I paid my gross receipts taxes just one day late — why am I charged a whole month of interest and a penalty?

Plain-English summary

Davis and Associates, Inc. was a New Mexico corporation in commercial construction. Because of its large monthly volume, it had to remit its combined CRS taxes — gross receipts, compensating, and withholding — under the special payment procedures in Section 7-1-13.1. The company usually paid by hand-delivering a check drawn on a New Mexico bank to the Department's Santa Fe office. That method comes with a catch: the Department has to receive the check one banking day before the normal due date, which in practice made the taxes due on the 24th of the month.

Twice the company missed the 24th by a single day:

• March 1995 period (due April 24): delivered April 25. Assessment No. 1926210 — $1,555.43 interest plus a $2,488.68 penalty. The Department later abated that penalty.
• July 1995 period (due August 24): delivered August 25. Assessment No. 1958196 — $821.59 interest plus a $1,314.54 penalty. The Department refused to abate this one.

Hearing Officer Julia Belles denied the consolidated protest:

• One day late still means a full month of interest. Section 7-1-67(B) sets interest at 15% a year, "computed at the rate of one and one-fourth percent per month or any fraction thereof." A fraction of a month counts as a whole month, so a one-day delay draws a full month's interest — and the law provides no way to abate it.
• The interest carries a presumption of correctness. Because "tax" is defined to include related interest (Section 7-1-3(U)), the presumption in Section 7-1-17(C) covers the interest, and the company had the burden of proving it wrong. It couldn't — it admitted it paid late.
• The second penalty stood as negligence. The company blamed a new controller who was unaware of the CRS due date. That wasn't enough (Section 7-1-69): the company knew when its taxes were due — it had routinely paid on time — and it had just been warned by the first assessment, then was late again in identical circumstances. That is negligence.

What this means for you

Large filers on special CRS payment procedures

If you fall under Section 7-1-13.1 and pay by hand-delivered New Mexico check, your effective deadline is earlier than the ordinary due date — the Department must have the check one banking day before. Build that earlier date into your calendar; missing it by even a day is a full month of interest.

Anyone budgeting for late-payment interest

New Mexico interest is not prorated by the day. Section 7-1-67(B)'s "or any fraction thereof" means the smallest slip and a several-week delay can cost the same one month of interest. There is no hardship or good-faith exception to interest.

Employers and controllers handling tax calendars

A staff change is not a defense to a negligence penalty when the business itself knew and had complied before. After a first late payment and a warning, a second identical lapse is the classic fact pattern for an upheld penalty. Document the handoff of tax-calendar duties when personnel change, and note that the Department did abate the first penalty here — a single, genuinely non-negligent slip can be forgiven; a repeat is not.

Common questions

Q: I was only one day late. Why a whole month of interest?
A: Section 7-1-67(B) charges interest by the month "or any fraction thereof." Any part of a month counts as a full month, and there is no provision to abate interest for being only slightly late.

Q: Can a penalty be waived if my accountant or controller made the mistake?
A: Sometimes, but not automatically. The Department abated the first penalty here. It upheld the second because the company itself knew its due dates and had been warned — a new controller's unfamiliarity didn't overcome the company's own negligence in being late a second time.

Q: My payment is due on the normal date, right?
A: Not necessarily. If you use the special hand-delivered-check method under Section 7-1-13.1, the Department must receive the check one banking day before the ordinary due date, so your real deadline is earlier.

Citations and references

Statutes:

• § 7-1-13.1 NMSA 1978 — special payment methods for large taxpayers; a hand-delivered New Mexico check must be received one banking day before the normal due date
• § 7-1-67 NMSA 1978 — interest on unpaid tax; subsection (B) sets it at 1.25% per month "or any fraction thereof"
• § 7-1-17(C) NMSA 1978 — an assessment is presumed correct and the taxpayer bears the burden of disproving it
• § 7-1-3(U) NMSA 1978 — "tax" includes the amount of interest related to any tax
• § 7-1-69 NMSA 1978 — civil penalty for negligence in failing to pay tax when due
• § 7-1-24 NMSA 1978 — a taxpayer's right to file a written protest (basis for jurisdiction)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Davis and Associates
• Decision PDF: D&O 96-01

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST
OF DAVIS AND ASSOCIATES, INC.
I.D. NO. 01-795991-00 8, ASSESSMENT
NOS. 1926219 AND 1958196. No. 96-01

DECISION AND ORDER

This matter was heard on December 6, 1995 by Julia Belles, Hearing Officer. Davis

and Associates, Inc. (Taxpayer) was represented by Charles Watson and the Taxation and

Revenue Department (Department) was represented by Bridget A. Jacober, Special

Assistant Attorney General. Based upon the evidence and arguments presented, it is

decided and ordered as follows:
FINDINGS OF FACT

1. The Taxpayer is a corporation which engages in commercial construction in

New Mexico.

2. Due to the large dollar volume of the Taxpayer's monthly gross receipts, the

Taxpayer is required to make payment of its monthly gross receipts, compensating and

withholding taxes which are reported under New Mexico Combined Reporting System

(CRS) according to the special payment procedures set forth in Section 7-1-13.1 NMSA 1978

(1995 Repl.).

3. The Taxpayer's common method of payment is to hand deliver a check,

drawn on and payable at a New Mexico financial institution, to the Department's Santa Fe

office.

