Does paying New Mexico combined fuel tax on time prevent a late-filing penalty when the corresponding return is filed months late?

Plain-English summary

Alon USA owed a $55,666.16 late-filing penalty even though it paid its $927,776.01 January 2014 combined fuel tax on time. Payment and filing were separate obligations, and the tax liability shown on the late return remained the statutory base for the penalty.

Alon's January 2014 combined fuel tax was due February 25, 2014. The company paid the full tax that day. Its tax staff believed that the return had been submitted electronically on February 14, but no filing confirmation was available.

Alon did not file the return until May 5, after a Department employee told its staff that the January report was missing. At the hearing, the company stipulated that the failure to file by February 25 was caused by no technical or other problem on the Department's side.

Timely payment did not eliminate the tax liability

Alon argued that paying on time extinguished the “tax liability,” leaving no amount on which to calculate a late-return penalty. The AHO disagreed.

Section 7-1-13(A) said liability arose at the time of the taxable transaction or event and continued until payment. Regulation 3.1.4.10(A) likewise said a taxpayer became liable as soon as the taxable event occurred, although payment was not due until the statutory deadline.

The taxable events occurred no later than January 31 and created a $927,776.01 tax liability. The May 5 return established that same amount. Paying it by February 25 satisfied the payment obligation, but did not change the amount established on the late return for purposes of Section 7-1-69's filing penalty.

The five-dollar minimum did not replace the percentage penalty

Section 7-1-69(A) imposed the greater of:

• two percent per month or fraction of a month, up to twenty percent, multiplied by the tax liability established in the late return; or
• a minimum penalty of five dollars.

Alon argued that only the five-dollar minimum should apply because no tax remained unpaid. The decision rejected that reading. The minimum generally covered a return with no taxable event or zero income or receipts. Because the percentage calculation on Alon's stated tax liability was greater than five dollars, the Department properly used the larger amount.

The record did not establish a Department filing failure

Alon had initially suggested that clicking “submit” did not work or that the electronic filing system failed. But its hearing stipulation removed that factual dispute, and counsel agreed that none of the regulatory indications of non-negligence applied.

The Department had experienced a separate system problem with Alon's March 2014 return: Alon had a confirmation, and the Department acknowledged that the timely filed report did not appear in its database. That separate incident did not establish that the Department caused the missing January filing.

The decision also noted that the January return instructions confusingly described the five-dollar minimum as applying to a failure to “timely file and pay.” The hearing officer said the instruction should have referred to failure to timely file, but that wording did not change the statutory penalty.

Result: protest DENIED. The $55,666.16 penalty remained due.

What this means for you

Fuel-tax filers

Paying the correct amount by the deadline does not substitute for filing the return. A late report can generate a percentage penalty based on the tax liability reported even when the underlying tax was paid on time.

Electronic filers

Retain the filing confirmation and promptly investigate when one is unavailable. Here, the company could not produce a January confirmation and ultimately stipulated that the Department did not cause the missed filing.

Accountants and corporate tax departments

Build separate controls for payment acceptance and return acceptance. A payment placed in escrow pending a return does not prove that the corresponding report was filed.

Common questions

Q: Did Alon pay the combined fuel tax late?
A: No. It timely paid $927,776.01 on February 25, 2014. The return itself was late.

Q: When was the return filed?
A: May 5, 2014, after the Department notified Alon that the January report was missing.

Q: Why was the penalty based on tax that had already been paid?
A: The statute based the late-filing penalty on the tax liability established in the late return. Timely payment did not change that reported liability.

Q: Why didn't the five-dollar minimum apply?
A: Section 7-1-69 required the greater amount. The percentage calculation on $927,776.01 exceeded five dollars.

Q: Did a Department system error cause the late January return?
A: No evidence established that. Alon stipulated that the January filing failure was not caused by a Department technical problem. A separate March return did experience an acknowledged Department system error.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-69(A)(2)-(3) — late-return negligence penalty and five-dollar minimum
• NMSA 1978, § 7-1-13(A) — when tax liability arises and tax becomes due
• NMSA 1978, § 7-1-17(C) — assessment presumption
• Regulations 3.1.11.8 and 3.1.11.10 NMAC — penalty presumption and negligence
• Regulations 3.1.11.11 and 3.1.11.12 NMAC — non-negligence indicators and late-return penalty
• Regulation 3.1.4.10(A) NMAC — liability at the taxable event

Cases discussed:

