 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 2   Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions.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
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 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

                                               8
