Could a New Mexico bicycle shop recover late-return penalties after it made monthly gross receipts tax payments but failed to file separate returns because it followed Department help-line guidance?

Plain-English summary

A New Mexico bicycle shop won refunds of two late-return penalties because it credibly showed that it followed Department help-line guidance while continuing to make its monthly gross receipts tax payments. The Administrative Hearings Office found that High Desert Bicycles Inc. acted without negligence and granted its protest.

The shop's co-owner and treasurer moved from paper reporting to the Department's online Taxpayer Access Point system. When he had trouble logging in, his accountant referred him to the Department's help line. He testified that an employee walked him through making a payment without logging in but did not explain that payment and filing a CRS return were separate processes.

The shop continued making monthly payments and received emails confirming that its payment requests had been received. Those emails said nothing about filing returns. The treasurer did not discover the reporting problem until the accountant noticed it in about October 2016; with the accountant's help, the overdue returns were filed in November 2016.

The refund denials covered penalties of $1,579.67 for the January 2016 period and $2,537.23 for the June 2014 period. The only issue was whether the late-filing penalties should be refunded.

Credible help-line reliance overcame the assessment

New Mexico law generally made late-filing penalties mandatory when a failure resulted from negligence, and simply making payments did not satisfy the separate duty to file CRS returns. Payments submitted without reports were held because the Department did not know whether to apply them to gross receipts, compensating, or withholding tax.

But Regulation 3.1.11.11 identified affirmative misleading by a Department employee as evidence of non-negligence. The treasurer had no record of the four-year-old call and could not remember every detail, yet the AHO found him credible. The Department's call-center materials confirmed that employees guided callers through TAP procedures, and the Department had no witness or record contradicting his account of the specific call.

Other evidence supported reasonable reliance: he first consulted his accountant, then called the Department; he consistently used the payment method the employee described; the confirmation emails did not mention the missing returns; and the Department could not show that it sent a notice identifying the filing deficiency during the periods at issue.

Relief did not rest on a mistake of law

The AHO separately rejected the statutory exception for a reasonable, good-faith mistake of law because the shop had not shown that it studied a statute or regulation or consulted an attorney or CPA about whether returns were required. The shop instead prevailed under the regulation's non-negligence indicator for being affirmatively misled by a Department employee.

Result: protest GRANTED. High Desert Bicycles established non-negligence and was entitled to refunds of the two penalties it had paid.

What this means for you

Businesses using New Mexico's online tax system

Submitting a payment and filing a return are separate compliance steps. Keep both the payment confirmation and the return-filing confirmation for each reporting period.

Taxpayers calling a Department help line

Write down the date, employee name or identifier, question asked, and instructions received. High Desert Bicycles prevailed on credible testimony and corroborating circumstances, but the decision noted the absence of documentation.

Accountants and bookkeepers

Reconcile payments against filed returns rather than checking only whether money left the bank account. Here, monthly payments existed while the required reports remained unfiled.

Common questions

Q: Did the monthly tax payments count as filed CRS returns?
A: No. The Department treated payment and reporting as two separate processes, and Regulation 3.2.2.15 required a CRS-1 report for each reporting period.

Q: Why did the shop avoid the negligence penalties?
A: The AHO credited the treasurer's testimony that a Department employee guided him to a payment-only method without explaining the separate filing duty. The surrounding evidence supported that account, and the Department could not contradict the specific call.

Q: Did the shop have a recording or written record of the help-line call?
A: No. The treasurer's memory was incomplete because the call occurred about four years earlier, but the AHO still found his testimony credible and supported by the Department's call-center scripts and the payment-confirmation evidence.

Q: Did the AHO hold that taxpayers may always rely on oral Department advice?
A: No. The decision noted that taxpayers generally may not substitute oral advice for their own analysis. It granted relief on this record because the shop proved the regulatory non-negligence indicator of affirmative misleading.

Q: Was this a good-faith mistake-of-law case?
A: No. The AHO said that exception was not established because the shop had not shown legal research or professional advice about the filing requirement.

