If a taxpayer says she mailed her gross receipts tax payment on time but the state never received it and the check was never cashed, can New Mexico still charge interest for late payment — and does a ten-month delay in notifying her excuse it?

Plain-English summary

A taxpayer who said she mailed her tax payment on time — but could not prove it, whose check was never cashed, and whose payment the state never received — still owed interest for the late payment. Protest DENIED.

East Mountain Speech Pathology, an Albuquerque business run by Ellen Tracy, files its gross receipts, compensating, and withholding taxes twice a year under the combined reporting system (CRS). Its January–June 1997 return and payment were due July 25, 1997. The Department had no record of ever receiving that return or payment. The owner believed she had mailed it on time because she kept a copy of the return and a carbon copy of the check — but the check was never cashed, and she did not discover the problem because she rarely balanced the separate bank account she used for tax payments (sometimes letting years pass). After an unrelated 1998 phone call revealed the missing return, she filed a replacement, paid the tax, and protested the $168.35 of interest. The penalty had already been abated.

The taxpayer had to prove timely payment — and could not

A Department assessment, including interest, is presumed correct (Sections 7-1-17(C) and 7-1-3(X)), so the burden was on the taxpayer to show her payment was timely. Payment may be made by mail, but under Regulation 3.1.4.10(B)(2) a mailing the Department never receives is not timely; only once delivery is established does Section 7-1-9(B)'s rule — that a payment is timely if mailed by the due date — come into play. Here, delivery was never established. The owner had no specific recollection of mailing the payment, no post-office receipt, her check was never cashed, and the Department had no record of it. Evidence about the next six-month period actually cut against her: that return and check were signed in mid-January but not mailed until four days after the due date. Copies of a return and check in her files did not prove she mailed them on time. Having failed her burden, interest was properly imposed.

The Department's delay in noticing the missing payment did not excuse interest

She argued that because the Department took about ten months to tell her the payment was missing, she should not owe interest. The hearing officer rejected this. New Mexico is a self-reporting system: taxpayers, who know their own activities best, must determine and pay their tax. She would have caught the problem herself had she balanced her tax-account checkbook in a timely way. The Department administers more than 40 tax acts and receives thousands of filings a month, so it cannot be expected to monitor each account and immediately flag a missing payment. And the Department had three years to assess under Section 7-1-18(A); its May 1998 assessment was well within that limit.

Result: protest DENIED; interest upheld.

What this means for you

Keep proof of mailing — copies of the return and check are not enough

If you mail a tax payment and the state says it never arrived, you carry the burden to prove you paid on time. A file copy of the return and a carbon of the check do not prove timely mailing, especially if the check was never cashed. A certificate of mailing or certified-mail receipt is far stronger evidence.

A payment that never arrives is not a timely payment

The "timely if mailed by the due date" rule only helps once the Department actually receives the payment. If a mailing is lost and never delivered, it is treated as not timely — so a lost check can leave you owing interest even if you believe you sent it.

Reconcile your tax account promptly

Had this taxpayer balanced her tax-payment checkbook, she would have seen the uncashed check and fixed the problem quickly. Regular reconciliation catches missing or lost payments before interest piles up.

Interest is mandatory, and the Department's delay is not a defense

Interest under Section 7-1-67 is automatic on late tax, and because New Mexico is self-reporting, the Department's taking months to notice a missing payment does not excuse it. The Department has three years to assess.

Common questions

Q: She kept copies of the return and check — why wasn't that proof?
A: Copies show she prepared a return and wrote a check, not that she mailed them on time. With no mailing receipt, an uncashed check, and no Department record of receipt, she did not meet her burden of proving timely payment.

Q: The rule says a payment is timely if mailed by the due date — didn't that help her?
A: That rule (Section 7-1-9(B)) applies only after delivery is established. Because the Department never received the payment, the mailing was not timely under Regulation 3.1.4.10(B)(2), and the mailed-by-the-due-date rule never came into play.

Q: Shouldn't the Department have told her sooner that the payment was missing?
A: No. New Mexico's self-reporting system puts the duty on the taxpayer, who could have caught the problem by reconciling her account. The Department cannot monitor every individual account, and it has three years to assess.

