TEAM SPECIALTY v. NEW MEXICO TAXATION DEPT.

• Decision Date: 17 December 2004
• Docket Number: No. 24,670.,24,670.
• Citation: 137 N.M. 50,2005 NMCA 20,107 P.3d 4
• Parties: TEAM SPECIALTY PRODUCTS, INC., New Mexico ID No. 02-124490-00-1 Protest to Department's Denial of Application for Technology Jobs Tax Credit for Tax Year 2001, Appellant, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Appellee.
• Court: Court of Appeals of New Mexico

107 P.3d 4

137 N.M. 50

2005 NMCA 20

TEAM SPECIALTY PRODUCTS, INC., New Mexico ID No. 02-124490-00-1 Protest to Department's Denial of Application for Technology Jobs Tax Credit for Tax Year 2001, Appellant, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Appellee.

No. 24,670.

Court of Appeals of New Mexico.

December 17, 2004.

James Lawrence Sanchez, Rael & Sanchez, Los Lunas, NM, for Appellant.

Patricia A. Madrid, Attorney General, Susanne Roubidoux, Special Assistant Attorney General, Santa Fe, NM, for Appellee.

OPINION

SUTIN, Judge.

{1} The Taxation and Revenue Department of the State of New Mexico (the Department) denied an application by Team Specialty Products, Inc. (Taxpayer) for a tax credit under the Technology Jobs Tax Credit Act (the Technology Act), NMSA 1978, §§ 7-9F-1 to -12 (2000). The Department based the denial on Taxpayer's failure to apply for the tax credit within a statutorily prescribed time period. A Department hearing officer denied Taxpayer's protest of the Department's denial of Taxpayer's application. In this appeal, we are required to determine whether the one-year prescribed period contained in Section 7-9F-9(A) to apply for a tax credit is permissive or mandatory. We hold that the one-year period is mandatory and that the Department properly invoked Section 7-9F-9(A) to bar Taxpayer's application. We therefore affirm the decision and order of the hearing officer denying Taxpayer's protest.

BACKGROUND

{2} The Technology Act grants eligibility to a taxpayer conducting qualified research at a qualified facility and making qualified expenditures, all as defined in the Technology Act, to claim a "basic credit" equal to four percent of qualified expenditures, and to claim an "additional credit" equal to another four percent under certain circumstances. §§ 7-9F-5, -6. These claims may be pursued after a taxpayer has applied for and been granted approval for the credits. § 7-9F-9(B), (C). Section 7-9F-9(A) states: "A taxpayer may apply for approval of a credit within one year following the end of the calendar year in which the qualified expenditure was made."

{3} In November 2001, Robert and Daniel Sachs (Owners) purchased Taxpayer. Owners retained two employees, Barbara Blanton and her assistant, Jeff Hurley, whose duties were to pay bills, file tax returns, and perform general accounting tasks. Between November 2001 and February 2003, Owners were not aware of the existence of a technology jobs tax credit. During this gap in time and knowledge, the following occurred: For the first six months after the purchase, Blanton maintained that she was unable to provide Owners with financial information because the computer system was being updated, and Owners did not receive their first financial information until May 2002. Blanton resigned in June 2002 with no notice. Although Taxpayer's cash flow was improving, Owners began to receive notices that Taxpayer's vendors were not being paid; and, at the same time, Hurley, who had taken over Blanton's duties, informed Owners that he had lost Taxpayer's credit card and that someone had run up unauthorized charges. Upon investigation, Owners determined that it was Hurley who made the unauthorized charges, whereupon Owners fired Hurley. In reviewing Taxpayer's bookkeeping and accounting records, Owners discovered that bills and taxes had not been paid and that Hurley had forged a company check written to himself in the amount of $67,000.

{4} Upon hiring a certified public accountant to help straighten out Taxpayer's accounting problems, the accountant discovered two letters concerning a tax credit available to Taxpayer under the Technology Act. The first letter was dated December 26, 2001, from Taxpayer's former accounting firm to Blanton reminding her that Taxpayer's application for a tax credit for the months in 2000 during which the credit was available had to be mailed no later than December 31, 2001. The second letter, dated July 29, 2002, was from the Department to Blanton notifying her that Taxpayer's application for the tax credit for 2000 had been approved.

{5} After learning of these letters, Owners determined that neither Blanton nor Hurley had filed an application for the tax credit for the period January through December 2001, which is the time period at issue in this case. In September 2003, Taxpayer's accountant prepared and submitted an application for the basic and additional tax credits for the 2001 calendar year. The Department denied the application on September 19, 2003, on the ground that the application was not filed within one year following the end of the calendar year in which the qualified expenditures were made.

