Could a one-way hauler report only loaded miles and avoid the weight-distance mileage-underreporting penalty for an honest mistake?

Plain-English summary

Gloworks Trucking had to report both loaded and empty miles even though it qualified for New Mexico's reduced one-way-hauler weight-distance tax rate. Its honest misunderstanding did not permit abatement of the separate statutory mileage-underreporting penalty.

The husband-and-wife trucking business generally hauled dirt, gravel, and road de-icing salt. Johnny Lucero drove, while Gloria Lucero managed the business.

During an audit of 2009 through 2011, the Department found that Gloworks had reported only its loaded one-way mileage. Because the trucks also traveled an empty return leg, the company had reported about half of its total New Mexico mileage. The underreporting exceeded 25%, so the audit expanded to 2007 and 2008.

The reduced rate did not reduce reportable mileage

Gloworks qualified for the special one-way-hauler rate. But Section 7-15A-8 required the tax calculation to use the total miles a vehicle traveled on New Mexico highways.

The one-way-hauler benefit was a reduced rate—not permission to exclude empty miles from the mileage base. Gloworks did not dispute the resulting $10,222.22 tax.

Two penalty provisions produced different results

The Department accepted that Mrs. Lucero sincerely misunderstood the instructions and made a genuine mistake. Before the hearing, it abated the $2,048.32 ordinary civil-negligence penalty under Regulation 3.1.11.11(D).

The separate weight-distance mileage-underreporting penalty was different. Section 7-15A-16 said an additional penalty “shall” be imposed when a taxpayer reports less mileage than it actually traveled. It contained no good-faith exception or corresponding abatement regulation.

The hearing officer noted that the $7,600 penalty was 74% of the tax principal—even higher as a percentage than the statutory cap for willful tax evasion—and expressed concern because Gloworks had been found nonnegligent. Nevertheless, the mandatory statutory language left no authority to abate it.

Interest and hardship did not change the result

Interest was also mandatory from the original due dates until the tax principal was paid. The business's concern that the assessment and a possible lien could force it to close did not create legal grounds for abatement, although the Department said Gloworks could arrange and periodically revisit a payment plan.

Result: protest DENIED. At the hearing, Gloworks owed $10,222.22 tax, $7,600.00 mileage-underreporting penalty, and $1,736.73 interest, totaling $19,558.71.

What this means for you

One-way haulers

Apply the reduced rate to all New Mexico miles. Do not report only the miles traveled with a load unless the current law and forms expressly direct otherwise.

Trucking businesses correcting an honest mistake

Different penalties can have different abatement rules. Relief from an ordinary negligence penalty does not automatically eliminate a tax-specific underreporting penalty.

Businesses facing hardship

The decision said financial hardship did not authorize the Department to erase mandatory tax, penalty, or interest. A payment plan was the identified administrative option.

Common questions

Q: Did Gloworks qualify for the one-way-hauler rate?
A: Yes. The dispute was about the mileage base, not eligibility for the reduced rate.

Q: Which miles had to be reported?
A: All miles traveled on New Mexico highways, including empty return miles.

Q: Why was one penalty abated but another upheld?
A: The ordinary negligence provision allowed relief for a reasonable good-faith mistake. The mileage-underreporting statute used mandatory language and had no similar exception.

Q: Did the hearing officer agree that the penalty was severe?
A: The officer expressed concern that it equaled 74% of tax principal but concluded that only the Legislature's formula could control.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-15A-3, 7-15A-6, and 7-15A-8 — weight-distance tax, one-way-haul rate, and total-mile reporting
• NMSA 1978, § 7-15A-16 — mileage-underreporting penalty
• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment duty, presumption, and definition of tax
• NMSA 1978, §§ 7-1-67 and 7-1-69 — mandatory interest and civil penalties
• Regulations 3.1.11.11(D) and 3.1.6.14 NMAC — penalty abatement and financial hardship

Cases cited:

• New Mexico Taxation and Revenue Department v. Casias Trucking, No. 32,595 (issued July 17, 2014) — total-mile reporting under the Weight Distance Tax Act
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — effect of mandatory “shall” language

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Gloworks Trucking
• Decision PDF: D&O 14-31

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
GLOWORKS TRUCKING No. 14-31
TO ASSESSMENT ISSUED UNDER LETTER
ID NO. L1161738704

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on July 7, 2014, before Brian

VanDenzen, Esq., Hearing Officer, in Santa Fe. Mrs. Gloria Lucero appeared pro se for

Gloworks Trucking (“Taxpayer”). Staff Attorney Elena Morgan appeared representing the State

of New Mexico, Taxation and Revenue Department (“Department”). Protest Auditor J. Amanda

Carlisle appeared as a witness for the Department. Department Exhibit A-B were admitted into

the record, as described more thoroughly in the Administrative Protest Hearing Exhibit Log.

