Were five related New Mexico food and restaurant businesses liable for penalties when their trained tax employee had emergency surgery, never returned, and the controller filed one day late upon returning from vacation?

Plain-English summary

Five related food and restaurant entities were not negligent when an unexpected terminal medical emergency prevented their trained accounting employee from filing gross receipts tax on time. The Administrative Hearings Office abated every assessed penalty and all withholding-tax interest. Only $8.62 of mandatory interest on the one-day-late gross receipts tax payments remained.

The consolidated protest involved New Mexico Food Distributors, two Los Cuates Restaurant accounts, and two Little Anita's Mexican Food accounts. Their nine-person accounting department handled monthly taxes for the related entities.

One accounting assistant was trained and responsible for preparing and paying gross receipts tax and had successfully done so for at least a year and a half. The controller was the only other trained person. He was on a scheduled vacation from June 21 through June 25, 2018, and the returns were due June 25.

The accounting assistant had been diagnosed with T-cell lymphoma earlier in June. While the controller was away, she required emergency surgery. She never returned to work and died 16 days later from related complications. When the controller returned on June 26, he immediately filed and paid the five entities' gross receipts tax—one day late.

The businesses exercised ordinary care

Regulation 3.1.11.10 defined negligence to include a failure of ordinary business care, inaction, carelessness, or inattention. The AHO found that the entities had acted with ordinary care by assigning the work to a trained employee with a successful filing history and having the controller as the other trained person.

The rapid progression from diagnosis to emergency surgery and death was not something a reasonably prudent business could have anticipated and addressed during the short period when the controller was absent. The one-day delay was not caused by indifference, carelessness, or inattention.

The illness rule independently required penalty abatement

Regulation 3.1.11.11(B) treated a taxpayer as non-negligent when injury or prolonged illness made return preparation and payment impossible and another preparer could not be procured.

The AHO distinguished cases involving longer illnesses that left time to arrange help. Here, the responsible employee's emergency surgery occurred during the controller's one-week absence, she never returned, and there was no reasonable opportunity to hire or train someone to prepare five entities' restaurant tax returns within days.

The Department argued that the payroll service used for withholding could have helped. The record did not show that the provider had gross receipts tax expertise or access to the five entities' records. The AHO found it unreasonable to expect that firm to take over on such short notice.

Withholding tax had actually been timely paid

The third-party payroll provider timely reported and paid all withholding tax for the May 2018 period. The Department's own witness confirmed that fact.

The Department said its Gentax system had assigned outstanding amounts to the wrong tax programs and proposed moving the withholding amounts into gross receipts tax. The AHO found that explanation undermined rather than restored the reliability of the automated assessments. Withholding penalties and interest were abated.

One day of gross receipts tax interest was mandatory

The entities did not contest interest on the late gross receipts tax payments. Section 7-1-67 made interest mandatory regardless of the reason for delay.

Result: protest GRANTED. All assessed penalties and all withholding-tax interest were abated. The taxpayers still owed $8.62 of gross receipts tax interest.

What this means for you

Businesses relying on a key tax employee

Train a backup and document filing responsibilities. This decision still found reasonable care because a trained controller existed, but an extraordinary emergency occurred while that person was briefly away.

Taxpayers seeking illness-based penalty relief

Document the timing of the illness or injury, the employee's inability to work, who else was available, the time required to procure help, and how quickly the filing was completed once someone capable returned.

Businesses using separate payroll and tax systems

Confirm each tax program independently. Timely withholding handled by a payroll provider did not prove that the gross receipts tax return was filed, and the Department's automated allocations were inaccurate here.

Accountants handling penalty protests

Separate penalty from interest. The medical emergency eliminated negligence penalties, but the statute still required interest on the one-day-late gross receipts tax.

Common questions

Q: How late were the gross receipts tax returns and payments?
A: One day. They were due June 25, 2018 and filed and paid June 26 when the controller returned.

Q: Why wasn't the accounting assistant's earlier cancer diagnosis enough time to arrange backup?
A: The AHO focused on the sudden emergency surgery, inability to return, and death 16 days later. The short and unexpected progression did not provide a reasonable opportunity to arrange replacement filing support.

