuleta v. O'Cheskey, 1972-NMCA-165, 84 N.M. 428 — the taxpayer bears the burden to overcome an assessment

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Hyundai Corporation USA
• Decision PDF: D&O 17-28

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
HYUNDAI CORPORATION (USA) No. 17-28
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L0930844208

DECISION AND ORDER

A protest hearing occurred in the above captioned matter on May 15, 2017 at 10:00 a.m.

before Chris Romero, Esq., Hearing Officer, in Santa Fe, New Mexico. Mr. Jason Jaebeom Kim

and Mr. Jae Hahn both appeared for Hyundai Corporation USA (“Taxpayer”). Only Mr. Hahn

testified as a witness for Taxpayer. Staff Attorney, Richard Pener, appeared representing the

Taxation and Revenue Department of the State of New Mexico (“Department”). Protest Auditor,

Veronica Galewaler, appeared as a witness for the Department. Department’s Exhibits A and B

were admitted into the record without objection, and are described in the Administrative Exhibit

Log. The Taxpayer did not seek to introduce any exhibits. Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On August 12, 2016, the Department issued a Notice of Assessment of Taxes and

Demand for Payment for $14,933.88 in withholding tax penalty, and $244.82 in withholding tax

interest for a total amount of $15,178.70. The assessment covered the tax reporting period ending

June 30, 2016 under Letter ID No. L0930844208.

2. Taxpayer submitted a formal protest to the assessment. The Department’s Protest

Office received the Taxpayer’s protest on October 4, 2016. [Dept. Ex. B].

3. The Department acknowledged the Taxpayer’s protest on October 19, 2016.
4. The Department submitted a Hearing Request to the Administrative Hearings

Office on November 28, 2016.

5. The Administrative Hearings Office entered a Notice of Telephonic Scheduling

Conference on November 28, 2016 in which a scheduling hearing was noticed for December 16,

2016.

6. A scheduling hearing occurred on December 16, 2016. The parties did not object

that the hearing satisfied the requirement that a hearing be held within 90 days of the Taxpayer’s

protest.

7. The Administrative Hearings Office entered a Scheduling Order and Notice of

Administrative Hearing on December 19, 2016. A hearing on the merits of Taxpayer’s protest

was noticed for April 28, 2017 at 10 a.m.

8. The Administrative Hearing Office entered an Amended Notice of Administrative

Hearing on February 13, 2017. The amended notice reset the hearing on the merits of Taxpayer’s

protest for May 15, 2017 at 10 a.m.

9. On February 15, 2017, Taxpayer requested permission to appear telephonically.

The Department did not concur with the Taxpayer’s request.

10. The Administrative Hearings Office entered an Order Denying Request for

Telephonic Appearance on March 8, 2017.

11. In addition to other responsibilities of employment, Mr. Hahn is familiar and

knowledgeable with Taxpayer’s information technology configuration. [Testimony of Mr.

Hahn].

12. As of April 21, 2016, the Taxpayer had been able to access the Department’s

website to download forms, access information, and perform other functions. Taxpayer had not

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experienced any difficulties up to that date with accessing the Department’s website. [Testimony

of Mr. Hahn].

13. Between the dates of April 21, 2016 and July 28, 2016, Taxpayer made various

modifications to its internal computer network. [Testimony of Mr. Hahn].

14. Unbeknownst to Taxpayer, the modifications restricted Taxpayer’s access to

various government websites, including the Department’s taxpayer access website. [Testimony

of Mr. Hahn].

15. Ms. S. Kim was employed by Taxpayer. She was responsible for submitting the

Taxpayer’s return and payment for the period ending June 2016. [Testimony of Mr. Hahn].

16. Despite having technical issues with accessing the Department’s website through

Taxpayer’s network, Ms. Kim erroneously believed that the deadline for Taxpayer to make

payment for the reporting period at issue was July 31, 2016. [Dept. Ex. B].

17. Mr. Hahn was notified that Ms. Kim was having difficulty accessing the

Department’s website through Taxpayer’s network. Mr. Hahn unsuccessfully attempted to

resolve the network issue. [Testimony of Mr. Hahn].

