If the New Mexico tax department delays my hearing for years, can I get my penalty cancelled?

Plain-English summary

In March 2018 the Department assessed Herbalife New Mexico gross receipts tax (GRT) for periods from 2009 through May 2016: $650,292.40 in tax, $130,068.40 in penalty, and $95,379.75 in interest ($875,740.55 total). Herbalife paid the tax and interest and protested only the penalty.

Then nothing happened for years. The Department did not send the protest to the Administrative Hearings Office until July 2023 — more than five years later. By then, Herbalife said, the employees who handled the 2018 audit were gone and it had destroyed the audit records under its three-year retention policy, because it assumed (from the acknowledgment letter) that the Department had dropped the matter when no hearing was requested within 45 days.

Hearing Officer Dee Dee Hoxie denied the protest and upheld the full $130,068.40 penalty:

• The penalty is mandatory unless the taxpayer proves an excuse. A penalty can be abated only if the taxpayer shows it was not negligent or that the underpayment was a good-faith mistake of law. Herbalife presented no evidence of either (its ability to present evidence was also limited after it did not cooperate with the Department's discovery), so it did not overcome the presumption that the penalty was correct.
• The agency's long delay did break the rules — but there was no remedy left. The Department was required to request a hearing within 45 days (old law) or 180 days (current law), and it missed both by years. But the only statutory remedy for that failure is to halt interest — and interest was already stopped, because Herbalife had paid the tax and interest back in 2018. There is no provision letting a hearing officer cancel a penalty or grant a protest just because the Department was late.
• Tardiness is not a defense, and the delay didn't cost Herbalife more. New Mexico courts hold that the tardiness of public officers is not a defense and that these deadlines are not "jurisdictional." The penalty had already hit its 20% cap (10 months of accrual) back in 2017, so the Department's delay did not increase it.

What this means for you

Taxpayers waiting on a long-delayed protest

Do not assume silence means the Department dropped your case, and do not destroy your records while a protest is open. A protest can sit for years; if the Department eventually requests a hearing, you still carry the burden of proof — and if your records are gone, you may have nothing to meet it with. Keep audit files until the protest is fully resolved.

Anyone hoping agency delay will erase a penalty

It generally will not. The only remedy for the Department missing its hearing-request deadline is stopping interest from accruing — and that does nothing if you have already paid the tax and interest. Delay does not cancel a penalty or hand you the win.

Businesses protesting only the penalty

You can concede and pay the tax and interest while protesting the penalty, but you must still come forward with evidence that you were not negligent or that you made a good-faith mistake of law. Simply attacking the Department's process, without proof on negligence, loses.

Tax professionals

The decision confirms that Section 7-1B-8's hearing-request deadlines carry a single remedy — an interest halt under the 2019 statute (nothing under the pre-2019 version) — and are not jurisdictional (Ranchers-Tufco; Kmart Properties), consistent with the "tardiness of public officers is not a defense" rule. On the merits, the mandatory penalty framework (Section 7-1-69; Marbob) required affirmative proof of non-negligence (3.1.11.10/.11 NMAC) or a Section 7-1-69(B) good-faith mistake of law (Hubble), which the taxpayer did not supply, compounded by its discovery non-cooperation.

Common questions

Q: The department took five years to move on my protest — doesn't that cancel the penalty?
A: No. The only remedy for the Department missing its hearing-request deadline is halting interest. If you have already paid the tax and interest, there is nothing left to remedy, and the penalty is unaffected.

Q: I lost my records because I thought the case was closed. Does that help me?
A: Not as a defense. You bear the burden of proving non-negligence, and losing your records leaves you unable to meet it. Keep records until a protest is finally decided.

Q: Can I pay the tax but still fight the penalty?
A: Yes. Herbalife did exactly that. But you must present evidence that the underpayment was non-negligent or a good-faith mistake of law; process complaints alone will not abate the penalty.

Q: Did the delay increase the penalty?
A: No. The penalty accrues at 2% per month up to a 20% cap, which had already been reached years before the hearing, so the delay did not add to it.