Q: Did the businesses have any backup plan?
A: The controller was the only other employee trained to prepare the returns, but he was on a short scheduled vacation during the emergency.

Q: Could the payroll provider have filed the gross receipts tax returns?
A: The record did not show that it knew gross receipts tax or had access to the records needed for five entities. The AHO rejected that proposed alternative.

Q: Why were withholding penalties and interest abated?
A: The payroll provider had timely filed and paid the withholding taxes, so the withholding assessments were incorrect.

Q: Why did $8.62 remain due?
A: It was interest on the one-day-late gross receipts tax payments. Section 7-1-67 made that interest mandatory even though the delay was non-negligent.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-9-11 — CRS filing and payment deadline
• NMSA 1978, § 7-1-67 — mandatory interest
• NMSA 1978, § 7-1-69 — civil negligence penalty
• NMSA 1978, §§ 7-1-17(C) and 7-1-3(X) — assessment presumption and tax definition
• Regulation 3.1.11.10 NMAC — negligence standards
• Regulation 3.1.11.11(B) NMAC — illness or injury non-negligence
• Regulation 3.1.6.13 NMAC — presumption for penalty and interest

Case cited:

• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021 — Department's burden after taxpayers rebut the assessment presumption

Source

• Listing: New Mexico Decisions & Orders
• Decision post: New Mexico Food Distributors Inc & Affiliates
• Decision PDF: D&O 18-31

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
NEW MEXICO FOOD DISTRIBUTORS INC.
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L0651829040

IN THE MATTER OF THE PROTEST OF
LOS CUATES RESTAURANT
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L0487178032 and L1560919856

IN THE MATTER OF THE PROTEST OF
LOS CUATES RESTAURANT
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L1281552176 and L0207810352

IN THE MATTER OF THE PROTEST OF
LITTLE ANITA’S MEXICAN FOOD
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L0038465328 and L2085285680

IN THE MATTER OF THE PROTEST OF
LITTLE ANITA’S MEXICAN FOOD
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L0139890480 and L1213632304

v. Decision and Order No. 18-31

CASE NUMBERS 18.09-212A, 18.09-213A,
18.09-214A, 18.09-215A, 18.09-216A

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

A protest hearing occurred on the above captioned matters on September 27, 2018 before

Brian VanDenzen, Esq., Chief Hearing Officer of the Administrative Hearings Office, in Santa

Fe. At the hearing, Controller Robb Haltom, CPA, a bone fide employee of NM Foods

Distributors, Inc. Los Cuates Restaurant, Los Cuates Restaurant, Little Anita’s Mexican Food,

and Little Anita’s Mexican Food (“Taxpayers”), appeared representing Taxpayers. Staff
Attorney Ken Fladagar appeared representing the State of New Mexico Taxation and Revenue

Department (“Department”). Protest Auditor Veronica Galewaler appeared as a witness for the

Department. As a preliminary matter, the parties agreed that these protests of affiliated

companies and involving the exact same legal and factual issues should be consolidated. As

such, the protests were consolidated. Taxpayer Exhibits #1-3 were admitted into the record.

Department Exhibits A through M were admitted into the record. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On July 16, 2018, under letter id. no. L0651829040, the Department assessed

New Mexico Food Distributors, Inc., CRS #02-095813-00-7, for $68.44 in withholding tax

penalty and $0.47 in interest for the CRS reporting period ending on May 31, 2018.

2. On July 16, 2018, under letter id. no. L0487178032, the Department assessed Los

Cuates Restaurant, CRS #03-220744-00-1, for $17.07 in withholding tax penalty and $0.12 in

interest for the CRS reporting period ending on May 31, 2018.

3. On July 16, 2018, under letter id. no. L1560919856, the Department assessed Los

Cuates Restaurant, CRS #03-220744-00-1, for $246.91 in gross receipts tax penalty and $1.68 in

interest for the CRS reporting period ending on May 31, 2018.