• El Centro Villa Nursing Center v. Taxation & Revenue Department, 1989-NMCA-070 — inadvertent error as negligence
• Teco Investments, Inc. v. Taxation & Revenue Department, 1998-NMCA-055 — equitable recoupment for payment under the wrong tax program, distinguished
• Levenson v. Mobley, 1987-NMSC-102 — federal definition of tax liability, not dispositive

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Alon USA, LP
• Decision PDF: D&O 15-04

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
ALON USA, LP No. 15-04
TO ASSESSMENTS ISSUED UNDER LETTER
ID NOs. L1442489296

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on January 6, 2015, before

Monica Ontiveros, Hearing Officer. Alon USA, LP (“Taxpayer”) was represented by Scott

Fuqua, Esq. Alyson Gregory Richter, Counsel for Taxpayer, and John T. Sharp, Tax Director for

Taxpayer, also appeared as Taxpayer’s representatives. The Taxation and Revenue Department

(“Department”) was represented by Elena Morgan, attorney for the Department. Mr. Tom

Dillon, Protest Office Supervisor, Mr. Mutha Bala, Information Technology Manager, and

Theresa Smith, Tax Examiner appeared as potential witnesses for the Department. The

Department introduced into the record, without objection, Exhibits B, D, E (Answers to

Interrogatories), and F (Answers to Interrogatories). Taxpayer introduced into the record,

without objection, Exhibits 3 and 9. Both counsel decided to make only legal argument despite

having the potential witnesses present. [01-06-15 CD 11:50-12:13].

In addition to the pleadings and filings referred to in the Findings, the record contains the

following: two Certificates of Service filed on June 20, 2014; Motion for Protective Order and

Order Striking Interrogatory No. 5 filed on August 1, 2014; Order Granting Department’s

Motion for Protective Order and Striking Interrogatory No. 5 (no date); Certificate of Service (no

date); Certificate of Service filed on August 1, 2014; Unopposed Motion for Continuance filed

on August 6, 2014; Stay of Interrogatory No. 5 and Similar Requests Pending Taxpayer’s

In the Matter of Alon USA, LP
page 1 of page 11
Response and Hearing Officer’s Ruling on the Department’s Motion for Protective Order issued

on August 7, 2014; Continuance Order, Scheduling Order and Amended Notice of

Administrative Hearing issued on August 7, 2014; New Mexico Taxation and Revenue

Department’s Preliminary Witness and Preliminary Exhibit Lists filed on September 9, 2014;

Taxpayer Alon USA, LP’s Preliminary Witness and Exhibit Lists filed on September 11, 2014;

Order Granting Motion for Protective Order and Striking Interrogatory issued on September 15,

2014; Certificate of Service filed on October 20, 2014; Notice of Reassignment of Hearing

Officer for Administrative Hearing issued on December 12, 2014; Joint Prehearing Statement

filed on December 22, 2014; Entry of Appearance filed on January 1, 2015; Department’s

Amended Joint Prehearing Statement filed on January 2, 2015; and two Stipulations filed on

January 6, 2015.

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

FOLLOWS:

FINDINGS OF FACT

1. On May 16, 2014, the Department assessed Taxpayer in combined fuel tax in the

amount of $55,666.16 in penalty for tax period January 31, 2014. Letter Id No. L1442489296.

2. On May 30, 2014, Taxpayer filed its protest (protest letter dated May 5, 2014) to

the assessment. Taxpayer filed a second protest on June 5, 2014 and amended the grounds for

protest on September 11, 2014 (Exhibit 3).

3. The Department acknowledged the protest on June 3, 2014. Letter Id No.

L0738714576.

4. On June 12, 2014, the Department requested a hearing in the protest of

assessment Letter Id No. L1442489296.

In the Matter of Alon USA, LP
page 2 of page 11

5. On June 20, 2014, the Hearings Bureau issued and mailed a Notice of

Administrative Hearing setting the hearing for August 22, 2014. A continuance was requested

and the matter was rescheduled for January 6, 2015.

6. Taxpayer timely paid its January 2014 combined fuel taxes of $927,776.01 on

February 25, 2014. Stipulation No. 1; Exhibit E-6, Answer No. 7.

7. The amount of tax liability of $927,776.01 was established no later than January

31, 2014.

8. The combined fuel tax return or report assumes that the tax liability and the tax

due amounts are the same.

9. The amount of tax due on February 25, 2014 was $927,776.01.

10. Taxpayer filed its return for January 2014 on May 5, 2014. Exhibit B-1.

11. Tina Sandlin, tax staff for Taxpayer, prepared the January return for Taxpayer and

believed that the January return was filed timely or filed on February 14, 2014. Exhibit E-6,

Answer No. 7.

