The Taxpayer was engaged in business in New Mexico in 2007 and was required to file and pay gross receipts tax monthly. The Taxpayer relied on its bookkeeper in 2007 to prepare and file the reports and payments. In March 2008, the bookkeeper’s employment was terminated as a result of making an unauthorized deposit of the Taxpayer’s funds into her personal account. Shortly after this, the Taxpayer received a letter from the Department stating that the Taxpayer was a non-filer on GRT for several months in 2007. The Department assessed the Taxpayer for GRT, compensating tax, penalty and interest for these months. The Taxpayer filed a formal protest regarding the assessment of penalty. Through its own forensic audit, the Taxpayer determined that the bookkeeper had embezzled over $100,000 during her employment. The Taxpayer argued in its protest that it was not negligent and should not be liable for penalty as a victim of the bookkeeper’s fraud. Negligence includes failure to exercise ordinary business care, which the Department argues the Taxpayer failed to do by leaving the bookkeeper essentially unsupervised with access to business accounts and control of all information regarding the accounts and taxes. The Hearing Officer agreed that the Taxpayer was negligent. The Hearing Officer also found that the calculation of penalty was incorrect because the maximum penalty that could be assessed was lower at the time these taxes were due and that the Department must abate penalty in excess of that maximum. For those reasons, the Taxpayer’s protest was granted in part and denied in part.
NOTE: The New Mexico Court of Appeals has overruled the 10% penalty issue mentioned in this decision. (Case No. 30,932)