4. On July 16, 2018, under letter id. no. L0207810352, the Department assessed Los

Cuates Restaurant, CRS #02-938020-00-0, for $37.56 in withholding tax penalty and $0.26 in

interest for the CRS reporting period ending on May 31, 2018.

5. On July 16, 2018, under letter id. no. L1281552176, the Department assessed Los

Cuates Restaurant, CRS #02-938020-00-0, for $495.15 in gross receipts tax penalty and $3.38 in

interest for the CRS reporting period ending on May 31, 2018.

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 2 of 14

6. On July 16, 2018, under letter id. no. L0207810352, the Department assessed

Little Anita’s Mexican Food, CRS #01-889925-00-0, for $44.28 in withholding tax penalty and

$0.30 in interest for the CRS reporting period ending on May 31, 2018.

7. On July 16, 2018, under letter id. no. L0038465328, the Department assessed

Little Anita’s Mexican Food, CRS #01-889925-00-0, for $391.54 in gross receipts tax penalty

and $2.68 in interest for the CRS reporting period ending on May 31, 2018.

8. On July 16, 2018, under letter id. no. L039890480, the Department assessed Little

Anita’s Mexican Food, CRS #03-247446-00-6, for $14.91 in withholding tax penalty and $0.10

in interest for the CRS reporting period ending on May 31, 2018.

9. On July 16, 2018, under letter id. no. L1213632304, the Department assessed

Little Anita’s Mexican Food, CRS #03-247446-00-6, for $128.11 in gross receipts tax penalty

and $0.88 in interest for the CRS reporting period ending on May 31, 2018

10. On July 18, 2018, the Department received all of Taxpayers protests for each

respective assessment.

11. On July 23, 2018, the Department’s protest office acknowledged receipt of all the

respective protests and found them to be valid protests.

12. On September 4, 2018, the Department filed requests for hearings in these

consolidated protests with the Administrative Hearings Office.

13. On September 5, 2018, the Administrative Hearings Office sent Notice of

Administrative Hearing, Trailing Docket, scheduling these matters for merits hearings on

September 27, 2018.

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 3 of 14

14. NM Foods Distributors, Inc. has an accounting department (composed of nine

employees) that is responsible for the monthly filing and payment of the gross receipts tax and

compensating tax for all of its related entities, including all of the taxpayers assessed in this case.

15. Robb Haltom, CPA, is the Controller for Taxpayers and runs the accounting

department.

16. One employee in the accounting department, Taxpayers’ Accounting Assistant 1,

was trained to and responsible for the monthly filing and payment of gross receipts tax.

17. Taxpayers’ Accounting Assistant had a successful history of filing and paying

monthly gross receipts tax for Taxpayers while at the accounting department for at least a year

and half.

18. No other employee in the accounting department had been trained to prepare, file,

and pay the returns other than Mr. Haltom, CPA, and the Accounting Assistant.

19. Mr. Haltom, CPA, was out of the office on vacation from June 21 through June

25, 2018. [Taxpayer Ex. #3].

20. Taxpayers’ Accounting Assistant was in charge of the accounting department in

the absence of Mr. Haltom, CPA.

21. Like every other month, Taxpayers’ Accounting Assistant was responsible for

filing and paying the gross receipts taxes for the CRS reporting period ending on May 31, 2018,

due on June 25, 2018 while Mr. Haltom, CPA was out of the office on leave.

22. At some unspecified point in early June of 2018, the Accounting Assistant was

diagnosed with T-Cell Lymphoma.

1
The name of the specific employee is contained in the testimony and in the exhibits that are part of the
administrative record in this matter. However, in order to protect the confidential medical information of that
employee (and that employee’s family), that employee’s name will not be included in this public decision and order.
Instead, that employee will be referred to only as Taxpayer’s Accounting Assistant.

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 4 of 14

23. While Mr. Haltom, CPA, was out on his scheduled vacation from June 21-25th,

2018, Taxpayers’ Accounting Assistant required an emergency surgery.

24. After the surgery, Taxpayers’ Accounting Assistant never returned to work and

passed away 16-days later due to complications related to Lymphoma. [Taxpayer Ex. #1,

Certificate of Death].

