If the state assesses gross receipts tax years late, and I had a bad accountant, can I at least get the penalty and interest waived?

Plain-English summary

On-Site Case Management lost its protest. The business, owned and solely operated by Angela Gazzara, provides case-management services (often for workers' compensation claims) to companies in New Mexico, Colorado, Utah, Arizona, and Wyoming. Although she charged her customers "7% sales tax," she did not file gross receipts tax returns or pay New Mexico gross receipts tax for the periods from January 1, 2013 through December 31, 2017.

On August 5, 2020, the Department assessed her $7,636.18 in gross receipts tax, $1,527.24 in penalty, and $1,501.20 in interest ($10,664.62 total). After she showed that some June–December 2017 receipts came from out-of-state customers, the Department abated part of that period, leaving — as of the hearing — $7,115.07 in tax, $1,423.01 in penalty, and $1,654.53 in interest ($10,192.61 total, with interest still accruing).

She effectively conceded the underlying tax and argued only that penalty and interest should be waived because the Department assessed her years after the liability arose and because she had a difficult, "acrimonious" relationship with her CPA. Hearing Officer Dee Dee Hoxie rejected both arguments:

• The assessment was on time. The Department normally has three years to assess, but when a taxpayer fails to file required returns it has seven years. Because she never filed, the seven-year window applied. The earliest period was 2013, so the Department had until December 31, 2020; the August 5, 2020 assessment was timely.
• The penalty was mandatory. Section 7-1-69 says a negligence penalty "shall" be added, and negligence includes simple inadvertence. Relying on an accountant can show non-negligence, but here the CPA had actually advised her in 2015 that she should be filing and paying gross receipts tax (and even suggested a managed audit to avoid penalty and interest). Her failure to file was not caused by his advice, so the penalty stood.
• The interest was mandatory. Section 7-1-67 says interest "shall" be paid on late tax. It is not a punishment; it compensates the state for the time value of unpaid tax. Because the tax was paid late, interest applied.

Result: protest DENIED.

What this means for you

Charging customers "sales tax" does not satisfy your gross receipts tax duty

New Mexico's gross receipts tax is a tax on the business, not a true retail sales tax. Collecting a percentage from customers does nothing unless you also file returns and remit the tax. Money charged as "tax" and kept is still unpaid gross receipts tax.

Not filing extends the state's deadline from three years to seven

The assessment "statute of limitations" only protects filers. If you never file the required return, the Department has seven years from the end of the year the tax was due to assess. Waiting out the clock does not work when the clock never started.

The state's delay does not waive penalty or interest

Both the penalty (for negligence) and interest are written with the word "shall" — they are mandatory, not discretionary. A late assessment means more accrued interest, but it is not a basis to waive either charge.

"My accountant was difficult" is not automatic penalty relief

Reliance on a professional can rebut negligence, but only if your mistake actually flowed from the advice. Here the CPA told the owner to file and pay — the opposite of what happened — so there was no reliance to excuse the failure. If you disagree with or distrust your accountant, the answer is to get correct advice, not to stop filing.

Out-of-state receipts still need records

The owner got a partial abatement only for the one period where she could document out-of-state customers; for everything else she no longer had records. Deductions and exclusions must be clearly established by the taxpayer, and that requires contemporaneous documentation.

Common questions

Q: Did she dispute that she owed the tax?
A: Not really. She effectively withdrew her dispute over the underlying gross receipts tax and focused on trying to get the penalty and interest waived.

Q: Why did the Department have until 2020 to assess 2013 taxes?
A: Because she never filed returns. Non-filing gives the Department seven years to assess instead of the usual three, and the August 2020 assessment fell inside the seven-year window for 2013.

Q: She had a CPA — why didn't that excuse the penalty?
A: Reliance on an accountant can show non-negligence, but the record showed the CPA had advised her in 2015 to file and pay gross receipts tax. Her failure to file was not caused by his advice, so there was nothing to rely on.

Q: Isn't it unfair that interest kept growing while the Department waited to assess?
A: The hearing officer explained that interest is not a penalty; it compensates the state for the time value of tax that went unpaid. Because the tax was late, interest applied regardless of when the assessment issued.

