The Department sat on my protest for two years while interest piled up — can I at least get that interest reduced?

Plain-English summary

LEICA, Inc. was a corporation doing business in New Mexico. In 1992 the Multistate Tax Commission (MTC) ran a sales-tax audit covering November 1988 through December 1991. Based on the audit, the Department issued Assessment No. 1651584 on March 31, 1993 for $13,793.38 in tax, $5,312.09 in interest, and $1,381.95 penalty.

LEICA protested on April 30, 1993. The Department acknowledged the protest and warned the company that interest would keep accruing until the tax was paid. LEICA called once, on June 30, 1993, and was told the issues would be addressed in three to four months — then made no further contact for nearly two years. The Department did not respond until May 5, 1995. LEICA then asked that part of the interest be abated because of how long the Department had taken. It paid the tax on June 16, 1995 but continued to protest the interest that had piled up between June 1993 and June 1995.

Hearing Officer Julia Belles denied the protest:

• A government delay is not a defense. Even though the Department took two years to answer, the general rule is that "tardiness of public officers in the performance of statutory duties is not a defense to an action by the state to enforce a public right" (Matter of Ranchers-Tufco Limestone Project, 100 N.M. 632 (App. 1983)). Collecting interest on a tax deficiency is such a public right.
• Interest is mandatory. Section 7-1-67 says interest "shall be paid" on unpaid tax until it is paid. "Shall" makes it mandatory, not discretionary (Security Trust v. Smith), and no provision abates it for the circumstances of nonpayment.
• The taxpayer could have stopped the clock. LEICA had been warned interest was accruing, yet it never followed up during the two years and did not pay until 1995. Interest runs until the tax is paid, so paying sooner would have ended it. The presumption of correctness (Section 7-1-17(C)), which reaches interest because "tax" includes interest (Section 7-1-3(U)), placed the burden on LEICA, and it could not overcome these points.

What this means for you

If you are protesting an assessment

Filing a protest does not stop interest. If the tax turns out to be owed, interest accrues the entire time your protest is pending — even if the Department is slow. The one reliable way to cap it is to pay the disputed tax (you can pay and still protest, as LEICA ultimately did) so the interest stops running while the issue is decided.

Multistate businesses audited by the MTC

An MTC audit result flows to the state Department, which issues the New Mexico assessment. The interest rules that follow are New Mexico's, not the MTC's — and New Mexico interest is mandatory and not reduced for slow processing. Treat an MTC-driven assessment like any other: decide quickly whether to pay-and-protest.

Accountants and tax professionals

This decision pairs a specific authority worth knowing — Ranchers-Tufco's rule that public-officer tardiness is no defense to the state enforcing a public right — with the mandatory-interest rule of Section 7-1-67. Note the equitable weakness in the taxpayer's position: it was warned, sat silent for two years, and never paid to stop the accrual. A record of diligent follow-up would not have changed the mandatory-interest holding, but the decision leans on the taxpayer's inaction.

Common questions

Q: The Department took two years to answer my protest. Doesn't that reduce my interest?
A: No. Under Ranchers-Tufco, the tardiness of public officers is not a defense to the state enforcing a public right, and Section 7-1-67 makes interest mandatory with no abatement. The delay by itself does not cut your interest.

Q: Does protesting freeze the interest?
A: No. Interest keeps running while a protest is pending if the tax is ultimately owed. To stop it, pay the tax — you can still pursue your protest of the interest afterward.

Q: What should LEICA have done differently?
A: Paid the assessed tax earlier (which stops interest) and followed up on its protest instead of going silent for two years after being warned that interest was accruing.

Citations and references

Statutes:

• § 7-1-67 NMSA 1978 — interest "shall be paid" on unpaid tax from the day it became due until it is paid
• § 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
• § 7-1-24 NMSA 1978 — a taxpayer's right to file a written protest (basis for jurisdiction)

Case cited:

• Matter of Ranchers-Tufco Limestone Project, 100 N.M. 632 (Ct. App. 1983) — tardiness of public officers in performing statutory duties is not a defense to the state's enforcement of a public right
• Security Trust v. Smith, 93 N.M. 35 (1979) — the legislature's use of "shall" signals a mandatory rather than discretionary act

Source

• Listing: New Mexico Decisions & Orders
• Decision post: LEICA, Inc.
• Decision PDF: D&O 96-02

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 LEICA, INC., I.D. NO. 02-064481-00-7
ASSESSMENT NO. 1651584. No. 96-02

DECISION AND ORDER

This matter was scheduled for hearing before Julia Belles, Hearing Officer, on December

11, 1995. Rather than conduct an evidentiary hearing, the matter was submitted for decision

based upon stipulated facts, exhibits and written argument. The Taxpayer (Taxpayer) was

represented by Gary K. McKnight, Corporate Controller, 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 corporation which does business in New Mexico.

2. In 1992 the Multistate Tax Commission (MTC) conducted a sales tax audit on the
   Taxpayer for the period of November 1, 1988 through December 31, 1991.