Q: Did the ruling erase the underlying gross receipts tax?
A: No. The shop had made the tax payments. The protest concerned refunds of penalties assessed for the late returns.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-69(A) — civil penalty for negligent failure to pay or file
• NMSA 1978, § 7-1-69(B) — reasonable, good-faith mistake-of-law exception
• NMSA 1978, § 7-1-13(B) — timely reporting duty
• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• NMSA 1978, § 7-1-3(Y) — tax includes interest and civil penalty for Tax Administration Act purposes
• Regulation 3.2.2.15 NMAC — CRS-1 filing requirement for each reporting period
• Regulation 3.1.11.10 NMAC — definition of negligence
• Regulation 3.1.11.11(A) NMAC — affirmative misleading as an indication of non-negligence
• Regulation 3.1.6.12 NMAC — unsupported statements cannot overcome an assessment

Cases cited:

• New Mexico Taxation & Revenue Department v. Whitener, 1993-NMCA-161, 117 N.M. 130, 869 P.2d 829 — burden after a taxpayer overcomes the assessment presumption
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021, 133 N.M. 217, 62 P.3d 308 — burden after the presumption is overcome

Source

• Listing: New Mexico Decisions & Orders
• Decision post: High Desert Bicycle Inc
• Decision PDF: D&O 18-23

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
HIGH DESERT BICYCLES INC.
TO REFUND DENIALS ISSUED ON
DECEMBER 4, 2017 AND JANUARY 10, 2018

v. Case Number 18.03-067R, D&O No. 18-23

NEW MEXICO TAXATION AND REVENUE DEPARTMENT.

DECISION AND ORDER

A protest hearing occurred in the above-captioned matter on June 1, 2018 before Ignacio

V. Gallegos, Esq., Hearing Officer, in Santa Fe, New Mexico. Attorney Benjamin C. Roybal

(Betzer, Roybal & Eisenberg P.C.), appeared at the hearing for High Desert Bicycles Inc.

(“Taxpayer”). Staff attorney, Ms. Cordelia Friedman, Esq., appeared representing the Taxation

and Revenue Department of the State of New Mexico (“Department”). Mr. Vincent Hinman, co-

owner and treasurer of Taxpayer appeared as a witness for the Taxpayer. Protest auditor, Ms.

Veronica Galewaler, appeared as a witness for the Department.

Taxpayer Exhibits 1 through 4 were admitted into the record without objection. The

Department proffered Exhibits A, C, D and E1-22 of which Exhibits A, C and D were admitted

without objection. Department’s rebuttal Exhibit F was not proffered as evidence, and was not

admitted. The Hearing Officer took administrative notice of all documents contained in the

administrative file. All exhibits are more fully described in the Administrative Exhibit Log. Based

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

FINDINGS OF FACT

1. On December 4, 2017, the Department issued a Full Refund Denial of the claimed

refund the amount of $1,579.67 arising from the Taxpayer’s Application for Refund, for payment
of assessed penalties paid for the tax periods between January 1, 2016 and January 31, 2016. [See

Administrative File].

2. On January 10, 2018, the Department issued a Full Refund Denial of the claimed

refund the amount of $2,537.23 arising from the Taxpayer’s Application for Refund, for payment

of assessed penalties paid for the tax periods between June 1, 2014 and June 30, 2014. [See

Administrative File].

3. On February 27, 2018, the Department received the Taxpayer’s protest letter dated

February 26, 2018. [See Administrative File].

4. On March 6, 2018, the Department acknowledged Taxpayer’s protest. [See

Administrative File].

5. On March 27, 2018, the Department submitted a Hearing Request to the

Administrative Hearings Office in which it requested a hearing on the merits of Taxpayer’s protest.

[See Administrative File]. 1 [It should be noted that the Department submitted the Hearing Request

on March 27, 2018, yet within the document, it indicates that the protest was acknowledged April

9, 2018, an impossibility. Furthermore, within the Hearing Request the Department identified the

matter arising from two letter ID numbers [L1514754864 and l0103705392], which letters were

not made part of the record and do not correspond to the letter ID numbers identified by the

Taxpayer as pertinent to the protest.]

1
It should be noted that the Department submitted the Hearing Request on March 27, 2018, yet within the
document, it indicates that the protest was acknowledged April 9, 2018, an impossibility. Furthermore, within the
Hearing Request the Department identified the matter arising from two letter ID numbers [L1514754864 and
l0103705392], which letters were not made part of the record and do not correspond to the letter ID numbers
identified by the Taxpayer as pertinent to the protest.
In the Matter of the Protest of High Desert Bicycles, Inc. Page 2 of 16

6. On March 28, 2018, the Administrative Hearings Office issued a Notice of

Administrative Hearing that set a hearing on the merits of Taxpayer’s protest for June 1, 2018.

