Was an oil-and-gas tax payment timely when the company sent it to the New Mexico Land Office by mistake on the due date?

Plain-English summary

An oil-and-gas tax payment was late because Yates Petroleum sent it to the New Mexico Land Office rather than the Taxation and Revenue Department, even though the Land Office received the money on the due date. The AHO upheld the $18,898.85 penalty and $604.54 adjusted interest.

Yates filed its return and electronically submitted a $944,935.20 payment on February 24, 2016. The payment went to the Land Office by mistake, where it was initially applied to the company's royalty account.

The Land Office recognized the error and forwarded the money to the Taxation and Revenue Department. The Department received it only a couple of days after the due date and reduced the originally assessed $2,192.14 interest to $604.54.

Yates limited its protest to penalty and interest and did not dispute the tax principal.

Possession by another state agency was not payment to the Department

Yates argued that the State of New Mexico had the money on time and suffered no prejudice. The AHO rejected that position because Sections 7-1-13 and related electronic-payment provisions required payment to the Taxation and Revenue Department with or before the return.

Sending funds to the wrong state office did not satisfy that requirement. The taxpayer remained responsible for ensuring that an electronic payment reached the correct agency.

An honest routing error was still negligence

Section 7-1-69 made penalty mandatory when late payment resulted from negligence. Regulation 3.1.11.10(C) included inadvertence within negligence, so an honest mistake did not eliminate the penalty.

Interest under Section 7-1-67 was likewise mandatory for the short period between the due date and the Department's actual receipt. Interest compensated the state for late revenue rather than punishing the taxpayer.

Result: protest DENIED. The penalty and reduced interest remained due.

What this means for you

Oil, gas, and natural-resource companies

New Mexico agencies may collect different obligations. Verify the recipient agency, account, and payment confirmation before transmitting large electronic payments.

Businesses making electronic tax payments

State possession is not enough if the wrong office receives the funds. Reconcile the payment confirmation to the filed return and contact the Department immediately if the destination is wrong.

Accountants and treasury teams

Use dual review for agency and account selection. A quickly corrected clerical error can still generate a full negligence penalty even when interest is only a few days.

Common questions

Q: Was the tax return filed on time?
A: The decision focused on where the accompanying electronic payment was sent, not on return-filing timeliness.

Q: Did the State have the money on the due date?
A: The Land Office did, but the Taxation and Revenue Department did not. The AHO held that payment to the wrong office was insufficient.

Q: Why was interest reduced?
A: The Department learned that it received the forwarded payment only a few days late and recalculated interest to $604.54.

Q: Why did the large penalty remain?
A: New Mexico's negligence definition included inadvertent mistakes, and the taxpayer was responsible for directing the payment correctly.

Q: Was the $944,935.20 tax principal still disputed?
A: No. Yates limited the hearing to penalty and interest.

Citations and references

Statutes and regulations:

• NMSA 1978, §§ 7-1-13, 7-1-13.1, and 7-1-13.4 — return and payment requirements
• NMSA 1978, §§ 7-1-3 and 7-1-17 — tax definition and assessment presumption
• NMSA 1978, §§ 7-1-67 and 7-1-69 — interest and negligence penalty
• Regulations 3.1.11.8 and 3.1.11.10(C) NMAC — penalty presumption and inadvertence

Cases cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070 — inadvertent error within civil negligence
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory meaning of “shall”

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Yates Petroleum Corporation
• Decision PDF: D&O 16-35

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
YATES PETROLEUM CORPORATION, No. 16-35
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L92323

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on June 16, 2016 before Hearing

Officer Dee Dee Hoxie. The Taxation and Revenue Department (Department) was represented by Mr.

Peter Breen, Staff Attorney. Mr. Tom Dillon, Auditor, also appeared on behalf of the Department.

Mr. John Perini, CFO for Yates Petroleum Corporation (Taxpayer), appeared for the hearing. 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 March 17, 2016, the Department assessed the Taxpayer for oil and gas tax, penalty, and

interest for the tax return filed on February 24, 2016. The assessment was for $944,935.20

tax, $18,898.85 penalty, and $2,192.14 interest.

2. On April 8, 2016, the Taxpayer filed a formal protest letter.

3. On April 27, 2016, the Department filed a Request for Hearing asking that the Taxpayer’s

protest be scheduled for a formal administrative hearing.

