Can a New Mexico company get back the interest and penalty on a late gross receipts tax (CRS) payment because a temporary employee later mailed the payment check to the wrong state agency, or because the company has a long, clean filing record?

Plain-English summary

Commodore Advanced Sciences could not get back the interest and penalty on its late gross receipts tax (CRS) payment — the amount was fixed when it paid the tax, a temporary employee's later mix-up did not add to it, and a clean filing record cannot excuse statutory interest and penalty. Protest DENIED.

Under Section 7-9-11, the company's September 2000 CRS taxes were due October 25, 2000. It paid the $105,404.76 of tax on November 28, 2000 — one month and three days late — which under the "per month or any fraction of a month" rule counts as two months. That produced $6,851.31 of interest and penalty under Sections 7-1-67 and 7-1-69. The company paid the interest and penalty and then filed a claim for refund, which the Department denied.

The employee's misdirected check did not change the amount owed

At the time, the company's accounting was handled by a temporary employee, who on December 1, 2000 mailed the $3,435.66 interest-and-penalty check to the New Mexico Department of Labor by mistake. The Department of Labor called about the apparently erroneous check, but the temporary employee did not follow up. A replacement employee later found the error, retrieved the check, and reissued payment to the Taxation and Revenue Department. The hearing officer held this had "no effect on the Taxpayer's liability": interest and penalty stopped accruing on November 28, 2000, when the tax principal was paid, and neither interest nor penalty may be imposed on unpaid interest and penalty. So the misdirected check never increased the $6,851.31 already owed.

Interest and penalty are mandatory — no equitable waiver

The company argued it should be excused because it was unfair to hold it responsible for a temporary employee's error, and because it had timely paid over $1.5 million in CRS taxes since 1994 and had been a New Mexico corporation in good standing since 1977. The hearing officer explained that the Legislature — not the Department — sets tax policy (State ex rel. Taylor v. Johnson), and gave the Department and its hearing officer no authority to waive interest or penalty based on a taxpayer's community standing or past reporting history. (The decision also noted the 2000 amendment moving interest to a daily computation applied only from January 1, 2001, after this period.)

Result: protest (refund denial) DENIED. The $6,851.31 of interest and penalty stood.

What this means for you

The clock stops when you pay the tax principal

Interest and penalty on late gross receipts tax accrue only until you pay the underlying tax. New Mexico does not charge interest or penalty on the unpaid interest and penalty itself, so a later payment slip-up on that balance does not enlarge what you owe.

"Per month or any fraction of a month" rounds up

A payment that is one month and three days late is treated as two months late for both interest (Section 7-1-67) and penalty (Section 7-1-69). Even a few days into a new month adds a full month's charge.

An employee's mistake is not a waiver ground

Blaming a temporary or outside worker does not excuse interest and penalty. And here it did not even matter, because the error occurred after the accrual had already stopped.

A clean record cannot buy relief

A long history of on-time payments and good corporate standing are not factors a hearing officer can weigh. Statutory interest and penalty can only be changed by the Legislature.

Common questions

Q: What was at issue?
A: A refund claim for $6,851.31 of interest and penalty on the company's late payment of September 2000 CRS (gross receipts, compensating, and withholding) taxes.

Q: How late was the tax?
A: The $105,404.76 of tax was paid November 28, 2000, one month and three days after the October 25, 2000 due date — counted as two months for interest and penalty.

Q: Did the check sent to the wrong agency increase the bill?
A: No. Interest and penalty had stopped accruing when the tax principal was paid, and no interest or penalty can be charged on unpaid interest or penalty. The misdirected check did not add to the amount.

Q: Why couldn't the good record and good standing help?
A: A hearing officer cannot waive statutory interest or penalty on equitable grounds like reporting history or community standing; only the Legislature can create such exceptions.

Q: Was the daily-interest amendment relevant?
A: No. The 2000 amendment computing interest on a daily basis applied only to periods beginning on or after January 1, 2001, after the September 2000 period at issue.

Citations and references

Statutes:

• NMSA 1978, § 7-1-67 — interest on late-paid taxes ("shall be paid"; 15% a year, 1.25% per month or fraction)
• NMSA 1978, § 7-1-69 — negligence penalty (2% per month or fraction, up to 10%)
• NMSA 1978, § 7-9-11 — CRS taxes due on or before the 25th of the month following the taxable event
• 2000 N.M. Laws, ch. 28, § 11 — amendment computing interest on a daily basis, effective January 1, 2001

Cases cited:

• State ex rel. Taylor v. Johnson, 1998-NMSC-015, 961 P.2d 768
• State ex rel. State Park & Recreation Comm'n v. New Mexico State Authority, 76 N.M. 1, 411 P.2d 984 (1966)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Commodore Advanced Sciences, Inc
• Decision PDF: D&O 02-11

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
COMMODORE ADVANCED SCIENCES, INC. No. 02-11
ID NO. 01-852750-00-7
DENIAL OF CLAIM FOR REFUND

DECISION AND ORDER

A formal hearing on the above-referenced protest was held April 4, 2002, before Margaret B.

Alcock, Hearing Officer. Commodore Advanced Sciences, Inc. (“Taxpayer”) was represented by

Evangeline J. Tinajero, its vice president of human resources. The Taxation and Revenue

Department ("Department") was represented by Javier Lopez, Special Assistant Attorney General.

Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer is engaged in business in New Mexico and is registered with the

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

to be paid monthly under the Department’s combined reporting system (“CRS”).

2. Pursuant to Section 7-9-11 NMSA 1978, CRS taxes for the September 2000 reporting

period were due on or before October 25, 2000.

3. The Taxpayer paid $105,404.76 of its September 2000 CRS taxes on November 28,

2000, more than one month late.