Q: How did she get any reduction at all?
A: For June–December 2017 she produced records showing some customers were out of state, so the Department abated the tax, penalty, and interest attributable to those receipts. She lacked records to do the same for the other periods.

Q: Can another taxpayer rely on this decision?
A: No. It resolved this taxpayer's protest on her specific facts and the law in effect for 2013–2017. Another taxpayer should analyze its own filing history, records, tax periods, and current law.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-18 (2013) — time limits on assessment; the Department has seven years to assess when no return is filed
• NMSA 1978, § 7-1-69 (2007) — the civil penalty for negligence "shall" be added; negligence includes inadvertence
• NMSA 1978, § 7-1-67 (2013) — interest "shall" be paid on tax not paid when due; it compensates the state rather than punishing the taxpayer
• NMSA 1978, § 7-1-17 — an assessment, including penalty and interest, is presumed correct; the taxpayer bears the burden to overcome it
• NMSA 1978, §§ 7-9-4 and 7-9-5 — imposition of gross receipts tax and the presumption that all receipts are taxable
• NMSA 1978, § 7-9-11 (1969) — gross receipts tax is due on the 25th of the month after the transaction
• NMSA 1978, § 7-9-3.5(A)(1) — gross receipts include amounts from performing services in New Mexico
• NMSA 1978, §§ 7-1B-6 and 7-1B-8 — Administrative Hearings Office procedure and 90-day hearing timing
• NMSA 1978, § 7-1-25 — right to appeal the decision to the New Mexico Court of Appeals
• Regulations 3.1.11.10 and 3.1.11.11 NMAC — definition of negligence and the factors (including reliance on an accountant) that indicate non-negligence

Cases:

• Archuleta v. O'Cheskey, 1972-NMCA-165, 84 N.M. 428 — a taxpayer bears the burden to overcome the presumption of correctness
• N.M. Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099 — taxpayer's burden to show entitlement to abatement of an assessment
• Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, 146 N.M. 24 — the word "shall" makes a statutory requirement mandatory
• Security Escrow Corp. v. State Taxation & Revenue Dep't, 1988-NMCA-068, 107 N.M. 540 — exemptions and deductions are construed strictly against the taxpayer, who must clearly establish the right
• Public Service Co. v. N.M. Taxation & Revenue Dep't, 2007-NMCA-050, 141 N.M. 520 — burden on the taxpayer to prove entitlement to an exemption or deduction
• Wing Pawn Shop v. Taxation & Revenue Dep't, 1991-NMCA-024, 111 N.M. 735; Chavez v. Commissioner of Revenue, 1970-NMCA-116, 82 N.M. 97; Pittsburgh & Midway Coal Mining Co. v. Revenue Division, 1983-NMCA-019, 99 N.M. 545 — strict construction of tax exemptions and deductions

Source

• Listing: New Mexico Decisions & Orders
• Decision post: On-Site Case Management
• Decision PDF: D&O 22-16

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 ON-SITE CASE MANAGEMENT
6 TO THE ASSESSMENT
7 ISSUED UNDER LETTER ID NO. L0378310320

8 v. AHO No. 21.05-026A, D&O No. 22-16

9 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

10 DECISION AND ORDER

11 On June 9, 2022, Hearing Officer Dee Dee Hoxie, Esq. conducted an in-person hearing

12 on the merits of the protest to the assessment. The Taxation and Revenue Department

13 (Department) was represented by Timothy Williams, Staff Attorney. Lizette Rivera, Auditor, also

14 appeared on behalf of the Department. Angela Gazzara, the owner and sole operator of On-Site

15 Case Management (Taxpayer), was present and represented herself1. Ms. Gazzara and Ms.

16 Rivera testified. The Hearing Officer took notice of all documents in the administrative file.

17 The Department’s exhibits A through E and G and H were admitted without objection. The

18 Department was given to the end of the hearing date to submit Exhibit H. Exhibit H was

19 submitted timely. The Taxpayer was given until June 10, 2022 to provide any written response

20 or objection to Exhibit H. Nothing was submitted by the Taxpayer by that deadline.

