Tax & Rev. v. Ortiz

1 This memorandum opinion was not selected for publication in the New Mexico Reports. Please see 2 Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please 3 also note that this electronic memorandum opinion may contain computer-generated errors or other 4 deviations from the official paper version filed by the Court of Appeals and does not include the 5 filing date. 6 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO 7 STATE OF NEW MEXICO TAXATION 8 AND REVENUE DEPARTMENT, 9 Plaintiff-Appellant, 10 v. NO. 30,609 11 STEVE ORTIZ d/b/a STEVE ORTIZ 12 EQUIPMENT AND MECHANICAL, 13 Defendant-Appellee. 14 IN THE MATTER OF THE PROTEST OF 15 STEVE ORTIZ d/b/a STEVE ORTIZ 16 EQUIPMENT AND MECHANICAL. 17 APPEAL FROM THE TAXATION AND REVENUE DEPARTMENT 18 Sally Galanter, Hearing Officer 19 Gary K. King, Attorney General 20 Carolyn A. Wolf, Special Assistant Attorney General 21 Amy Chavez-Romero, Special Assistant Attorney General 22 Santa Fe, NM 23 for Appellant 24 Butt Thornton & Baehr, P.C. 25 Emily A. Franke 26 Albuquerque, NM 1 for Amicus Curiae 2 MEMORANDUM OPINION 3 VANZI, Judge. 4 This is another in a series of cases which require us to decide if the increase in 5 the maximum statutory penalty for failure to pay taxes should be imposed on a 6 taxpayer whose tax liabilities arose prior to the effective date of the legislation that 7 increased the maximum penalty amount. The New Mexico Taxation and Revenue 8 Department (the Department) appeals the hearing officer’s decision reducing the 9 Department’s application of a twenty percent civil penalty against Steve Ortiz, d/b/a 10 Steve Ortiz Equipment and Mechanical, (Taxpayer) to a maximum ten percent 11 penalty. The hearing officer found that the imposition of the new statutory penalty 12 constituted an improper retroactive application of the amendment. We reverse. 13 BACKGROUND 14 Taxpayer failed to pay gross receipts taxes in 2006. In 2009, the Department 15 assessed Taxpayer for the unpaid taxes and imposed a penalty. The notice of 16 assessment set out the amount Taxpayer owed and stated the penalty was calculated 17 at a rate of two percent per month or partial month up to a maximum of twenty percent 18 of the amount of tax due. Taxpayer protested the assessment. At the administrative [2] 1 hearing, Taxpayer argued that he had relied on his accountant to take the steps 2 necessary to address the Department’s notice of limited scope audit and that, 3 therefore, the imposition of the penalty was improper. 4 The hearing officer concluded that Taxpayer was properly assessed for unpaid 5 gross receipts taxes and that Taxpayer was subject to the penalty for failure to file or 6 pay a tax pursuant to NMSA 1978, Section 7-1-69(A) (2007). Although the hearing 7 officer denied Taxpayer’s protest of the imposition of the penalty, the hearing officer 8 concluded that the amount of the penalty “shall not exceed ten percent” of the tax due 9 but not paid and directed the Department to abate ten percent of the penalty amount 10 for the 2006 tax year. 11 Section 7-1-69 provides in pertinent part, 12 [I]n the case of failure due to negligence or disregard of [D]epartment 13 rules and regulations, but without intent to evade or defeat a tax, to pay 14 when due the amount of tax required to be paid, to pay in accordance 15 with the provisions of Section 7-1-13.1 NMSA 1978 when required to 16 do so or to file by the date required a return regardless of whether a tax 17 is due, there shall be added to the amount assessed a penalty in an 18 amount equal to the greater of: 19 (1) two percent per month or any fraction of a month from the 20 date the tax was due multiplied by the amount of tax due but not paid, 21 not to exceed twenty percent of the tax due but not paid; 22 (2) two percent per month or any fraction of a month from the 23 date the return was required to be filed multiplied by the tax liability 24 established in the late return[.] [3] 1 A prior version of the statute set the maximum statutory penalty at ten percent of the 2 unpaid tax. NMSA 1978, § 7-1-69 (2003) (amended 2007). The Legislature amended 3 Section 7-1-69 to increase the maximum statutory penalty to twenty percent, effective 4 January 1, 2008. 2007 N.M. Laws, ch. 45, §§ 4, 16. 5 The hearing officer reasoned that because the Legislature did not include a 6 retroactivity provision in the amendment, the Department could only impose the 7 penalty up to ten percent of the tax due but not paid and that the maximum statutory 8 penalty had already been reached prior to January 1, 2008. The Department appealed 9 the hearing officer’s rejection of the new statutory penalty of twenty percent on the 10 tax liability that arose for tax periods occurring prior to 2008. Taxpayer did not file 11 an answer brief in this case, and we requested briefing from Amicus Curiae on the 12 legal arguments from Taxpayer’s perspective.1 13 DISCUSSION 14 Because we are presented with an issue of statutory interpretation, our review 15 is de novo. Hess Corp. v. N.M. Taxation & Revenue Dep’t, 2011-NMCA-043, ¶ 11 , [16] 149 N.M. 527 , 252 P.3d 751 , cert. denied, 2011-NMCERT-003 , ___ N.M. ___, ___ 17 P.3d ___ ; N.M. Taxation & Revenue Dep’t v. Dean Baldwin Painting, Inc., 2007- [1] 18 We wish to thank Amicus for the excellent brief that was submitted and that 19 has been of considerable help to this Court. [4] 1 NMCA-153, ¶ 7, 143 N.M. 189 , 174 P.3d 525 . This Court can only set aside the 2 hearing officer’s decision if it was arbitrary and capricious, not supported by 3 substantial evidence, or not in accordance with the law. NMSA 1978, § 7-1-25(C)(1)- 4 (3) (1989); Kewanee Indus., Inc. v. Reese, 114 N.M. 784, 786 , 845 P.2d 1238 , 1240 5 (1993). Though our review is de novo, we give some deference to the hearing 6 officer’s reasonable interpretation and application of the statute. Jicarilla Apache 7 Nation v. Rodarte, 2004-NMSC-035, ¶ 25 , 136 N.M. 630 , 103 P.3d 554 . Tax 8 assessments made by the Department are presumed to be correct. NMSA 1978, § 7-1- 9 17(C) (2007). 