I'm a New Mexico resident but I work out of state most of the year — can I pay New Mexico income tax on only the fraction of the year I'm actually here?

Plain-English summary

Darrell Bowers managed offshore oil-drilling rigs. His employer was headquartered in Houston, his worksites were rigs around the world, and he worked a 28-days-on, 28-days-off schedule — spending less than half the year physically in New Mexico. But he kept his permanent home in Albuquerque and was, for all relevant periods, a New Mexico resident.

Told by H&R Block that his out-of-state wages weren't taxable in New Mexico, Bowers didn't file. An IRS information-sharing match led the Department to issue Assessment No. 570664 for tax year 1990 — $1,256.00 tax, $596.70 interest, and $125.60 penalty. He paid the tax but protested, arguing he should owe tax on only about 5/12 of his income to reflect the time he actually spent in New Mexico, since he wasn't present to use state services like roads and police.

Hearing Officer Gerald Richardson denied the protest:

• Residents are taxed on all their income. Section 7-2-3 imposes the income tax on the net income of every resident individual — with no regard to how much time the resident spends in the state. Bowers met the definition of a resident (Section 7-2-2(S)), and nothing in the Income Tax Act lets a resident apportion income by days present.
• There's no "pay only for services you use." The idea that tax should track your consumption of government services "has never found any support in the law of taxation." Everyone benefits from the intangible "benefits of living in a civilized society" (Wisconsin v. J.C. Penney) — just as childless taxpayers still fund public schools.
• The only cross-border relief didn't fit. The Legislature's answer to double taxation is the Section 7-2-13 credit for income taxes a resident pays to another state. Because Bowers's employer was in Texas, which has no income tax, he paid no other-state tax, so there was nothing to credit.
• Interest is mandatory (penalty was not). The Department had already abated the penalty because Bowers was misadvised by both H&R Block and a Department employee. But interest is different: under Section 7-1-67(A) it is mandatory ("shall be paid"), it is not a punishment, and it simply compensates the state for the time value of money it didn't have when due. It applies regardless of a taxpayer's reasons for not paying.

What this means for you

New Mexico residents who work out of state

If New Mexico is your state of residence, it taxes 100% of your income, even if your job keeps you elsewhere most of the year. You cannot reduce your New Mexico tax by the fraction of time you spend outside the state. The way to avoid being taxed twice on the same income is the credit for taxes paid to another state — but that only helps if the other state actually imposes an income tax on that income.

Workers in no-income-tax states (Texas, and similar)

Earning your wages in a state with no income tax does not make that income tax-free — it just means there's no other-state tax to credit against your New Mexico bill. If you remain a New Mexico resident, that income is fully taxable here.

Anyone relying on preparer advice

Bad advice from a tax preparer (even paired with a Department employee's error) can get a penalty abated, but it will not erase the tax or the interest. If you're unsure whether income is taxable, consider paying and protesting, or filing and paying, to stop interest — reliance on advice won't excuse the interest later.

Common questions

Q: I'm a resident but rarely in New Mexico. Can I prorate my income tax by days here?
A: No. New Mexico taxes a resident's entire net income regardless of time spent in the state, and the Income Tax Act has no day-based apportionment for residents.

Q: My wages are earned in a no-income-tax state. Aren't they exempt in New Mexico?
A: No. As a New Mexico resident you owe tax on that income. The other-state credit only offsets tax you actually pay to another state, so it gives nothing when the other state has no income tax.

Q: I didn't pay because a preparer told me I didn't have to. Why do I still owe interest?
A: Interest isn't a penalty and isn't excused by good-faith reliance. It compensates the state for not having the money on time. Your reliance can support abating the penalty (as it did here), but the tax and interest remain due.