12. At the hearing Taxpayer’s counsel stipulated that, “taxpayer, Alon USA, made an

attempt to file the combined fuel tax report for January 2014. For reasons that are entirely

unconnected to any problem technical or otherwise on behalf of the Taxation and Revenue

Department, that filing was not made timely by February 25, 2014.” [01-06-15 CD 17:05-

19:42].

13. Prior to the stipulation, Taxpayer took the position that it believed that the reasons

the return was not filed timely were that 1) “when Alon clicked “submit” in order to

electronically submit the report on February 14, 2014, no submission actually occurred, or 2)

there was an error with the Department’s electronic filing system.” Exhibit E-5, Answer No. 5.

In the Matter of Alon USA, LP
page 3 of page 11

14. The Department did not notify Taxpayer that it had not received the January 2014

return or report until sometime after April 30, 2014. Exhibit E-5, Answer No. 5.

15. Sometime after April 30, 2014, Taxpayer learned that the Department believed

the January 2014 return had not been filed because of an informal conversation between Ms.

Theresa Smith, a Department employee, and Ms. Sandlin. Protest Letter dated May 5, 2014;

Exhibit E-5, Answer No. 5.

16. The option to generate the confirmation for the January return or report was not

available and Taxpayer could not print a confirmation that it had filed its return. Exhibit 3-7.

17. Ms. Smith asked Ms. Sandlin to refile the January 2014 return. Exhibit E-6,

Answer No. 7.

18. With a subsequent return, the March 2014 return, the Department could not locate

it in its database even though Taxpayer had timely filed the March 2014 return on April 21,

2014. Exhibit E-5, Answer No. 5.

2015. On April 30, 2014, the Department notified Taxpayer that it had not received the

March 2014 return or report by issuing a Notice of Intent to Lien. Letter Id No. L1769448400

attached to Protest Letter dated May 5, 2014.

20. Taxpayer received a confirmation for the filing of the March 2014 return. Protest

Letter dated May 5, 2014.

21. The Department acknowledged that the failure of the March 2014 return to appear

in its records was an error in the Department’s system. Exhibit E-5, Answer No. 6.

22. The indications of non-negligence do not apply to Taxpayer.

23. The Department placed Taxpayer’s payment of $927,776.01 in an escrow account

pending receipt of the return or report. Stipulation No. 2.

In the Matter of Alon USA, LP
page 4 of page 11
DISCUSSION

The central issue is whether Taxpayer is liable for penalty for failure to timely file a re-

turn or report, even though it paid the tax due on time. Taxpayer made a number of arguments.

It argued that that the penalty provision does not apply because there was no “liability.” In the

alternative, Taxpayer argued that if penalty applied then the maximum amount of penalty that

applied was five dollars ($5.00) pursuant to NMSA 1978, Section 7-1-69(A)(3) (2007). The

Hearing Officer rejects both of these arguments.

Burden of Proof and Standard of Review.

Section 7-1-17(C) provides that any assessment of taxes made by the Department is

presumed to be correct. NMSA 1978,§7-1-17(C) (2007). A civil penalty assessed is presumed

to be correct under Section 7-1-17(C). 3.1.11.8 NMAC (1/15/01). Accordingly, it is Taxpayer’s

burden to present evidence and legal argument to show that it is entitled to an abatement, in full

or in part, of the assessment issued against it. El Centro Villa Nursing Ctr. v. Taxation &

Revenue Dep’t, 1989-NMCA-070, 108 N.M. 795; Wing Pawn Shop v. Taxation and Revenue

Department, 1991-NMCA-024, 111 N.M. 735.

Civil Penalty.

Civil penalty is imposed when a taxpayer is “negligent” or disregards the Department’s

rules and regulations in not filing a return or paying tax when it is due. Section 7-1-69(A) states

that:

(e)xcept as provided in Subsection C of this section, in the case of failure
due to negligence or disregard of department rules and regulations, but without
intent to evade or defeat a tax, to pay when due the amount of tax required to be
paid, to pay in accordance with the provisions of Section 7-1-13.1 NMSA 1978
when required to do so or to file by the date required a return regardless of
whether a tax is due, there shall be added to the amount assessed a penalty in an
amount equal to the greater of:

In the Matter of Alon USA, LP
page 5 of page 11
(2) two percent per month or any fraction of a month from the date the
return was required to be filed multiplied by the tax liability established in the
late return, not to exceed twenty percent of the tax liability established in the late
return; or