18. On or about July 28, 2016, when the network issue had not been resolved,

Taxpayer determined that it would be required to submit its payment to the Department through

another computer network. Ms. Kim was authorized to submit Taxpayer’s payment from her

personal home computing network. [Testimony of Mr. Hahn].

19. The amount of Taxpayer’s payment was $746,694.00. [Testimony of Mr. Hahn].

20. Ms. Kim’s understanding that Taxpayer’s payment was due on the last day of the

month was incorrect. Taxpayer’s return and payment for the reporting period ending June 30,

2016 was due on July 25, 2016. Due to the amount of the payment, it should have also been

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initiated a few days before the due date in order to assure the Department received the payment

before the deadline. [Testimony of Ms. Galewaler].

21. As a result of the untimely payment, the Department assessed penalty and interest.

As of May 15, 2017, Taxpayer’s liability was $14,933.88 in penalty only. [Testimony of Ms.

Galewaler; Dept. Ex. A].

22. Ms. Kim is no longer employed by Taxpayer and did not testify at the hearing.

[Testimony of Mr. Hahn].

23. It was unknown whether Ms. Kim sought the advice of anyone employed by, or

affiliated with, the Taxpayer in determining when Taxpayer’s payments were due to the

Department. [Testimony of Mr. Hahn].

24. Taxpayer’s network issues were resolved in March of 2017. [Testimony of Mr.

Hahn].

DISCUSSION

The only issues in this protest are whether the civil negligence penalty and interest

assessed as a result of the failure to timely pay tax may be abated. Taxpayer did not dispute the

fact that its payment was late. Rather, the Taxpayer requested leniency with respect to the

imposition of penalty and interest.

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

presumed correct. Unless otherwise specified, for the purposes of the Tax Administration Act,

“tax” is defined to include interest and civil penalty. See NMSA 1978, §7-1-3 (X) (2013). Under

Regulation 3.1.6.13 NMAC, the presumption of correctness under Section 7-1-17 (C) extends to

the Department’s assessment of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't

of Taxation & Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498, 503 (agency regulations interpreting
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a statute are presumed proper and are to be given substantial weight). Taxpayer has the burden to

overcome the assessment. See Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428, 431.

Assessment of Interest

Despite the good faith intentions of the Taxpayer in this case, when a taxpayer fails to make

timely payment of taxes due to the state, “interest shall be paid to the state on that amount from

the first day following the day on which the tax becomes due...until it is paid.” NMSA 1978, § 7-1-

67 (2007) (italics for emphasis). Under the statute, regardless of the reason for non-payment of

the tax, the Department has no discretion in the imposition of interest, as the statutory use of the

word “shall” makes the imposition of interest mandatory. See Marbob Energy Corp. v. N.M. Oil

Conservation Comm'n, 2009-NMSC-013, ¶22, 146 N.M. 24, 32 (use of the word “shall” in a statute

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

statute also makes it clear that interest begins to run from the original due date of the tax and

continues until the tax principal is paid in full. The Department has no discretion under Section 7-1-

67 and must assess interest against Taxpayer from the time the tax was due but not paid until the tax

principal liability is satisfied. Therefore, the assessment of interest is mandatory and Department is

without legal authority to abate it despite the Taxpayer’s good faith intentions.

Assessment of Penalty

When a taxpayer fails to pay taxes due to the State because 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 tax due but not
paid, not to exceed twenty percent of the tax due but not paid.

(italics added for emphasis).
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As discussed above, the statute’s use of the word “shall” makes the imposition of penalty

mandatory in all instances where a taxpayer’s actions or inactions meet the legal definition of

“negligence” even if, like here, Taxpayer’s actions or inactions were unintentional.

Regulation 3.1.11.10 NMAC 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.” In this

case, Taxpayer was negligent under Regulation 3.1.11.10 (A) and (C) NMAC because it relied on

an erroneous belief that its tax payment for June 2016 was due on July 31, 2016. It submitted its

payment on July 28, 2016. The actual deadline, however, was July 25, 2016. NMSA 1978, Section

7-3-6 provides “Taxes withheld under the provisions of the Withholding Tax Act must be paid on or

before the twenty-fifth day of the month following the month when the taxes were required to be

withheld.”

