If a business pays its New Mexico CRS taxes one day late because its sole bookkeeper was sick, can it avoid the late-payment penalty and interest?

Plain-English summary

B.R. Gordon Construction paid its January 1997 CRS taxes (New Mexico's combined gross receipts, compensating, and withholding taxes) one day late — the Department received the payment on February 26, 1997 instead of the February 25 due date. The Department assessed a $241.77 penalty and $151.11 in interest (Assessment No. 2117291). The company protested.

The company's explanation: it ran a one-person office managed by its accountant, Ms. Spooner, who was ill from February 21 through 24, 1997, so the electronic (ACH) payment she normally initiated one day before the due date went out a day late. It also blamed the Department for not telling it that it was no longer required to use the special large-taxpayer payment procedures of § 7-1-13.1 (its average monthly payment had dropped below $25,000).

The Hearing Officer denied the protest and upheld both charges.

• Penalty (negligence). Having a one-person office with no backup for the person who pays the taxes is itself a failure of ordinary business care — it is entirely foreseeable that an employee will sometimes be sick or called away. The company's habit of waiting until the last possible day to pay left no margin for error and further supported a finding of negligence under § 7-1-69(A).
• The Department had no duty to notify. New Mexico has a self-reporting tax system. The company, not the Department, was in the best position to know its average payment had fallen below $25,000. Besides, § 7-1-13.1 never required ACH payment — it offered five methods (including wire transfer, check, and cash), and a wire transfer would have been timely even that morning.
• Interest is mandatory. Section 7-1-67 says interest "shall" be paid on any late tax, with no exceptions and regardless of the taxpayer's intent. Because the payment arrived a day late, interest was properly assessed.

(The company had also protested a second assessment, No. 2090869, but withdrew that protest at the start of the hearing.)

What this means for you

Small businesses and one-person back offices

If a single person handles your tax payments, build in a backup — a second authorized person, a calendar reminder, or an earlier payment date — because "the bookkeeper was out sick" is not a defense to a New Mexico late-payment penalty. The Hearing Officer treated the absence of any backup as negligence in itself. And don't schedule payments for the very last day: leaving no cushion for an illness, a bank delay, or a holiday can turn a minor hiccup into penalty-plus-interest.

Taxpayers who pay electronically or think a rule no longer applies to them

New Mexico is a self-reporting system; the Department is not obligated to tell you when you move in or out of a special payment category. It's on you to check each year whether thresholds like the $25,000 average in § 7-1-13.1 apply. And remember there is usually more than one way to pay on time — if one method is about to make you late, a wire transfer or in-person payment may still land by the deadline.

Accountants and tax professionals

This decision is a clean statement of two points: negligence under § 7-1-69(A) can rest on a lack of internal controls (no backup, last-minute payments), and interest under § 7-1-67 is mandatory and intent-independent — it cannot be abated even for a sympathetic, one-day slip. The reasonable-cause and no-notice arguments failed against the backdrop of the self-reporting system.

Common questions

Q: The payment was only one day late and the bookkeeper was genuinely sick — why a penalty?
A: Because the penalty is for negligence, and the Hearing Officer found it negligent to run a one-person office with no backup and to routinely pay on the last possible day. An employee's foreseeable illness did not excuse the lack of any contingency plan, so the penalty stood.

Q: Can interest ever be waived for a late payment?
A: No. Section 7-1-67 provides that interest "shall" be paid on late tax, with no exceptions and without regard to the taxpayer's intent. Once a payment is late, interest is mandatory.

Q: Wasn't it the Department's fault for not saying the special ACH rules no longer applied?
A: No. New Mexico is a self-reporting system, and the taxpayer was best positioned to know its average payment had dropped below the $25,000 threshold. The Department has no duty to individually notify taxpayers about their status, and ACH was never the only permitted payment method anyway.

Q: Does this decision apply to my business?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and the law in effect at the time. It illustrates how New Mexico applies the negligence penalty and mandatory interest to a late payment, but your facts may differ.

Citations and references

Statutes and regulations:

• § 7-1-69(A) NMSA 1978 — penalty for failure to pay when due through negligence or disregard of rules (2% per month, up to 10%)
• § 7-1-67 NMSA 1978 — interest on late-paid tax is mandatory ("shall"), with no exceptions
• § 7-1-13.1 NMSA 1978 — special payment procedures for taxpayers whose average monthly payment exceeds $25,000, offering several payment methods
• § 7-1-13(A) NMSA 1978 — taxpayers are liable for tax at the time of the transaction and taxes are due on the required date
• §§ 7-9-11 and 7-3-6 NMSA 1978 — CRS (gross receipts, compensating, withholding) taxes are due the 25th day of the following month
• § 7-1-24 NMSA 1978 — taxpayer protest procedure
• 3 NMAC 1.11.10 — definition of negligence for penalty purposes
• 3 NMAC 1.4.10.3.3 — non-mailed payments must be received by the department on or before the due date

