Could a New Mexico contractor obtain a refund of gross receipts tax penalty and interest when an employee unintentionally paid one day late while the office was short-staffed?

Plain-English summary

A one-day-late gross receipts tax payment caused by an unintentional office mistake still supported New Mexico's negligence penalty. The Administrative Hearings Office denied El Terrero Construction LLC's protest and upheld the Department's refusal to refund the penalty and interest paid for the December 2017 reporting period.

The employee responsible for gross receipts tax gathered the paperwork and believed she had met the payment deadline. She later learned that the payment was one day late. She candidly acknowledged the mistake and explained that the office was short-staffed at the time.

An honest mistake can still be negligence

The AHO found no evidence that El Terrero intended to evade or defeat the tax. That did not eliminate the negligence penalty. Regulation 3.1.11.10 NMAC defined negligence to include inadvertence, carelessness, inattention, and an erroneous belief. The decision also relied on El Centro Villa Nursing Center v. Taxation and Revenue Department for the principle that an unintentional filing or payment error may still support a penalty.

Section 7-1-69 used the word "shall," so the AHO treated the penalty as mandatory when late payment resulted from negligence. Because the employee's mistaken belief that payment was timely fell within that standard, the contractor did not establish a right to the refund.

The refund claimant still carried the burden

The Department had denied a refund rather than issued an assessment, so the statutory presumption that an assessment is correct did not attach. Even so, Regulation 3.1.8.10(A) placed the burden on El Terrero to prove entitlement to the refund. The contractor's explanation showed that the mistake was unintentional, but it did not show that the late payment occurred without negligence.

Result: protest DENIED. The Department's denial of the requested penalty-and-interest refund remained in place.

What this means for you

Businesses filing New Mexico gross receipts tax returns

A payment can be only one day late and still generate a negligence penalty. Internal reminders and a second-person deadline check can help prevent a mistaken belief that payment was completed.

Short-staffed finance teams

Staffing pressure and an employee's candor did not excuse the late payment in this decision. Document filing responsibilities and confirm that electronic or other payments were actually submitted by the deadline.

Accountants and tax professionals

An absence of tax-evasion intent is not the same as an absence of negligence. A refund protest needs evidence that fits a recognized basis for removing the penalty, not only proof that the error was honest.

Common questions

Q: Was the contractor's gross receipts tax payment late by more than one day?
A: No. The employee testified that she later discovered she had missed the deadline by one day.

Q: Did the AHO find that El Terrero intended to evade tax?
A: No. The decision found no evidence of an attempt to evade or defeat the tax, but it held that negligence can exist without that intent.

Q: Why was the penalty treated as mandatory?
A: Section 7-1-69 said a penalty "shall" be added when failure to pay on time is due to negligence. The AHO interpreted "shall" as mandatory rather than discretionary.

Q: Did short staffing excuse the missed deadline?
A: No. The employee explained that the office was short-staffed, but the AHO still treated the erroneous belief that payment was timely as negligence.

Q: Did the usual presumption that an assessment is correct apply?
A: No assessment was issued, so that presumption did not attach. El Terrero nevertheless had the burden to establish entitlement to its claimed refund.

Q: How much penalty and interest was disputed?
A: The decision's findings refer to a refund request of $2,119.81, while the discussion later refers to $2,113.81. Because the published decision contains both figures, this page does not choose between them.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-69(A) — penalty for late payment caused by negligence or disregard of rules
• NMSA 1978, § 7-9-4 — gross receipts tax on engaging in business in New Mexico
• NMSA 1978, § 7-1-13.1 — taxpayer responsibility for making payments
• NMSA 1978, § 7-1-17(C) — assessment presumption discussed but held inapplicable
• Regulation 3.1.8.10(A) NMAC — burden to establish entitlement to a refund
• Regulation 3.1.11.10 NMAC — definition of negligence

Case cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-NMCA-070, ¶ 10, 108 N.M. 795 — an inadvertent or unintentional failure may support a penalty

