If I file my New Mexico income tax return just a few days late, do I still owe a penalty, or is there a grace period?

Plain-English summary

Orville Whyte owed New Mexico personal income tax for 2018 and did not dispute the tax itself — he paid it. The problem was timing: he mailed his return and $2,270 payment on April 18, 2019, three days after the April 15 deadline. For that, the Department assessed a $45.40 penalty and $1.11 in interest, a total of $46.51.

Whyte protested, arguing that three days late was too little to justify a penalty and that he deserved a grace period. He also explained that as a former active-duty military member he had not been required to pay state income tax before and was not used to filing. The Administrative Hearings Office denied the protest.

On the penalty, New Mexico law says a late-filing penalty "shall be added" at 2% of the tax due "per month or any fraction of a month." Two things follow. First, "shall" makes the penalty mandatory, not something the Department or the hearing officer can waive out of sympathy. Second, because the penalty runs per month or any fraction of a month, there is no grace period — being three days late lands in the first fractional month and triggers the full first-month 2%. Two percent of $2,270 is exactly $45.40. Whyte's unfamiliarity with state filing did not help him either: New Mexico treats a taxpayer's "erroneous belief" or inattention as negligence, and he could not show he was non-negligent.

On the interest, the hearing officer explained it is not a "late fee" but compensation to the state for the time value of money paid late, and it is also mandatory. Because interest accrues at about 15% per year (a small daily fraction), three days produced only $1.11. The protest was denied and Whyte owed the full $46.51.

What this means for you

Anyone who files or pays a few days late

There is no grace period in New Mexico for a late income tax return or payment. The penalty is 2% of the tax due for each month or fraction of a month you are late, so even one day into a new month counts as a full 2% step. Missing the deadline by three days here cost the same first-month 2% it would have at, say, three weeks. If you can't file on time, filing and paying as fast as possible still matters — it limits how many 2% months stack up — but it won't erase the first one.

Former military members and people new to New Mexico filing

Being previously exempt from state income tax — as active-duty service members often are — does not carry over once you owe New Mexico tax. The rules treat "I didn't know I had to" as negligence, not an excuse. If your filing obligations recently changed (leaving the military, moving to New Mexico, a new income source), confirm the state deadlines rather than assuming your old situation still applies.

Accountants and tax professionals

This is the cleanest possible illustration that §7-1-69(A) penalty is strict and non-discretionary: 2% per month or fraction, no de minimis or grace exception, mandatory under Marbob's "shall" analysis. Penalty relief runs only through the non-negligence factors of Regulation 3.1.11.11 (e.g., reasonable reliance on a professional) — a good-faith misunderstanding under 3.1.11.10 is itself negligence. Interest under §7-1-67 is separate, non-punitive, and accrues daily at the rate set in Regulation 3.1.10.18.

Common questions

Q: Is there a grace period for filing a few days late in New Mexico?
A: No. The penalty applies per month "or any fraction of a month," so even a single day past the deadline falls into the first fractional month and triggers the full 2%. Three days late here drew the same first-month penalty as a longer delay would.

Q: How is the late-filing penalty calculated?
A: It is 2% of the tax due for each month or fraction of a month the return or payment is late, capped at 20%. On $2,270 of tax, one fractional month is 2%, or $45.40 — exactly what was assessed.

Q: Why was the interest so much smaller than the penalty?
A: Interest is not a flat "late fee." It accrues daily at an annual rate (about 15% at the time), so three days generated only $1.11. It compensates the state for the time value of money and is mandatory, but over a few days it is tiny compared with the fixed 2% penalty step.

Q: I was in the military and never paid state income tax before. Doesn't that excuse me?
A: No. New Mexico treats a lack of knowledge or an erroneous belief that you did not owe the tax as negligence. Once you owe New Mexico income tax, the filing deadline and penalty apply regardless of your prior exemption.

Q: Does this decision apply to my situation?
A: Not automatically. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It shows how the Administrative Hearings Office reasons, but it binds only the parties to that protest, and your facts may differ.

Citations and references

Statutes and rules:

• NMSA 1978, § 7-2-3 — personal income tax on residents' net income
• NMSA 1978, § 7-2-2 — New Mexico income based on federal adjusted gross income
• NMSA 1978, § 7-2-12 (2016) — when income tax returns and payment are due
• NMSA 1978, § 7-1-69(A) (2007) — mandatory penalty of 2% per month or fraction of a month
• NMSA 1978, § 7-1-67(A) (2013) — mandatory interest at 15% per year
• NMSA 1978, § 7-1-17 (2007) — assessment presumed correct
• NMSA 1978, § 7-1-3(Z) (2019) — "tax" includes penalty and interest
• NMSA 1978, § 7-1B-8 (2019) — 90-day hearing requirement
• Regulations 3.1.11.10 and 3.1.11.11 NMAC (2001) — negligence and non-negligence factors
• Regulation 3.1.10.18 NMAC (2001) — interest rate
• Regulation 3.1.6.13 NMAC (2001) — presumption of correctness extends to penalty and interest