Citations and references

Statutes:

• § 7-2-3 NMSA 1978 — income tax on the net income of every resident individual, regardless of time spent in-state
• § 7-2-2(S) NMSA 1978 — definition of "resident"
• § 7-2-13 NMSA 1978 — credit for income taxes a resident pays to another state
• § 7-1-67(A) NMSA 1978 — interest accrues on unpaid tax from the day after it becomes due until paid
• § 7-1-69 NMSA 1978 — civil penalty for negligence (abated here for reliance on advice)
• § 7-1-24 NMSA 1978 — a taxpayer's right to file a written protest (basis for jurisdiction)

Case cited:

• Wisconsin v. J.C. Penney Co., 311 U.S. 435 (1940) — there is no required correspondence between taxes paid and government services consumed

Source

• Listing: New Mexico Decisions & Orders
• Decision PDF: D&O 95-01

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
DARRELL C. BOWERS,
PROTEST TO ASSESSMENT NO. 570664. Decision No. 95-01

DECISION AND ORDER

This matter came on for hearing on December 16, 1994 before Gerald B. Richardson,

Hearing Officer. Darrell C. Bowers, (hereinafter "Taxpayer") represented himself at the hearing.

The Taxation and Revenue Department (hereinafter "Department") was represented by Frank D.

Katz, Chief Counsel.

Based upon the evidence and arguments presented, IT IS DECIDED AND ORDERED AS

FOLLOWS:

1. The Taxpayer is employed as a drilling rig manager for offshore oil rigs. The

Taxpayer's employer is headquartered in Houston, Texas. The Taxpayer's worksites are on

offshore oil rigs around the world.

2. The Taxpayer's work schedule is to work 28 days on the drilling rig and then to

have 28 days off. The 28 days off of the rig are used by the Taxpayer for travel to and from the

work site from his home in Albuquerque, New Mexico, and to attend work related meetings and
trainings scheduled by his employer. Because of the meetings and travel time, the Taxpayer

spends less than 50% of his time in New Mexico.

3. For all relevant periods, the Taxpayer has maintained his permanent home in

Albuquerque, New Mexico and is a resident of New Mexico.

4. The Taxpayer is single and is the only resident of his household.

5. The Taxpayer had consulted with individuals at H&R Block about his income tax

liability to New Mexico. The Taxpayer had been informed that since his income was from

employment out of state, that he was not subject to income tax in New Mexico. Based upon that
advice, the Taxpayer did not file and report income for income taxation purposes to the

Department.

6. On April 25, 1994, the Department issued Assessment No. 570664 to the

Taxpayer, assessing personal income tax in the amount of $1,256.00, interest in the amount of

$596.70 and penalty in the amount of $125.60 for tax year 1990. The Department's assessment

was issued as a result of information shared between the Department and the Internal Revenue

Service pursuant to an information sharing agreement between the two agencies.

7. On May 9, 1994, the Taxpayer filed a written protest to the Assessment, protesting

7/12 of the tax due, and the penalty and interest assessed. At some point prior to the hearing in

this matter, the Taxpayer submitted payment for the tax portion of the assessment, which payment

was accepted by the Department.

8. Prior to the hearing, the Department abated the penalty portion of the assessment

based upon the Taxpayer's statements that he had relied upon the advice of a H&R Block

employee and a Department employee that his wages were not subject to New Mexico income

taxation.

DISCUSSION
The two issues presented for decision herein are whether a resident of New Mexico who

earns income outside of New Mexico may pay tax only upon a proportionate share of that income,
representing the portion of time spent in New Mexico, and if tax is due, whether interest is also

due relating to the late payment of the tax due.
The Taxpayer maintains his residence in Albuquerque and for all relevant tax periods, has

intended to make New Mexico his state of permanent residence. Thus, the Taxpayer meets the
definition of a "resident" for purposes of Section 7-2-2(S) of the New Mexico Income Tax Act.

While the Taxpayer does not object to paying income taxes in principle, he does object to paying

what he believes to be an unfair amount of taxes. The basis of the Taxpayer's argument is that he

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is only physically present in New Mexico less than half of the days of the year. As such, he is not

present to utilize the many services provided by state government, such as police protection,

roads, etc. for much of the year. The Taxpayer objects to paying income tax to New Mexico on

100% of his income when he is not present to benefit from the services paid for by such taxes.

