Could a golf-package booking business avoid gross receipts tax penalty and interest because its owner stopped filing while experiencing depression?

Plain-English summary

Golf New Mexico / Golf West could not avoid gross receipts tax penalty and interest because its owner experienced depression during 2008 and 2009. The evidence did not show that the illness made her incapable of handling the business's taxes or hiring someone else to do so.

The business booked golf-resort packages for customers in New Mexico and collected a service fee. It also collected customer money that it passed along to the resorts as the customers' agent.

After a federal mismatch identified the business as a nonfiler, the Department initially assessed $43,758.72 of tax for 2008 and $21,425.06 for 2009, plus penalty and interest. Golf New Mexico showed that its federal returns had mistakenly included the pass-through resort money in gross receipts, and the Department adjusted the assessments.

The revised amounts were:

• 2008: $4,703.24 tax, $940.65 penalty, and $932.93 interest; and
• 2009: $3,111.83 tax, $622.37 penalty, and $487.32 interest.

Golf New Mexico accepted the adjusted tax principal and disputed only penalty and interest.

Depression did not establish the illness exception

The owner testified that personal problems and depression caused her to stop filing gross receipts tax reports for the business.

The regulation allowed illness-based relief when an illness rendered the taxpayer incapable of taking care of the taxes or hiring someone to do so. The AHO found the evidence insufficient to meet that standard. The business had still managed to file federal taxes during the same years.

Because the failure to file amounted to inaction and a lack of ordinary business care, the civil-negligence penalties remained.

Interest was mandatory but did not compound on additions

Section 7-1-67(A) required interest when tax was not paid by the due date. The decision explained that interest compensates the state for the time value of unpaid revenue rather than punishing the taxpayer.

The owner was concerned that interest would continue accruing on penalty and prior interest. The Department clarified that Section 7-1-67(C) did not impose interest on those amounts; interest accrued on the unpaid tax.

Result: protest DENIED. The adjusted gross receipts tax, penalty, and interest remained due.

What this means for you

Owner-operated businesses

An owner's illness can potentially support penalty relief, but the evidence must show actual inability to manage the tax obligations or arrange for someone else to do so. A diagnosis or difficult period alone may not satisfy that standard.

Booking agents and travel-service businesses

Separate your own service fees from customer funds passed through to resorts or other providers. Here, correcting that distinction substantially reduced the assessed tax principal.

Accountants and tax professionals

When a federal mismatch includes agency or pass-through funds, document which amounts the business actually retained. Also distinguish tax principal from penalty and interest when explaining continuing accruals.

Common questions

Q: Did Golf New Mexico dispute the revised tax principal?
A: No. It accepted the adjusted 2008 and 2009 tax and challenged only penalty and interest.

Q: Why were the original tax amounts so much higher?
A: The federal returns mistakenly included customer money that the business collected and paid to golf resorts as an agent.

Q: Can illness ever excuse a New Mexico tax penalty?
A: Potentially, if it makes the taxpayer incapable of handling the taxes or hiring someone to do so. The evidence here did not establish that degree of incapacity.

Q: Does interest accrue on the penalty or on earlier interest?
A: No. The decision stated that interest did not accrue on penalty or interest.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and definition of tax
• NMSA 1978, § 7-1-69 — civil-negligence penalty
• NMSA 1978, § 7-1-67(A), (C) — mandatory interest and amounts on which it accrues
• Regulations 3.1.11.19 and 3.1.11.11 NMAC — negligence and illness-based nonnegligence

Cases cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — assessment and penalty presumption
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory effect of “shall”

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Golf New Mexico / Golf West
• Decision PDF: D&O 14-43

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
GOLF NEW MEXICO/GOLF WEST, No. 14-43
TO ASSESSMENTS ISSUED UNDER
ID NOS. L0759326016 and L1796525376

DECISION AND ORDER

A formal hearing on the above-referenced protest was held October 23, 2014, before Dee Dee

Hoxie, Hearing Officer. The Taxation and Revenue Department (Department) was represented by Ms.

Elena Morgan, Staff Attorney. Ms. Jennifer Carlisle, Auditor, also appeared on behalf of the

Department. Golf New Mexico/Golf West (Taxpayer) appeared for the hearing by and through its

owner, Ms. Julia Olguin, and represented itself. The Hearing Officer took notice of all documents in

the administrative file. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On February 11, 2013, the Department assessed the Taxpayer for gross receipts tax, penalty,

and interest for the tax period ending on December 31, 2008. The assessment was for

$43,758.72 tax, $8,751.75 penalty, and $7,039.27 interest.