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

FOLLOWS:

FINDINGS OF FACT

1. On October 23, 2013, the Department assessed Taxpayer for $10,222.22 in

Weight Distance Tax, $2,048.32 in civil negligence penalty, $1,524.76 in interest, and $7,600.00

in Weight Distance Tax underreporting penalty for the Weight Distance Tax reporting periods of

March 31, 2007 through December 31, 2011. [Letter id. no. L1161738704].

2. On November 18, 2013, Taxpayer protested the Department’s assessment.

3. On January 9, 2014, the Department requested a hearing in this matter with the

Hearings Bureau.

4. On January 10, 2014, the Hearings Bureau sent Notice of Telephonic Scheduling

Conference, scheduling this matter for a scheduling conference on February 26, 2014.

5. On February 26, 2014, a scheduling conference hearing occurred in the above-

captioned matter before then Chief Hearing Officer Monica Ontiveros. The parties agreed that

the scheduling conference satisfied NMSA 1978, Section 7-1-24.1 (A) (2013)’s 90-day hearing

requirement.

6. On February 27, 2014, the Hearings Bureau sent Notice of Administrative

Hearing, scheduling this matter for a hearing on July 7, 2014.

7. Taxpayer is a trucking company that generally hauls dirt, gravel, and road de-

icing salt.

8. Taxpayer is owned and operated by husband and wife Johnny and Gloria Lucero.

9. Johnny Lucero provides the transportation services while Gloria Lucero is the

business manager.

10. Taxpayer’s transportation services generally qualify for the reduced one-way

hauler Weight Distance Tax rate.

11. The Department selected Taxpayer for audit of the 2009, 2010, and 2011 Weight

Distance Tax reporting periods.

12. During the audit, the Department found that although Taxpayer qualified as a one-

way hauler, Taxpayer was mistakenly reporting only the one-way haul mileage rather than all the

miles it traveled in New Mexico. In other words, Taxpayer reported only half of the total traveled

mileage.

13. Because Taxpayer underreported its tax liability by more than 25%, the

Department expanded the audit to include 2007 and 2008.

In the Matter of the Protest of Gloworks Trucking., page 2 of 8

14. Mrs. Lucero acknowledged misunderstanding the instructions regarding the

reporting requirements for one-way haulers.

15. Mrs. Lucero did not contest that Taxpayer owed the assessed Weight Distance

Tax. However, Mrs. Lucero asked that penalty and interest be abated because they were

excessive given her misunderstanding of the instructions and the severe financial impact such

penalty and interest would have on Taxpayer.

16. On January 9, 2014, the Department abated the assessed NMSA 1978, Section 7-

1-69 (A) (2007) civil negligence penalty of $2,048.32 pursuant to Regulation 3.1.11.11 (D)

NMAC. [Department Ex. A].

17. As of the date of hearing, Taxpayer owed $10,222.22 in Weight Distance Tax,

$7,600.00 in Weight Distance Tax underreporting penalty, and $1,736.73 in interest for a total

outstanding liability of $19,558.71. [Department Ex. B].

DISCUSSION

After audit, Taxpayer protested the Department’s assessment of penalty and interest as

excessive. Before the protest hearing, the Department abated the assessed NMSA 1978, Section

7-1-69 (A) (2007) civil negligence penalty pursuant to its authority under Regulation 3.1.11.11

(D) NMAC. Remaining at issue in this protest is whether the Department has the authority to

abate the assessed interest and/or the Weight Distance Tax underreporting penalty.

Under NMSA 1978, Section 7-1-17(C) (2007), the assessment of tax issued in this case is

presumed correct. Unless otherwise specified, for the purposes of the Tax Administration Act,

“tax” is defined to include interest and civil penalty. See NMSA 1978, §7-1-3 (X) (2013). Under

Regulation 3.1.6.13 NMAC, the presumption of correctness under Section 7-1-17 (C) extends to

the Department’s assessment of penalty and interest. See Chevron U.S.A., Inc. v. State ex rel. Dep't

In the Matter of the Protest of Gloworks Trucking., page 3 of 8
of Taxation & Revenue, 2006-NMCA-50, ¶16, 139 N.M. 498, 503 (agency regulations interpreting

a statute are presumed proper and are to be given substantial weight). Taxpayers has the burden to

overcome the assessment. See Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428, 431.

