Could a New Mexico employer avoid penalties for withholding returns filed about two years late when it had paid the tax on time but overlooked separate return-filing links on the Department website?

Plain-English summary

Timely withholding-tax payments did not excuse the School for Advanced Research from penalties for filing three required returns about two years late. The Administrative Hearings Office upheld $2,838.77 of late-return penalties but abated tax and interest that the Department's system had incorrectly assessed for October 2016.

The school discovered in November 2018 that it had not filed withholding returns for September, October, and November 2016. Its HR director found the omission after accidentally entering 2016 instead of 2018 while preparing an October 2018 filing.

The school had paid the withholding tax for all three months on time. But payments and returns were separate steps, and the missing returns were not submitted until November 2018.

Website confusion was still negligence

The HR director could not say exactly why the returns had not been filed. She speculated that changes to the Department's website had separated or moved the buttons for making payments and filing returns, and that she failed to notice or understand the change.

Regulation 3.1.11.10(C) defined negligence to include inadvertence, erroneous belief, and inattention. The AHO held that the admitted oversight fit that definition even though it was unintentional and the school corrected it promptly after discovery.

No Department employee affirmatively misled the school

The school argued that the website changes were equivalent to affirmative misleading and that the Department should have notified it when payments arrived without corresponding returns.

The AHO disagreed. A confusing interface did not affirmatively represent that the returns had been filed, and the Department's silence did not communicate that filing was complete. The school's payment and filing activity was self-directed; no employee gave incorrect instructions.

That distinction prevented use of Regulation 3.1.11.11(A), which recognizes non-negligence when a taxpayer proves it was affirmatively misled by a Department employee.

The October tax and interest assessment was wrong

When the school discovered the missing filings, it initially submitted October 2018 information as the October 2016 return, then amended the return with the correct 2016 figures. The Department's automated assessment used the mistakenly submitted 2018 amount.

The Department confirmed that the actual October 2016 withholding tax had been fully paid on time. No $160.93 tax or $13.95 interest was due for that month, though its late-return penalty remained.

Result: protest DENIED IN PART and GRANTED IN PART. The school owed:

• $1,194.70 penalty for September 2016;
• $843.38 penalty for October 2016; and
• $800.69 penalty for November 2016.

The total was $2,838.77. October tax and interest were abated.

What this means for you

Employers filing New Mexico withholding returns

Payment and filing are separate obligations. Retain a confirmation for both steps every month, even when no tax remains unpaid.

Businesses using online tax portals

Do not rely on the absence of a notice as proof that a return was filed. Reconcile the portal's filed-return history against payment confirmations.

Taxpayers claiming they were misled

Regulation 3.1.11.11(A) required proof of affirmative misleading by a Department employee. General website confusion or agency silence did not satisfy that standard here.

Businesses reviewing automated assessments

Check the tax principal separately from filing penalties. An automatically generated tax amount may reflect an erroneous or later-amended return even when the actual tax was timely paid.

Common questions

Q: Were the withholding taxes paid late?
A: No. The tax for September, October, and November 2016 was paid on time.

Q: Why were penalties due if no tax was unpaid?
A: Section 7-1-69 separately penalized negligent failure to file a required return by its due date.

Q: Did the website tell the school that filing was complete?
A: No. The employee speculated that changed button locations caused confusion, but the AHO found no affirmative representation that the returns had been filed.

Q: Why didn't Department silence excuse the error?
A: Silence did not affirmatively mislead the taxpayer, and New Mexico's self-reporting system placed responsibility on the school to verify filing.

Q: Why were the October tax and interest abated?
A: The assessment used incorrect 2018 information initially entered for the 2016 period. The actual October 2016 tax had already been paid on time.

