Did an excellent payment history and a Thanksgiving-related delay excuse penalty and interest when a cigarette distributor sent its stamp payment after the deadline?

Plain-English summary

Core-Mark Midcontinent, Inc. remained liable for $46,376.88 in penalty and $950.72 in interest after sending a cigarette-tax-stamp payment after its deadline. Its excellent payment history and internal two-signature problem around Thanksgiving did not authorize abatement.

Core-Mark was a licensed cigarette distributor that bought stamps from the Department. It was allowed to charge the October 2007 stamp purchases rather than pay when each order was placed.

The deferred payment was ordinarily due on November 25. Because that date fell on a Sunday, Section 7-1-77 moved the deadline to Monday, November 26, 2007. Core-Mark sent its $22,318,843.82 payment by Federal Express on November 27.

A strong history did not excuse this late payment

Core-Mark explained that checks above a specified amount required signatures from two officers. The Thanksgiving holiday made a required signer unavailable and delayed the check.

At the hearing, however, the company did not dispute that it was negligent. Its representative acknowledged that the tax could have been paid earlier because the deadline was near a holiday.

The hearing officer recognized Core-Mark's excellent record of diligent and timely payment but held that a careless error still met the regulatory definition of negligence regardless of intent or prior history. The company had also benefited from deferred payment for the stamps.

Interest was mandatory

Section 7-1-67 required interest when tax was not paid by its due date. The decision found no statute or regulation allowing the hearing officer to abate interest because the taxpayer ordinarily paid on time.

Core-Mark paid the combined $47,327.60 penalty and interest under protest before the hearing decision.

Result: protest DENIED. The penalty and interest assessment stood.

Source-date note

The Department's official post URL is dated November 25, 2009, but the signed decision states “DATED November 25, 2008.” The issued_date above follows the decision itself.

What this means for you

Distributors using deferred tax-stamp payment

Calendar the statutory payment date independently of internal approval cycles. Deferral provides extra time to pay, but the decision did not treat a later internal bottleneck as reasonable cause.

Businesses with dual-signature controls

Arrange backup signers or accelerate approval when holidays affect staff availability. A prudent internal control does not itself excuse a tax deadline when earlier payment is possible.

Taxpayers with a strong compliance record

A favorable history may be acknowledged without changing the legal result. This decision applied penalty to the specific negligent late payment and treated interest as mandatory.

Common questions

Q: When was the payment due?
A: November 25, 2007 fell on a Sunday, so the deadline moved to Monday, November 26.

Q: When did Core-Mark send the payment?
A: It sent the $22,318,843.82 payment by Federal Express on November 27, 2007.

Q: Why didn't the Thanksgiving staffing problem excuse the delay?
A: A required signer was away, but Core-Mark admitted negligence and acknowledged that it could have paid earlier.

Q: Did Core-Mark's excellent payment history remove the penalty?
A: No. The decision said negligence can arise from a careless error regardless of the taxpayer's intentions or prior record.

Q: Could the hearing officer waive the interest?
A: No. The decision found no statutory or regulatory authority to abate mandatory interest on these facts.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-12-7 (2006), including § 7-12-7(C) and (F) — cigarette tax stamps and deferred-payment deadline
• NMSA 1978, § 7-12-5 (2007) — affixing tax stamps to cigarette packages
• NMSA 1978, § 7-12-2(K) (2007) — tax-stamp definition
• NMSA 1978, § 7-1-77 (1965) — weekend and holiday deadline rule
• NMSA 1978, § 7-1-17(C) (2007) — presumption that an assessment is correct
• NMSA 1978, § 7-1-3(V) — tax includes related interest and civil penalty
• NMSA 1978, § 7-1-67 (2007) — mandatory interest
• NMSA 1978, § 7-1-69(A) — negligence penalty
• Regulation 3.1.11.10 NMAC (2001) — definition of negligence

Cases cited:

• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021, 133 N.M. 217, 62 P.3d 308
• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989)
• State v. Lujan, 90 N.M. 103, 560 P.2d 167 (1977)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Core-Mark Midcontinent, Inc.
• Decision PDF: D&O 08-05

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
CORE-MARK MIDCONTINENT, INC. No. 08-05
CRSCIG 02-002724-00-9
TO ASSESSMENT ISSUED UNDER
LETTER ID L0247382400

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on June 23, 2008,

before Monica Ontiveros, Hearing Officer. The Taxation and Revenue Department

("Department") was represented by Peter Breen, Special Assistant Attorney General.

Catarina Wong, Director of Tax Operations & Governmental Affairs represented Core-

Mark Midcontinent, INC. (“Core-Mark“). Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On December 19, 2007, the Department assessed Core-Mark $46,376.88

in penalty and $950.72 in interest for late payment of the cigarette tax for period ending

on October 31, 2007.

2. Core-Mark sells packages of cigarettes in New Mexico. Core-Mark is a

distributor licensed to sell cigarettes. See Exhibit D.

3. As a distributor, Core-Mark must purchase stamps from the Department.

See NMSA 1978, Section 7-12-7 (2006).

4. Cigarette tax stamps are sold by the Department in numbered rolls, and

each stamp has a serial number. See NMSA 1978, Section 7-12-7(C) (2006).
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5. The tax stamps must be affixed to the cigarette packages as set out in

NMSA 1978, §7-12-5 (2007).

6. A tax stamp has a specific cigarette tax value pursuant to the Cigarette

Tax Act. See NMSA 1978, Section 7-12-2(K) (2007).

7. On October 2, 2007, October 10, 2007, October 23, 2007 and October 31,

2007, Core-Mark placed orders for the stamps and charged the payment of stamps.