Cases cited:

• El Centro Villa Nursing Ctr. v. Taxation & Revenue Dep't, 1989-NMCA-070 ("tax" includes penalty and interest)
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099 (taxpayer's burden to overcome presumption)
• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013 ("shall" is mandatory)
• Tiffany Constr. Co. v. Bureau of Revenue, 1976-NMCA-127 (erroneous belief is negligence)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Orville and Sharon Whyte
• Decision PDF: D&O 21-19

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 ORVILLE & SHARON WHYTE
6 TO THE ASSESSMENT
7 ISSUED UNDER LETTER ID NO. L0098181808

8 v. AHO No. 20.03-036A, D&O No. 21-19

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On July 29, 2021, Hearing Officer Dee Dee Hoxie, Esq. conducted an in-person hearing

12 on the merits of the protest to the assessment. The Taxation and Revenue Department

13 (Department) was represented by Kenneth Fladager, Staff Attorney. Mary Griego, Auditor, also

14 appeared on behalf of the Department. Orville Whyte (Taxpayer) appeared for the hearing and

15 represented himself. The Taxpayer and Ms. Griego testified. The Hearing Officer took notice of

16 all documents in the administrative file. The Department’s exhibits “A” (check), “B” (envelope),

17 and “C” (update) were admitted 1.

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

19 The Hearing Officer considered all of the evidence and arguments presented by both parties.

20 Because the Taxpayer failed to overcome the presumption of correctness, the Hearing Officer

21 finds in favor of the Department. IT IS DECIDED AND ORDERED AS FOLLOWS:

22 FINDINGS OF FACT

23 1. On November 4, 2019, the Department issued an assessment to the Taxpayer for

24 penalty and interest for the tax period ending December 31, 2018. The assessment was for

1
Citations to exhibits will be “Ex.” followed by their respective letter.
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1 penalty of $45.40 and interest of $1.11, for a total liability of $46.51. [Admin. file

2 L0098181808; Testimony of Taxpayer; Testimony of Ms. Griego].

3 2. On November 7, 2019, the Taxpayer filed a timely written protest to the

4 assessment. [Admin. file protest].

5 3. On December 23, 2019, the Department acknowledged its receipt of the protest.

6 [Admin. file].

7 4. On March 9, 2020, the Department filed a request for hearing with the

8 Administrative Hearings Office. [Admin. file request].

9 5. A videoconference hearing was set for April 23, 2020, due to the recently

10 declared public health state of emergency 2. The hearing was set within 90 days of the request as

11 required by statute. [Admin. file].

12 6. The parties advised that they were unprepared to appear by videoconference, and

13 the Taxpayer requested that the hearing be delayed until the public health crisis ended. [Admin.

14 file].

15 7. An order canceling the hearing and holding the protest in abeyance during the

16 public health crisis was issued. The order held that the parties had effectively waived the 90-day

17 requirement of the statute, but they had an opportunity to object to that determination. [Admin.

18 file].

19 8. No objection was filed, and the parties are deemed to have waived the 90-day

20 requirement. [Admin. file].

21 9. The Taxpayer filed his personal income tax return and made payment for the 2018

22 tax year by mail. [Testimony of Taxpayer; Testimony of Ms. Griego; Ex. A; Ex. B].

2
The state of emergency remains ongoing at the time of this decision, though some restrictions have been eased.
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1 10. The Taxpayer mailed his return and payment on April 18, 2019. [Testimony of

2 Taxpayer; Testimony of Ms. Griego; Ex. A; Ex. B].

3 11. Returns and taxes for the 2018 tax year were due on April 15, 2019, which fell on

4 a Monday. [Testimony of Ms. Griego]. See also NMSA 1978, § 7-2-12 (2016).

5 12. The Taxpayer’s 2018 tax return and tax payment were made three days late.

6 [Testimony of Taxpayer; Testimony of Ms. Griego; Ex. A; Ex. B].

7 13. The Department assessed penalty and interest because the return and payment

8 were filed three days late. [Testimony of Taxpayer; Testimony of Ms. Griego].

9 DISCUSSION

10 Burden of proof.

11 Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17

12 (2007). By definition, tax includes the amount of tax principal and “the amount of any interest

13 or civil penalty relating thereto”. NMSA 1978, § 7-1-3 (Z) (2019). See also El Centro Villa

14 Nursing Ctr. v. Taxation and Revenue Dep’t, 1989-NMCA-070, 108 N.M. 795. The

15 presumption of correctness also applies to the assessment of penalty and interest. See 3.1.6.13

16 NMAC (2001). Therefore, the Taxpayer has the burden to prove that he is entitled to an

17 abatement, in full or in part, of the assessment issued in the protest. See N.M. Taxation &

18 Revenue Dep't v. Casias Trucking, 2014-NMCA-099, ¶8.

19 Personal income tax.

20 New Mexico imposes a personal income tax upon the net income of every resident. See

21 NMSA 1978, § 7-2-3. New Mexico’s adjusted gross income is based on the person’s federal

22 adjusted gross income. See NMSA 1978, § 7-2-2. The Taxpayer admits that he owed New Mexico

23 personal income tax for the 2018 tax year and that he filed his return and payment three days late.