[See Administrative File].

7. On June 1, 2018, a hearing was held at the Administrative Hearings Office, in the

Wendell Chino Building, Suite 269, in Santa Fe, New Mexico, a total of 87 days from when the

protest was acknowledged by the Department.

8. Taxpayer is a bicycle vendor and bicycle maintenance shop. [Testimony of Mr.

Hinman].

9. Mr. Hinman is a co-owner and the treasurer of Taxpayer. [Testimony of Mr.

Hinman],

10. Mr. Hinman’s work duties include accounting, billing, writing company checks,

payment and filing of gross receipts tax returns, as well as sales and maintenance responsibilities

to customers. [Testimony of Mr. Hinman].

11. Mr. Hinman has been involved with Taxpayer for approximately fourteen and a

half years. [Testimony of Mr. Hinman].

12. Before June of 2014 Mr. Hinman filled out the paper CRS-1 forms and submitted

them to the Department with a check. [Testimony of Mr. Hinman].

13. Mr. Hinman handled the gross receipts taxes between June 2014 and October 2016.

[Testimony of Mr. Hinman].

14. It was in that time period that the Taxpayer’s accountant advised Mr. Hinman to

begin filing using the online TAP system. [Testimony of Mr. Hinman].

15. After June of 2014, Taxpayer began using the web-based taxpayer access point

(TAP) website run by the Department. [Testimony of Mr. Hinman].

In the Matter of the Protest of High Desert Bicycles, Inc. Page 3 of 16

16. When Mr. Hinman began using the TAP system, he first gathered information,

attempted logging in, and he recalled having some difficulty. [Testimony of Mr. Hinman].

17. Mr. Hinman also called his accountant/bookkeeper, who referred him to the

Department’s help number. [Testimony of Mr. Hinman].

18. Mr. Hinman called the line and explained that he was having trouble logging in to

the website. The tech at the other end of the line told him what to do, including that there was a

way to make a payment without logging in. The conversation lasted ten to fifteen minutes, but

Mr. Hinman’s memory of the call was admittedly too distant in the past to remember all the details

clearly. [Testimony of Mr. Hinman].

19. During the conversation, Mr. Hinman recalled that the tech walked him through the

process of making a payment without logging in. He did not recall if he actually made a payment

in that manner, during the conversation. Using the process described by the tech, he was able to

make a payment and manually input the payment information. [Testimony of Mr. Hinman].

20. There is a “make a payment” option on the TAP website, where it opens a window

that then asks for the same information he would fill out using the paper form. Mr. Hinman felt

comfortable that he was given enough information to report correctly. [Testimony of Mr. Hinman].

21. Mr. Hinman did not recall any discussion where the tech told him of a need to file

a report. [Testimony of Mr. Hinman].

22. Mr. Hinman did not receive notification that he was doing things improperly, so he

believed that he was doing things properly. [Testimony of Mr. Hinman].

23. Upon submission of his payment, Mr. Hinman would receive a confirmation email

indicating that his payment request had been received by the Department, which tells him to check

In the Matter of the Protest of High Desert Bicycles, Inc. Page 4 of 16
his bank account to make sure the payment went through successfully. [Testimony of Mr. Hinman;

Taxpayer’s Exhibit 1 and Exhibit 2].

24. The confirmation of payment email does not give any information about reporting.

[Testimony of Mr. Hinman; Taxpayer’s Exhibit 1 and Exhibit 2].

25. Mr. Hinman continued paying his taxes monthly in this manner until his accountant

noticed that there was a problem in about October 2016. [Testimony of Mr. Hinman].

26. Mr. Hinman was surprised by this revelation, so he asked for the accountant’s help

to correct what was wrong. Mr. Hinman was surprised because he had not received notice from

the Department that anything was wrong. [Testimony of Mr. Hinman].

27. Mr. Hinman did not realize until then that no reports were filed when he submitted

the payments. [Testimony of Mr. Hinman].