{6} Taxpayer protested this denial. Taxpayer's position before the hearing officer assigned to the protest was that the use of the word "may" in Section 7-9F-9(A) made the time limit in the statute optional rather than mandatory. Also, Taxpayer argued that under the statute the Department had discretion to extend the time within which an application for the tax credit may be filed when the taxpayer had good cause for delay. The hearing officer denied the protest, concluding that "[t]he one-year limitation period set out in [Section] 7-9F-9(A) is mandatory and not discretionary," and further that Taxpayer's untimely application barred the Department from approving the credit.

{7} On appeal, Taxpayer contends that the hearing officer's decision is contrary to law, arbitrary, and capricious because Section 7-9F-9(A) is discretionary and permissive, and that the Department was not barred from accepting the application. Taxpayer also asserts it was denied substantive due process.

DISCUSSION

Standard of Review

{8} We will set aside a decision and order of a hearing officer only if we find them to be "(1) arbitrary, capricious or an abuse of discretion; (2) not supported by substantial evidence in the record; or (3) otherwise not in accordance with the law." NMSA 1978, § 7-1-25(C) (1989); Grogan v. N.M. Taxation & Revenue Dep't, 2003-NMCA-033, ¶ 10, 133 N.M. 354, 62 P.3d 1236. In the present case, there exist no disputed facts. The hearing officer interpreted Section 7-9F-9(A), and applied that statute to the facts of the case. Our review of an application of the law to facts is de novo. Id.; Quantum Corp. v. Taxation & Revenue Dep't, 1998-NMCA-050, ¶ 8, 125 N.M. 49, 956 P.2d 848.

Interpretation of Section 7-9F-9(A) and Right to Extension of Deadline

{9} "[A]ll provisions of a [statutory scheme], together with other statutes in pari materia, must be read together to ascertain legislative intent." Roth v. Thompson, 113 N.M. 331, 334, 825 P.2d 1241, 1244 (1992). "The rule that statutes in pari materia should be construed together has the greatest probative force in the case of statutes relating to the same subject matter passed at the same session of the Legislature." State v. Davis, 2003-NMSC-022, ¶ 12, 134 N.M. 172, 74 P.3d 1064. We are guided by the principle that "[t]ax credits are strictly matters of legislative grace and are to be construed against the taxpayer." Murphy v. Taxation & Revenue Dep't, 94 N.M. 90, 93, 607 P.2d 628, 631 (Ct.App.1979).

{10} Taxpayer argues the classic distinction between "shall" and "may" in statutory construction. See Thriftway Mktg. Corp. v. State, 114 N.M. 578, 579, 844 P.2d 828, 829 (Ct.App.1992)

("[A] fundamental rule of statutory construction states that in interpreting statutes, the words `shall' and `may' should not be used interchangeably but should be given their ordinary meaning"); Vaughn v. United Nuclear Corp., 98 N.M. 481, 486, 650 P.2d 3, 8 (Ct.App.1982) ("[A]n amendment substituting `may' for `shall' manifests a clear intent to make the act referred to permissive instead of mandatory."); see also Chavez v. Am. Life & Cas. Ins. Co., 117 N.M. 393, 396, 872 P.2d 366, 369 (1994) ("The legislature is presumed to know the law, including the laws of statutory construction, when it passes legislation."). Taxpayer then argues that if the Legislature intended Section 7-9F-9(A) to be a mandatory statute rather than a permissive one, it could have worded Section 7-9F-9(A) as it did NMSA 1978, § 7-9A-8(A) (1979, as amended through 2000) in the Investment Credit Act, which reads: "A taxpayer shall apply for approval for a credit within one year following the end of the calendar year in which the qualified equipment for the manufacturing operation is purchased or introduced into New Mexico."

{11} Sections 7-9A-8(A) and 7-9F-9(A) are both contained in Chapter 7 of New Mexico's taxation statutes and they both involve tax credits. But Section 7-9A-8, which is in the Investment Credit Act, was enacted in 1979, some twenty years before Section 7-9F-9(A), which is in the Technology Act. We do not glean from these two statutes, or from a review of the taxation statutes in Chapter 7, that the use of "may" in Section 7-9F-9(A) requires the conclusion that the Department must, or under the circumstances of this case has the discretion to, permit filing beyond the one year mentioned in the statute. To the contrary, although it might be considered unusual for the Legislature to use the word "may" rather than "shall" if the Legislature intended the statute to constitute a statute of limitations, we are not persuaded that the Legislature did not intend a one-year limitation period in enacting Section 7-9F-9(A). It would be more unusual for the Legislature in tax legislation to intend by the words "may apply" together with a specific one-year time limitation to offer taxpayers an open-ended time frame within which to apply for approval of a tax credit. Taxpayer does not bring to our attention any tax credit or similar law provision that reads, or has been construed, in a manner that permits the open-ended, unrestricted, or unconditional application time frame that Taxpayer seeks.

{12} The Technology Act itself contains certain time frames. The Department is required in October of...