In instances where a taxpayer might otherwise fall under the definition of civil negligence

generally subject to penalty, Section 7-1-69 (B) provides a limited exception: “[n]o penalty shall

be assessed against a taxpayer if the failure to pay an amount of tax when due results from a

mistake of law made in good faith and on reasonable grounds.” Further, in relevant part to this

protest, Regulation 3.1.11.11 (D) NMAC (emphasis added) allows for abatement of penalty

when a “taxpayer proves that the failure to pay a tax… was caused by reasonable reliance on the

advice of competent tax counsel or accountant as to the taxpayer’s liability after full disclosure

of all relevant facts.” Black’s Law Dictionary, 22 (9th ed. 2009), defines “accountant” as “a

person authorized under applicable law to practice public accounting.”

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In this case, there was no evidence that Ms. Kim relied on the advice of competent tax

counsel or an accountant. Ms. Kim did not testify at the hearing and Mr. Hahn did not know how

she erroneously determined that the due date for the Taxpayer’s payment was the last day of the

month.

Although the evidence established that Taxpayer was also having internal network issues

that restricted its access to the Department’s online filing system, the Hearing Officer was not

persuaded that Taxpayer’s network issues were the cause of the late payment. The cause of the

late payment was apparent from the protest letter, admitted as Department Exhibit B, in which

Ms. Kim stated “[t]he reason I paid late is because due to being new the [sic] New Mexico’s

Taxation System, I thought that payment was due on the last day of the month.” She goes on to

state “…I thought the payment date was flexible until the end of the month.” Finally, she states

“Now I know that both report and payment is due on the 25th day and I am certain there will be

no penalties charged to us in the future.”

The Hearing Officer found Ms. Kim’s statements in the protest letter to be trustworthy

and reliable. Ms. Kim spoke in an individual and representative capacity on a subject in which

she had personal knowledge. Her statements were also made against her own personal interests.

She went on, quite sympathetically, to explain: “The amount is very large and it will cause our

company financial hardship and it will also affect my job position.”

Despite the Ms. Kim’s sympathetic circumstances, it is apparent that the late payment

resulted from her erroneous belief that payment was due on the last day of the calendar month,

not the Taxpayer’s network issue.

The Department did not allege that the Taxpayer’s inaction was with the intent to evade or

defeat a tax. In contrast, there was no dispute that the issue giving rise to this protest was the

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result of Taxpayer’s inadvertence, erroneous belief, or inattention. In other words, Taxpayer’s

conduct was not in bad faith or with bad intentions. Yet, El Centro Villa Nursing established that

the civil negligence penalty is appropriate for inadvertent error and Regulation 3.1.11.11 (D)

NMAC does not provide grounds for abatement of the penalty in this case. Therefore, Taxpayer

did not overcome the presumption of correctness and failed to establish that it was entitled to an

abatement of penalty in this matter.

Taxpayer’s protest is denied.

CONCLUSIONS OF LAW

A. Taxpayer’s filed a timely written protest to the assessment issued under Letter ID

No. 0930844208 and jurisdiction lies over the parties and the subject matter of this protest.

B. The scheduling hearing conducted on December 16, 2016 met the 90-day hearing

requirement of NMSA 1978, Section 7-1B-8(A) (2015).

C. Pursuant to NMSA 1978, Section 7-1-17(C) (2007), the Department’s assessment

is presumed to be correct, and it is Taxpayer’s burden to come forward with evidence and legal

argument to establish that it is entitled to an abatement.

D. Under NMSA 1978, Section 7-1-67, Taxpayer is liable for interest under the

assessment.

E. Taxpayer was negligent in failing to report and pay taxes when due for the tax

period covered by the assessment. Consequently, the assessment of penalty was proper.

F. The Taxpayer failed to establish non-negligence under 3.1.11.11 (D) NMAC and El

Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070, ¶14, 108

N.M. 795; therefore, penalty was properly assessed.

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G. As of the date of hearing, the outstanding amount in protest for the period ending

June 2016 was $14,933.88 in penalty.

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

DATED: June 14, 2017

Chris Romero
Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), 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. If an appeal is not timely filed with the Court of Appeals within 30 days, this

Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates

the requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

Hearings Office may begin preparing the record proper. The parties will each be provided with a

copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

which occurs within 14 days of the Administrative Hearings Office receipt of the docketing

statement from the appealing party. See Rule 12-209 NMRA.

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