Kidz Karousel Inc.,d/b/a Children’s Orchard

01-15

Taxpayers opened a retail clothing store in May 1998.  Recognizing their lack of business experience, the Taxpayers hired a CPA and an attorney for the specific purpose of insuring that all required tax and legal forms were filed correctly. The Taxpayers also hired a payroll service to handle their payroll taxes. In January 2000, the Taxpayers met with their CPA to file 1999 corporate tax returns. The CPA asked for copies of monthly gross receipts tax reports, which he had not asked to see when completing the Taxpayer’s 1998 returns. The Taxpayers told the CPA the payroll service was filing their CRS-1 returns, but later discovered the payroll service filings did not include the Taxpayer’s gross receipts tax liability.  The Taxpayers were not aware of the gross receipts tax and did not understand why neither their CPA nor their attorney had ever discussed the gross receipts tax with them.  The Taxpayers immediately filed all back gross receipts tax returns and began to make monthly payments on their outstanding tax liability. In May 2000, the Department assessed the Taxpayers for unpaid gross receipts tax, interest and penalty. The Taxpayers protested the assessment of interest and penalty.  Held:  Pursuant to Section 7-1-67 NMSA 1978, interest was properly assessed against the Taxpayers on the late payment of gross receipts taxes. Pursuant to Section 7-1-69 NMSA 1978 and the Department’s regulations, the Taxpayers reasonably relied on their advisors to alert them to the need to file gross receipts tax returns and were not negligent in failing to report gross receipts tax during the period at issue.  Protest denied in part and granted in part.