Anaconda Co. v. Property Tax Dept.

• Decision Date: 11 December 1979
• Docket Number: No. 3702,3702
• Citation: 608 P.2d 514,94 N.M. 202,1979 NMCA 158
• Parties: The ANACONDA COMPANY, Plaintiff-Appellant, Cross-Appellee, v. PROPERTY TAX DEPARTMENT of the State of New Mexico, Defendant-Appellee, Cross-Appellant.
• Court: Court of Appeals of New Mexico

Page 514

608 P.2d 514

94 N.M. 202

The ANACONDA COMPANY, Plaintiff-Appellant, Cross-Appellee, v. PROPERTY TAX DEPARTMENT of the State of New Mexico Defendant-Appellee, Cross-Appellant.

No. 3702.

Court of Appeals of New Mexico.

Dec. 11, 1979.

Writ of Certiorari Denied Jan. 21, 1980.

Owen M. Lopez, Thomas W. Olson, Gary R. Kilpatric, Montgomery, Andrews & Hannahs, Sante Fe, for Anaconda Co

Jeff Bingaman, Atty. Gen., John C. Cook and Jan Unna, Sp. Asst. Attys. Gen., Santa Fe, for Tax Dept.

OPINION

LOPEZ, Judge.

Pursuant to §§ 7-38-39 and 7-38-40, N.M.S.A. 1978, Anaconda filed suit in the District Court claiming a refund for certain ad valorem taxes paid voluntarily and under protest for tax years 1975 and 1976. The District Court denied refund on all but a portion of the claim for 1975. Anaconda appeals the denial of the remainder of the refund in 1975 and all of the refund in 1976. The Property Tax Department cross-appeals on the portion of the refund that was allowed. There are three issues on appeal: 1. the propriety of the valuation by the Property Tax Department in 1975 of all property used in connection with uranium property at 87 1/2% of its original cost; 2. the propriety of the denial by the Department of a deduction for obsolescence in 1976; and 3. the constitutionality of the valuation statute interpreted by the Department denying an additional 50% deduction from the value of uranium property when the uranium is obtained from an open-pit mine while allowing this deduction when the uranium is obtained from an underground mine.

Valuation of all Property at 87 1/2% of Original Cost

Anaconda claimed a refund for certain ad valorem taxes paid in 1975 on the basis that, in allowing only a flat 12 1/2% depreciation allowance from original cost, the Department improperly valued certain improvements, equipment and other personal property used by Anaconda in connection with its uranium mining and milling activities in Valencia County. The District Court upheld this claim, finding that the method of valuation prescribed by the New Mexico State Tax Commission (now the Property Tax Department) Rules and Regulations 70-4, in effect in 1975, was inconsistent with N.M.Laws 1973, ch. 258, § 17(B) (in effect during 1975) and with Article VIII, Section 1 of the New Mexico Constitution. The State appeals the allowance of a refund based on this claim.

In 1975 the law regarding the valuation of mineral property and property used in connection with mineral property when the primary production from the mineral property is uranium was N.M.Laws 1973, ch. 258, § 26 (current version at § 7-36-25(B), N.M.S.A. 1978). That law stated:

(B) The following kinds of property held or used in connection with uranium mineral property shall be valued under the methods of valuation required by the Property Tax Code and department regulations :

(1) improvements, equipment, materials, supplies and other personal property held or used in connection with all classes of uranium mineral property; . . . (Emphasis added.)

In 1970 the New Mexico State Tax Commission adopted Rules and Regulations 70-4 to be used in the determination of the value of mineral property for ad valorem tax assessment purposes. That regulation was in effect in 1975 and read in part:

VALUATION OF IMPROVEMENTS, EQUIPMENT, MATERIALS, SUPPLIES AND PERSONAL PROPERTY HELD OR USED IN CONNECTION WITH PRODUCTIVE MINERAL PROPERTY

3. In determining actual value, the State Tax Commission shall take the original cost of any improvements, equipment, materials, supplies and personal property held or used in connection with productive mineral property and subtract from said original cost 12 1/2%, as an allowance for intangibles. This will result in a percentage of 87 1/2% of original cost which shall constitute actual value of such above named and referred to properties.

