My payroll software said it filed my New Mexico return but it didn't — I paid on time, so can I still be hit with a late-filing penalty?

Plain-English summary

WPS, Inc. is a California payroll processor that handles payroll and tax filings for over 145,000 employers and more than five million employees across many states, including New Mexico. It runs everything through major payroll software: essentially one click pays the payroll, remits the taxes, and files the returns, and the software drops a copy of each filed return into an archive folder.

For the December 2022 New Mexico withholding period, WPS followed its normal process. The tax was paid on time electronically, and the software's archive folder showed a file for the return — but the return was never actually filed. The Department flagged the missing return, WPS filed it on March 24, 2023 (about two months late), and the Department assessed a $15,746.20 late-filing penalty — no tax principal and no interest, just the penalty. WPS protested; Hearing Officer Dee Dee Hoxie denied the protest.

The reasoning:

• The penalty is mandatory. When a return is filed late, Section 7-1-69(A) says a penalty "shall" be added — 2% of the tax per month (or part of a month), capped at 20%. "Shall" makes it non-discretionary (Marbob Energy).
• Software counts as an agent. WPS argued it wasn't negligent because it reasonably relied on the software, which reported a filed return. But relying on the software to file is like relying on an agent, and the regulation is explicit: a late return "is not excused by the taxpayer's reliance on an agent" (Regulation 3.1.11.11(D)).
• No good-faith mistake of law. The only statutory escape (Section 7-1-69(B)) is a good-faith mistake about the legal effect of a known fact. A software malfunction isn't that, and WPS offered no such evidence.
• The "five-day" cure didn't apply. WPS pointed to Section 7-1-69(F), which gives five business days after notice for electronic payers. The Hearing Officer explained that provision covers electronic payments missing required information under Section 7-1-13.1 — not the failure to file a return — so it didn't help.

Because WPS couldn't overcome the assessment's presumption of correctness, the full $15,746.20 penalty stood.

What this means for you

Payroll processors and anyone filing through automated software

A "confirmation" in your software is not the same as an accepted filing by the state. This penalty landed even though a sophisticated processor did everything its normal process required and its archive showed a filed return. Build in an independent check that the state actually received and accepted each return — a software receipt in your own system is not proof to the Department.

Employers who outsource payroll and withholding

Outsourcing does not move the risk off you. New Mexico treats reliance on a preparer or on filing software as reliance on an agent, which does not excuse a late return. If your processor's system silently drops a filing, you can still owe the penalty.

Anyone who paid on time but filed late

Paying and filing are separate duties. Paying the tax on time does not prevent a late-filing penalty, and the penalty runs on the tax that was due (2% per month up to 20%) even when nothing is actually outstanding.

Tax professionals

A clean Section 7-1-69 late-filing case with two useful clarifications: software-based filing is "reliance on an agent" under Regulation 3.1.11.11(D), and Section 7-1-69(F)'s five-day window is tied to Section 7-1-13.1 payment-information defects, not return filing. The good-faith-mistake-of-law defense (Section 7-1-69(B)) requires a mistake about legal effect, not a clerical/technical failure (State v. Hubble).

Common questions

Q: My software said the return was filed — why am I still penalized?
A: Because the return wasn't actually accepted by the state, and relying on the software is treated as relying on an agent, which does not excuse a late filing. The penalty is mandatory once a return is late.

Q: I paid the tax on time. Doesn't that avoid the penalty?
A: No. Filing and paying are separate obligations. A late return draws a penalty under Section 7-1-69(A) even when the tax was paid on time — here there was no tax or interest due, only the penalty.

Q: Doesn't the law give five days to fix an electronic filing after notice?
A: Not for this. Section 7-1-69(F)'s five-business-day window applies when an electronic payment is missing required information under Section 7-1-13.1. It does not apply to the failure to file a return, so it didn't excuse WPS.

Q: How big is the late-filing penalty?
A: Two percent of the tax due per month (or part of a month) the return is late, capped at 20% of the tax. WPS's penalty was $15,746.20.

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 show that software filing errors generally don't excuse a late-filing penalty.

Citations and references

Statutes and rules:

• NMSA 1978, § 7-1-69(A) (2021) — mandatory 2%-per-month late-filing penalty, capped at 20%
• NMSA 1978, § 7-1-69(B) — no penalty for a good-faith mistake of law on reasonable grounds
• NMSA 1978, § 7-1-69(F) — five-day cure only for electronic payments missing required Section 7-1-13.1 information
• NMSA 1978, § 7-1-13.1 (2005) — method of electronic payments
• NMSA 1978, § 7-1-17 (2023) — assessment is presumed correct
• Regulation 3.1.11.10, 3.1.11.11 NMAC — definitions of negligence and nonnegligence (including the agent-reliance carve-out)
• Regulation 22.600.3.24(B) NMAC (2020) — taxpayer bears the burden of proof

Cases:

• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 ("shall" makes the penalty mandatory)
• State v. Hubble, 2009-NMSC-014, 146 N.M. 70 (a mistake of law is a mistake about the legal effect of a known fact)
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099; El Centro Villa Nursing Ctr. v. Taxation & Revenue Dep't, 1989-NMCA-070; 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: WPS, Inc
• Decision PDF: D&O 24-07

Original ruling text

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

4 WPS, INC.
5 v. AHO No. 23.12-066A, D&O No. 24-07
6 TAXATION AND REVENUE DEPARTMENT

7 DECISION AND ORDER
8 On March 5, 2024, Hearing Officer Dee Dee Hoxie, Esq. conducted a videoconference

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

10 (Department) was represented by Timothy Williams, Staff Attorney, and Lizette Rivera, Auditor,

11 also appeared. WPS, Inc. (Taxpayer) was represented by its C.O.O., Adam Telanoff, who

12 appeared for the hearing. Mr. Telanoff and Ms. Rivera testified. The Hearing Officer took

13 notice of all documents in the administrative file. The Taxpayer’s Exhibits #1 (letter) and #2

14 (return), and the Department’s Exhibit A (letter)1 were admitted.

15 The main issue to be decided is whether the Taxpayer is liable for the penalty assessed.

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

17 Because the Taxpayer’s return was filed late, the Hearing Officer finds in favor of the

18 Department. IT IS DECIDED AND ORDERED AS FOLLOWS:

19 FINDINGS OF FACT

20 1. On April 6, 2023, the Department issued a notice of assessment to the Taxpayer

21 for the tax period ending December 31, 2022. The assessment was for withholding tax penalty

22 of $15,746.20, no tax principal or interest were assessed. [Admin. file L1322994800].

23 2. On April 11, 2023, the Taxpayer filed a timely written protest to the assessment.

24 [Admin. file protest].

1
Exhibit #1 and Exhibit A are the same letter. Exhibit #1 has a received stamp and a handwritten note. Exhibit A
has a section of a sentence highlighted.
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1 3. On June 26, 2023, the Department acknowledged its receipt of the protest.

2 [Admin. file L1097460592].

3 4. On December 19, 2023, the Department filed a request for hearing with its answer

4 to the protest with the Administrative Hearings Office. [Admin. file request].

5 5. On January 12, 2024, the first telephonic scheduling hearing was conducted,

6 which was within 90 days of the request as required by statute. [Admin. file].

7 6. The Taxpayer is a California corporation that serves as a payroll processor for

8 over 145,000 employers, servicing more than 5 million employees, in multiple states, including

9 New Mexico. [Testimony of Mr. Telanoff2].

10 7. The Taxpayer uses a major payroll processing software to calculate the payroll

11 and taxes due. [Testimony of MR. Telanoff].

12 8. Basically by clicking a button in the software program, the Taxpayer pays the

13 payroll, sends a tax payment, and files the tax returns in each state. [Testimony of Mr. Telanoff].

14 9. The software program generates reports for the payroll and tax payments, and it

15 creates a file that is automatically saved in an archive folder when it files a return. [Testimony of

16 Mr. Telanoff].

17 10. The Taxpayer generally double-checks that the payroll and tax payments have

18 come out of the correct accounts and checks the archive folder. [Testimony of Mr. Telanoff].

19 11. If a file for a return is not displayed in the archive folder, the Taxpayer will take

20 additional steps to ensure that a return was filed. If the file for a return is displayed, the

2
The Department generally objected to much of Mr. Telanoff’s testimony as he was not the person who actually
dealt with the filing and payment of this tax period. Mr. Telanoff explained that the Taxpayer deals with thousands
of payroll processes across multiple jurisdictions every month. The objection was overruled, as rules of evidence do
not apply and Mr. Telanoff oversees the department that deals with monthly taxes in multiple jurisdictions. Mr.
Telanoff was familiar with the business practices and processes that the Taxpayer uses, as well as having researched
and familiarized himself with the details of this particular tax period based upon the Taxpayer’s regularly kept
business records.
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1 Taxpayer believes that the software program has successfully filed that return. [Testimony of

2 Mr. Telanoff].

3 12. For the December 2022 period3, the Taxpayer followed its usual process.

4 [Testimony of Mr. Telanoff].

5 13. The tax was paid electronically and was paid on time4. [Testimony of Mr.

6 Telanoff; Testimony of Ms. Rivera].

7 14. The software showed a file for a return in the archive folder. [Testimony of Mr.

8 Telanoff].

9 15. The return was not filed successfully when the tax was paid. [Exhibit 1; Exhibit

10 A; Testimony of Ms. Rivera; Testimony of Mr. Telanoff].

11 16. On March 13, 2023, the Department notified the Taxpayer that their payment had

12 been received but that their return had not been filed. [Exhibit A].

13 17. The Taxpayer received notice of the lack of return on March 24, 2023. [Exhibit

14 1; Testimony of Mr. Telanoff].