However, once a taxpayer rebuts the presumption of correctness, the burden shifts to the

Department to show the correctness of the assessed tax. See MPC Ltd. v. N.M. Taxation & Revenue

Dep't, 2003 NMCA 21, ¶13, 133 N.M. 217.

The Weight Distance Tax Act imposes a tax on all registered vehicles with a declared

weight in excess of 26,000 pounds that travel on state highways. See NMSA 1978, § 7-15A-3

(1988). NMSA 1978, Section 7-15A-6 (2004) sets the tax rates under the Weight Distance Tax

Act for all motor vehicles other than buses. Subsection A establishes the base tax rates for all

registered vehicles based on the vehicle’s declared gross weight and on the mileage traveled on

state highways. See § 7-15A-6 (A). Under Section 7-15A-6 (A), the tax rate increases as a

vehicle’s weight classification increases. However, Section 7-15A-6 (B) establishes a reduced

one way haul tax rate of two-thirds the tax computed under Subsection A when three criteria are

met. Under NMSA 1978, Section 7-15A-8 (A) (1988), the “total number of miles traveled on

New Mexico highways during the tax payment period by the motor vehicle subject to the tax

shall be used in computing the tax.” In other words, all New Mexico traveled mileage is used in

calculating the Weight Distance Tax regardless of whether the full rate under Section 7-15A-6

(A) or the reduced one-way hauler rate under Section 7-15A-6 (D) applies. See also Section 7-

15A-8 (B) (requiring a reporting of the total miles traveled in New Mexico).

Because of a reporting mistake, Taxpayer did not contest that it owed the assessed

Weight Distance Tax in this matter. Mrs. Lucero was a sincere witness whom credibly testified

that she did not understand the instructions and made an honest mistake. Mrs. Lucero’s

In the Matter of the Protest of Gloworks Trucking., page 4 of 8
credibility was bolstered by her genuine emotional response and testimony about a medical

condition that affected her ability to follow the instructions. The Department itself also abated

civil negligence penalty under NMSA 1978, Section 7-1-69 (2007), which also shows that the

Department recognized generally that Mrs. Lucero made a genuine, nonnegligent mistake in this

matter. As a one-way hauler, Taxpayer thought that it only needed to report the miles traveled

while carrying a load rather than also include the empty miles. However, Section 7-15A-8 makes

clear that Taxpayer was required to report all miles traveled in New Mexico, and that the Weight

Distance Tax would be computed from that total traveled mileage. See New Mexico Taxation and

Revenue Department v. Casias Trucking, 2014-NMCA-__, ¶5, (No. 32,595 issued July 17,

2014). Under the Weight Distance Tax Act, the only discount any qualifying one-way hauler is

entitled to is the reduced one-way hauler rate, not also reduction in the total traveled mileage in

New Mexico. Although there was no evidence that Taxpayer’s mistake was intentional, the

effect of the way Taxpayer reported its mileage was to both get a reduced one-way haul tax rate

and incorrectly reduce the traveled mileage base used to calculate the Weight Distance Tax,

leading to a significant underreporting of mileage and Weight Distance Tax liability.

In pertinent part, under NMSA 1978, Section 7-15A-16 (2009), an additional civil

penalty beyond any other penalty and interest “shall” be imposed upon a taxpayer that has

“reported less than the mileage actually traveled on New Mexico highways during a tax payment

period…” The Department has no discretion in the imposition of the Weight Distance Tax

underreporting civil penalty, as the statutory use of the word “shall” makes the imposition of

Section 7-15A-16 mandatory. See Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-

NMSC-013, ¶22, 146 N.M. 24 (use of the word “shall” in a statute indicates provision is mandatory

absent clear indication to the contrary).