Q: How late were the returns?
A: They were due in 2016 and filed in November 2018, approximately two years late.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-69(A) — late-return negligence penalty
• NMSA 1978, § 7-1-67 — interest on unpaid tax
• NMSA 1978, §§ 7-1-17 and 7-1-3 — assessment presumption and tax definition
• Regulation 3.1.11.10(C) NMAC — inadvertence and inattention as negligence
• Regulation 3.1.11.11(A) NMAC — affirmative misleading by a Department employee

Cases cited:

• Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127 — duty to ascertain tax consequences in a self-reporting system
• Hess Corp. v. New Mexico Taxation & Revenue Department, 2011-NMCA-043 — penalty for an inadvertent error meeting the negligence standard

Source

• Listing: New Mexico Decisions & Orders
• Decision post: School for Advanced Research
• Decision PDF: D&O 19-13

Original ruling text

1 STATE OF NEW MEXICO
2 ADMINISTRATIVE HEARINGS OFFICE
3 TAX ADMINISTRATION ACT

4 IN THE MATTER OF THE PROTEST OF
5 SCHOOL FOR ADVANCED RESEARCH
6 TO ASSESSMENTS ISSUED UNDER
7 LETTER ID NOS. L1838756016, L0765014192, and L1243107504

8 v. AHO No. 19.04-041A, D&O No. 19-13

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On April 18, 2019, Hearing Officer Dee Dee Hoxie, Esq., conducted an administrative

12 hearing on the merits in the matter of the tax protest of School for Advanced Research

13 (Taxpayer) pursuant to the Tax Administration Act and the Administrative Hearings Office Act.

14 At the hearing, Carol Sandoval, the HR Director of the Taxpayer, appeared for and represented

15 the Taxpayer. Kenneth Fladager, Staff Attorney, appeared and represented the Taxation and

16 Revenue Department (Department). Mary Griego, Auditor, appeared as a witness for the

17 Department. Ms. Sandoval and Ms. Griego testified. Department Exhibits A (payment record),

18 B (filing record), C (payment record), D (filing record), E (payment record), and F (filing record)

19 were admitted into the record. The Hearing Officer took notice of all documents in the

20 administrative file.

21 The main issue to be decided is whether the Taxpayer is liable for the penalties assessed for

22 the late filing of three months of its withholding tax returns. The Taxpayer admitted that the returns

23 were filed late, but argued that it should not be penalized because its tardiness was not intentional

24 and was probably caused by the confusing nature of the website at the time. The Hearing Officer

25 considered all of the evidence and arguments presented by both parties. The Hearing Officer finds

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1 that the Taxpayer’s tardiness was negligence, even though it was inadvertent. Therefore, the protest

2 is denied. IT IS DECIDED AND ORDERED AS FOLLOWS:

3 FINDINGS OF FACT

4 1. On December 5, 2018, the Department assessed the Taxpayer for withholding tax,

5 penalty, and interest for the tax period ending October 31, 2016. The assessment was for

6 $160.93 tax, $843.38 penalty, and $13.95 interest. [L1243107504]

7 2. On December 10, 2018, the Department assessed the Taxpayer for penalty for the

8 tax period ending September 30, 2016. The assessment was for $1,194.70. [L0765014192]

9 3. On December 10, 2018, the Department assessed the Taxpayer for penalty for the

10 tax period ending November 30, 2016. The assessment was for $800.69. [L1838756016]

11 4. On January 7, 2019, the Taxpayer filed a formal protest to all three assessments.

12 [Administrative file]

13 5. On February 19, 2019, the Department acknowledged its receipt of the

14 Taxpayer’s protest. [Administrative file]

15 6. On April 2, 2019, the Department filed a Request for Hearing asking that the

16 Taxpayer’s protest be scheduled for a formal administrative hearing. [Administrative file]

17 7. On April 3, 2019, the Administrative Hearings Office issued a notice of

18 administrative hearing. [Administrative file]

19 8. The hearing was held within ninety day of the Department’s acknowledgement of

20 the protest. See 22.600.3.8 (E) NMAC (2018).