(3) a minimum of five dollars ($5.00), but the five-dollar ($5.00)
minimum penalty shall not apply to taxes levied under the Income Tax Act…

(Emphasis added). NMSA 1978, §§7-1-69 (A) (2) and (3) (2007). The Department’s regulation

provides that, “negligence” includes “failure to exercise that degree of ordinary business care

and prudence which reasonable taxpayers would exercise under like circumstances; inaction

where action is required; inadvertence, indifference, thoughtlessness, carelessness, erroneous

belief or inattention” for either failing to file a return on time or failing to make a payment on

time. Regulation 3.1.11.10 NMAC (1/15/01). Inadvertent error is defined as “negligence.” See

El Centro Villa Nursing Ctr. v. Taxation & Revenue Dep’t, 1989-NMCA-070, ¶14.

The regulations provide exceptions to the negligence definition. Taxpayer’s counsel

stated that none of the exceptions or indications of non-negligence found in regulation 3.1.11.11

applied to Taxpayer. [01-06-15 CD 20:56-21:08]. After reviewing the exceptions or indications

of non-negligence found in regulation 3.1.11.11 NMAC (1/15/01), none of the exceptions apply

to Taxpayer.

Taxpayer argued that because it paid its tax due on the due date, there was no tax liability

established on the late return. In other words, the tax liability was “time bound” and once it was

paid, it was extinguished. Taxpayer’s counsel continued by arguing that since Taxpayer paid its

tax due timely and the tax liability was extinguished, no penalty could be assessed because there

was no amount of tax due on Taxpayer’s return. See Exhibit 9-1. This argument fails to take

into account the statutory meaning of the words “tax liability established in the late return” and

In the Matter of Alon USA, LP
page 6 of page 11
fails to acknowledge that at the point in time of the taxable event, Taxpayer had a tax liability of

$927,776.01 regardless of when the tax due was paid.

Subparagraph (2) of Section 7-1-69(A) states that if a return is not filed timely, then a

penalty of two percent shall apply from the date the return was required to be filed multiplied by

the “tax liability established in the late return.” The Tax Administration Act does not

specifically define the words “tax liability”1 and there is nothing on the return indicating a space

or line for the “tax liability” amount. See Exhibit 9-1.

The Hearing Officer agrees with Taxpayer’s counsel that the best definition, absent a

specific definition, for the words “tax liability” is found in NMSA 1978, Section 7-1-13(A)

(2007). In Section 7-1-13(A), “(t)axpayers are liable for tax at the time of and after the

transaction or incident given rise to the tax until payment is made. Taxes are due on and after

the date on which their payment is required until payment is made.” Emphasis added.

Regulation 3.1.4.10(A) NMAC (6/30/01) expounds further on the statutory definition by stating

that, “(a) taxpayer becomes liable for tax as soon as the taxable event occurs; payment is not due,

however, until on and after the date established by tax acts for the payment of tax.” In addition,

the regulation states that, “(i)f the tax is not paid when it becomes due or if a report is not filed

when due because of negligence of the taxpayer or taxpayer’s representative, the taxpayer will

also become liable for penalty.”

Therefore, Taxpayer’s tax liability is the amount calculated at the time of the taxable

event or in this case, events that occurred no later than January 31, 2014, and the amount of tax

due is not determined until the payment becomes due or February 25, 2014. As an aside, the

amount of tax liability and tax due may be the same. There are instances when the tax liability

1
Chapter 7 uses the words “tax liability”approximately 91 times.

In the Matter of Alon USA, LP
page 7 of page 11
may be greater than the tax due, e.g., a tax liability reduced by a credit or an overpayment. The

Hearing Officer is aware that the return only refers to the amount of tax due. But for purposes of

the return or report, the amount of tax due is also the amount of the “tax liability.” For purposes

of determining “tax liability” it is not relevant when the tax due is paid. The only relevant

inquiry is when was the taxable event and what was the tax liability established on the late

return.

In reviewing the information provided at the hearing, there is no evidence that the amount

of tax liability established by Taxpayer on its return was calculated in error. The penalty amount

was calculated on the amount determined at the time of the taxable event in January 2014. The

Department calculated the penalty amount based on the tax liability amount set out in Taxpayer’s

report of $927,776.01. Exhibit 9-1, line 16. There is no evidence that the penalty amount

calculated is incorrect. Therefore, the amount of tax liability determined by the Department is

correct, and the corresponding penalty amount is also correct.