4. The Taxpayer's CRS taxes for the March 1995 reporting period were due

April 24, 1995, however, the Taxpayer hand delivered a check to the Department's Santa Fe
office on April 25, 1995.

5. On April 29, 1995, the Department mailed the Taxpayer a Notice of

Assessment No. 1926210. The Taxpayer was assessed $1,555.43 in interest and $2,488.68

penalty for failing to pay its taxes for the March 1995 reporting period on time.

6. The Taxpayer filed a written protest to Assessment No. 1926210 on May 18,

1995.

7. On June 8, 1995, the Department abated the penalty on Assessment No.

1926210.

8. The Taxpayer's CRS taxes for the July 1995 reporting period were due

August 24, 1995, however, the Taxpayer hand delivered a check to the Department's Santa

Fe office on August 25, 1995.

9. On August 31, 1995, the Department mailed the Taxpayer a Notice of

Assessment No. 1958196. The Taxpayer was assessed $821.59 in interest and $1,314.54

penalty for failing to pay its taxes for the July 1995 reporting period on time.

10. The Taxpayer filed a written protest to Assessment No. 1958196 on

September 6, 1995. The Taxpayer also requested that the penalty be abated on

Assessment No. 1958196.

11. On October 16, 1995, the Department responded that it would not abate the

penalty on Assessment No. 1958196. The Department also stated that it would
consolidate both protests for one hearing.

DISCUSSION
The Taxpayer disputes the interest that was calculated for its late payment of taxes.

Section 7-1-17(C) NMSA 1978 (1995 Repl.) provides that there is a presumption of

correctness which attaches to any assessment of taxes by the Department. "Tax" is

defined to include the amount of interest related to any taxes. Section 7-1-3(U) NMSA

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1978 (1995 Repl.). Therefore, the presumption of correctness attaches to the assessment

of interest as well. Thus, the Taxpayer has the burden of proving that the assessment of

interest is incorrect.

The Taxpayer falls under the provisions of Section 7-1-13.1 NMSA 1978 (1995 Repl.).

This statute provides special methods of payment. One way for a taxpayer to pay its tax

liability is to submit a check drawn on and payable at a New Mexico financial institution.

This method of payment requires that the Department receive the check one banking day

prior to the normal due date. The Taxpayer's common practice is to pay by check by
hand delivering the check to the Department's Santa Fe office. Because the Taxpayer has

chosen this method, the CRS taxes are due on the 24th of each month. Twice the

Taxpayer paid one day late and was charged one month of interest as required under

Section 7-1-67 NMSA 1978 (1995 Repl.). The Taxpayer protested the assessment of one

month of interest when it only paid one day late and the Taxpayer also protested the

assessment of penalty. On Assessment 1926210, the Department agreed to abate the

penalty as the Taxpayer showed it was not negligent under the provisions of Section

7-1-69 NMSA 1978 (1995 Repl.).

The Taxpayer has not met its burden to show that the assessment of interest on

Assessment No. 1926210 and the assessment of interest and penalty on Assessment No.

1958196 were incorrect. The Taxpayer admitted it did not timely pay its taxes. Section
7-1-67 NMSA 1978 (1995 Repl.) imposes interest for a month regardless to how late the tax

is paid. This is made clear by the language of Section 7-1-67(B) NMSA 1978 (1995 Repl.)

which provides that the "[i]nterest due to the state...shall be at the rate of fifteen percent a

year, computed at the rate of one and one-fourth percent per month or any fraction

thereof (emphasis added)." The law does not provide for the abatement of interest.
Further, the Taxpayer was warned with Assessment No. 1926210 of when it must pay its

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taxes. In spite of this, the Taxpayer was late a second time in identical circumstances.

The Taxpayer presented evidence that there had been a change in the controller and the

new controller was unaware of its CRS taxes due date. That evidence is insufficient to

prove that the Taxpayer was not negligent. While the controller may have been unaware

of the CRS taxes due date, the evidence clearly demonstrated that the Taxpayer was aware

of when its tax liability is due and had routinely complied with its obligation and timely

paid its CRS taxes. The penalty on Assessment No. 1958196 was correctly imposed

because the Taxpayer showed negligence in not delivering its check to the Department on
August 24, 1995 as required by the rules and regulations. Section 7-1-69 NMSA 1978

(1995 Repl.). The interest on Assessment 1926210 and the interest and penalty on

Assessment No. 1958196 were correctly imposed by the Department.

CONCLUSIONS OF LAW

1. The Taxpayer timely filed written protests, pursuant to Section 7-1-24 NMSA

1978 (1995 Repl.), to the interest of Assessment No. 1926210 and to the interest and penalty

of Assessment 1958196 and, therefore, jurisdiction lies over the parties and the subject

matter of this protest.

2. The Taxpayer did not timely pay its CRS taxes as required under the

provisions of Section 7-1-13.1 NMSA 1978 (1995 Repl.).

3. Interest was correctly imposed under Section 7-1-67 NMSA (1995 Repl.)
4. The penalty on Assessment No. 1958196 was correctly imposed as the

Taxpayer was aware of when and how payment of its taxes was required to be made and

the Taxpayer was negligent in failing to meet those requirements with respect to the

payment of taxes.

For these reasons, the Taxpayer's protest is hereby denied.

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Done this 4th day of January, 1996.

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