15 18. On March 24, 2023, the Taxpayer took additional steps to file the return. [Exhibit

16 2; Testimony of Mr. Telanoff].

17 19. This is the first instance of which Mr. Telanoff is aware when the software

18 program has shown a file for a return in the archive folder, but the return was not successfully

19 filed. [Testimony of Mr. Telanoff].

20 20. Because the return was filed approximately two months late, the Department

21 assessed the Taxpayer for penalty based on the percentage of the tax originally due until the

22 filing date. [Testimony of Ms. Rivera; L1322994800].

3
All references to the tax payment and return filing are for this tax period and are regarding the New Mexico taxes.
4
Generally, the tax and return are due the following month, which would be January 2023 for this tax period.
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1 DISCUSSION

2 Burden of proof.

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

4 22.600.3.24 (B) NMAC (2020. Assessments by the Department are presumed to be correct. See

5 NMSA 1978, § 7-1-17 (2023). See El Centro Villa Nursing Ctr. v. Taxation and Revenue

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

7 165, ¶11, 84 N.M. 428. See also N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-

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

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

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

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

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

13 Assessment of penalty.

14 When a return is not filed by the due date, “there shall be added to the amount assessed a

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

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

17 Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. The penalty is two percent of the tax

18 liability established in a late-filed return per month or any fraction of a month, but penalty is capped

19 at 20 percent of the tax liability. See NMSA 1978, § 7-1-69 (A). However, no penalty is owed

20 when the failure to pay the tax “results from a mistake of law made in good faith and on reasonable

21 grounds.” NMSA 1978, § 7-1-69 (B). A mistake of law is a mistake about the legal effect of a

22 known fact. See State v. Hubble, 2009-NMSC-014, ¶ 22, 146 N.M. 70 (quoting from dictionary).

23 The Taxpayer failed to present any evidence to establish that its failure to file the return when it was

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

2 1978, § 7-1-69.

3 If a taxpayer is not negligent, a penalty may be excused. See 3.1.11.11 NMAC (2001)

4 (listing several factors that indicate non-negligence). Negligence includes “inadvertence,

5 indifference, thoughtlessness, carelessness, erroneous belief or inattention.” 3.1.11.10 (C) NMAC

6 (2001). The Taxpayer argued that it was not negligent because it relied on its software program to

7 file the tax return, and the software program showed that it filed a return. Essentially, the Taxpayer

8 is using the software program as its agent for filing its tax return. “[F]ailure to make a timely filing

9 of a tax return, however, is not excused by the taxpayer’s reliance on an agent”. 3.1.11.11 (D)

10 NMAC. Therefore, the Taxpayer failed to overcome the presumption of correctness on the penalty

11 assessment. See NMSA 1978, § 7-1-17. See also 3.1.6.12 and 3.1.6.13 and 3.1.11.10 and 3.1.11.11

12 NMAC. See also Gemini Las Colinas, LLC, 2023-NMCA-039.

13 The Taxpayer also argued that no penalty was due because it immediately filed the return

14 when it received notice of the lack of return in Exhibit 1. The Taxpayer argued that subsection F of

15 the statute provides five business days from the date that notice is received before penalty will be

16 applied when a taxpayer makes an electronic payment of tax. See NMSA 1978, § 7-1-69 (F). The

17 Taxpayer misreads the statute, which allows five days from receipt of notice when the electronic

18 “payment does not include all of the information required by the department pursuant to the

19 provisions of Section 7-1-13.1”. Id. The information required under Section 7-1-13.1 is not related

20 to the filing of a tax return. See NMSA 1978, § 7-1-13.1 (2005) (regarding the method of

21 payments). Therefore, Exhibit A is not a notice contemplated by this subsection. See NMSA 1978,

22 § 7-1-69 (F). Moreover, subsection F acknowledges that a penalty may be imposed by subsection

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1 A, but it does not allow an additional penalty under subsection F when one has already been

2 imposed by subsection A. See id.

3 CONCLUSIONS OF LAW

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

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

6 (2019).

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

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

9 C. Because the Taxpayer failed to file the tax return when it was due, penalty was

10 owed. See NMSA 1978, § 7-1-69.

11 D. The Taxpayer failed to provide evidence that it was not negligent when it relied

12 on its software as its agent to file the return and failed to provide evidence that it made a mistake

13 of law based on good faith and reasonable grounds. Consequently, the Taxpayer failed to

14 overcome the presumption of correctness, and the penalty stands as assessed. See id. See also

15 NMSA 1978, § 7-1-17. See also 3.1.6.12 and 3.1.6.13 and 3.1.11.10 and 3.1.11.11 NMAC. See

16 also Gemini Las Colinas, LLC, 2023-NMCA-039.

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

18 Taxpayer is liable for $15,746.20 in penalty.

19 DATED: April 12, 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 April 12, 2024, a copy of the foregoing Decision and Order was submitted to the parties

15 listed below in the following manner:

16 First Class Mail and Email First Class Mail and Email
17
18
19 Intentionally Blank

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