Q: Can I rely on this decision for my own situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and is not a general ruling or advisory opinion of the Department. It does reliably show that agency delay, by itself, does not cancel a penalty.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-69(A), (B) (2021) — mandatory penalty (2%/month, 20% cap); good-faith mistake-of-law exception
• NMSA 1978, § 7-1B-8 (2015 & 2019) — the Department's deadline to request a hearing; the sole remedy for missing it is halting interest
• NMSA 1978, § 7-1-67 (2013) — interest accrues only on unpaid tax principal
• NMSA 1978, § 7-1-17 (2007); 3.1.6.12(A), 3.1.6.13 NMAC — presumption of correctness; taxpayer's burden
• 3.1.11.10, 3.1.11.11 NMAC — negligence includes erroneous belief; non-negligence factors

Cases:

• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 ("shall" makes penalty mandatory)
• Tiffany Constr. Co. v. Bureau of Revenue, 1976-NMCA-127, 90 N.M. 16 (an erroneous belief is negligence); State v. Hubble, 2009-NMSC-014, 146 N.M. 70 (a mistake of law concerns the legal effect of a known fact)
• Ranchers-Tufco Limestone Project Joint Venture v. Revenue Div., 1983-NMCA-126, 100 N.M. 632 (the tardiness of public officers is not a defense to the state)
• Kmart Properties, Inc. v. Taxation & Revenue Dep't, 2006-NMCA-026, 139 N.M. 177 (a tax statutory deadline is not jurisdictional)
• Gemini Las Colinas, LLC v. N.M. Taxation & Revenue Dep't, 2023-NMCA-039 (presumption of correctness; taxpayer's burden)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Herbalife
• Decision PDF: D&O 24-01

Original ruling text

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

4 HERBALIFE
5 v. AHO No. 23.07-027A, D&O No. 24-01
6 TAXATION AND REVENUE DEPARTMENT

7 DECISION AND ORDER
8 On December 6, 2023, Hearing Officer Dee Dee Hoxie, Esq. conducted a

9 videoconference hearing on the merits of the protest to the assessment. The parties agreed to the

10 videoconference hearing. See 22.600.3.11 NMAC (2020). The Taxation and Revenue

11 Department (Department) was represented by Richard Pener, Staff Attorney, and Lizette Rivera,

12 Auditor. Herbalife (Taxpayer) was represented by its Vice President of Tax Operations, Scott

13 Schroeder, and its Senior Tax Manager, Tim Phu. Mr. Phu and Ms. Rivera testified. The

14 Hearing Officer took notice of all documents in the administrative file. The Department’s

15 exhibits A (request), B (assessment), C (audit narrative), and D (discovery request) were

16 admitted.

17 The main issue to be decided is whether the Taxpayer is liable for penalty under the

18 assessment. The Hearing Officer considered all of the evidence and arguments presented by

19 both parties. Because the Taxpayer failed to provide evidence that the penalty should be abated,

20 the Hearing Officer finds in favor of the Department. IT IS DECIDED AND ORDERED AS

21 FOLLOWS:

22 FINDINGS OF FACT

23 1. On March 20, 2018, the Department issued a gross receipts tax assessment to the

24 Taxpayer for the tax periods from January 31, 2009, through May 31, 2016. The assessment was

25 for gross receipts tax of $650,292.40, penalty of $130,068.40, and interest of $95,379.75, for a

26 total liability of $875,740.55. [Exhibit A.3; Testimony of Ms. Rivera].
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1 2. On May 10, 2018, the Taxpayer filed a timely written protest to the assessment of

2 penalty. The Taxpayer paid $745,672.15 of the assessment, which was the total of the gross

3 receipts tax principal and the interest. [Exhibit A.5-A.10; Testimony of Ms. Rivera].

4 3. On May 16, 2018, the Department acknowledged its receipt of the protest.

5 [Exhibit A.12; Testimony of Ms. Rivera].

6 4. On July 10, 2023, the Administrative Hearings Office first learned of this protest

7 when the Department filed a request for hearing and its answer to the protest. [Exhibit A.1].

8 5. On August 2, 2023, a telephonic scheduling hearing was conducted, which was

9 within 90 days of the request as required by statute1. [Admin. file].

10 6. On October 5, 2023, the Department filed a notice of service for discovery.

11 [Admin. file; Exhibit D].

12 7. On November 3, 2023, the Taxpayer filed a response to the Department’s request

13 for discovery. [Admin. file].