Source

• Listing: New Mexico Decisions & Orders
• Decision post: 18-22 El Terrero Construction LLC
• Decision PDF: D&O 18-22

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
EL TERRERO CONSTRUCTION LLC
TO DENIAL OF REFUND ISSUED UNDER
LETTER ID NO. L0828922672

v. Case Number 18.05-109R, D&O No. 18-22

NEW MEXICO TAXATION AND REVENUE DEPARTMENT

DECISION AND ORDER

A hearing on the above captioned protest occurred on June 27, 2018 before Irma

Gonzalez, Esq., Hearing Officer, in Santa Fe, New Mexico. Ms. Christine DuBois, Assistant

Office Manager, and Ms. Norma Elizondo, Officer Manager, appeared on behalf of El Terrero

Construction, LLC (“Taxpayer”). The Taxation and Revenue Department (“Department”) was

represented by Mr. Peter Breen, Staff Attorney. Ms. Veronica Galewater, Auditor, appeared as a

witness for the Department. The Hearing Officer took notice of all documents in the

administrative file. The Department did not present evidence in the form of testimony or

exhibits. Taxpayer did not seek to admit any exhibits during its presentation of evidence. Based

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

FINDINGS OF FACT

1. On February 22, 2018, the Department denied Taxpayer’s claim for refund of

$2,119.81.00 for the Combined Reporting System period ending December 31, 2017. The refund

denial was issued under Letter ID No. L0828922672.

In the Matter of the Protest of El Terrero Construction, page 1 of 6

2. On March 23, 2018, Taxpayer filed a protest of the Department’s denial of claim

for refund. In said protest, Taxpayer requested that the penalty and interest for the December

2017 filing period in the amount of $ 2,119.81 be forgiven.

3. On April, 4, 2018, the Department acknowledged receipt of the formal protest.

4. On April 4, 2018, the Department filed a Request for Hearing asking that the

Taxpayer’s protest be scheduled for a formal administrative hearing.

5. On June 5, 2018, the Administrative Hearings Office issued the Notice of

Administrative Hearing scheduling this matter for June 27, 2018, within 90 days of the

Department’s receipt of the protest.

6. Ms. Dubois has been employed by Taxpayer since 2012. In 2016, Ms. Dubois

became the Assistant Office Manager.

7. Ms. Dubois is responsible for paying the gross receipt taxes on or before the 25th

of each month.

8. For the reporting period in question, Ms. Dubois gathered all the necessary

paperwork to pay the taxes, and Ms. Dubois was under the impression that she had met the

deadline. However, she later discovered that she had in fact missed the deadline by one day.

9. Ms. Dubois emphasized that she was short staffed during this time period.

10. Ms. Dubois acknowledged that she made a mistake, but is devastated by the error,

and asked for the penalty to be forgiven.

11. The Department recognized that Ms. Dubois was forthright and frank, however, it

emphasized that there is a penalty for negligence.

In the Matter of the Protest of El Terrero Construction, page 2 of 6
DISCUSSION

An assessment was not issued in this case. Therefore, no presumption of correctness

attaches under NMSA 1978, Section 7-1-17 (C) (2007). Nevertheless, Taxpayer still has the

burden of establishing it is entitled to the claimed refund at issue. See Regulation 3.1.8.10 (A)

NMAC; See also Corr. Corp. of Am. of Tenn. v. State, 2007-NMCA-148, ¶17 & ¶29, 142 N.M. 779

(Court of Appeals reviewed a refund denial through “lens of presumption of correctness” and

applied the principle that deductions underlying the claim for refund are to be construed narrowly).

Taxpayer conceded that it failed to pay its gross receipts tax in a timely manner for the

period ending December 31, 2017. However, Taxpayer requested that the penalty and interest be

forgiven because it was mistake as a result of being understaffed, and not intentional. Ms. Dubois

explained that she gathered all the necessary documents to pay the taxes, and believed that she

had met the deadline, but later discovered that she missed it by one day.

