Could Garcia’s Kitchen avoid penalty, interest, and a refund offset because its bookkeeper did not receive notice that the business had to use New Mexico's special tax-payment procedures?

Plain-English summary

Garcia’s Kitchen could not avoid penalty and interest merely because its bookkeeper did not receive the Department's notice that the business had become subject to special payment procedures. The business's payments were late under the applicable rule, and the Department properly used a $1,281.26 refund to offset the resulting liability.

Garcia Enterprises, Inc., doing business as Garcia’s Kitchen, paid gross receipts, compensating, and withholding taxes monthly through New Mexico's combined reporting system, or CRS. Its average monthly payments during 2003 exceeded $25,000.

That volume made the business subject to the special payment methods in Section 7-1-13.1 for 2004. The Department mailed a December 2003 notice and its FYI-401 booklet to the address shown on the taxpayer's registration, which was one of its restaurants.

The company had moved its headquarters after a merger but did not notify the Department of the new address until June 2004. Its bookkeeper never received the mailing and did not read the special-payment instructions in the regular CRS Filer's Kit.

She continued mailing payments on or before the ordinary statutory due date. Under the special-payment rule described in the decision, checks had to reach the Department at least one banking day earlier, so several 2004 payments were late.

Mailing to the registered address was effective

Section 7-1-9 made a notice effective when mailed to the last address shown on the taxpayer's registration certificate or other Department record.

The Department used that address. The taxpayer's failure to report its headquarters change until months later did not make the December notice ineffective.

Actual notice was not required

The decision said the Department sent the notice as a courtesy and was not legally required to notify the taxpayer of its changed payment status.

New Mexico's statutes, regulations, and CRS Filer's Kit supplied notice of the obligation. Under the state's self-reporting system, the taxpayer had to determine and comply with its own payment duties rather than wait for individual Department instruction.

Valid charges supported the refund offset

Garcia’s Kitchen later claimed a $1,281.26 refund for CRS taxes overpaid because of accounting-software changes. The Department granted the refund but applied it to the outstanding penalty and interest.

Section 7-1-29(C) authorized the Department to offset a refund against tax for which the recipient was liable. Because the special-payment violations made the penalty and interest valid, the offset was also valid.

Result: protest DENIED.

What this means for you

Businesses with growing monthly tax payments

Monitor whether payment volume triggers a different statutory payment method or an earlier receipt deadline. Continuing the old procedure can make an otherwise timely-looking payment late.

Businesses changing headquarters or mailing addresses

Update the Department's registration promptly. A notice mailed to the last address in the Department's records was effective in this decision.

Bookkeepers handling CRS payments

Review current filer instructions even when the business believes it understands the process. The bookkeeper's lack of actual notice did not suspend the statutory requirements.

Taxpayers expecting refunds

A granted refund may be applied to established tax liabilities instead of paid in cash.

Common questions

Q: Why was Garcia’s Kitchen subject to special payment procedures?
A: Its average monthly gross receipts, compensating, and withholding tax payments during 2003 exceeded $25,000.

Q: Did the Department mail a notice?
A: Yes. It mailed notice to the restaurant address shown on the taxpayer's Department registration.

Q: Why did the bookkeeper miss it?
A: The company had moved its headquarters after a merger but did not update the registered address until June 2004.

Q: Why were payments mailed by the ordinary due date considered late?
A: The special-payment rule required the checks to be received at least one banking day before that date.

Q: Could the Department keep the $1,281.26 refund?
A: It could apply the refund against valid outstanding penalty and interest under Section 7-1-29(C).

Citations and references

Statutes:

• NMSA 1978, § 7-1-9 — effective mailing of Department notices
• NMSA 1978, § 7-1-13 — general payment procedures
• NMSA 1978, § 7-1-13(B) — self-reporting tax obligations
• NMSA 1978, § 7-1-13.1 — special payment methods
• NMSA 1978, § 7-1-29(C) — refund offset against tax liability

Cases cited:

• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976)
• Vivigen, Inc. v. Minzner, 117 N.M. 224, 870 P.2d 1382 (Ct. App. 1994)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Garcia’s Kitchen
• Decision PDF: D&O 05-11

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
GARCIA’S KITCHEN; ID NO. 02-275783-00 0 No. 05-11
TO NOTICE OF REFUND OFFSET DATED
NOVEMBER 10, 2004, LETTER ID l0297378304

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on May 11, 2005, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department ("Department")

was represented by Peter Breen, Special Assistant Attorney General. Garcia Enterprises, Inc.,

d/b/a Garcia’s Kitchen (“Taxpayer”) was represented by Frankie Arthur, its bookkeeper. 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. During calendar year 2003, the Taxpayer’s average monthly payment of gross

receipts, compensating, and withholding taxes exceeded $25,000.

3. On December 15, 2003, the Department notified the Taxpayer that due to the

increase in its monthly tax payments, it was now required to submit its 2004 CRS taxes using one

of the special payment methods set out in NMSA 1978, § 7-1-13.1. Enclosed with the letter was

Department publication FYI-401, a 28-page booklet explaining special payment procedures.

4. The Department mailed its December 15, 2003 notice to the Taxpayer at 3601

Juan Tabo, NE, Albuquerque, NM 87111, which is the location of one of the Taxpayer’s

restaurants and was also the address shown on the Taxpayer’s registration with the Department.