The Taxpayer's protest letter proposes that he only be subject to tax on 5/12 of his income, this

representing what he believes to fairly approximate the proportion of time he is able to spend in

New Mexico.

At the outset, it should be noted that the underlying premise of the Taxpayer's argument,

that income should only be taxed in proportion to a Taxpayer's consumption of tax paid services,

is one which has never found any support in the law of taxation. It has long been recognized that

there is no quid pro quo between taxes paid and services consumed because there are many

intangible benefits, often called the benefits of living in a civilized society, which are difficult to

quantify, but for which every taxpayer benefits. Wisconsin v. J.C. Penney, 311 U.S. 435 (1940).

Thus, childless taxpayers are required to contribute to the expense of maintaining public

institutions of learning even if they do not send children to public schools.

There is no statutory provision in the Income Tax Act which allows for the apportionment

of income subject to taxation according to the amount of time spent in state by resident taxpayers.

The Legislature has seen fit to grant a credit for taxes paid to other states by resident individuals,

Section 7-2-13 NMSA 1978, but since the Taxpayer's income was paid by a Texas employer and

the state of Texas imposes no personal income tax, this credit is unavailing to this Taxpayer.

Without the benefit of a statutory deduction, exemption or tax credit, there is simply no basis for

reducing the Taxpayer's liability on a proportionate basis as he requests.

With respect to the imposition of interest, the Taxpayer argued that he should not be

subject to interest since he believed that he was acting properly at the time he failed to report and

pay income taxes. The underlying premise of this argument, that the imposition of interest is

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intended to punish Taxpayer's who fail to report and pay taxes, is simply incorrect. There are

provisions in the statutes for imposing penalties on taxpayers who fail to report and pay taxes.

See, Section 7-1-69 NMSA 1978. In this case, penalty was abated because the Department

agreed with the Taxpayer that under the circumstances of this case, where the Taxpayer was

incorrectly advised by both H&R Block employees as well as Department employees as to his

taxability, that there was no basis for imposing penalty in this matter. The imposition of interest,

however, is a different matter. Section 7-1-67(A) NMSA 1978 (1990 Repl. Pamp.) provides:
If any tax imposed is not paid on or before the day on which it becomes due, interest
shall be paid to the state on such amount from the first day following the day on
which the tax becomes due, without regard to any extension of time or installment
agreement, until it is paid. (emphasis added).

The imposition of interest merely represents the time-value to the state of not having the tax

monies in its possession at the time they were due. While one may quibble with the legislatively

determined rate of interest, that is a policy decision made by the legislature which the Department

is bound to enforce. Additionally, the legislature has indicated its policy with regard to the

imposition of interest by the wording it chose in enacting Section 7-1-67. It provides that interest

shall be paid any time that a tax is not timely paid. It is a well settled cannon of statutory

construction that the use of the word "shall" in a statute indicates that the provisions of the statute

are intended to be mandatory rather than discretionary, unless a contrary legislative intent is

clearly demonstrated. Thus, the legislature has directed the Department to impose interest

whenever taxes are not timely paid, and has provided no exceptions to the mandates of the statute.

Thus, interest must be paid any time a tax is untimely paid, regardless of the reasons a taxpayer

may have for non-payment.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely written protest to Assessment No. 570664, pursuant to

Section 7-1-24 NMSA 1978 and jurisdiction lies over both the parties and the subject matter of

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this protest.

2. New Mexico imposes its income tax, pursuant to Section 7-2-3 NMSA 1978 upon

the net income of every resident individual, without regard to the actual amount of time spent by

the resident taxpayer within the state. There is no statutory authority within the Income Tax Act

to apportion the taxability of the income of a resident individual based upon the proportion of the

time the resident taxpayer spends within the state.

3. The tax credit for income taxes paid by resident taxpayers to other state taxing

authorities has no applicability to the facts of this case because the Taxpayer paid no income taxes

to other states.

4. Interest was properly imposed for the Taxpayer's failure to timely pay taxes.

For the foregoing reasons, the Taxpayer's protest is hereby denied.

Done, this 17th day of January, 1995.

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