28. Mr. Hinman, with the assistance of his accountant, submitted the CRS reports in

November of 2016 in one batch. [Testimony of Mr. Hinman].

29. Mr. Hinman testified that he did not receive the Department’s Notice of

Assessment, dated December 22, 2016 for the reporting period of June 2014. He indicated that

the document bears an incorrect address. [Taxpayer Exhibit 3; Testimony of Mr. Hinman].

30. Mr. Hinman testified that he did not receive the Department’s Notice of

Assessment, dated December 22, 2016 for the reporting period of January 2016. This document

also bore an incorrect address. [Taxpayer Exhibit 4; Testimony of Mr. Hinman].

31. Mr. Hinman expressed surprise that the Taxpayer’s access to the TAP website

began in 2011, reiterating that he believed it was in 2014 when he began paying through the TAP

website. [Testimony of Mr. Hinman].

In the Matter of the Protest of High Desert Bicycles, Inc. Page 5 of 16

32. The Department produced what it alleged to be the last paper CRS-1 tax return form

received from the Taxpayer, dated in 2011, including a check that accompanied the return from

the Taxpayer. The Department did not proffer the document [identified as Exhibit F] as an exhibit,

and had not disclosed the document to Taxpayer previously. Exhibit F was not admitted. Mr.

Hinman acknowledged that the handwriting was his, but maintained his belief that he continued to

file gross receipts taxes on paper forms through the middle of 2014. [Testimony of Mr. Hinman].

33. The business changed locations from suite to suite in the same strip mall.

[Testimony of Mr. Hinman].

34. Ms. Veronica Galewaler is a protest auditor with the Department. Ms. Galewaler

has a Master’s of Business Administration degree. She has worked for eleven years with the

Department, in a variety of roles from the call center, to processing, and in the legal department

protest office. [Testimony of Ms. Galewaler].

35. Ms. Galewaler identified current screenshots from the TAP website, which the

Taxpayer could see upon bringing up the website and accessing Taxpayer’s account. [Exhibit A1

through A3; Testimony of Ms. Galewaler].

36. Ms. Galewaler identified current TAP call center scripts that are used to advise

callers and used to help people step by step. [Exhibit A1 through A3; Testimony of Ms. Galewaler].

37. The instructions are structured as answers to specific questions, such as “how do I

file a return?” [Testimony of Ms. Galewaler].

38. Upon complete submission of a tax return, the TAP system generates a

confirmation page, which, although not part of the script, taxpayers are advised to print up to keep

for their records. [Testimony of Ms. Galewaler].

In the Matter of the Protest of High Desert Bicycles, Inc. Page 6 of 16

39. The call center process is to advise callers that there are two separate processes,

first for making a payment, and second for filing a return. Ms. Galewaler testified that call center

staff advise that both payment and filing confirmations are necessary to avoid issues. [Testimony

of Ms. Galewaler].

40. Ms. Galewaler identified the TAP CRS Return information due February 25, 2016,

which concerns the reporting period ending January 31, 2016. Ms. Galewaler identified this as

one of the reporting periods at issue in this protest. [Department Exhibit C-1; 1Testimony of Ms.

Galewaler].

41. Ms. Galewaler identified the TAP CRS Return information due August 1, 2014,

which concerns the reporting period ending June 30, 2014. Ms. Galewaler identified this as one

of the reporting periods at issue in this protest. [Department Exhibit C-2; 1Testimony of Ms.

Galewaler].

42. Taxpayer’s CRS-1 returns at issue in this protest were filed November 11, 2016

and November 14, 2016. [Department Exhibit C-1 and C-2].

43. Ms. Galewaler identified the TAP Taxpayer’s registration information page. The

page shows that in 2011 the Taxpayer was required to file monthly using the e-file system, and

following July 1, 2011, the Department would no longer accept paper returns. After that time, the

Department would not send the paper filer kits. [Department Exhibit D-1through D-3; Testimony

of Ms. Galewaler].

44. The paper filer kit for the first half of 2011 would have been sent to the Taxpayer,

and includes instructions for filing returns on page five. [Exhibit E1 through E22; Testimony of

Ms. Galewaler].

In the Matter of the Protest of High Desert Bicycles, Inc. Page 7 of 16

45. Changes to address and other taxpayer information is required to be submitted to

the Department by the taxpayer. [Testimony of Ms. Galewaler].