Q: Why did she owe interest but not a penalty?
A: The Department had already abated the penalty. The only issue left was interest, which is mandatory under Section 7-1-67 regardless of the reason for late payment.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-67(A) — interest is mandatory whenever tax is not paid by its due date
• NMSA 1978, § 7-1-17(C) — a Department assessment, including interest, is presumed correct
• NMSA 1978, § 7-1-3(X) — "tax" includes related interest and civil penalty
• NMSA 1978, § 7-1-13(B) — a tax payment or return may be accomplished by mail; taxpayer's self-reporting duty
• NMSA 1978, § 7-1-9(B) — once delivery is established, a mailed payment is timely if mailed on or before the due date
• NMSA 1978, § 7-1-18(A) — Department has three years from the end of the calendar year in which tax is due to assess
• Regulation 3.1.4.10(B)(2) NMAC — if a mailing is not received by the Department, its contents are not timely

Cases cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: East Mountain Speech Pathology
• Decision PDF: D&O 01-23

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
EAST MOUNTAIN SPEECH PATHOLOGY No. 01-23
ID NO. 02-166667-00-9
ASSESSMENT NO. 2253832

DECISION AND ORDER

A formal hearing on the above-referenced protest was held September 17, 2001, before

Margaret B. Alcock, Hearing Officer. East Mountain Speech Pathology (“Taxpayer”) was

represented by Ellen Tracy, its owner. The Taxation and Revenue Department ("Department") was

represented by Bruce J. Fort, Special Assistant Attorney General. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Since 1990, the Taxpayer has been engaged in business in Albuquerque, New

Mexico.

2. The Taxpayer is registered with the Department for payment of gross receipts,

compensating and withholding taxes, which are reported under the Department’s combined reporting

system (“CRS”).

3. The Taxpayer is registered as a “six-month filer”, which means she is required to file

CRS reports for the six-month periods January-June and July-December of each year.

4. The Taxpayer’s CRS return and payment of CRS taxes for the period January-June

1997 were due on or before July 25, 1997.

5. The Taxpayer generally pays her bills by the 5th of each month. The Taxpayer takes

her payments to the nearest Post Office and deposits them in the Post Office building itself or in the

mail boxes outside.

6. Because the Taxpayer’s CRS taxes are due only twice each year on the 25th of

January and July, payment of those taxes does not fit within the Taxpayer’s normal bill paying

schedule.

7. For the six-month period July-December 1997, the reporting period following the

period at issue, the Taxpayer’s CRS return and check were dated January 16, 1998, but were not

mailed until January 29, 1998, four days past the due date.

8. The Department has no record of ever receiving the Taxpayer’s original CRS return

or payment for the January-June 1997 reporting period.

9. The Taxpayer believes she mailed her CRS return and check for the January-June

1997 reporting period prior to the July 25, 1997 due date because she has a copy of the return in her

business records and a carbon copy of the check she wrote to pay the taxes shown on that return.

10. The Taxpayer has no specific recollection of mailing the return and payment of CRS

taxes for the January-June 1997 reporting period.

11. The Taxpayer pays her CRS taxes from a bank account which is separate from the

account used to pay the Taxpayer’s other bills. When the Taxpayer receives a payment for services,

she withholds more than the stated amount of gross receipts tax and deposits it in this account. She

also deposits any refunds or unexpected payments she receives in this account.

12. During the period at issue, the Taxpayer did not balance the checkbook for her

separate tax account on a regular basis. She would sometimes wait as much as three years before

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balancing the checkbook and evaluating whether she should withdraw some of the funds to invest or

use for other purposes.

13. Because the Taxpayer let months and even years go by without balancing the

checkbook for the account used to pay CRS taxes, the Taxpayer did not realize the check written to

pay her CRS taxes for the January-June 1997 reporting period was never cashed.

14. Sometime in early 1998, the Taxpayer contacted the Department concerning another,

unrelated tax matter. During that telephone call, the Taxpayer was told that the Department had no

record of receiving a CRS return or payment for the January-June 1997 reporting period.

15. Following this telephone call, the Taxpayer submitted a CRS return for the January-

June 1997 reporting period. Based on the figures shown on the return, the Department issued

Assessment No. 2253832 to the Taxpayer on May 15, 1998 for gross receipts tax, penalty and

interest due for that period.

16. On June 13, 1998, the Taxpayer paid the tax principal assessed and filed a written

protest to the assessment of penalty and interest.