10 The Department argues that the hearing officer erred in deciding that the 11 amended twenty percent statutory penalty imposed on Taxpayer was improperly 12 applied retroactively. Amicus, on the other hand, argues that the hearing officer’s 13 decision was correct and consistent with the presumption that statutory amendments 14 are not to be given retroactive effect. Specifically, Amicus contends that the 15 Department’s right to a penalty comes into existence when the due date for filing the 16 return occurs, and the tax liability remains unpaid. And because the failure to pay the 17 tax on the due date occurred prior to the effective date of the statutory amendment, 18 imposition of the new statutory penalty would result in an improper retroactive 19 application of Section 7-1-69(A). [5] 1 In GEA Integrated Cooling Technology v. State of New Mexico Taxation & 2 Revenue Department, ___-NMCA-___, ¶ 10, ___ N.M. ___, ___ P.3d ___, (No. 3 30,790, Dec. 8, 2011), this Court recently interpreted Section 7-1-69(A) to mean that 4 when assessing the tax penalty, “the Department must start calculating the two percent 5 per month penalty rate from that tax due date, counting forward continuously until the 6 maximum penalty percentage is reached.” We held that, because the “date the tax was 7 due” provides the Department with a date certain on which to calculate the amount of 8 the penalty assessed upon a taxpayer, the maximum statutory penalty is determined 9 at the time of assessment, not at the time the tax becomes due. GEA, ___-NMCA-___, 10 ¶ 10. 11 In the present case, the Department began a limited scope audit of Taxpayer’s 12 2006 gross receipts tax reporting on June 3, 2009. The Department determined that 13 Taxpayer owed $3,919.32 in tax liability that arose in 2006, and on October 23, 2009, 14 it issued Taxpayer a notice of assessment for taxes, penalty, and interest. 15 Accordingly, at the time of assessment, the appropriate statutory penalty to be applied 16 against Taxpayer was “two percent per month . . . from the date the tax was due 17 multiplied by the amount of tax due but not paid, not to exceed twenty percent of the 18 tax due but not paid[.]” Section 7-1-69(A)(1). [6] 1 To the extent that the hearing officer concluded that the Department was 2 improperly applying the new maximum statutory penalty retroactively, we disagree. 3 Once again, our opinion in GEA controls. In GEA, we held that because the 4 taxpayer’s status was already subject to the imposition of the penalty, and because the 5 Legislature may amend the penalty statute at any time, the application of the new 6 statutory penalty to the taxpayer’s outstanding liability did not affect any right the 7 taxpayer possessed under prior law. ___-NMCA-___, ¶ 21. Therefore, application 8 of the new statutory penalty under Section 7-1-69 does not give the amended statute 9 impermissible retroactive effect. GEA, ___-NMCA-___, ¶ 21. We are similarly 10 unpersuaded by Amicus’ argument that the new statutory penalty is unconstitutionally 11 retroactive as a matter of policy. Article IV, Section 34 of the New Mexico 12 Constitution provides 13 No act of the [L]egislature shall affect the right or remedy of either party, 14 or change the rules of evidence or procedure, in any pending case. 15 At the time Section 7-1-69 was amended, this case was not “pending” within the 16 meaning of the Constitution. At that time, Taxpayer had simply failed to file or pay 17 taxes, and the Department had yet to assess Taxpayer and demand payment. See 18 Bradbury & Stamm Constr. Co. v. Bureau of Revenue, 70 N.M. 226, 239 , 372 P.2d 19 808, 817 (1962) (stating that penalties are not part of the tax and, therefore, not part [7] 1 of the obligation and may be changed without violating the New Mexico 2 Constitution). 3 In light of our analysis and decision in GEA, we conclude that the application 4 of the increased penalty cap to tax liabilities that arose for tax periods occurring prior 5 to the effective date of the amendment does not have retroactive effect and does not 6 violate Article IV, Section 34 of the New Mexico Constitution. We reverse the 7 hearing officer’s decision and order directing the Department to reduce the maximum 8 penalty from twenty percent to ten percent in this case. 9 CONCLUSION 10 For the reasons set forth above, we reverse the decision of the hearing officer 11 directing the Department to reduce the statutory penalty against Taxpayer. 12 IT IS SO ORDERED. 13 __________________________________ 14 LINDA M. VANZI, Judge 15 WE CONCUR: 16 _________________________________ 17 JAMES J. WECHSLER, Judge 18 _________________________________ 19 TIMOTHY L. GARCIA, Judge