14 8. On November 6, 2023, the Department filed a motion to compel. [Admin. file].

15 9. The Taxpayer did not respond to the motion. [Admin. file].

16 10. On November 28, 2023, the order on the motion to compel was issued. Due to

17 the Taxpayer’s lack of cooperation with discovery and failure to comply with the scheduling

18 order, the Taxpayer’s ability to present evidence at the hearing on the merits was limited to

19 documents already filed and to the testimony of Mr. Phu. [Admin. file].

20 11. In its protest, the Taxpayer conceded that it owed gross receipts tax and interest,

21 which it paid. The Taxpayer’s protest was limited to the assessment of penalty. [Exhibit A.5-

22 A.8].

1
The statute in effect at the time that the request for hearing was filed. See NMSA 1978, § 7-1B-8 (2019).
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1 12. The Taxpayer presented no evidence at the hearing to establish that its failure to

2 pay its taxes when they were due was not negligent. [Admin. file].

3 13. The Taxpayer’s arguments focused on the Department’s failure to comply with

4 statutory deadlines for filing a request for hearing. [Admin. file].

5 DISCUSSION
6 Burden of proof.

7 “The taxpayer shall have the burden of proof, except as otherwise provided by law.”

8 22.600.3.24 (B) NMAC (2020. Assessments by the Department are presumed to be correct. See

9 NMSA 1978, § 7-1-17 (2007). See El Centro Villa Nursing Ctr. v. Taxation and Revenue

10 Department, 1989-NMCA-070, 108 N.M. 795. See also Archuleta v. O'Cheskey, 1972-NMCA-

11 165, ¶11, 84 N.M. 428. See also N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-

12 NMCA-099, ¶8. The presumption extends to the assessment of penalty and interest. See 3.1.6.13

13 NMAC (2001). “The effect of the presumption of correctness is that the taxpayer has the burden of

14 coming forward with some countervailing evidence tending to dispute the factual correctness of the

15 assessment”. 3.1.6.12 (A) NMAC (2001). See Gemini Las Colinas, LLC v. N.M. Taxation &

16 Revenue Dep’t, 2023-NMCA-039. See also 22.600.1.18 and 22.600.3.24 NMAC.

17 Assessment of penalty.

18 When a tax is not paid by the due date, “there shall be added to the amount assessed a

19 penalty”. NMSA 1978, § 7-1-69 (A) (2021) (emphasis added). The word “shall” indicates that the

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

21 Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. A taxpayer’s lack of knowledge or

22 erroneous belief that the taxpayer did not owe tax is considered to be negligence for purposes of

23 assessment of penalty. See Tiffany Const. Co., Inc. v. Bureau of Revenue, 1976-NMCA-127, 90

24 N.M. 16. However, no penalty is owed when the failure to pay the tax “results from a mistake of

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1 law made in good faith and on reasonable grounds.” NMSA 1978, § 7-1-69 (B). A mistake of law

2 is a mistake about the legal effect of a known fact. See State v. Hubble, 2009-NMSC-014, ¶ 22, 146

3 N.M. 70 (quoting from dictionary). Moreover, if a taxpayer is not negligent, a penalty may be

4 excused. See 3.1.11.11 NMAC (2001) (listing several factors that indicate non-negligence).

5 Negligence includes “inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or

6 inattention.” 3.1.11.10 NMAC (2001). It also includes failure to act where action is required and

7 the failure to exercise the degree of ordinary business care and prudence that reasonable taxpayers

8 would exercise in similar circumstances. See id. Generally, a taxpayer’s reliance on an agent to

9 perform acts, such as filing returns, is not an excuse for penalty. See 3.1.11.11 NMAC.