46. The manner that Taxpayer used to pay taxes resulted in the Department system

placing the funds on hold, since they were paid without a report. When funds are placed on hold,

the Department does not know what to do with them, since the Department does not know if they

are payments to satisfy compensating tax due, gross receipts tax due, or withholding tax due. Once

the returns were filed, the payments were applied to their respective categories. [Testimony of Ms.

Galewaler].

47. In some cases, the Department will send out a “notice of overpayment” and an alert

will show up on the TAP website when a Taxpayer logs in. Ms. Galewaler recalled seeing that

an overpayment notice was sent, but did not have a copy, and could not recall clearly. [Testimony

of Ms. Galewaler].

48. The same information that used to be provided to taxpayers in the filer’s kit [Exhibit

E] is now available online through the Department website, not on the TAP website. [Testimony

of Ms. Galewaler].

49. The call center scripts are guidelines, and it is possible that the call center operators

do not follow them. Ms. Galewaler was not a witness to the call Mr. Hinman testified that he

made, and could not provide evidence as to what happened on the particular call. [Testimony of

Ms. Galewaler].

50. The payment request/confirmation email does not inform taxpayers that they are

obligated to file a return. [Taxpayer Exhibit 1, Taxpayer Exhibit 2; Testimony of Ms. Galewaler].

51. Notices of overpayment are sometimes sent to taxpayers who make payments

without filing returns. The Department did not have information which could show that a notice

In the Matter of the Protest of High Desert Bicycles, Inc. Page 8 of 16
of overpayment was sent to this Taxpayer for the timeframes at issue. Ms. Galewaler was unaware

if the notice of overpayment contains a statement that would inform a taxpayer that no return was

filed. [Testimony of Ms. Galewaler].

52. The call center is there because people have trouble, and the Department operators

can help resolve issues. [Testimony of Ms. Galewaler].

53. It was the opinion of Ms. Galewaler that for a taxpayer to rely solely on the

information provided by the call center operator would be unreasonable, since there are other

means of ascertaining responsibilities under the tax laws. [Testimony of Ms. Galewaler].

54. Electronic filing has been mandatory since 2011 for most New Mexico gross

receipts taxpayers, absent a waiver by the Secretary. [Testimony of Ms. Galewaler].

55. Notices, such as a notice of overpayment, are generated and populated by the

Department’s computer system, using parameters as determined by the Department, and if it

appears on a TAP user’s account, a letter should have also been printed and sent out. [Testimony

of Ms. Galewaler].

DISCUSSION

The sole issue in this protest is whether Taxpayer is entitled to a refund after payment of

assessed penalties resulting from its failure to timely file monthly Combined Reporting System

(CRS) returns. Taxpayer does not dispute the untimeliness of the two filings, but asserts that

refund of penalties paid is appropriate because Taxpayer was not negligent and because Taxpayer

was relying on information provided by the Department through its call center, and over two years

had not received any information from the Department that the method Taxpayer employed was

improper.

In the Matter of the Protest of High Desert Bicycles, Inc. Page 9 of 16
Burden of Proof

Under NMSA 1978, Section 7-1-17 (C), the assessments of tax issued in this case are

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, Section 7-1-3 (Y). 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

of Taxation & Revenue, 2006-NMCA-050, ¶16, 139 N.M. 498, 134 P.3d 785 (agency regulations

interpreting a statute are presumed proper and are to be given substantial weight). Taxpayers have

the burden to overcome the assessments. See Archuleta v. O’Cheskey, 1972-NMCA-165, ¶11, 84

N.M. 428, 504 P.2d 638.

Taxpayer’s claim for refund, after payment of the assessed penalty for late filing, is also

viewed under the lens of a presumption of correctness. See 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”). Consequently, Taxpayer must show that it is entitled to the

abatement of civil penalties that is the basis of its claim for refund.

