1998 -NMCA- 50, Quantum Corp. v. State Taxation and Revenue Dept.

Decision Date19 February 1998
Docket NumberNo. 17919,17919
Citation1998 NMCA 50,956 P.2d 848,125 N.M. 49
Parties, 1998 -NMCA- 50 QUANTUM CORPORATION, Plaintiff-Appellant, v. STATE of New Mexico TAXATION AND REVENUE DEPARTMENT, Defendant-Appellee.
CourtCourt of Appeals of New Mexico


¶1 Taxpayer, Quantum Corporation, and certain non-profit organizations are parties to "bingo lease" agreements under which the non-profit organizations use space in buildings leased and renovated by Taxpayer for bingo games. Taxpayer appeals a decision and order of the hearing officer of the New Mexico Taxation and Revenue Department (Department) assessing gross receipts taxes and interest on Taxpayer's proceeds under these agreements. The hearing officer found that the agreements were licenses, not leases, and that the income was subject to gross receipts taxes under NMSA 1978, § 7-9-53(A) (1991). Taxpayer raises two issues on appeal: (1) whether the hearing officer was incorrect in concluding that these arrangements were licenses and not leases; and (2) if the agreements are leases, whether rent Taxpayer received for leasing equipment within the buildings is deductible under Section 7-9-53(C). We reverse on the first issue and remand for the hearing officer to decide the second issue consistent with this opinion.


¶2 Taxpayer is a New Mexico corporation and engages in the business of leasing three buildings which it has remodeled and customized for purposes of conducting bingo games. The remodeled interiors include large open spaces for bingo patrons, a sales counter, a public address system and speakers, storage closets, a manager's office with floor safes, and snack bar areas. Taxpayer has placed bingo game equipment such as a flashboard, a bingo blower machine, and television monitors in the building. Taxpayer enters into agreements with non-profit organizations which conduct bingo games in the building during specified sessions. The premises described in the agreements include the facility and equipment, but exclude the snack bar areas.

¶3 Taxpayer entered into agreements with several non-profit organizations for each building. The term of each agreement is one year. The agreements specify the sessions when the organizations use the premises, typically four or five per week, ranging from one and one-half hours to three and one-half hours in length. The non-profit organizations rent the facility for $100 per session, regardless of the length of the session. Taxpayer charges $50 per session for equipment rental.

¶4 The organizations must make reasonable requests to Taxpayer for access at times other than the sessions designated in the agreements. They have a building key and know the building alarm code. Each organization has a floor safe for its exclusive use, as well as secure storage closets in which they store their bingo supplies. The organizations pay a pro rata portion of utility and cleaning fees. Taxpayer has access to the premises at any time.

¶5 Under the agreements, the organizations must adhere to strict use of the premises. They may use the building only for bingo sessions and related services. The agreements require the organizations to carry public liability insurance and provide security guards. They may not permit anyone to bring food, drinks, or bicycles into the building. Children under the age of 14 are allowed only in the television room, and no solicitation is allowed in the building.

¶6 The organizations pay rent for each session whether or not they hold the session. Taxpayer can maximize rental revenues by having seven organizations per building, with four sessions per week per organization. With this arrangement, Taxpayer could earn an annual income from the agreements of approximately $145,000 from session fees and $72,000 from equipment rental per facility. Taxpayer pays approximately $100,000 per year to lease each building.

¶7 The agreements establish a management committee, consisting of representatives of each non-profit organization, as well as Taxpayer's representative. The management committee may set policies for the building; however, in its sole discretion, Taxpayer can adopt policies which will control in the event of a conflict or inconsistency.


¶8 Generally, this Court reviews a hearing officer's decision regarding a protestant's tax liability for the limited purpose of determining whether it is: "(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 (1989): In this case, we are asked to determine whether the hearing officer's decision accords with the statutory definition of "lease" or "leasing" found in Section 7-9-53(A) and NMSA 1978, § 7-9-3(J) (1994). As such, we are called upon, in part, to answer a question of statutory interpretation, see Security Escrow Corp. v. Taxation & Revenue Dep't, 107 N.M. 540, 543, 760 P.2d 1306, 1309 (Ct.App.1988), which we review de novo, see Cox v. Municipal Boundary Comm'n, 120 N.M. 703, 705, 905 P.2d 741, 743 (Ct.App.1995). Because the statutes in question must be read in connection with other statutes concerning the same subject matter, see State ex rel. Quintana v. Schnedar, 115 N.M. 573, 575-76, 855 P.2d 562, 564-65 (1993), we also review the hearing officer's decision to determine whether it accords with the Bingo and Raffle Act, NMSA 1978, §§ 60-2B-1 to -14 (1981, as amended through 1991) (Bingo Act). Finally, to the extent that this case involves the application of the law of leasing to undisputed facts, we review the hearing officer's decision de novo, as we do other questions of law. See Edens v. New Mexico Health & Soc. Servs. Dep't, 89 N.M. 60, 62, 547 P.2d 65, 67 (1976) (when the historical facts are undisputed, the question whether the accident arose out of and in the course of employment is a question of law).