10 The Taxpayer failed to present any evidence to establish that its failure to pay the tax when

11 it was due was based on a mistake of law made in good faith and on reasonable grounds. See

12 NMSA 1978, § 7-1-69. The Taxpayer also failed to present any evidence to establish that its failure

13 to pay the tax when it was due was not negligent. See 3.1.11.10 and 3.1.11.11 NMAC. Therefore,

14 the Taxpayer failed to overcome the presumption of correctness on the penalty assessment. See

15 NMSA 1978, § 7-1-17. See also Gemini Las Colinas, LLC, 2023-NMCA-039.

16 Untimely request for hearing.

17 The Taxpayer argued that the hearing was unfair and that it was prejudiced by the

18 Department’s delay in requesting a hearing. The Taxpayer explained that the employees who were

19 working on the audit in 2018 are no longer employed there. [Testimony of Mr. Phu]. The Taxpayer

20 explained that it no longer had records related to the audit that was conducted in 2018 because their

21 record retention policy is three years. [Testimony of Mr. Phu]. The Taxpayer explained that their

22 audit file had been closed as they did not hear from the Department after the acknowledgment letter.

23 [Testimony of Mr. Phu; Exhibit A.12]. The Taxpayer explained that the letter says there will be

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1 review of the protest, and “[i]f the department does not agree with your position or has not received

2 documentation to substantiate your position, then a formal hearing will be requested within 45 days

3 of this letter”. [Exhibit A.12; Testimony of Mr. Phu; Testimony of Ms. Rivera]. Since no hearing

4 was requested within 45 days of that letter, the Taxpayer believed that the Department agreed with

5 their position and that no further action would be taken. [Testimony of Mr. Phu]. Consequently,

6 the Taxpayer closed its audit file, which was destroyed after three years pursuant to their record

7 retention policy. [Testimony of Mr. Phu].

8 The Taxpayer filed its protest on May 10, 2018. [Exhibit A]. The Department

9 acknowledged the protest on May 16, 2018. [Exhibit A]. The Administrative Hearings Office first

10 learned of the Taxpayer’s protest when the Department filed the request for hearing on July 10,

11 2023, which was more than five years after the protest was made and acknowledged. [Exhibit A.1].

12 The current statute requires that the Administrative Hearings Office set a hearing within 90 days of

13 the Department’s request for hearing. See NMSA 1978, § 7-1B-8 (F) (2019). The Administrative

14 Hearings Office conducted the first hearing in this protest on August 2, 2023, which was less than

15 90 days from July 10, 2023, the date that the hearing was requested. [Admin. file].

16 At the time that the protest was filed, the Department was required to file a request for

17 hearing within 45 days of the receipt of the protest. See NMSA 1978, § 7-1B-8 (A) (2015). A

18 hearing was required to be set within 90 days of the protest. See id. Under the previous version of

19 the statute, the Department should have filed a request for hearing no later than July 1, 20182. See

20 id. Under the current statute, the Department is required to file a request for hearing within 180

21 days of the protest. See NMSA 1978, § 7-1B-8 (B) (2019). Under the current version of the statute,

2
That is 45 days from the acknowledgment date, as permitted by the regulation in effect at the time. See 22.600.3.8
NMAC (2018).
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1 the Department’s request for hearing should have been filed no later than November 13, 20183. See

2 NMSA 1978, § 7-1B-8 (2019). Under both the previous version and the current version of the

3 statute, the Department’s request for hearing was filed several years after the statutory deadline. See

4 NMSA 1978, § 7-1B-8 (2015 and 2019).

5 Under the previous version of the statute, there was no potential remedy for the

6 Department’s failure to comply with the statutory deadline. See NMSA 1978, § 7-1B-8 (2015).

7 Under the current version of the statute, the Hearing Officer may order that no further interest will

8 accrue on a protested liability if the Department fails to comply with the statutory deadline. See

9 NMSA 1978, § 7-1B-8 (2019). The statute does not provide for other remedies, such as the excusal

10 of penalty or for the granting of a protest, based on the Department’s failure to comply with the

11 statutory deadlines. See id.

12 Another taxpayer previously argued that the Department denied it the statutory right to a

13 prompt hearing on its protest. See Ranchers-Tufco Limestone Project Joint Venture v. Revenue

14 Div., 1983-NMCA-126, ¶ 12, 100 N.M. 632. That argument ultimately failed. See id. at ¶ 13.

15 The court found that the general rule is that the tardiness of public officers is not a defense to an

16 action by the state. See id. The court noted that the statute did not provide a consequence for

17 failure to comply with the requirements of a prompt hearing. See id. Therefore, “[t]he general

18 rule is applicable in these cases unless [the statute] makes it inapplicable.” Id.