17. The Department subsequently abated the penalty portion of Assessment No. 2253832.

DISCUSSION

The sole issue to be determined is whether the Taxpayer is liable for the $168.35 of interest

assessed for the late payment of CRS taxes due for the six-month period January-June 1997. The

Taxpayer maintains her payment was timely because she mailed a CRS return and a check covering

the taxes shown on that return on or before the July 25, 1997 due date. The Taxpayer also objects to

the length of time it took the Department to notify her that her payment had not been received.

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Burden of Proof. Section 7-1-17(C) NMSA 1978 provides that any assessment of tax by the

Department is presumed to be correct. Section 7-1-3(X) NMSA 1978 defines tax to include not only

the amount of tax principal imposed but also, unless the context otherwise requires, “the amount of

any interest or civil penalty relating thereto." See also, El Centro Villa Nursing Center v. Taxation

and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989). Because there is nothing in

Section 7-1-67 NMSA 1978 to suggest that interest assessed on late payments should not be included

within the statutory definition of “tax”, the presumption of correctness applies to the assessment of

interest issued to the Taxpayer, and it is the Taxpayer’s burden to show that the assessment is

improper or incorrect.

Payment of Taxes. Section 7-1-67(A) NMSA 1978 requires interest to be paid to the state

whenever “any tax is not paid on or before the day on which it becomes due....” Section 7-1-13(B)

NMSA 1978 provides that “the payment of any tax or the filing of any return may be accomplished

by mail.” Department Regulation 3.1.4.10(B)(2) NMAC states that “[i]f a mailing is not received by

the department, the contents of the mailing are not timely.” Only after a payment is delivered to the

Department does timeliness become an issue. Once delivery is established, Section 7-1-9(B) NMSA

1978 provides that the payment will be considered timely if the payment was mailed on or before the

due date.

In this case, the Taxpayer maintains she mailed payment of her January-June 1997 CRS taxes

before the July 25, 1997 due date. Although the Taxpayer testified in some detail concerning her

regular practice of paying bills by the 5th of each month, she admitted that CRS taxes were “out of

sync” with that schedule and were paid at a different time out of a different bank account. The only

evidence she presented to establish timely mailing of her January-June 1997 taxes was the fact that

there are copies of a CRS return and check covering the taxes at issue in her business records.

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Evidence introduced concerning payment of the Taxpayer’s taxes for the following six-month

period, however, shows that while she signed her CRS return and check for that period on January

16, 2001, they were not mailed until January 29, 2001, four days past the statutory due date. There

was also undisputed testimony that the Taxpayer has no specific recollection of mailing her payment

for the January-June 1997 reporting period, that she has no Post Office receipt to establish mailing,

that her check for that reporting period was never cashed, and that the Department has no record of

receiving either a CRS return or a payment for that period. Given this evidence, the Taxpayer has

failed to meet her burden of proving that her payment was timely, and interest was properly imposed.

Delay in Issuing the Assessment. The Taxpayer argues that even if her CRS taxes were not

paid on time, she should not be liable for interest because the Department took more than ten months

to notify her that her original return and check had not been received. The Taxpayer’s argument is

based on a misunderstanding of New Mexico’s self-reporting tax system. It is the obligation of

taxpayers, who have the most accurate and direct knowledge of their activities, to determine their

liability for tax and pay that liability to the state. See, Section 7-1-13(B) NMSA 1978. In this case, the

Taxpayer would have known there was a problem with payment of her January-June 1997 CRS taxes

if she had balanced her checkbook in a timely manner. While the Taxpayer is required to keep track

of the accounts of only one business, the Department is charged with administration of more than 40

different tax acts and receives thousands of tax filings each month. It is not reasonable for the

Taxpayer to expect the Department to constantly monitor her individual tax account and immediately

notify her if a return or payment is missing for a specific reporting period. Pursuant to Section 7-1-

18(A) NMSA 1978, the Department has three years from the end of the calendar year in which a tax

is due to determine that an underpayment exists and issue an assessment. The Department’s May 15,

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1998 assessment was well within the statutory limitations period provided by the New Mexico

Legislature.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to Assessment No. 2253832, and

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

2. The Taxpayer failed to meet her burden of proving that payment of CRS taxes for the

January-June 1997 reporting period was timely, and interest was properly imposed pursuant to

Section 7-1-67(A) NMSA 1978.

3. The Department’s assessment was issued within the statutory period provided in 7-1-

18 NMSA 1978 and was a valid assessment against the Taxpayer.

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

DATED September 18, 2001.

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