25. Taxpayers’ Accounting Assistant’s last day of work before the emergency surgery

and subsequent death was June 21, 2018. [Taxpayer Ex. #2].

26. On June 26, 2018, the day that Mr. Haltom, CPA, returned to the office from his

vacation, he immediately filed and paid the respective gross receipts taxes for the CRS reporting

period ending on May 31, 2018 for each of the Taxpayers.

27. It is undisputed that each CRS return related to payment of gross receipts tax was

filed and paid one-day after the June 25, 2018 CRS filing deadline.

28. Taxpayers use a third-party payroll service that separately submits and pays

withholding taxes each month.

29. At the hearing, the undisputed, uncontested evidence presented through testimony

of the Department’s witness was that Taxpayers had in fact timely reported and paid all

withholding taxes through its third-party payroll provider for the CRS reporting period ending on

May 31, 2018.

30. No evidence or argument was presented supporting abatement of interest in this

case, leaving the only issue in dispute the abatement of penalty.

DISCUSSION

Taxpayers in this protest seek abatement of the assessed penalties in this matter because

they argue they were not negligent for the one-day delay in filing and paying gross receipts taxes

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 5 of 14
for the CRS reporting period ending on May 31, 2018 in light of the medical tragedy that

occurred with Taxpayers’ Accounting Assistant around the filing deadline. Despite the tragic and

unexpected death of the employee responsible for paying the tax, the Department still maintained

that Taxpayers were liable for the assessed penalties in this matter.

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

presumed correct. Consequently, Taxpayers have the burden to overcome the assessments. See

Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. 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 assessments 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 a statute are presumed proper and are to be

given substantial weight). Accordingly, it is Taxpayers’ burden to present some countervailing

evidence or legal argument to show that he is entitled to an abatement, in full or in part, of the

assessments issued against him. See N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-

NMCA-099, ¶8. 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 & Revenue Dep't, 2003-NMCA-21, ¶13, 133 N.M. 217.

CRS returns are the method by which taxpayers report and pay their gross receipts taxes,

their compensating tax, and their withholding taxes. The deadline for filing and payment of CRS

taxes, including the relevant gross receipts tax returns, is the 25th day of the month following the

taxable activity. See NMSA 1978, § 7-9-11. Thus, the return and taxes at issue in this case for the

reporting period ending on May 31, 2018 were due on June 25, 2018. There is no dispute that

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 6 of 14
Taxpayers in fact filed and paid their CRS-gross receipts tax return one day late, on June 26, 2018,

potentially subjecting Taxpayers to penalty and interest.

While Taxpayers did not contest the imposition of interest, it is worth noting that 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 provision is mandatory absent clear indication to the contrary). The

Department has no discretion under Section 7-1-67 and must assess interest against Taxpayers for

the one-day untimely filing and payment of the gross receipts tax.

Turning to the disputed civil penalty issue, 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).

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

where a taxpayer’s actions or inactions meets the legal definition of “negligence.” See Marbob

Energy Corp., ¶22.

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 7 of 14
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, Taxpayers argued that they were not negligent, as that term is used by

Regulation 3.1.11.10 NMAC. This is a strong argument because it cannot be said that Taxpayers

failed to act with ordinary business care and prudence which reasonable taxpayers would exercise

under like circumstances. Taxpayers had a trained employee responsible for filing and payment of

the monthly CRS gross receipts tax returns, including during the week that Mr. Haltom, CPA, was

out on vacation. This shows an expected degree of ordinary business care. Even if Taxpayers may

have known at some unspecified earlier point in the month of June that Taxpayers’ Accounting

Assistant had been diagnosed with cancer that would require chemotherapy treatment, the

unexpected emergency surgery the week Mr. Haltom, CPA was out on vacation and the subsequent

absence from work and death 16-days later would nevertheless be unexpected even for a reasonably

prudent person. Cancer is terrifying illness and there are many tragic stories of shorts periods

between diagnosis and death. But there are also many stories of successful treatments that put

cancer into remission for an extended period of time. In this case, the quick period of time from

diagnosis, to unexpected emergency surgery, to death, simply did not leave sufficient time for any

reasonable person or business to comes to terms with the illness, let alone plan prudent alternatives.