Assessment of Penalty

Taxpayer conceded its failure to make a timely report under NMSA 1978, Section 7-1-13

(B), but asserts that penalties assessed under NMSA 1978, Section 7-1-69 (A) should be abated

because it acted in good faith and without negligence. Taxpayer relies on the facts attested to at

the hearing to support its claim. The facts attested to were that the Taxpayer had difficulty logging

in to the online tax portal (TAP), so he spoke with his accountant, who referred him to the

Department’s telephone assistance line. Over the telephone, the Department employee informed

the Taxpayer that there was a way to make payments without logging in to the Taxpayer’s account,

In the Matter of the Protest of High Desert Bicycles, Inc. Page 10 of 16
explained the process, and did not impress upon the Taxpayer that this process would not generate

a tax return. Taxpayer relies on the non-negligence indications, as defined by Regulation

3.1.11.11, most notably, “(A) the taxpayer proves the taxpayer was affirmatively misled by a

department employee.”

NMSA 1978, Section 7-1-69. Civil penalty for failure to pay tax or file a return.

The law requires that “in the case of failure due to negligence or disregard of department

rules and regulations, but without intent to evade or defeat a tax … there shall be added to the

amount assessed a penalty.” Penalties are assessed when a taxpayer does not pay taxes when due,

and in instances in which a taxpayer fails to file a tax return. In instances in which the tax return

is filed late, the basis for the penalty is the “tax liability established in the late return.” NMSA

1978, Section 7-1-69 (A).

The Hearing Officer notes that the imposition of penalty is mandatory by virtue of the

Legislature’s use of the term “shall” in Section 7-1-69 (A), which establishes that an act is

mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n, 2009-

NMSC-013, ¶22, 146 N.M. 24, 206 P.3d 135. In this instance, the Department was obligated to

assess a penalty for each month Taxpayer’s CRS-1 tax returns were late.

Section 7-1-69 (B) provides a limited exception to imposition of civil penalties: “[n]o

penalty shall be assessed against a taxpayer if the failure to pay an amount of tax when due results

from a mistake of law made in good faith and on reasonable grounds.” Although there was no

evidence that Taxpayer intentionally attempted to evade or defeat payment of tax by using the

electronic TAP system, there is also no evidence that Taxpayer made a mistake of law made in

good faith and on reasonable grounds. Taxpayer presented no evidence that it reviewed any statute

or regulation, or consulted with an attorney or CPA, about whether Taxpayer was legally required

In the Matter of the Protest of High Desert Bicycles, Inc. Page 11 of 16
to file tax returns beyond simply making the payments. This is not an instance in which the

Taxpayer made a reasonable mistake of law.

The Department relied on Taxpayer’s negligence to support the assessment of penalty.

Regulation 3.1.11.10 NMAC, defines negligence in three separate ways: (A) “failure to exercise

that degree of ordinary business care and prudence which reasonable taxpayers would exercise

under like circumstances;” (B) “inaction by taxpayer where action is required”; or (C)

“inadvertence, indifference, thoughtlessness, carelessness, erroneous belief or inattention.”

Generally, the Gross Receipts and Compensating Tax Act, NMSA 1978, Section 7-9-1 et seq.

requires businesses engaged in selling goods or services for consideration to pay gross receipts tax

and to file Combined Reporting System (CRS) returns. Regulation 3.2.2.15 NMAC requires that

“[t]axpayers who are registered for gross receipts, governmental gross receipts, compensating or

withheld income tax purposes must file a CRS-1 Combined Report Form for each reporting period

whether or not any tax is due.” It is clear that a failure to file a monthly tax return is “inaction by

taxpayer where action is required,” and the Department’s initial determination that the Taxpayer

was negligent for not filing returns was justified.

In instances where a taxpayer might otherwise fall under the definition of civil negligence

generally subject to penalty, the regulations provide guidance for abatement of civil negligence

penalty under Regulation 3.1.11.11 NMAC. Taxpayer relies on the first indicator on the list of the

non-negligence indications: “(A) the taxpayer proves the taxpayer was affirmatively misled by a

department employee.” In cases of estoppel, generally, a taxpayer is not entitled to rely on the

oral advice of a Department employee as a substitute for conducting its own analysis of New

Mexico’s tax statutes and regulations. Taxation and Revenue Department v. Bien Mur Indian

Market, 108 N.M. 228, 231, 770 P.2d 873, 876 (1989); Kilmer v. Goodwin, 2004-NMCA-122, ¶