21 The main issue to be decided is whether the Taxpayer is liable under the assessment for

22 the gross receipts tax, the penalty, and the interest. The Hearing Officer considered all of the

23 evidence and arguments presented by both parties. The Taxpayer essentially withdrew her

24 dispute as to the underlying tax and argued that penalty and interest should be waived because

1
Although the Taxpayer is the business entity, references throughout the decision will be to Ms. Gazzara as she is
the sole owner and operator of the Taxpayer.
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1 the Department waited so long to assess her and because she had issues with her accountant. As

2 the Department’s assessment was issued within the time frame required by the statute and the

3 Taxpayer failed to prove that the penalty should be abated, the Hearing Officer finds in favor of

4 the Department. IT IS DECIDED AND ORDERED AS FOLLOWS:

5 FINDINGS OF FACT

6 1. On August 5, 2020, the Department issued an assessment to the Taxpayer for the

7 tax periods from January 1, 2013 through December 31, 2017. The assessment was for gross

8 receipts tax of $7,636.18, penalty of $1,527.24, and interest of $1,501.20, for a total liability of

9 $10,664.62. [Admin. file L0378310320; Testimony of Ms. Rivera; Testimony of Ms. Gazzara;

10 Exhibit E].

11 2. On November 5, 2020, the Taxpayer filed a timely written protest to the

12 assessment. [Admin. file protest].

13 3. On November 9, 2020, the Department acknowledged its receipt of the protest.

14 [Admin. file L0635748016].

15 4. On May 7, 2021, the Department filed a request for hearing with the

16 Administrative Hearings Office. [Admin. file request].

17 5. On June 4, 2021, a telephonic scheduling hearing was conducted. The parties

18 agreed that the scheduling hearing satisfied the statutory requirement that a hearing be held

19 within 90 days of the request. [Admin. file].

20 6. Several scheduling hearings were conducted, and the hearing on the merits was

21 commenced by videoconference on February 24, 2022; however, the Taxpayer’s internet

22 connection was poor, so the hearing was reset for an in-person hearing ultimately conducted on

23 June 9, 2022. [Admin. file].

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1 7. The Taxpayer primarily provides case management services for companies,

2 usually in reference to claims for workman’s compensation. The Taxpayer provides services to

3 companies in New Mexico, Colorado, Utah, Arizona, and Wyoming. The Taxpayer frequently

4 travels to various locations to perform those services. [Testimony of Ms. Gazzara].

5 8. The Taxpayer has been in business since 2011. [Testimony of Ms. Gazzara].

6 9. The Taxpayer had an accountant, who was a CPA, from 2011 until sometime in

7 2018. [Testimony of Ms. Gazzara].

8 10. The Taxpayer had an acrimonious relationship with her CPA, and she found his

9 explanations to be incomplete and confusing. [Testimony of Ms. Gazzara].

10 11. In 2015, the Department communicated with the Taxpayer’s CPA about an audit

11 of the Taxpayer. [Testimony of Ms. Gazzara; Testimony of Ms. Rivera; Exhibit B].

12 12. In 2015, the CPA advised the Taxpayer that she should be filing and paying gross

13 receipts tax as it did not appear that she was entitled to any exemptions or deductions. The CPA

14 also advised the Taxpayer that she could apply for a managed audit, which would avoid penalty

15 and interest, for the 2013, 2014, and 2015 tax periods. [Exhibit B].

16 13. Based on the tables of liability provided by the Department, it appears that the

17 Taxpayer should have been filing gross receipts tax returns and paying gross receipts tax every

18 six months. [Exhibit A; Exhibit G; Exhibit H].

19 14. The Taxpayer charged her customers “7% sales tax on each bill.” [Exhibit B].

20 15. Despite imposing this charge to her customers, the Taxpayer did not file gross

21 receipts tax returns or make payments during the tax periods from 2013 through 2017.

22 [Testimony of Ms. Rivera; Testimony of Ms. Gazzara].

