Joy Odom



The Taxpayer was a New Mexico resident in 2005 and 2006 and received retirement income distributions in those years.  The Taxpayer failed to file personal income tax returns with the Department for 2005 and 2006.  The Department determined that the Taxpayer was a non-filer through a tape match with federal returns.  The Department then assessed the Taxpayer for personal income tax, penalty and interest for the two years in question.  The Taxpayer filed a formal protest to the assessments, in which she argued that her retirement income was from the state of Texas, and because she never worked in New Mexico, her retirement income is not subject to New Mexico tax.  New Mexico imposes a personal income tax on the net income, based in part on federal adjusted gross income, of every person who resides in New Mexico.  Retirement income of a New Mexico resident, regardless of the source, is fully allocated to New Mexico.  The Taxpayer also argued that penalty and interest should not be assessed because she was not timely notified that she owed tax, nor was she sent information about this upon calling the Department when she moved to New Mexico.  Section 7-1-67 NMSA 1978 states that interest “shall” be paid on taxes not paid when due.  The Department does not have the option of not assessing interest.  A Taxpayer’s lack of knowledge or erroneous beliefs about not owing tax do not preclude penalty from being assessed.  The Hearing Officer 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)