In the Matter of the Protest of Gloworks Trucking., page 5 of 8
As expressed at the hearing, the undersigned hearing officer had some concerns about the

large percentage amount of the Section 7-15A-16 penalty in light of the fact that the Department on

its own abated Section 7-1-69’s civil negligence penalty pursuant to Regulation 3.1.11.11 (D)

NMAC. The Department determined that Taxpayer was nonnegligent in its underreporting of

Weight Distance Tax, and thus not subject to civil negligence penalty. Yet, despite finding that

Taxpayer’s errors were nonnegligent, the Department appears compelled by the language of Section

7-15A-16 to impose an underreporting penalty by reporting period that--unlike either civil

negligence penalty or even penalty for willful attempt to evade a tax under Section 7-1-69 (which

are capped at 20% or 50% respectively)--has no maximum cap on the possible percentage total of

Weight Distance Tax underreporting penalty. In this case, despite the fact that Taxpayer was found

nonnegligent, the Weight Distance Tax penalty is 74% of the assessed Weight Distance Tax

principal liability, a penalty percentage that exceeds even what the Department can collect as

penalty for the more egregious willful attempt to evade a tax.

Nevertheless, despite these concerns, the Department is bound by the statutory language and

must impose the penalty consistent with the amounts specified by the Legislature. While both

Section 7-1-69 and Section 7-15A-16 use the same “shall” language, there is still a relevant

distinction between the statutes that prevents the Department from extending its abatement of civil

negligence penalty to the Weight Distance Tax underreporting penalty. Section 7-1-69 (B) allows

the Department to abate the civil negligence penalty when a taxpayer shows they made a mistake of

law in good faith and on reasonable grounds. Section 7-15A-16 contains no similar provision.

Further, unlike under Section 7-1-69, the Department has not promulgated any regulation that

allows it to abate penalty under Section 7-15A-16 under certain narrow circumstances. Because

Taxpayer mistakenly underreported its total New Mexico traveled mileage on its Weight Distance

In the Matter of the Protest of Gloworks Trucking., page 6 of 8
Tax Act returns, even though the Department found Taxpayer nonnegligent for civil penalty

purposes, the Department had no choice but to impose the legislatively proscribed penalty under

Section 7-15A-16.

When a taxpayer fails to make timely payment of taxes due to the state, “interest shall be

paid to the state on that amount from the first day following the day on which the tax becomes

due...until it is paid.” NMSA 1978, § 7-1-67 (2007) (italics for emphasis). Under the statute,

regardless of the reason for non-payment of the tax, the Department has no discretion in the

imposition of interest, as the statutory use of the word “shall” makes the imposition of interest

mandatory. See Marbob, ¶22. The language of the statute also makes it clear that interest begins to

run from the original due date of the tax and continues until the tax principal is paid in full.

Taxpayer also articulated a genuine concern that the cost of the assessment, and the potential

lien that might result from a payment plan exceeding 12-months, could close its small business.

Unfortunately, financial hardship is not grounds for the Department to abate any portion of the

assessment under Regulation 3.1.6.14 NMAC (01/15/01). Under Section 7-1-17, the Department is

required to assess any tax liability greater than $25.00. And the mandatory nature of the interest and

penalty statute does not allow for abatement of penalty and interest based on sympathy for the

Taxpayer’s financial hardship. As the Department’s protest auditor Ms. Carlisle explained,

Taxpayer may arrange a payment plan for the outstanding tax liability, a payment plan that may

periodically be revisited. Taxpayer’s protest is denied.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the assessments. Jurisdiction lies over the

parties and the subject matter of this protest.

In the Matter of the Protest of Gloworks Trucking., page 7 of 8
B. Even when qualified for the reduced one-way hauler Weight Distance Tax Act rate,

Taxpayer was still required to report all mileage traveled in New Mexico under Section 7-15A-8

(A-B) as basis for determining Weight Distance Tax Liability. See New Mexico Taxation and

Revenue Department v. Casias Trucking, 2014-NMCA-__, ¶5, (No. 32,595 issued July 17,

2014).

C. By failing to report all mileage traveled in New Mexico, Taxpayer underreported

its mileage in the reporting period and under the mandatory “shall” language of Section 7-15A-

16, Taxpayer was liable for Weight Distance Tax underreporting mileage civil penalty in each

reporting period. See Marbob, ¶22

D. Under the mandatory “shall” language of Section 7-1-67, Taxpayer is liable for

accrued interest under the assessment. See Marbob, ¶22. Interest continues to accrue until the tax

principal is satisfied.

For the foregoing reasons, Taxpayer’ protest IS DENIED. As of the date of hearing,

Taxpayer owed $10,222.22 in Weight Distance Tax, $7,600.00 in Weight Distance Tax

underreporting penalty, and $1,736.73 in interest for a total outstanding liability of $19,558.71.

DATED: August 6, 2014.

Brian VanDenzen, Esq.,
Chief Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of Gloworks Trucking., page 8 of 8