If an embezzling bookkeeper caused my company's taxes to go unpaid, can New Mexico waive the interest?

Plain-English summary

Interest on unpaid gross receipts tax is mandatory and cannot be waived — even when an embezzling bookkeeper caused the taxes to go unpaid. The company's penalty was abated, but the interest stood, and its chance to erase it under a tax-amnesty program had passed. Protest DENIED.

Santa Fe Stone Corporation hired a bookkeeper in spring 1996 to handle its tax reporting and payments. She prepared books and reports that made it look as though the company's gross receipts taxes were being paid to the Department, but the payments were never made — she was embezzling. The company discovered this in December 1996 and fired her. The Department had already issued assessments (for April–November 1996) totaling $30,381.85 in tax, $2,736.18 in penalty, and $1,746.55 in interest (still accruing). The company protested only the penalty and interest, and the Department abated the penalty — so the sole issue was the interest.

Interest is mandatory

Section 7-1-67(A) says that if a tax is not paid when due, interest "shall" be paid to the state until it is paid. The word "shall" makes interest mandatory, not discretionary (State v. Lujan), and the statute allows no exceptions. As the hearing officer put it, "it doesn't matter why taxes were not paid in a timely manner." Interest is not a punishment; it compensates the state for revenue it received late. So even though the nonpayment was caused by an employee's theft, the interest could not be waived.

The missed amnesty was the only path to relief — and it had closed

The one mechanism that could have wiped out the interest was the Tax Amnesty Act of 1999, which briefly authorized the Secretary to waive interest and penalty during a 90-day amnesty period (August 16–November 12, 1999). The Department had actually written to the company inviting it to withdraw its protest and take advantage of amnesty — but the letter was filed away and never brought to the president's attention, and the company took no action. By the time of the hearing the amnesty period had expired, and with it the Secretary's authority to waive interest. With no other statutory basis for relief, the protest had to be denied.

Result: protest DENIED — the penalty was abated, but the interest stood.

What this means for you

Interest cannot be waived — no matter the reason the tax went unpaid

New Mexico interest under Section 7-1-67 is automatic and mandatory. Embezzlement, hardship, honest mistakes, or reliance on an employee do not excuse it, because interest simply compensates the state for the time it was without its money. Only a specific statute (like a temporary amnesty) can remove it.

Penalty and interest are treated differently

The Department abated the penalty here — penalties can turn on fault and good-faith circumstances — but it had no power to abate the interest. Do not assume that getting a penalty removed will also remove the interest; they are governed by different rules.

Watch for — and act on — amnesty and relief notices

The company's real loss was letting the amnesty letter sit unread. Time-limited relief programs are often the only way to eliminate interest, and they close on a hard deadline. Route Department correspondence straight to a decision-maker and act before any window expires.

An embezzling or non-paying bookkeeper is still your liability

Even when an employee fakes the records and steals the tax money, the company remains liable for the tax and interest. Verify independently that returns are filed and payments have actually cleared, rather than relying solely on an employee's reports.

Common questions

Q: A bookkeeper embezzled our tax payments. Can New Mexico waive the interest?
A: No. Interest under Section 7-1-67(A) is mandatory whenever tax is paid late, and the statute has no exceptions. The reason for the nonpayment — including theft by an employee — does not matter.

Q: If the penalty was abated, why wasn't the interest abated too?
A: They are governed by different rules. A penalty can be abated based on fault and circumstances, but interest is mandatory and compensatory, so the Department cannot waive it absent specific statutory authority.

Q: Couldn't the tax-amnesty program have helped?
A: Yes — it could have waived the interest, but only during the 90-day amnesty period. The company received the notice, filed it away without acting, and the period expired, ending the Secretary's authority to waive interest.

Q: Are we still responsible when an employee steals the money meant for taxes?
A: Yes. The company remains liable for the tax and the interest. Independently confirm that returns are filed and payments clear so a single employee cannot both divert the money and hide it.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-67(A) — interest "shall" be paid on any tax not paid when due, without exception, until it is paid
• NMSA 1978, § 7-1-69 — the penalty statute (the penalty was abated in this case)
• NMSA 1978, § 7-1-24 — protest procedure
• Tax Amnesty Act, Laws 1999, Chapter 10 — authorized the Secretary to waive interest and penalty under Sections 7-1-67 and 7-1-69, but only during a declared amnesty period of no more than 90 days (here, August 16–November 12, 1999)

Cases cited:

• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977) — the use of "shall" in a statute makes its provisions mandatory rather than discretionary

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Santa Fe Stone Corporation
• Decision PDF: D&O 00-39

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
SANTA FE STONE CORPORATION No. 00-39
NM ID NO. 02-268016-00 0, PROTEST TO
ASSESSMENT NOS. 2106186 THROUGH 2106193

DECISION AND ORDER

This matter came on for hearing before Gerald B. Richardson, Hearing Officer, on

September 13, 2000. Santa Fe Stone Corporation, hereinafter, “Taxpayer”, was

represented by Mr. Burke Denman, President. The Taxation and Revenue Department,

hereinafter, “Department”, was represented by Mónica M. Ontiveros, Special Assistant

Attorney General. The Taxpayer requested that the decision not be issued until mid-

December and the Department agreed to extending the time period for the issuance of the

decision. Based upon the evidence and the arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On February 7, 1997, the Department issued Assessment Nos. 2106186 through

2106193 (“the Assessments”) to the Taxpayer assessing gross receipts tax, penalty and

interest for the reporting periods of April, 1996 through November, 1996.