5. Although the Taxpayer had merged with another company in 2003 and moved its

business headquarters to a location separate from its restaurant, the Taxpayer did not notify the

Department of the address change until June 2004.

6. The Taxpayer’s bookkeeper, who was located at the company’s new address,

never received the Department’s December 15, 2003 notice or the FYI-401 publication.

7. Instructions concerning special payment methods is also contained in the CRS

Filer’s Kit that the Department regularly sends out to all CRS taxpayers.

8. The Taxpayer’s bookkeeper thought she understood the payment procedures

applicable to the Taxpayer’s CRS taxes and did not take the time to read the instructions in the

CRS Filer’s Kit concerning the special payment methods required by NMSA 1978, § 7-1-13.1.

9. During 2004, the bookkeeper continued to mail the Taxpayer’s monthly payments

to the Department on or before the statutory due date in accordance with the provisions of

NMSA 1978, § 7-1-13.

10. Because NMSA 1978, § 7-1-13.1 requires checks of special payment taxpayers to

be received by the Department at least one banking day prior to the statutory due date, the

Taxpayer’s CRS payments for several months during 2004 were late, resulting in assessments of

penalty and interest.

11. On September 7, 2004, the Taxpayer filed a claim for refund of $1,281.26 of CRS

taxes that were overpaid as a result of changes to the Taxpayer’s accounting software.

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12. On November 10, 2004, the Department notified the Taxpayer that the refund had

been granted, but was being offset against outstanding assessments of penalty and interest

resulting from the Taxpayer’s failure to follow the special payment provisions in NMSA 1978, §

7-1-13.1.

13. On December 1, 2004, the Taxpayer filed a written protest to the refund offset..

DISCUSSION

The issue to be decided is whether the Taxpayer’s $1,281.26 refund was properly offset

against the outstanding liability for interest and penalty assessed as a result of the Taxpayer’s

failure to follow the special payment procedures set out in NMSA 1978, § 7-1-13.1. Pursuant to

NMSA 1978, § 7-1-29(C), the Department has discretion to offset any amount of tax to be

refunded “against any amount of tax for which the person due to receive the refund is liable.”

Accordingly, if the assessments of interest and penalty against the Taxpayer were valid, the

Department’s offset of the Taxpayer’s refund was also valid.

The Taxpayer acknowledges that it was subject to the special payment provisions of § 7-

1-13.1 during 2004, but challenges the assessment of penalty and interest resulting from its

failure to follow those provisions. The Taxpayer maintains that it should be excused from

compliance with § 7-1-13.1 for the period prior to the date it received actual notice of its

statutory obligations from the Department. There are several problems with the Taxpayer’s

argument. First, the evidence shows that the Department notified the Taxpayer of the special

payment provisions by a notice dated December 15, 2003. The notice was mailed to the Taxpayer

at 3601 Juan Tabo, NE, Albuquerque, NM 87111, which is the location of one of the Taxpayer’s

restaurants and was also the address shown on the Taxpayer’s registration with the Department.

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NMSA 1978, § 7-1-9 states that notices are effective if mailed to the taxpayer “at the last address

shown on his registration certificate or other record of the department.” Although the Taxpayer

moved its business headquarters as a result of a 2003 merger, the Taxpayer failed to notify the

Department of this change of address until June 2004, well after the Department’s December 15,

2003 notice was mailed.

In any event, the Department was not required to notify the Taxpayer of the change in its

payment status, but did so only as a courtesy. New Mexico has a self-reporting tax system, and it

is the obligation of taxpayers, who have the most accurate and direct knowledge of their activities,

to determine their tax liabilities and accurately report those liabilities to the state. See, NMSA

1978, § 7-1-13(B); Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 17, 558 P.2d 1155,

1156 (Ct. App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977). In Vivigen, Inc. v.

Minzner, 117 N.M. 224, 228, 870 P.2d 1382 (Ct. App. 1994), the court of appeals rejected the

taxpayer’s argument that the Department’s delay in completing its audit should excuse Vivigen

from its legal liability for taxes due to the state, noting that:

Vivigen seems to be complaining that the Department did not definitively
tell it that it needed to pay compensating taxes on out-of-state purchases so
that it could have avoided taxes, interest, and penalties for compensating
taxes accrued from and after February 1989. Any necessary notice,
however, was provided by New Mexico statutes. (Emphasis added).

In this case, New Mexico’s tax statutes and regulations, as well as the information contained in the

CRS Filer’s Kit, gave the Taxpayer notice of its legal obligation to use the special payment methods

set out in § 7-1-13.1. The Taxpayer was not entitled to wait for the Department to notify it of this

obligation before penalty and interest on its late payments began to accrue.

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CONCLUSIONS OF LAW

A. The Taxpayer filed a timely, written protest to the Department’s offset of the

Taxpayer’s refund against its outstanding tax liabilities, and jurisdiction lies over the parties and the

subject matter of this protest.

B. The Taxpayer had a legal obligation to pay its 2004 CRS taxes using the special

payment methods set out in NMSA 1978, § 7-1-13.1, and the fact that it never received notice of

this obligation did not excuse it from compliance.

C. Because the Taxpayer did not pay its 2004 CRS taxes using the methods required by

NMSA 1978, § 7-1-13.1, its payments were late and interest and penalty were properly assessed.

D. Pursuant to NMSA 1978, § 7-1-29(C), the Department was authorized to offset the

Taxpayer’s refund against its outstanding liabilities for interest and penalty.

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

DATED May 16, 2005.

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