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1 Assessment of penalty.

2 The Taxpayer argues that he was only three days late and should have been given a

3 greater grace period. When a tax is not paid by the due date or a return is not filed by its due

4 date, “there shall be added to the amount assessed a penalty”, and the penalty is calculated by

5 multiplying the tax due by “two percent per month or any fraction of a month” from the due

6 dates. NMSA 1978, § 7-1-69 (A) (2007) (emphasis added). The word “shall” indicates that the

7 assessment of penalty is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil

8 Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. The statute requires that penalty

9 be paid at a rate of two percent of the tax due when a payment or return is late, even if it is only

10 late by a fraction of a month. See NMSA 1978, § 7-1-69. The statute does not provide a grace

11 period. See id.

12 The Taxpayer argued that he was not accustomed to filing state taxes because he was

13 previously an active military member and not required to pay state income taxes. If a taxpayer is

14 not negligent, penalty may be excused. See 3.1.11.11 NMAC (2001) (listing several factors,

15 such as consulting an accountant, that indicate non-negligence). Negligence includes

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

17 3.1.11.10 NMCA (2001). A taxpayer’s lack of knowledge or erroneous belief that the taxpayer

18 did not owe the tax is considered to be negligence for purposes of assessment of penalty. See id.

19 See also Tiffany Const. Co., Inc. v. Bureau of Revenue, 1976-NMCA-127, 90 N.M. 16.

20 The Taxpayer failed to prove that he was not negligent. The Taxpayer filed his return

21 and his tax payment three days late. [Ex. A; Ex. B]. See also NMSA 1978, §7-2-12. The

22 amount of tax due was $2,270.00. [Ex. A]. Two percent of $2,270.00 is $45.40. The amount of

23 penalty assessed was $45.40. [L0098181808]. Therefore, the penalty was properly assessed.

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1 Assessment of interest.

2 The Taxpayer did not object to the interest and felt that $1.11 was an appropriate “late

3 fee” for three days tardiness. Interest “shall be paid” on taxes that were not paid on or before the

4 date on which they were due. NMSA 1978, § 7-1-67 (A) (2013). Again, the word “shall”

5 indicates that the assessment of interest is mandatory. See Marbob Energy Corp., 2009-NMSC-

6 013.

7 The assessment of interest is not a “late fee”, but it is intended to compensate the state for

8 the time value of unpaid revenue. Interest in this case is significantly less than the penalty

9 because interest is accrued at the rate of 15 percent per year, which is applied at a daily rate of

10 significantly less than one percent. See NMSA 1978, § 7-1-67. See also 3.1.10.18 NMAC

11 (2001). Three days tardiness did not cause a significant amount of interest to accrue. Because

12 the tax was not paid when it was due, interest was properly assessed.

13 CONCLUSIONS OF LAW

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

15 and interest issued under Letter ID Number L0098181808, and jurisdiction lies over the parties and

16 the subject matter of this protest.

17 B. The first hearing was set to be held within 90 days of the request for hearing, and the

18 parties waived the 90-day requirement based on the public health state of emergency. See NMSA

19 1978, § 7-1B-8 (2019).

20 C. The Taxpayer filed and paid his personal income taxes three days late. See NMSA

21 1978, § 7-2-12.

22 D. Penalty is assessed at two percent of the tax due and unpaid for any fraction of the

23 month past the due date. See NMSA 1978, § 7-1-69.

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1 E. Interest is assessed daily at a fraction of a percent of the tax due and unpaid. See

2 NMSA 1978, § 7-1-67. See also 3.1.10.18 NMAC.

3 F. The Taxpayer failed to overcome the presumption that the assessment was correct.

4 See NMSA 1978, § 7-1-17. See also 3.1.11.11 NMAC.

5 G. Assessment of penalty and interest were required and appropriate under the

6 statutes based on the Taxpayer’s late filing of his personal income tax return and payment. See

7 NMSA 1978, § 7-1-67 and § 7-1-69.

8 For the foregoing reasons, the Taxpayer’s protest IS DENIED. IT IS ORDERED that

9 Taxpayer is liable for $46.51 in penalty and interest.

10 DATED: August 11, 2021.

11 Dee Dee Hoxie
12 Dee Dee Hoxie
13 Hearing Officer
14 Administrative Hearings Office
15 P.O. Box 6400
16 Santa Fe, NM 87502

17 NOTICE OF RIGHT TO APPEAL

18 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

19 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

20 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

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

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

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

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

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

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

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

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

5 CERTIFICATE OF SERVICE

6 On August 11, 2021, a copy of the foregoing Decision and Order was submitted to the

7 parties listed below in the following manner:

8 Email Interdepartmental Mail

9 INTENTIONALLY BLANK
10
11 John Griego
12 Legal Assistant
13 Administrative Hearings Office
14 P.O. Box 6400
15 Santa Fe, NM 87502

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