For these same reasons, it cannot be said that Taxpayers were negligent under Regulation 3.1.11.10

(C) NMAC because the delay in reporting and paying the gross receipts tax was not due to

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

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 8 of 14
The only possible grounds that Taxpayers might arguably meet the regulatory definition of

negligence is under Regulation 3.1.11.10 (B) NMAC for inaction. But even if Taxpayers are

arguably negligent under the definition of that term pursuant to Regulation 3.1.11.10 NMAC,

Regulation 3.1.11.11 (B) NMAC nevertheless provides clear grounds for abatement of penalty in

this case:

the taxpayer, disabled because of injury or prolonged illness,
demonstrates the inability to prepare a return and make payment
and was unable to procure the services of another person to prepare
a return because of the injury or illness.

Taxpayers presented clear evidence that Taxpayers’ Accounting Assistant was unable to prepare,

file, and pay the required taxes because of her emergency procedure that occurred the week Mr.

Haltom, CPA, was out on leave. Taxpayers’ Accounting Assistant never returned to work.

Immediately upon his return from leave, Mr. Haltom, CPA, filed and paid Taxpayers’ gross

receipts taxes, one day after they were due.

The Department argues that the resolution of this protest is controlled by a previous

decision and order issued by the Administrative Hearings Office, In the Matter of the Protest of

Gail Stefl, Decision and Order No. 15-15 (May 5, 2015; non-precedential). It is certainly true,

like in the cited case and others, that in cases of a long-term illness not resulting in complete

debilitation or death, the Administrative Hearings Office has occasionally rejected the

application of Regulation 3.1.11.11 (B) NMAC because some the taxpayers in some of those still

had sufficient time or ability to arrange for a third party to file and pay taxes on their behalf. See

In the Matter of the Protest of M&M Stores, Inc. Decision and Order No. 16-25 (June 7, 2016;

non-precedential); See also In the Matter of the Protest of Jimmy Stuart, Decision and Order No.

16-22 (May 31, 2016; non-precedential). However, unlike those cases, this situation did not deal

with an extended illness but a sudden onset, emergency terminal condition. The unexpected

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 9 of 14
terminal illness resulting in death in less than a month’s time that occurred in this case is a not a

situation where Taxpayers could reasonably be expected to procure the services of another

person, employee, or entity to file and pay their taxes within a week of the emergency surgery.

Given the short period of time where anyone was aware of the diagnosis (which was no more

than a month) and Taxpayers’ Accounting Assistant’s emergency surgery that occurred during

the one-week period where the manager was out of the office on leave, this is the quintessential

example of when Regulation 3.1.11.11 (B) NMAC requires abatement of penalty.

Despite the Department’s argument, the fact that Taxpayers used a payroll service for

filing and payment of their withholding taxes does not mean they could have easily retained that

same firm within the one-week between Taxpayers’ Accounting Assistant’s emergency surgery

and the deadline for filing and payment of gross receipts taxes. There is no evidence that the

payroll firm had any knowledge or expertise in gross receipts tax. Nor is there any indication that

even if the payroll company had such expertise, that it had access to the necessary set of records

from five different entities need to prepare and file those returns within a matter of days in the

absence of both Taxpayers’ Accounting Assistant and Mr. Haltom, CPA. It is simply

unreasonable to expect that in this circumstance, where the responsible employee had an

emergency surgery that prevented her return to work within that week or until she passed away

16-days later, Taxpayers (or any reasonably prudent person or business) should have hired or

trained another person or firm within one week to prepare, file, and submit the CRS returns from

five related entities in the restaurant business. Taxpayer is entitled to abatement under Regulation

3.1.11.11 (B) NMAC.

Moreover, the evidence at hearing was that Taxpayers timely filed and paid their

withholding taxes through their third-party payroll company. Thus, since that tax was timely

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 10 of 14
filed and paid, Taxpayer has overcome the presumption of correctness that attached to the

assessed withholding tax penalty and interest. Despite the withholding tax assessment

representing a trivial amount and despite the fact that evidence the Department itself presented

showed that the withholding taxes were timely reported and paid, the Department tried to

reestablish the correctness of the withholding tax penalty assessment.