21 9. In November 2018, the Taxpayer discovered its withholding tax returns for

22 September 2016, October 2016, and November 2016 (the returns) had not been filed.

23 [Testimony of Carol Sandoval]

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1 10. The returns were all due in 2016. [Testimony of Carol Sandoval, Testimony of

2 Mary Griego, Exhibits B, D, and F]

3 11. The failure to file the returns was discovered by Ms. Sandoval when she was

4 filing the October 2018 tax return. [Testimony of Carol Sandoval]

5 12. Ms. Sandoval submitted the October 2018 tax return, but then realized that the

6 year had been entered as 2016, instead of 2018. [Testimony of Carol Sandoval]

7 13. Ms. Sandoval reviewed the submissions and realized that the three months of

8 returns in 2016 had not been filed. [Testimony of Carol Sandoval]

9 14. Ms. Sandoval was unsure why the returns were not filed, but speculated that it

10 was due to changes made to the website around that time that separated or changed the location

11 of the buttons for making payments and for filing returns, which she failed to notice or

12 understand at the time. [Testimony of Carol Sandoval]

13 15. Upon discovering its error, the Taxpayer took action and filed the returns. The

14 returns were filed in November 2018. [Testimony of Carol Sandoval, Testimony of Mary

15 Griego, Exhibits B, D, and F]

16 16. Because the October 2016 was initially filed with October 2018’s information, the

17 return for that month was resubmitted and amended to reflect the correct amounts for October

18 2016. [Testimony of Carol Sandoval]

19 17. The returns were filed approximately two years after their due dates. [Testimony

20 of Carol Sandoval, Testimony of Mary Griego, Exhibits B, D, and F]

21 18. The Taxpayer’s withholding taxes for September 2016, October 2016, and

22 November 2016 were paid timely, and the Department conceded that the Taxpayer did not owe

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1 tax or interest for the October 2016 tax period. [Testimony of Carol Sandoval, Testimony of

2 Mary Griego, Exhibits A, C, and E]

3 DISCUSSION

4 Burden of Proof.

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

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

7 otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

8 7-1-3. See also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-

9 070, 108 N.M. 795. Therefore, the assessment issued to the Taxpayer is presumed to be correct,

10 and it is the Taxpayer’s burden to present evidence and legal argument to show that it is entitled

11 to an abatement.

12 Penalty.

13 Penalty shall be assessed whenever a taxpayer fails to file a return by the date a return is

14 required, if the failure is due to negligence or a disregard of the rules and regulations without an

15 intent to evade or defeat the tax. See NMSA 1978, § 7-1-69 (A) (2007). The word “shall” in a

16 statute indicates that the provision is mandatory, not discretionary. See Marbob Energy Corp. v.

17 N.M. Oil Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. Negligence includes

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

19 3.1.11.10 (C) NMAC (2001).

20 The Taxpayer timely paid its taxes in September, October, and November 2016 using the

21 online system. The Taxpayer failed to click on the right link to fill out and submit the returns for

22 those months, apparently due to some changes that had been made to the website. The Taxpayer

23 argued that the website’s changes, separating or changing the location of the two buttons for

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1 payments and filing, was tantamount to affirmatively misleading the Taxpayer. See 3.1.11.11 (A)

2 2001 (indicating that it is not negligence if the taxpayer proves that a department employee

3 affirmatively misled the taxpayer). The Taxpayer also argued that the Department should have

4 notified the Taxpayer immediately of its lack of returns because it had payments in its system

5 without corresponding returns. The Department explained that the system does not automatically

6 notify taxpayers of inconsistent filings and payments. To mislead means “to lead in a wrong

7 direction or into a mistaken action or belief often by deliberate deceit”. Merriam Webster’s

8 Collegiate Dictionary 794 (11th ed. 2014). Under New Mexico's self-reporting tax system, “every

9 person is charged with the reasonable duty to ascertain the possible tax consequences” of his or her

10 actions. Tiffany Construction Co. v. Bureau of Revenue, 1976-NMCA-127, ¶5, 90 N.M. 16.

11 The Taxpayer’s employee might have been initially confused by a change in the website,

12 but that does not mean that the website affirmatively led the Taxpayer to believe that the return had

13 been filed when it had not actually been filed. Likewise, the Department’s silence does not

14 affirmatively lead to the conclusion that a return is filed. The Taxpayer admitted that its failure to

15 file the return was an oversight, and the Taxpayer acted promptly to correct the mistake when it was

16 discovered. Here, Taxpayer admitted its payments and filings were self-directed. Therefore, the

17 Taxpayer is ultimately responsible for its oversight in terms of filing the return through the online

18 system. See Tiffany Construction Co., 1976-NMCA-127. Although the Taxpayer’s mistake was