19 Another taxpayer argued that the failure of the hearing officer to render a decision in 30

20 days, as required by statute, divested the hearing officer of jurisdiction. See also Kmart

21 Properties, Inc. v. Taxation and Revenue Dep’t., 2006-NMCA-026, ¶ 53, 139 N.M. 177. The

22 court found that the tax statutory deadline was not jurisdictional because of the general tardiness

3
That is 180 days from the acknowledgment date, as permitted by the current regulation. See 22.600.3.8 NMAC
(2020).
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1 rule and the heavy statutory presumption of correctness that favors the Department. See id. at ¶

2 54. The court found that the statutory deadline did not affect the essential power to decide

3 complex and time-consuming protests. See id. at ¶ 55.

4 The Department argued that the Taxpayer is in the same position that it was in 2018 with

5 respect to the amount of penalty owed. Penalty accrues at two percent per month from the tax

6 due date, with a cap at 20%4 of the total tax due. See NMSA 1978, § 7-1-69. As the tax periods

7 involved were from 2009 to 2016, and the assessment occurred in 2018, the penalty as assessed

8 had already reached its maximum cap of 20% (10 months) from the tax due dates5. See id.

9 Therefore, the Department’s delay did not affect the amount of penalty the Taxpayer owed.

10 The Department argued that the Taxpayer has the responsibility to keep records and that

11 the Taxpayer has a history of failing to produce documents and lack of cooperation with the

12 Department. [Exhibit C; Exhibit D]. The Department also argued that there was no remedy

13 available for the Taxpayer. The only statutory remedy available to a taxpayer when the

14 Department fails to comply with deadlines regarding a hearing is for the halting of interest. See

15 NMSA 1978, § 7-1B-8 (2019). Interest only accrues on unpaid tax principal. See NMSA 1978,

16 7-1-67 (2013). The Taxpayer paid the tax principal and the interest when it was assessed.

17 Therefore, interest was halted at that time. Although the Department’s failure to file a request for

18 hearing within 45 days or within 180 days of its receipt of the Taxpayer’s protest was a violation of

19 the statute, there is no administrative remedy that can be granted as interest has already been

20 halted. See NMSA 1978, § 7-1B-8 (2015) and (2019).

4
That is 10 months.
5
The latest tax period at issue was May 2016, which would have payment due in June 2016. Ten months from the
last due date at issue would have been April 2017.
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1 CONCLUSIONS OF LAW

2 A. The Taxpayer filed a timely written protest of the Department’s assessment, and

3 jurisdiction lies over the parties and the subject matter of this protest. See NMSA 1978, § 7-1B-8

4 (2019).

5 B. The first hearing was timely set and held within 90 days of the request for hearing.

6 See id. See also 22.600.3.8 NMAC (2020).

7 C. Because the Taxpayer failed to pay the tax when it was due, penalty was owed. See

8 NMSA 1978, § 7-1-69.

9 D. The Taxpayer failed to provide evidence that it was not negligent and failed to

10 provide evidence that it made a mistake of law based on good faith and reasonable grounds.

11 Consequently, the Taxpayer failed to overcome the presumption of correctness, and the penalty

12 stands as assessed. See id. See also 3.1.11.10 NMAC and 3.1.11.11 NMAC. See also Gemini Las

13 Colinas, LLC, 2023-NMCA-039.

14 E. The Department failed to comply with the statutory deadline for requesting a

15 hearing. See NMSA 1978, § 7-1B-8 (2015 and 2019). However, the Department’s failure does

16 not excuse the Taxpayer from paying penalty. See id.

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

18 Taxpayer is liable for $130,068.40 in penalty as previously assessed.

19 DATED: January 4, 2024.

20 Dee Dee Hoxie
21 Dee Dee Hoxie
22 Hearing Officer
23 Administrative Hearings Office
24 P.O. Box 6400
25 Santa Fe, NM 87502

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1 NOTICE OF RIGHT TO APPEAL
2 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

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

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

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

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

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

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

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

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

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

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

13 CERTIFICATE OF SERVICE
14 On January 4, 2024, a copy of the foregoing Decision and Order was submitted to the

15 parties listed below in the following manner:

16 First Class Mail & Email First Class Mail & Email
17
18
19 INTENTIONALLY BLANK

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