Taxpayer’s counsel argued that Teco Invs., Inc. v. Taxation and Revenue Dep’t, 1998-

NMCA-055, 125 N.M. 103 applied and not Levenson v. Mobley, 1987-NMSC-102, 106 N.M.

399 as the Department’s counsel contended. Neither of these cases is dispositive of the issue.

The Hearing Officer agrees with the Department’s counsel in that Teco does not apply to this

case. The facts in Teco are very different from this case and have nothing to do with the filing of

a late return. In Teco, taxpayer paid compensating use tax but failed to pay gross receipts tax.

The tax that was paid was paid timely and the tax paid was the same amount of tax due for the

other tax program. In Teco, the court held that equitable recoupment could apply and penalty

could be abated based on the fact that Taxpayer filed a timely return under the wrong tax

program and made a timely payment, albeit, under the wrong tax program.

In the Matter of Alon USA, LP
page 8 of page 11
In the Leveson case, there was a federal tax issue of whether taxpayer’s required

inclusion of income was a “tax liability.” In determining this answer, the court looked to the

federal definition of “tax liability” as the “tax imposed by this chapter for the taxable year”

pursuant to I.R.C. Sec. 26 (1986). Levenson, 106 N.M. 399, 402-403. While this case is

somewhat instructive, it is not on point because the issue was one of defining a term within the

Internal Revenue Code. In the case before the Hearing Officer, there are no federal tax issues.

Taxpayer argued in the alternative that the five dollar ($5.00) penalty found in Section 7-

1-69(A)(3) should have been assessed since Taxpayer paid its tax due in a timely manner.

Section 7-1-69(A)(3) provides that a five dollar ($5.00) penalty may apply when a taxpayer fails

to file a return. This provision only applies when no tax is due or as Section 7-1-69(A)(3)

provides, “regardless of whether a tax is due.” Section 7-1-69(A) allows the Department to elect

to impose the greater of the amount of the two percent (2%) per month of the amount of the tax

liability or the minimum of five dollar ($5.00), whichever is greater. The minimum penalty of

$5.00 is normally imposed if taxpayer has no taxable event, or zero income or receipts. In

Taxpayer’s case, since the two percent (2%) of Taxpayer’s tax liability was greater than five

dollars ($5.00), the Department elected to impose the greater amount.

In reviewing the file and the report at issue, the Hearing Officer took judicial notice of

the instructions2 for the combined fuel report. The Hearing Officer notes that the Instructions for

the January return, Line 17, is confusing. Line 17 indicates that, “(t)he minimum penalty of

$5.00 imposed for failure to timely file and pay the return, will apply once per return.” This

instruction should read that that the five dollar ($5.00) penalty is imposed for failure to timely

2
The instructions and forms are public documents and can be found on the Department’s website at
www.tax.newmexico.gov/forms-publications.aspx.

In the Matter of Alon USA, LP
page 9 of page 11
file, which would be consistent with Section 7-1-69(A)(2) and (A)(3) and regulation 3.1.11.12

NMAC (1/15/01).

In conclusion, Taxpayer had a taxable event in January 2014 which created a tax liability

of $927,776.01. The Department correctly used the tax liability amount to assess penalty

calculated at two percent (2%). The tax liability was established in the late return filed on May

5, 2014.

CONCLUSIONS OF LAW

A. Alon USA, LP filed a timely written protest to the Department’s assessment

issued under Letter Id No. L1442489296 and jurisdiction lies over the parties and the subject

matter of this protest.

B. The hearing was timely set as required by NMSA 1978, Section 7-1-24.1(A)

(2013).

C. Pursuant to NMSA 1978, Section 7-1-17(C) (2007), the Department’s assessment

is presumed to be correct, and it is Taxpayer’s burden to come forward with evidence and legal

argument to establish that it was entitled to an abatement.

D. Taxpayer failed to file its January 2014 report by February 25, 2014 and instead

filed the January report on May 5, 2014.

E. Taxpayer was negligent in not filing its return or report in a timely manner.

F. The failure to file the return or report was not caused by the Department.

G. The penalty was calculated based on the amount of the tax liability of

$927,776.01 which was created by a taxable event that occurred no later than January 31, 2014.

H. The tax liability of $927,776.01 was established as the amount of tax due on the

return or report that was filed on May 5, 2014.

In the Matter of Alon USA, LP
page 10 of page 11
I. The tax liability existed regardless if the tax liability of $927,776.01 was paid on

February 25, 2014.

J. The penalty was calculated in accordance with the law.

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

DATED: February 6, 2015.

Monica Ontiveros
Monica Ontiveros
Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of Alon USA, LP
page 11 of page 11