2. On February 24, 1997 the Taxpayer filed a timely, written protest to the

Assessments. The protest requested relief from the assessment of penalty and interest,

only.

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3. The total amount of tax assessed was $30,381.85. The amount of interest assessed

was $1,746.55 with interest continuing to accrue until the tax principal is paid. The total

amount of penalty assessed was $2,736.18.

4. Since the assessments were issued, the Taxpayer has paid $4,019.88 in tax principal.

5. The Department has abated the penalty portion of the assessment.

6. In April or May of 1996, the Taxpayer hired a new bookkeeper, who was

responsible for reporting and paying taxes on behalf of the Taxpayer.

7. In December, 1996, the Taxpayer discovered that the bookkeeper had been

embezzling substantial amounts of money from the Taxpayer. The Taxpayer also

discovered that although the bookkeeper had been preparing books and reports to indicate

that taxes were being paid to the Department, that those payments were not, in fact,

made. Upon learning this information, the Taxpayer terminated the employment of the

bookkeeper.

8. On August 6, 1999, the Department’s Protest Office mailed the Taxpayer a letter

informing it of the passage of the Tax Amnesty Act which authorized the Secretary of the

Department to waive penalty and interest under certain conditions during a 90 day period

declared by the Secretary. The letter further informed the Taxpayer that the amnesty

period would run from August 16, 1999 through November 12, 1999 and requested that

the Taxpayer inform the Department if it wished to withdraw its protest to take advantage

of the amnesty program.

9. The Taxpayer received the amnesty letter, but it was filed away and not brought to

the attention of Mr. Denman. The Taxpayer did not take any action to participate in the

tax amnesty program.

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DISCUSSION

The sole issue to be determined herein is whether there is any basis for granting

the Taxpayer relief from the interest which was assessed and the additional interest which

has accrued with respect to the tax reports which were filed late and without payment of

the taxes which were owing. The Taxpayer did not contest the amount of tax which was

assessed and the Department has already abated the penalty which had been assessed.

Section 7-1-67(A) NMSA 1978 addresses the imposition of interest on tax

deficiencies and provides as follows:

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 regard to any extension of time or
installment agreement, until it is paid…. (Emphasis added.)

It is a well settled rule of statutory construction that the use of the word "shall" in a statute

indicates that the provisions are intended to be mandatory rather than discretionary, unless a

contrary legislative intent is clearly demonstrated. State v. Lujan, 90 N.M. 103, 560 P.2d

167 (1977). Applying this rule to §7-1-67, the statute requires that interest be paid to the

state on any unpaid taxes and no exceptions to the imposition of interest are countenanced

by the statute. Thus, it doesn't matter why taxes were not paid in a timely manner. Interest

is imposed any time that taxes are not paid when they are due, and for the period of time that

they are unpaid.

The Taxpayer also asked if there was any way that it could take advantage of the

amnesty program, since, had Mr. Denman been made aware of the amnesty program by his

employees, he would have withdrawn his protest. He explained that he only protested the

interest and penalty in hope that some relief could have been afforded in taking into

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consideration the most unfortunate circumstances, employee embezzlement, which had

caused the taxes not to be reported and paid in the first place.

While I am not unmindful of the regrettable circumstances this Taxpayer finds itself

in, with respect to the enforcement of taxes and the related penalty and interest, the

Department (and this decision maker) is bound to apply the statutes as they are written. The

Tax Amnesty Act, Laws 1999, Ch. 10 provided as follows:

C. The secretary of taxation and revenue is authorized to
waive, during the amnesty period only, the interest and
penalty provisions under Sections 7-1-67 and 7-1-69
NMSA 1978…. (Emphasis added.)

Under Subsection B. of the Tax Amnesty Act, the Secretary was authorized “to declare an

amnesty period of no more than ninety days”. Pursuant to the Secretary’s declaration, the

amnesty period ran from August 16 through November 12, 1999. The amnesty period has

now expired and the Secretary’s authority, pursuant to the Tax Amnesty Act, to waive

interest has also now expired. Because there are no other provisions which would allow this

Taxpayer to be granted relief from the interest which has been assessed and accrued, the

Taxpayer’s protest must be denied.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest, pursuant to §7-1-24 NMSA 1978, and

jurisdiction lies over both the parties and the subject matter of this protest.

2. The imposition of interest pursuant to §7-1-67 NMSA 1978 is mandatory whenever

taxes are not paid when they are due, regardless of why they were not paid.

3. Because the amnesty period under the Tax Amnesty Act has expired, the Department is

without authority to grant amnesty beyond the amnesty period.

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

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DONE, this 14th day of December, 2000.

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