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1 16. For the tax period from June 2017 to December 2017, the Taxpayer provided

2 evidence to the Department that some of her services were performed for customers who were

3 out of state. Consequently, the Department abated a portion of the tax, penalty, and interest due

4 for that tax period. [Testimony of Ms. Rivera; Testimony of Ms. Gazzara; Exhibit A; Exhibit G;

5 Exhibit H].

6 17. As to the remaining tax liability, the Taxpayer indicated that she no longer had

7 records to show her contracts and receipts from out of state services and that she would not be

8 able to disprove the Department’s assessment. The Taxpayer’s arguments mainly called for the

9 waiver of penalty and interest due to the date of the assessment, as it occurred several years after

10 the dates of the tax liability. [Testimony of Ms. Gazzara].

11 DISCUSSION

12 Burden of proof.

13 The assessment issued in this case is presumed correct. See NMSA 1978, § 7-1-17 (C)

14 (2007). Unless otherwise specified, for the purposes of the Tax Administration Act, “tax” is

15 defined to include interest and civil penalty. See NMSA 1978, §7-1-3 (Z) (2019). The presumption

16 of correctness under Section 7-1-17 (C) extends to the Department’s assessment of penalty and

17 interest. See 3.1.6.13 NMAC (2001). Consequently, the Taxpayer has the burden to overcome

18 the assessment. See Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. See also N.M.

19 Taxation & Revenue Dep't v. Casias Trucking, 2014-NMCA-099, ¶8.

20 Gross receipts tax.

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

22 NMSA 1978, § 7-9-4 (2010). To engage in business in New Mexico means “carrying on or causing

23 to be carried on any activity with the purpose of direct or indirect benefit.” NMSA 1978, § 7-9-3.3

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1 (2019)2. Gross receipts include the total amount received “from performing services in New

2 Mexico.” NMSA 1978, § 7-9-3.5 (A) (1) (2019). There is a statutory presumption that “all receipts

3 of a person engaging in business are subject to the gross receipts tax.” NMSA 1978, § 7-9-5 (A)

4 (2019). The Taxpayer provides case management services in New Mexico. Presumptively, the

5 Taxpayer’s receipts for providing those services are subject to the gross receipts tax. See NMSA

6 1978, § 7-9-4, §7-9-5.

7 The Taxpayer argued that some of her services were provided for out of state customers.

8 The burden is on the Taxpayer to prove that she is entitled to an exemption or deduction. See

9 Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶ 32, 141 N.M.

10 520. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. “Where an exemption or deduction

11 from tax is claimed, the statute must be construed strictly in favor of the taxing authority, the

12 right to the exemption or deduction must be clearly and unambiguously expressed in the statute,

13 and the right must be clearly established by the taxpayer.” Sec. Escrow Corp. v. State Taxation

14 and Revenue Dep’t., 1988-NMCA-068, ¶ 8, 107 N.M. 540. See also Wing Pawn Shop v.

15 Taxation and Revenue Dep’t., 1991-NMCA-024, ¶ 16, 111 N.M. 735. See also Chavez v.

16 Commissioner of Revenue, 1970-NMCA-116, ¶ 7, 82 N.M. 97. See also Pittsburgh and Midway

17 Coal Mining Co. v. Revenue Division, 1983-NMCA-019, 99 N.M. 545.

18 The Taxpayer provided some records to the Department for the final tax period from June

19 to December 2017 that were sufficient to show that some of her gross receipts came from out of

20 state customers. The Department abated part of the assessment for that tax period. The

21 Taxpayer admitted that she did not have adequate records to show any other gross receipts that

22 came from out of state customers.

2
The most current version of statutes and regulations will be referenced unless there is a relevant substantive change
between it and the version in effect at the time that the Taxpayer’s services were rendered.
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1 The assessment was properly issued within the statutory time limits.