Source

• Listing: New Mexico Decisions & Orders
• Decision post: B.R. Gordon Construction Co., Inc.
• Decision PDF: D&O 98-01

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
B. R. GORDON CONSTRUCTION CO., INC. 98-01
ID. NO. 01-852364-00 1
ASSESSMENT NOs. 2090869 and 2117291

DECISION AND ORDER

This matter came on for formal hearing on January 13, 1998 before Margaret B. Alcock,

Hearing Officer. B. R. Gordon Construction Company ("Taxpayer"), was represented by Paula

Spooner, the Taxpayer’s accountant. The Taxation and Revenue Department ("Department"), was

represented by Frank D. Katz, Chief Counsel.

At the beginning of the hearing, the Taxpayer withdrew its protest to Assessment No.

2090869. At the close of the hearing, the Taxpayer’s protest of Assessment No. 2117291 was

submitted for determination. Based upon the evidence and the arguments presented, IT IS

DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is a corporation doing business in New Mexico and is registered with

the Department for payment of gross receipts, compensating and withholding taxes, which are

reported under New Mexico's Combined Reporting System (CRS).

2. Because the Taxpayer’s average monthly CRS tax payment during calendar year

1995 exceeded $25,000, the Taxpayer was required to pay its 1996 CRS taxes according to the

special payment procedures set forth in NMSA 1978, § 7-1-13.1.

3. During calendar year 1996, the Taxpayer’s average monthly CRS tax payment

dropped below $25,000. As a result, the Taxpayer was not required to follow special payment

procedures when paying its 1997 CRS taxes.

4. Not realizing that it was no longer required to comply with the provisions of § 7-1-

13.1, the Taxpayer continued to pay its 1997 CRS taxes by means of an automated clearing house

(ACH) transaction in accordance with Subsection B(1) of Section 7-1-13.1.

5. It was the Taxpayer’s usual practice to initiate ACH transfers one day prior to the

due date. Based on this practice, payment of the Taxpayer’s January 1997 CRS taxes would have

been called into the Taxpayer’s bank on Monday, February 24, 1997.

6. The Taxpayer maintains a one-person office consisting of Ms. Spooner, who is

responsible for the day-to-day management of the office, including payment of monthly CRS taxes.

7. Because Ms. Spooner was ill from Friday, February 21 through Monday February

24, 1997, the ACH transaction intended to pay the Taxpayer’s January 1997 CRS taxes was not

initiated until Tuesday, February 25, 1997.

8. The Department received payment of the Taxpayer’s January 1997 CRS taxes on

Wednesday, February 26, 1997, one day after the due date.

9. On March 1, 1997, the Department issued Assessment No. 2117291 to the Taxpayer

assessing a penalty of $241.77 and interest of $151.11 on the late payment of the Taxpayer’s

January 1997 CRS taxes.

10. On March 10, 1997, the Taxpayer filed a timely protest of the assessment.

DISCUSSION

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The issue to be determined is whether the Department properly assessed the Taxpayer

penalty and interest on the late payment of the Taxpayer's January 1997 CRS taxes. The Taxpayer

argues that its late payment of tax should be excused (1) because Ms. Spooner was ill on February

24, 1997, the day the ACH transaction should have been initiated; and (2) because the Department

failed to notify the Taxpayer that it was no longer subject to the special payment provisions of § 7-

1-31.1.

ASSESSMENT OF PENALTY

NMSA 1978, § 7-1-69 (1996 Supp.), governs the imposition of penalty during the period at

issue in this protest. Subsection A imposes a penalty of two percent per month, up to a maximum

of ten percent:

in the case of failure, due to negligence or disregard of rules and
regulations, but without intent to defraud, to pay when due any
amount of tax required to be paid...

Taxpayer "negligence" for purposes of assessing penalty pursuant to Subsection A of § 7-1-69 is

defined in Regulation 3 NMAC 1.11.10 as:

1) failure to exercise that degree of ordinary business care and
prudence which reasonable taxpayers would exercise under
like circumstances;

2) inaction by taxpayers where action is required;

3) inadvertence, indifference, thoughtlessness, carelessness,
erroneous belief or inattention.