19 inadvertent, it is still negligence. See In the Matter of the Protest of Spelman Investments, Decision

20 and Order No. 17-49 (Admin. Hearings Office, December 15, 2017, non-precedential) (holding that

21 it was negligence for purposes of the penalty statute when the taxpayer’s failure to file the returns on

22 time was based on an inadvertent error based on changes to the Department’s computer). See also

23 Grogan v. N.M. Taxation & Revenue Dep’t, 2003-NMCA-033, ¶ 32, 133 N.M. 354 (holding that the

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1 taxpayer’s action met the regulatory definition of negligence); Phillips Mercantile Co. v. N.M.

2 Taxation & Revenue Dep’t, 1990-NMCA-006, ¶ 17, 109 N.M. 487 (confirming that negligence

3 includes inadvertent error); and Hess Corp. v. N.M. Taxation & Revenue Dep’t, 2011-NMCA-043, ¶

4 38, 149 N.M. 527 (holding that penalty was properly assessed for an inadvertent error because it is

5 negligence).

6 Tax and interest on L1243107504.

7 The Taxpayer was also assessed for tax and interest for the tax period ending on October 31,

8 2016. The Taxpayer explained that the tax was paid when it was due, but that the return initially

9 filed for this tax period was actually the one for October 31, 2018, which is how the Taxpayer

10 realized that it had neglected to file the returns for the three months in 2016. The Department’s

11 assessment for that month was based on the amounts initially reported, which were actually for the

12 2018 tax period. The Department confirmed that the tax return for October 2016 had been amended

13 after the assessment was automatically generated by the system. The Department also confirmed

14 that the full amount of tax for October 31, 2016 was paid when it was due. See Exhibit C.

15 Therefore, no interest or tax is due. See NMSA 1978, § 7-1-67 (2013). Penalty is still owed since

16 the return was filed late. See NMSA 1978, § 7-1-69.

17 CONCLUSIONS OF LAW

18 A. The Taxpayer filed a timely written protest of the Department’s assessments and

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

20 B. The hearing was timely set and held within 90 days of protest. See NMSA 1978,

21 Section 7-1B-8 (2015). See also 22.600.3.8 (E) NMAC (2018).

22 C. The Taxpayer’s failure to file the returns in 2016 was due to negligence. See

23 3.1.11.10 (2001).

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1 D. The Taxpayer’s late filing of the returns is subject to penalty. See NMSA 1978, § 7-

2 1-69.

3 E. The Taxpayer timely paid the tax owed for the tax period ending October 31, 2016,

4 so the tax and interest were not owed. See id. See NMSA 1978, § 7-1-67.

5 For the foregoing reasons, the Taxpayer’s protest IS DENIED IN PART and GRANTED

6 IN PART. IT IS ORDERED that Taxpayer is liable for a total of $1,194.70 penalty for the

7 September 2016 tax period, $843.38 penalty for the October 2016 tax period, and $800.69

8 penalty for the November 2016 tax period, for a total outstanding liability of $2,838.77. The tax

9 and interest for the October 31, 2016 are hereby ABATED.

10 DATED: May 16, 2019.

11 Dee Dee Hoxie
12 Dee Dee Hoxie
13 Hearing Officer
14 Administrative Hearings Office
15 P.O. Box 6400
16 Santa Fe, NM 87502

17 NOTICE OF RIGHT TO APPEAL

18 Pursuant to NMSA 1978, Section 7-1-25 (2015), the parties have the right to appeal this

19 decision by filing a notice of appeal with the New Mexico Court of Appeals within 30 days of the

20 date shown above. If an appeal is not timely filed with the Court of Appeals within 30 days, this

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

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

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

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

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

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

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

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

5 CERTIFICATE OF SERVICE

6 On May 16, 2019, a copy of the foregoing Decision and Order was submitted to the parties

7 listed below in the following manner:

8 First Class Mail Interdepartmental Mail

9 INTENTIONALLY BLANK
10
11 John Griego
12 Legal Assistant
13 Administrative Hearings Office
14 P.O. Box 6400
15 Santa Fe, NM 87502

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