4. On April 28, 2016, the Hearings Office issued a notice of hearing. The hearing date was set

within ninety days of the protest.

5. On May 23, 2016, the Taxpayer filed a withdrawal of the protest.

6. On June 1, 2016, the Taxpayer filed a request to have a hearing on the protest, but limiting

the issues to the application of penalty and interest.

7. On June 2, 2016, the Department filed its response and did not oppose the request to hold the

hearing.

8. On June 2, 2016, the Hearings Office sent amended notices of hearing. The hearing was still

set within 90 days of the protest.

9. The Taxpayer filed its tax return and submitted a payment electronically on February 24,

10. However, the payment was inadvertently sent to the New Mexico Land Office rather

than to the Department.

10. The Land Office initially applied the payment to the royalties account. The Land Office then

realized the Taxpayer’s mistake and forwarded the Taxpayer’s payment to the Department.

The Department received the Taxpayer’s tax payment just a couple of days after the due date.

11. After the protest was filed, the Department learned that the Taxpayer’s payment had been

received only a few days late. The Department adjusted the amount of interest accordingly.

Interest was reduced to $604.54.

DISCUSSION

The issue to be decided is whether the Taxpayer is liable for penalty and interest.

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.

Yates Petroleum Corporation
Letter ID No. L92323
page 2 of 5
The Taxpayer argued that it should not have to pay penalty. The Taxpayer argued that the

state of New Mexico had the payment on the due date. The Taxpayer agreed that the payment should

have been sent to the Department, but argued that its mistake was not prejudicial since the state of

New Mexico had the payment on the due date. The Taxpayer argued that the payment was timely

since it was in possession of the state, even though it was in the wrong office. The Department

argued that the payment was required to be made to the Department, and that the Taxpayer’s mistake

was negligent and subject to penalty.

Payments are required to be made to the Department with filed returns, or may be made

preceding filed returns. See NMSA 1978, § 7-1-13 (2013). Penalty “shall be added to the amount

assessed” when a tax is not paid on time due to negligence. See NMSA 1978, § 7-1-69 (2007)

(emphasis added). The word “shall” indicates that the assessment of penalty is mandatory, not

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

146 N.M. 24. Assessments of penalty are presumed to be correct and it is a taxpayer’s burden to show

that the assessment was not correct. See 3.1.11.8 NMAC (2001). See NMSA 1978, § 7-1-17. See also

El Centro, 1989-NMCA-070. It is a taxpayer’s responsibility to make payments, whether they are

done electronically or in another fashion. See NMSA 1978, § 7-1-13.1 (2005). If the payment fails

to go through, and the tax is paid late, the payment is subject to penalty and interest. See id. See also

NMSA 1978, § 7-1-13.4 (2000). Negligence includes inadvertence. See 3.1.11.10 (C) (2001).

Under the statute and regulations, an honest mistake is tantamount to inadvertence, and is subject to

penalty. See id.

The Taxpayer failed to make the payment to the Department on the due date. Making the

payment to the wrong office does not excuse that failure. Therefore, penalty applies.

Assessment of Interest.

Yates Petroleum Corporation
Letter ID No. L92323
page 3 of 5
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). Again, 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 to the

Department when it was due, interest was properly assessed.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notice of Assessment of oil and gas

taxes issued under Letter ID number L92323, and jurisdiction lies over the parties and the subject matter

of this protest.

B. The Taxpayer failed to make a payment to the Department when it filed its return on

February 24, 2016. See NMSA 1978, § 7-1-13, et. seq.

C. Therefore, the Taxpayer was properly assessed for penalty and interest. See NMSA

1978, § 7-1-67 and § 7-1-69.

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

DATED: July 6, 2016.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

Yates Petroleum Corporation
Letter ID No. L92323
page 4 of 5
NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, § 7-1-25, the parties have the right to appeal this decision by filing

a notice of appeal with the New Mexico Court of Appeals within 30 days of the date shown above.

See Rule 12-601 NMRA. If an appeal is not filed within 30 days, this Decision and Order will

become final. A copy of the Notice of Appeal should be mailed to John Griego, P. O. Box 6400,

Santa Fe, New Mexico 87502. Mr. Griego may be contacted at 505-827-0466.

Yates Petroleum Corporation
Letter ID No. L92323
page 5 of 5