Anyone engaging in business in New Mexico is subject to the gross receipts tax. See

NMSA 1978, Section 7-9-4 (2010). It is a taxpayer’s responsibility to make payments, whether

they are done electronically or in another fashion. See NMSA 1978, Section 7-1-13.1 (2005).

Penalty “shall be added to the amount assessed” when a tax is not paid on time due to

negligence. See NMSA 1978, Section 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.

Section 7-1-69 (A) requires that the penalty be added whenever the failure to file is due to

negligence or disregard of Department rules and regulations, but without any intent to evade or

defeat the tax. 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

In the Matter of the Protest of El Terrero Construction, page 3 of 6
circumstances, inaction by taxpayer where action is required, or inadvertence, indifference,

thoughtlessness, carelessness, erroneous belief or inattention.

There is no evidence to suggest that Taxpayer’s failure to timely pay its gross receipts tax

for the period ending December 31, 2017 was in any way an attempt to evade or defeat the tax.

However, Taxpayer was candid that the mistake was made based on the erroneous belief that the

taxes had been timely paid. Penalty may be assessed even when the failure to pay a tax or file a

return is based on an inadvertent error or unintentional failure to pay the tax or file the return

when it was due. See El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-

NMCA-070, ¶ 10, 108 N.M. 795. As a result of Taxpayer’s erroneous belief, Taxpayer was

negligent, and failed to timely pay the taxes for the period ending December 31, 2017.

Taxpayer did not meet its burden that it is entitled to the refund. Albeit Taxpayer’s mistake

was unintentional, Taxpayer was negligent nevertheless for failure to timely pay the taxes for the

period ending December 31, 2017. Consequently, the Department properly required Taxpayer to

pay $2113.81 in penalty and interest, and in turn, denied Taxpayer’s claim for the refund. In sum,

Taxpayer is not entitled to the refund because Taxpayer paid the penalty and interest as a result of

its own negligence.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely, written protest to the Department’s Denial of Refund, and

jurisdiction lies over the parties and the subject matter of this protest.

B. Taxpayer’s failure to timely file the required returns was due to Taxpayer’s

negligence and penalty was properly assessed by the Department under NMSA 1978, Section 7-

1-69 (2007). See El Centro Villa Nursing Center v. Taxation and Revenue Department, 1989-

NMCA-070, ¶ 10, 108 N.M. 795.

In the Matter of the Protest of El Terrero Construction, page 4 of 6
C. Taxpayer did not establish that it was entitled to a refund of the penalty and interest

for the CRS period ending December 31, 2017.

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

DATED: July 31, 2018

Irma Gonzalez
Irma Gonzalez, Esq.
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

NOTICE OF RIGHT TO APPEAL

Pursuant to NMSA 1978, Section 7-1-25 (2015), 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. If an appeal is not timely filed with the Court of Appeals within 30 days, this

Decision and Order will become final. Rule of Appellate Procedure 12-601 NMRA articulates the

requirements of perfecting an appeal of an administrative decision with the Court of Appeals.

Either party filing an appeal shall file a courtesy copy of the appeal with the Administrative

Hearings Office contemporaneous with the Court of Appeals filing so that the Administrative

Hearings Office may begin preparing the record proper. The parties will each be provided with a

copy of the record proper at the time of the filing of the record proper with the Court of Appeals,

which occurs within 14-days of the Administrative Hearings Office receipt of the docketing

statement from the appealing party. See Rule 12-209 NMRA.

In the Matter of the Protest of El Terrero Construction, page 5 of 6
CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Order to the parties listed below this 31st day of

July 2018 in the following manner:

First Class Mail Interdepartmental State Mail

INTENTIONALLY BLANK

John D. Griego
Legal Assistant
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502
PH: (505)827-0466
FX: (505)827-9732

In the Matter of the Protest of El Terrero Construction, page 6 of 6