As part of this effort to reestablish the correctness of the assessments, the Department

presented convoluted testimony and evidence that at the time of the automatic generation of the

assessments, Gentax’s assessment calculations were inaccurate for the purposes of correctly

identifying which tax program and tax liability remained outstanding 2. The Department argued

that the incorrect amounts listed in the assessment for withholding taxes should simply be added

into the assessment related to gross receipts tax. However, rather than reestablishing the

correctness of the assessment, the Department’s evidence and strained argument to disregard the

original withholding assessments because of errors in the automated Gentax calculation and

assessment process further undermines the reliability of all the assessments issued in this case.

But in any event, since Taxpayer established entitlement to abatement of penalty under

Regulation 3.1.11.11 (B) NMAC and since the evidence established that withholding taxes were

timely reported and paid, all penalties from all tax programs at issue, as well as the assessed

interest from the timely paid withholding taxes, in this protest shall be abated.

CONCLUSIONS OF LAW

A. Taxpayers filed timely, written protests to the Department’s assessments, and

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

2
Gentax is the Department’s computer system for administration of taxes.

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 11 of 14
B. The hearing was timely set and held within 90-days of the acknowledged receipt of

valid protests under NMSA 1978, Section 7-1B-8 (2015).

C. Because Taxpayers’ withholding tax returns and payments for the CRS reporting

period ending on May 31, 2018 were timely filed and paid by the third-party payroll company

before the statutory deadline contained under NMSA 1978, Section 7-9-11, no assessed penalty

under NMSA 1978, Section 7-1-69 or interest under NMSA 1978, Section 7-1-67 is due or owing.

D. Taxpayers gross receipts return and payments for the CRS reporting period ending

on May 31, 2018 were filed one-day after the statutory deadline contained under NMSA 1978,

Section 7-9-11.

E. Pursuant to the mandatory interest provision of NMSA 1978, Section 7-1-67 (2013),

Taxpayers owe interest for the untimely filing and payment of gross receipts tax for the CRS

reporting period ending on May 31, 2018. 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

provision is mandatory absent clear indication to the contrary).

F. With respect to the civil negligence penalty pursuant to NMSA 1978, Section 7-1-69

(2007), Taxpayers overcame the presumption of correctness and established that they were not

negligent as that term is defined by Regulation 3.1.11.10 NMAC and thus not subject to civil

negligence penalty.

G. Even if Taxpayers were arguably negligent as that term is defined by Regulation

3.1.11.10 NMAC, Taxpayers established nonnegligence under Regulation 3.1.11.11 (B) NMAC,

also entitling them to abatement of all assessed civil negligence penalty in this matter.

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 12 of 14
H. After Taxpayer overcame the presumption of correctness regarding the assessed

penalty, the Department failed to reestablish the correctness of its assessments. See MPC Ltd. v.

N.M. Taxation & Revenue Dep't, 2003-NMCA-21, ¶13, 133 N.M. 217.

For the foregoing reasons, the Taxpayers protest IS GRANTED. The Department is ordered

to abate the assessed penalty under all assessments issued in these consolidated cases and abate

interest on all assessments related to withholding tax. Taxpayers are still required to pay the

uncontested $8.62 in interest on the assessments related to gross receipts taxes, as required by the

mandatory provisions of NMSA 1978, Section 7-1-67.

DATED: October 18, 2018.

Brian VanDenzen
Chief Hearing Officer
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 13 of 14
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.

CERTIFICATE OF SERVICE

On October 18, 2018, a copy of the foregoing Decision and Order was submitted to the

parties listed below in the following manner:

First Class Mail Interdepartmental Mail

INTENTIONALLY
BLANK

John D. Griego
Legal Assistant
Administrative Hearings Office
P.O. Box 6400
Santa Fe, NM 87502

In the Matter of the Protest of NM Food Distributors, Inc. et al.(Consolidated), page 14 of 14