4. In November 2000, the Department assessed the Taxpayer $3,435.66 of interest and

penalty that had accrued on the Taxpayer’s outstanding tax balance between October 26, 2000 and

November 25, 2000.

5. By the time the Taxpayer paid the $105,404.76 of tax principal on November 28,

2000, a second month of interest and penalty had accrued, bringing the total amount of interest and

penalty due on the Taxpayer’s late payment of its September 2000 CRS taxes to $6,851.31.

6. At the time the Department’s first assessment was received by the Taxpayer, the

employee in charge of accounting matters was a temporary employee hired from an agency.

7. On December 1, 2000, the employee made out and mailed a $3,435.66 check to

cover the first assessment of interest and penalty to the New Mexico Department of Labor instead of

the New Mexico Taxation and Revenue Department.

8. On December 20, 2000, the Department of Labor called the Taxpayer and notified

the employee that it had received a $3,435.66 check that appeared to have been issued in error.

9. The employee did not follow up on this telephone call and did not inform anyone else

of the problem.

10. In January 2001, the temporary employee was replaced with a full-time employee.

The new employee discovered that the interest and penalty check had been made out to the

Department of Labor instead of the Taxation and Revenue Department.

11. The employee called the Department of Labor and arranged for the check to be

returned to the Taxpayer.

12. On February 19, 2001, the Taxpayer issued a new check to the Taxation and Revenue

Department in the amount of $6,851.32, representing the original interest and penalty plus the

additional interest and penalty that had accrued after the Taxpayer received the Department’s

original notice.

13. On June 28, 2001, the Taxpayer filed a claim for refund of the $6,851.32 of interest

and penalty the Taxpayer had paid to the Department.

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14. On July 11, 2001, the Department denied the Taxpayer’s claim for refund.

15. On August 16, 2001, the Taxpayer filed a written protest to the denial of its claim for

refund.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for the $6,851.31 of interest and

penalty assessed on the Taxpayer’s late payment of CRS taxes due for the September 2000 reporting

period. The Taxpayer does not dispute that its tax payment was late, but maintains that it should be

excused from payment of interest and penalty because: (1) it not fair to hold the Taxpayer responsible

for the errors made by its temporary employee; (2) since 1994, the Taxpayer has made all other CRS

payments in a timely manner and has paid over $1,500,000 to the state; and (3) the Taxpayer has been a

New Mexico corporation in good standing since 1977.

Section 7-1-67 NMSA 1978 governs the imposition of interest on late payments of tax. During

the period at issue, this statute provided, in pertinent part:

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, ....

B. Interest due to the state under Subsection A or D of this section
shall be at the rate of fifteen percent a year, computed at the rate of one and
one-fourth percent per month or any fraction thereof; ....

Subsection A determines the period for which interest is due, and Subsection B directs that the interest

be calculated at a rate of 1¼% for each month—or fraction of a month—that the payment is late.1 The

same statutory scheme applies to the imposition of penalty. Section 7-1-69(A) NMSA 1978 imposes a

penalty of “two percent per month or any fraction of a month” that payment is late. Because the

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Taxpayer’s payment of its September 2000 CRS taxes was one month and three days late, the Taxpayer

was liable for two months’ interest and penalty.

The Taxpayer has not disputed its liability for the tax principal of $105,404.76. Nor has the

Taxpayer provided any information to explain why the tax was paid late. Instead, the Taxpayer

argues that it should not be held responsible for its temporary employee’s error in sending the check

intended to pay the first month of accrued interest and penalty to the New Mexico Department of

Labor. What the Taxpayer fails to realize is that this error had no effect on the Taxpayer’s liability.

Pursuant to Sections 7-1-67 and 7-1-69 NMSA 1978, neither interest nor penalty may be imposed on

the amount of unpaid interest and penalty assessed against a taxpayer. In this case, accrual of all

interest and penalty stopped November 28, 2000, the date the tax principal was paid. As of that date,

the Taxpayer owed $6,851.31 of interest and penalty to the state. The subsequent errors made by the

Taxpayer’s temporary employee did nothing to increase this amount.

The Taxpayer also argues that interest and penalty should be waived based on its past reporting

history and the fact that it is a good corporate citizen. These are not factors the Department can

consider. In State ex rel. Taylor v. Johnson, 1998-NMSC-015 ¶ 022, 961 P.2d 768, 774-775, the

New Mexico Supreme Court made the following observations concerning the power of

administrative agencies:

Generally, the Legislature, not the administrative agency, declares the policy
and establishes primary standards to which the agency must conform. See
State ex rel. State Park & Recreation Comm'n v. New Mexico State Authority,
76 N.M. 1, 13, 411 P.2d 984, 993 (1966). The administrative agency's
discretion may not justify altering, modifying or extending the reach of a law
created by the Legislature....

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The 2000 legislature amended Section 7-1-67, effective January 1, 2001, by deleting the language requiring
interest to be computed “at the rate of one and one-fourth percent per month or any fraction thereof” and replacing it
with a directive that interest be computed “on a daily basis.” See 2000 N.M. Laws, ch. 28, § 11.

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The state legislature has not granted the Department or its hearing officer authority to waive the

interest and penalty imposed by Sections 7-1-67 and 7-1-69 NMSA 1978. Nor is the hearing officer

authorized to make exceptions to the law based on a taxpayer’s standing in the community or its past

reporting history.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to the Department’s denial of the

Taxpayer’s refund claim, and jurisdiction lies over the parties and the subject matter of this protest.

2. The Taxpayer was late in paying CRS taxes due to the state, and interest and penalty

was properly assessed pursuant to Sections 7-1-67 and 7-1-69 NMSA 1978.

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

DATED April 18, 2002.

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