The Taxpayer argues that its late payment of tax was not due to negligence but to the fact

that Ms. Spooner was ill on Friday, February 21, 1997 and on Monday, February 24, 1997, the day

the ACH transfer should have been initiated. Ms. Spooner testified that the Taxpayer maintained a

one-person office and there was no one else to take over management of the office, including tax

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payments, when she was out. The Taxpayer’s failure to provide some back-up for Ms. Spooner

indicates a failure to exercise that degree of ordinary business care and prudence which would be

expected of reasonable taxpayers. It is entirely foreseeable that an employee may become ill or may

be called away on an emergency. To have no mechanism for insuring that the office continues to

run smoothly and that required tax payments are made in a timely manner amounts to negligence

for purposes of § 7-1-69(A).

The Taxpayer further argues that its late payment was due to the Department’s failure to

notify the Taxpayer that it was no longer subject to the special payment provisions of § 7-1-13.1.

Ms. Spooner testified that she would not have used an ACH transfer to pay the Taxpayer’s January

1997 CRS taxes if she had known this method of payment was no longer required. First, it must be

noted that § 7-1-13.1 does not require taxpayers to make payment by ACH transfer. Subsection B

of § 7-1-13.1 gives taxpayers five different methods of meeting their payment obligations, including

payment by federal wire transfer, check or cash. Even if the Taxpayer had been subject to the

special payment provisions for 1997, Ms. Spooner had alternatives to the ACH transfer which

would have resulted in timely payment, including payment by federal wire transfer or payment by

cash. Second, the Department has no obligation to personally notify every CRS taxpayer as to

whether its comes within the special payment provisions of § 7-1-13.1. New Mexico has a self-

reporting tax system, and the responsibility to ensure timely reporting and payment of tax lies with

the taxpayer. In this case, the taxpayer was clearly in the best position to know whether its average

tax payment for the previous calendar year exceeded $25,000. The Taxpayer’s failure to make the

calculation required by § 7-1-13.1 resulted from inattention to its tax responsibilities and not to any

act or failure to act on the part of the Department.

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The fact that the Taxpayer had an established practice of waiting until the last possible day

to make payment of its CRS taxes also bears on the issue of ordinary business care. NMSA 1978, §

7-1-13(A) provides as follows:

Taxpayers are liable for tax at the time of and after the transaction or
incident giving rise to tax until payment is made. Taxes are due on
and after the date on which their payment is required until payment
is made.

Thus, taxpayers are liable for tax at the time a taxable transaction occurs, but are given until the

statutory due date to make payment of the tax. The due date for taxes covered by the combined

reporting system, i.e., gross receipts, compensating and withholding taxes, is the twenty-fifth day of

the month following the month in which the taxable incident occurred or the taxes were required to

be withheld. See, NMSA 1978, §§ 7-9-11 and 7-3-6. This provides taxpayers reporting taxes under

the CRS system at least 25 days after their liability for tax arises before payment is due. The

Taxpayer in this case made a practice of waiting until the last possible day on which payment could

be made before initiating its ACH transfer. While it is understandable that the Taxpayer would

want the use of the monies needed to pay the tax for as long as possible, this practice provides no

margin for error resulting from unscheduled events, such as Ms. Spooner’s illness. Given the

consequences of error-the payment of both penalty and interest for late payment-it is at least

arguable that waiting until the last day to make payment of taxes does not amount to the exercise of

ordinary business care and prudence and supports a conclusion of negligence with respect to the

timely payment of taxes in this case.

ASSESSMENT OF INTEREST:

NMSA 1978, § 7-1-67 governs the imposition of interest on late payments of tax and

provides, in pertinent part:

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A. 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 a regard to any extension of time or installment agreement,
until it is paid... (emphasis added).

The legislature’s use of the word “shall” indicates that the assessment of interest is mandatory

rather than discretionary. Thus, the legislature has directed the Department to assess interest

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

Imposition of interest is not based on the intent of the taxpayer but simply on a determination that

the payment was late. Regulation 3 NMAC 1.4.10.3.3 provides:

If the notice, return, application or payment other than payments
specified by Section 7-1-13.1 is sent or delivered to the department
by any means other than by mailing with the United States Postal
Service, it must be received by the department on or before the due
date....

In this case, payment of the Taxpayer’s January 1997 CRS taxes was not received by the

Department until February 26, 1997, one day after the due date. Interest was properly assessed.

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CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2117291 pursuant to

NMSA 1978, § 7-1-24 and jurisdiction lies over the parties and the subject matter of this protest.

2. Pursuant to NMSA 1978, § 7-1-69(A), the Taxpayer was negligent in failing to

make timely payment of its January 1997 CRS taxes and penalty was properly imposed.

3. Pursuant to NMSA 1978, § 7-1-67, interest was properly assessed against the

Taxpayer for late payment of its January 1997 CRS taxes.

For the foregoing reasons, the Taxpayer's protest IS HEREBY DENIED.

DONE, this 14th day of January 1998.

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