See Exhibit D.

8. A distributor may be required to pay for the stamps at the time the order is

placed.

9. Core-Mark was not required to pay for the stamps at the time the orders

were placed.

10. If the order for stamps is made and the payment is charged, payment for

the tax stamps is required to be made on or before the 25th day of the month following

the month in which the sale of stamps by the Department is made. See NMSA 1978, 7-

12-7(F) (2006) and Exhibit D.

11. The purchase order for New Mexico cigarette stamps provides that

payment must be made by the 25th day of the month following the month in which the

cigarette stamp was purchased. See Exhibit D.

12. On November 25, 2007, Core-Mark’s payment for tax stamps was due.

November 25, 2007 was a Sunday. Therefore, the payment was due on the November

26, 2007.

13. If the due date for a payment falls on Saturday, Sunday or a legal state or

national holiday, the performance of the act shall be considered timely if it is performed
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on the next succeeding day which is not a Saturday, Sunday or a legal state or national

holiday. See Section 7-1-77 (1965).

14. On November 27, 2007, Core-Mark mailed by Federal Express a payment

for cigarette tax in the amount of $22,318,843.82. See Exhibit D.

15. At the hearing, Ms. Wong testified that Core-Mark was not disputing that it

was negligent by not mailing the payment earlier.

16. Ms. Wong testified that Core-Mark could have paid the cigarette tax

payment earlier considering that the November payment was due around the

Thanksgiving holiday.

17. Core-Mark has an excellent record of paying the cigarette tax in a timely

manner.

18. On December 27, 2007, Core-Mark filed a written protest to the

Department’s assessment.

19. On June 16, 2008, Core-mark issued a check in the amount of $47,327.60

to the Department in payment of the penalty and interest assessed. This amount was

paid under protest.

DISCUSSION

The issue to be decided is whether Core-Mark is liable for penalty and interest for

the late payment of the cigarette tax. Core-Mark raises one argument in its Protest. It

argues that it is a good taxpayer and it has a history of always paying the cigarette tax

in a timely manner. As part of its argument, Core-Mark explained that its internal

auditing procedures required all checks in a certain amount to be signed by two officers

of Core-Mark. Because of the Thanksgiving holiday, the officers who were required to
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sign the checks were not available and this delayed the processing of the check. At the

hearing, Core-Mark did not dispute that it was negligent and that it had made a mistake

in not making the payment by the 26th of November.

Burden of Proof. There is a statutory presumption that any assessment of tax

made by the Department is correct. NMSA 1978, §7-1-17(C) (2007); MPC Ltd. v. New

Mexico Taxation & Revenue Department, 2003-NMCA-21, ¶ 13, 133 N.M. 217, 62 P.3d

308. Section 7-1-3(V) 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). Accordingly, the

assessment issued to Core-Mark is presumed to be correct, and it is Core-Mark’s

burden to present evidence and legal argument to show that it is entitled to an

abatement.

Assessment of Interest. Section 7-1-67 governs the imposition of interest on

late payments of tax and provides, in pertinent part:

A. If a tax imposed is not paid on or before the day on which it becomes
due, interest shall be paid to the state on that 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).

NMSA 1978, §7-1-67 (2007).

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

is mandatory rather than discretionary. State v. Lujan, 90 N.M. 103, 105, 560 P.2d 167,

169 (1977). The legislature has directed the Department to assess interest whenever

taxes are not timely paid. The assessment of interest is not designed to punish
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taxpayers, but to compensate the state for the time value of unpaid revenues.

Core-Mark argues that because it has a good payment history with the

Department it should not be assessed interest. The Department’s own Request for

Hearing states that Core-Mark has an excellent record for diligent and timely payment.

Unfortunately, there is no statutory or regulatory provision that permits the Hearing

Officer to abate the interest portion of the assessment.

Assessment of Penalty. Section 7-1-69 governs the imposition of penalty.

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”

to pay taxes due to the state. Regulation 3.1.11.10 NMAC defines “negligence” as

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

B. inaction by taxpayers where action is required;

C. inadvertence, indifference, thoughtlessness, carelessness,
erroneous belief or inattention.

Regulation 3.1.11.10 NMAC (2001).

The negligence penalty is imposed when a careless error is made by the

taxpayer, regardless of the intentions of the taxpayer or whether the taxpayer has an

excellent payment history with the Department. Core-Mark benefited from charging

and not paying for the stamps at the time it ordered the stamps. However, by delaying

payment around the time of a holiday, Core-Mark made a careless error; albeit, the

error was rectified quickly.

Holidays are difficult times for taxpayers because employees are on vacation.

In this case, Ms. Wong testified that a second signature was needed and the necessary
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officer who signed the check was on vacation. Ms. Wong testified that nothing

prevented Core-Mark from paying the cigarette tax prior to the due date considering the

due date was near a holiday.

The Hearing Officer notes that Core-Mark believes that this mistake would not

have occurred had the Department permitted Core-Mark to make its payment by

electronic means or by wire transfer. Core-Mark would like the Department to have the

technology to accept cigarette tax payments by electronic means.

CONCLUSIONS OF LAW

1. Core-Mark filed a timely written protest to the penalty, and interest

assessed under Letter IDL0247382400, and jurisdiction lies over the parties and the

subject matter of this protest.

2. Core-Mark failed to properly pay the cigarette tax due and owing on the

due date pursuant to NMSA 1978, §7-12-7(F) (2006).

3. For the foregoing reasons, Core-Mark's protest IS DENIED.

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DATED November 25, 2008.

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