2. On February 11, 2013, the Department assessed the Taxpayer for gross receipts tax, penalty,

and interest for the tax period ending on December 31, 2009. The assessment was for

$21,425.06 tax, $4,285.01 penalty, and $2,466.45 interest.

3. The Department determined that the Taxpayer was a non-filer through a federal mismatch.

4. On March 8, 2013, the Taxpayer filed a formal protest letter to the assessments.

5. On February 10, 2014, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

6. On February 11, 2014, the Hearings Bureau issued a notice of hearing. An amended notice

was issued on July 24, 2014.

7. The Taxpayer was doing business in New Mexico in 2008 and 2009.

8. The Taxpayer provides a service to golfers by booking package deals at golf resorts in New

Mexico.

9. The Taxpayer collects a fee for those services.

10. In 2008 and 2009, Ms. Olguin was experiencing personal problems and was dealing with

depression issues.

11. Due to her depression, Ms. Olguin stopped filing gross receipts tax reports on behalf of the

Taxpayer.

12. The Taxpayer explained that its gross receipts for 2008 and 2009 were less than the amounts

assessed. The Taxpayer was mistakenly including in its federal returns money that was

collected from its clients that was then paid to the golf resorts on their behalf. The Taxpayer

was merely serving as an agent for its clients’ convenience.

13. The Department adjusted the assessment.

14. The Department determined that the gross receipts tax due for 2008 was actually $4,703.24,

penalty of $940.65, and interest to the date of the hearing was $932.93.

15. The Department determined that the gross receipts tax due for 2009 was actually $3,111.83,

penalty of $622.37, and interest to the date of the hearing was $487.32.

16. The Taxpayer did not dispute the adjusted amounts of tax due. The Taxpayer was only

concerned with penalty and interest.

Golf New Mexico/Golf West
Letter ID Nos. L0759326016 and L1796525376
page 2 of 4
DISCUSSION

The issues to be decided are whether the Taxpayer is liable for penalty and interest for the tax

periods ending on December 31, 2008 and on December 31, 2009.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17. Tax

includes, by definition, the amount of tax principal imposed and, unless the context otherwise

requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, § 7-1-3. See

also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-070, 108 N.M.

795. Therefore, the assessment issued to the Taxpayer is presumed to be correct, and it is the

Taxpayer’s burden to present evidence and legal argument to show that it is entitled to an abatement

of penalty and interest.

Assessment of Penalty.

The Taxpayer argued that penalty should be abated because its failure to file and pay taxes

was due to the depression of its owner during the 2008 and 2009 tax years. Penalty is applied when a

taxpayer fails to pay a tax “due to negligence or disregard”. NMSA 1978, § 7-1-69. Negligence

includes the failure to exercise ordinary business care, inaction, and indifference. See 3.1.11.19

NMAC (2001). A taxpayer might not be negligent when the taxpayer is disabled by an illness that

renders the taxpayer incapable of taking care of its taxes or of hiring someone to do so for it. See

3.1.11.11 NMAC (2001). Although the Taxpayer’s owner was suffering from depression during the

2008 and 2009 tax years, there was not sufficient evidence that her illness rendered her incapable of

taking care of the Taxpayer’s taxes, especially since the Taxpayer still managed to file its federal

taxes. Therefore, the Taxpayer was negligent and in disregard of the tax law. Consequently, the

penalty was properly assessed.

Assessment of Interest.

Golf New Mexico/Golf West
Letter ID Nos. L0759326016 and L1796525376
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Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is due.

NMSA 1978, § 7-1-67 (A). The word “shall” indicates that the assessment of interest is mandatory, not

discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n., 2009-NMSC-013, ¶ 22,

146 N.M. 24. The assessment of interest is not designed to punish taxpayers, but to compensate the

state for the time value of unpaid revenues. Because the tax was not paid when it was due, interest

was properly assessed.

The Taxpayer expressed its concern that interest would continue to accrue on top of the

penalty and interest. Ms. Carlisle explained to the Taxpayer that interest does not accrue on penalty

or interest. See NMSA 1978, § 7-1-67 (C) (2013).

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notices of Assessment issued under

Letter ID numbers L0759326016 and L1796525376, and jurisdiction lies over the parties and the subject

matter of this protest.

B. The Taxpayer conceded that it owed the gross receipts tax, as adjusted by the

Department after the protest was filed, for the 2008 and 2009 tax years.

C. The Taxpayer was properly assessed for penalty and interest. See NMSA 1978, §§ 7-

1-69 and 7-1-67.

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

DATED: December 23, 2014.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

Golf New Mexico/Golf West
Letter ID Nos. L0759326016 and L1796525376
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