¶9 The Gross Receipts and Compensating Tax Act defines leasing as "any arrangement whereby, for a consideration, property is employed for or by any person other than the owner of the property, except that the granting of a license to use property is the sale of a license and not a lease." Section 7-9-3(J). Generally speaking, this Court has defined a lease as " 'an agreement under which the owner gives up the possession and use of his property for a valuable consideration and for a definite term.' " Cutter Flying Serv., Inc. v. Property Tax Dep't, 91 N.M. 215, 219, 572 P.2d 943, 947 (Ct.App.1977) (quoting Transamerica Leasing Corp. v. Bureau of Revenue, 80 N.M. 48, 51, 450 P.2d 934, 937 (Ct.App.1969)). The tenant must acquire some definite control and dominion of the premises. See Cutter Flying Serv., Inc., 91 N.M. at 219-20, 572 P.2d at 947-48.

¶10 Our legislature has not defined "license" in any of our statutes. When not defined, we will use a word according to its ordinary meaning unless a different intent is clearly indicated. See New Mexico Sheriffs & Police Ass'n v. Bureau of Revenue, 85 N.M. 565, 566, 514 P.2d 616, 617 (Ct.App.1973). Black's Law Dictionary defines "license" as "permission by competent authority to do an act which, without such permission, would be illegal, a trespass, a tort, or otherwise not allowable." Black's Law Dictionary 920 (6th ed.1990); see New Mexico Sheriffs & Police Ass'n, 85 N.M. at 566, 514 P.2d at 617. A license does not create an interest in land; it is similar to a tenancy at will. See Cutter Flying Serv., Inc., 91 N.M. at 219, 572 P.2d at 947.

¶11 Taxpayer argues that the intent of the parties controls and that the face of the document entitled "bingo lease," as well as the contents of the document, demonstrate that the parties intended a lease. The Department argues that the agreements are licenses because they do not convey an interest in real property, they do not provide for exclusive possession, and the organizations have insufficient control over the property to constitute a lease.

¶12 Under general law, the character of the instrument is not controlled by its form, "but from the intention of the parties as shown by the contents of the instrument." Transamerica Leasing Corp., 80 N.M. at 51-52, 450 P.2d at 937-38; S.S. Kresge Co. v. Bureau of Revenue, 87 N.M. 259, 260, 531 P.2d 1232, 1233 (Ct.App.1975). We review the entire contents of the instrument--the language employed, the subject matter, and when doubt exists, the surrounding circumstances--to determine if exclusive control and possession of a definite space for a definite term has been granted. See Town of Kearny v. Municipal Sanitary Landfill Auth., 143 N.J.Super. 449, 363 A.2d 390, 394 (Law Div.1976); 49 Am.Jur.2d Landlord and Tenant § 19, at 63 (1995); see generally S.S. Kresge Co., 87 N.M. at 260, 531 P.2d at 1233; Transamerica Leasing Corp., 80 N.M. at 52, 450 P.2d at 938.

¶13 The agreements are called "bingo leases" and have a stipulation for rent in exchange for transfer of possession. The agreements are for a one-year term, consisting of four or five sessions per week. The organizations pay $100 per session whether the facility is used or not. Taxpayer is giving up possession and use of its property during the periods of use by the non-profit organizations. While each agreement is for a definite term of one year, the duration of the sessions is atypical. Each session consists of a period of time of less than four hours. A typical lease arrangement would grant exclusive possession and use to one party for a period of time comprised of days, not hours.

¶14 The Bingo Act provides an explanation for this atypical time arrangement. It restricts non-profit organizations to 260 sessions a year, five sessions a week, of no more than four hours each, and no more than two sessions a day....

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