In the Matter of the Protest of High Desert Bicycles, Inc. Page 12 of 16
122, 136 N.M. 440, 99 P.3d 690. The case at hand is not a case in which the Taxpayer is claiming

estoppel, a disfavored remedy. The regulation does not place restraints on how the Taxpayer must

prove that it was misled, apart from Regulation 3.1.6.12 NMAC (“unsubstantiated statements that

the assessment is incorrect cannot overcome the presumption of correctness.”). In this instance,

the Taxpayer had no documentation of the phone call to the Department’s help line that took place

four years previously, and the Taxpayer’s witness had a vague memory of the call. One thing

stood out to the witness, and that was the method described by the operator of submitting taxes

without logging into the TAP account, which Taxpayer then used monthly in submitting monthly

tax payments. There was no evidence that the Taxpayer intended to evade or defeat a tax by using

the process of making an electronic tax payment without logging into his TAP account. The fact

that the Taxpayer employed the method of submitting electronic payments supports the Taxpayer’s

position that it was his intent to pay the taxes. The existence of a script for operators at the

Department’s help line [Exhibit A-3] validates the Taxpayer’s testimony. The Department’s

inability to contradict the Taxpayer’s version of the phone call makes the balance of evidence fall

to the Taxpayer’s favor. The Taxpayer’s witness testified credibly on this subject. The Taxpayer,

having overcome the presumption of correctness in the assessment of penalty, the burden shifts to

the Department to prove the assessment of penalty was justified. See New Mexico Taxation &

Revenue Dep’t. v. Whitener, 1993-NMCA-161, 117 N.M. 130, 869 P.2d 829; MPC Ltd. v. New

Mexico Taxation & Revenue Dep’t., 2003-NMCA-021, 133 N.M. 217, 62 P.3d 308.

The Department suggested that Taxpayer’s reliance on its employee’s guidance was

unreasonable. The Department presented evidence that in years previous to the tax periods at issue,

ending in 2011, it had sent out packets of filer’s kits with information which informed this

Taxpayer of the need to file CRS-1 returns with monthly payments. The evidence showed that the

In the Matter of the Protest of High Desert Bicycles, Inc. Page 13 of 16
filer’s kit [Exhibit E] that had been mailed to Taxpayers is now available online through the

Department website, although not on the TAP website. The Taxpayer and Department agreed that

no information was sent to Taxpayer informing him of the deficiency in filing CRS-1 returns,

although Department emails were generated to confirm receipt of taxes paid [Exhibit 1 and 2].

The Taxpayer acted reasonably by calling his accountant, who referred him to the Department help

line, and relying on the information given, then continuing with his belief by not being informed

otherwise through Departmental notice.

The purpose of applying a penalty is to deter and to punish. See Gea Integrated Cooling

Tech. v. State Taxation & Revenue Dep’t., 2012-NMCA-010, ¶ 13, 268 P.3d 48. It would be unfair

to punish this Taxpayer by the imposition of civil penalties for late filing of returns after the

Taxpayer followed the Department’s employee’s guidance, and then upon discovering that

something was wrong, the Taxpayer, in good faith, took steps to remedy the deficiency in tax

return reporting.

In this protest, the Hearing Officer was persuaded that the balance of substantial evidence

supports the finding that Taxpayer acted without negligence, and relied on advice given by a

Department employee. The assessment of penalty under the facts of this protest should have been

abated, and the Taxpayer is entitled to a refund of the penalty paid. Taxpayer’s protest is hereby

granted.

CONCLUSIONS OF LAW

A. Taxpayer filed a timely written protest to the denials of refund issued by the

Department, dated December 4, 2017 and January 10, 2018 and jurisdiction lies over the parties

and the subject matter of this protest.

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B. The Administrative Hearings Office held a hearing within the 90-day hearing

requirement provided in NMSA 1978, Section, 7-1B-8 (A) and Regulation 22.600.3.8 (E).

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 entitlement to an abatement.

D. Taxpayer did establish non-negligence through substantial evidence entitling it to

an abatement of assessed penalty. See NMSA 1978, Section 7-1-69 (B) and Regulation 3.1.11.11.

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

Dated: July 31, 2018.

Ignacio V. Gallegos
Hearing Officer
Administrative Hearings Office
Post Office Box 6400
Santa Fe, NM 87502

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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.

CERTIFICATE OF SERVICE

I hereby certify that I mailed the foregoing Decision and 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

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