2 The Taxpayer argued that penalty and interest should be abated because the Department did

3 not make its assessment until 2020. The Taxpayer argued that she was disadvantaged by the late

4 assessment because penalty and interest accrued. In general, the Department may assess within

5 three years of the end of the calendar year in which the tax was due. See NMSA 1978, § 7-1-18

6 (2013). However, when a taxpayer fails to complete and file any required return, the Department

7 has seven years to assess from the end of the calendar year in which the tax was due. See id. As the

8 Taxpayer failed to file returns, the Department had seven years to assess her. See id. Gross receipts

9 taxes are due on the twenty-fifth day of the month following the month when the transaction

10 occurred. See NMSA 1978, § 7-9-11 (1969). Per the Department’s calculations, the Taxpayer’s

11 payments and filings are due every six months. [Exhibit A; Exhibit G; Exhibit H]. The earliest

12 tax year assessed was 2013, and at least one payment was due in 2013. Seven years from the end of

13 the 2013 calendar year was December 31, 2020. The assessment was issued on August 5, 2020.

14 Therefore, the assessment was issued timely.

15 Assessment of Penalty.

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

17 negligence. See NMSA 1978, § 7-1-69 (2007) (emphasis added). The word “shall” indicates that

18 the assessment of penalty is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil

19 Conservation Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. Assessments of penalty are

20 presumed to be correct, and it is a taxpayer’s burden to show that the assessment was not correct.

21 See 3.1.11.8 NMAC (2001). See NMSA 1978, § 7-1-17. See also El Centro, 1989-NMCA-070.

22 Negligence includes inadvertence. See 3.1.11.10 (C) (2001). If a taxpayer is not negligent,

23 penalties may be excused. See 3.1.11.11 NMAC (2001) (listing several factors, such as relying

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1 on advice from an accountant, that indicate non-negligence). The Taxpayer had a CPA during

2 the tax periods in question. The Taxpayer described an acrimonious relationship with her CPA,

3 and she found his explanations and communications to be lacking, but she did not seek other

4 help. Moreover, it is apparent from their communications in Exhibit B that the Taxpayer’s

5 failure to file returns and pay her gross receipts tax was not caused by the advice of her CPA.

6 [Exhibit B]. Therefore, penalty was properly assessed.

7 Assessment of Interest.

8 Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

9 due. NMSA 1978, § 7-1-67 (A) (2013). Again, the word “shall” indicates that the assessment of

10 interest is mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation

11 Comm’n., 2009-NMSC-013, ¶ 22, 146 N.M. 24. The assessment of interest is not designed to

12 punish taxpayers, but to compensate the state for the time value of unpaid revenues. Because the

13 tax was not paid when it was due, interest was properly assessed.

14 CONCLUSIONS OF LAW

15 A. The Taxpayer filed a timely written protest to the assessment, and jurisdiction lies

16 over the parties and the subject matter of this protest. See NMSA 1978, § 7-1B-8 (2019).

17 B. The first hearing was timely set and held within 90 days of the request for hearing.

18 See id.

19 C. The assessment was issued timely. See NMSA 1978, § 7-1-18.

20 D. The Taxpayer failed to overcome the presumption that the assessment was correct.

21 See NMSA 1978, § 7-1-17. See also 3.3.1.9 NMAC.

22 E. Assessments of penalty and interest were required and appropriate under the statutes.

23 See NMSA 1978, § 7-1-67 and § 7-1-69.

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1 For the foregoing reasons, the Taxpayer’s protest IS DENIED. IT IS ORDERED that

2 Taxpayer is liable for $7,115.07 in gross receipts tax, $1,423.01 in penalty, and $1,654.53 in

3 interest for a total outstanding liability of $10,192.613.

4 DATED: July 14, 2022.

5 Dee Dee Hoxie
6 Dee Dee Hoxie
7 Hearing Officer
8 Administrative Hearings Office
9 P.O. Box 6400
10 Santa Fe, NM 87502

11 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

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

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

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

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

23 CERTIFICATE OF SERVICE

3
As of the date of the hearing. Interest continues to accrue until tax principal is paid.
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1 On July 14, 2022, a copy of the foregoing Decision and Order was submitted to the parties

2 listed below in the following manner:

3 First Class Mail and Email First Class Mail and Email
4
5 INTENTIONALLY BLANK

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