3. When the audit was concluded, the MTC sent the results of its audit to the
   Department. The Department then sent Notice of Assessment No. 1651584. This notice was

sent on March 31, 1993 and assessed $13,793.38 in taxes, $5,312.09 in interest and $1,381.95
penalty.

4. On April 30, 1993, the Taxpayer filed a written protest against the assessment.
5. The Department acknowledged receipt of the protest on May 21, 1993 and

advised the Taxpayer that interest on the taxes would accrue until the taxes were paid.

6. The Taxpayer called on the Department on June 30, 1993 to discuss the protest
   and was informed the issues in the protest would be addressed in 3 to 4 months.

7. The Taxpayer did not make any further attempts to contact the Department after

June 30, 1993.

8. On May 5, 1995, the Department responded to the issues in the Taxpayer's protest.

9. The Taxpayer responded on May 16, 1995 and requested that part of the interest

be abated because of the length of time the Department took in responding to its protest. This

was the first time the Taxpayer contacted the Department since the June 30, 1993 telephone call.

10. On June 7, 1995, the Department wrote the Taxpayer and informed it of an error

the Department had made in addressing an issue concerning an invoice and also informed the

Taxpayer that the interest could not be abated.

11. The Taxpayer paid the amount of the taxes assessed on June 16, 1995 and

indicated that it still wished to protest the interest assessed.

DISCUSSION
The Taxpayer disputes the interest that was calculated on the assessment for the

time period June 1993 through June 1995. 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 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 attempted to correctly report its taxes, pay its taxes and cooperate with all

aspects of the audit. This case arises from the length of time it took the Department to respond
to the issues the Taxpayer raised in its protest. The Taxpayer filed a written protest on April 13,

1993. The Department acknowledged the protest and warned the Taxpayer that the interest on

the taxes would accrue until the taxes were paid. On June 30, 1993, the Taxpayer called the

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Department to find out what action, if any, was taken on its protest. The Department responded

that the issues would be addressed in about three to four months. The Taxpayer did not make

any other attempts to contact the Department and follow up on its protest until it received the

Department's May 5, 1995 letter. The Taxpayer paid the taxes assessed on Assessment No.

1651584 on June 16, 1995 but protested the interest that accrued between June 1993 and June

1995. The Taxpayer asked that interest be abated because it took the Department two years to

respond to its protest.

A review of these fact does not indicate that the interest on Assessment No. 1651584

should be abated. The Taxpayer was warned in June of 1993 that the interest on its taxes would

accrue until the taxes were paid. The Department did not respond to the Taxpayer's protest for

two years. However, the Taxpayer did not make any attempts to contact the Department during

that time and discuss the status of its protest even though it knew that the interest would accrue

until it paid the taxes. The length of time it took the Department to evaluate the Taxpayer's

protest is not a reason to abate the interest, especially when the Taxpayer was warned that the

interest would continue to accrue. "The general rule is that tardiness of public officers in the

performance of statutory duties is not a defense to an action by the state to enforce a public right

or to protect public interests (citations omitted)." Matter of Ranchers-Tufco Limestone

Project, 100 N.M. 632, 635 (App. 1983). Since the collection of interest on tax deficiencies is a

public right, this rule is applicable to this case as well and the Taxpayer is entitled to no relief

from the imposition of interest. Further, there is no provision in Section 67-1-67 NMSA 1978

(1995 Repl.), the statutory provision governing the imposition of interest, which allows for any

circumstances where the accrual of interest is abated. It simply provides that "interest shall be

paid" on any unpaid tax from the day on which it became due, until it is paid. The legislature's

choice of the word "shall" indicates a legislative intent that the act is mandatory rather than

discretionary. Security Trust v. Smith, 93 N.M. 35 (1979). Thus, the legislature has mandated

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that interest be imposed on any unpaid taxes, regardless of the circumstances surrounding their

nonpayment.

Additionally, the Taxpayer's argument misapprehends the nature of our self-reporting tax

system. The responsibility to ensure the proper and timely reporting and payment of taxes lies

with the taxpayer. This responsibility does not shift to the Department merely because it audited

the Taxpayer to determine whether the Taxpayer had properly fulfilled its obligation to properly

report and pay taxes. If the Taxpayer had properly determined and reported taxes in the first

place, there would be no interest at issue. Although it would be best if a taxpayer's protest could

be resolved expeditiously, the Taxpayer was warned that the interest on its taxes would accrue

until the liability was paid and the Taxpayer made no effort to follow up on its protest when it did

not hear back from the Department in the time frame suggested by the Department. Under these

circumstances, interest was properly assessed.

CONCLUSIONS OF LAW

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

1978 (1995 Repl.), to the interest portion of Assessment No. 1651584 and, therefore, jurisdiction

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

2. The Taxpayer protested the taxes assessed in Assessment No. 1651584 on April

30, 1993 and did not pay its tax liability until June 16, 1995 after the Department responded to
the issues raised in its protest.

2. The Department's delay in responding to the Taxpayer's protest is not a valid
   defense to the imposition of interest on unpaid taxes and the interest was properly imposed.

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

Done this 4th day of January, 1996.

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