Condev West, Inc.



The Taxpayer owns and operates five retail stores in New Mexico and is registered with the Department for payment of CRS taxes. Following an audit, the Department assessed the Taxpayer compensating tax, interest, and penalty for the time period January 1997 through April 2000. The Department also determined that the Taxpayer made a number of overpayments during the audit period.  After the Taxpayer filed a claim for refund, these overpayments were credited against the amount of tax principal due on the assessment. The Taxpayer filed a written protest to the assessment of penalty, arguing: 1) the amount of underreported tax is insignificant when compared to the amount of tax paid during the same period and does not provide grounds to conclude that the Taxpayer acted negligently; 2) the penalty should be based on the net amount of tax due after application of the Taxpayer’s overpayments for the same period; 3) the sampling method the Department used to determine the Taxpayer’s liability has a margin for error and should not be the basis for determining penalty; and 4) the Taxpayer employs three in-house CPA’s to insure taxes are correctly reported and this establishes that the Taxpayer was not negligent in failing to properly report compensating tax. Held: The Taxpayer’s underpayment of compensating tax during the audit period was due to negligence or disregard of rules and regulations, and penalty was properly imposed pursuant to Section 7-1-69 NMSA 1978.