The method prescribed in this regulation was used to value improvements, equipment and other personal property used by Anaconda in 1975. A general law regarding methods of valuation of property for taxation purposes in effect at the time required that "when no market value can reasonably be ascertained for property . . . method of valuation in general use and authorized by department regulation shall be used to determine value for property taxation purposes." N.M.Laws 1973, ch. 258, § 17(B) (current version at § 7-36-15(B), N.M.S.A. 1978). Since there was not sufficient data available to arrive at a market value for the property in question, the above statute required that the property be valued by methods of valuation in general use and authorized by the Department. A regulation was authorized by the statute. The question is whether the valuation method in the regulation was a method in general use. Based on the testimony of several witnesses, the trial court found that this method which granted a 12 1/2% depreciation, regardless of the age of the property, was not a generally accepted appraisal technique nor a method of valuation in general use.

The Department argues that the method of valuation was in general use since it was uniformly and consistently used by the Property Tax Department for property such as Anaconda's during 1975. This argument is an attempt to justify the regulation by the fact of its own existence, and would render superfluous the statutory requirement that the method of valuation be of "general use". We decline to accept this argument. A statute must be construed so that no word or part of the statute is rendered surplusage or superfluous. Stang v. Hertz Corp., 81 N.M. 69, 463 P.2d 45 (Ct.App.1969), aff'd, 81 N.M. 348, 467 P.2d 14 (1970).

In Bret Harte Inn, Inc. v. City of San Francisco, 16 Cal.3d 14, 127 Cal.Rptr. 154, 544 P.2d 1354 (1976), the Supreme Court of California held that the method of valuation of personal property where the cost of acquisition is discounted by a uniform 50% depreciation factor, regardless of age or condition of the property, is not a valid method of determining value. We agree that any property valuation method which uses one uniform percentage depreciation factor, regardless of the age of the property, is an improper method of determining property value. Such a method would not, except by mere coincidence, yield a value consistent with the fair market value of the property.

There being substantial evidence in the record to support the finding that the method of valuation prescribed in Regulation 70-4 was not generally used as a means of determining value in 1975, and there being substantial evidence of the valuation utilized by the trial court in ordering the refund, the decision of the trial court refusing to apply the regulation in valuing Anaconda's properties is affirmed.

As Regulation 70-4 is inconsistent with the statutory requirement that methods of valuation used by the Property Tax Department be generally accepted methods, we do not reach the issue of the constitutionality of the regulation. Property Tax Department v. Molycorp, Inc., 89 N.M. 603, 555 P.2d 903 (1976).

Deductions for Obsolescence

In filling out a tax form for the purpose of computing the ad valorem taxes owed on Anaconda's property used in connection with its Jackpile-Paguate uranium mine and its Bluewater mill, Anaconda claimed a 20% deduction for obsolescence. No information supporting the claimed deduction was included on the tax form, and the Property Tax Department denied the deduction. Using the figures from Anaconda's tax return, but without including the obsolescence deduction, the Department arrived at a value for the Anaconda properties in question. Anaconda claims that without the obsolescence deduction the State's assessment is too high.

The general rule is that the taxpayer has the burden of showing that the State's valuation is erroneous. Kaiser Steel Corp. v. Property Appraisal Department, 83 N.M. 251, 490 P.2d 968 (Ct.App.), cert. denied, 83 N.M. 258, 490 P.2d 975 (1971). Any assessment by the Tax Department is presumed to be correct. Section 7-1-17(C), N.M.S.A. 1978 (formerly § 72-13-32(C), N.M.S.A. 1953 (Supp.1975)); Addis v. Santa Fe County Valuation Protest Board, 91 N.M. 165, 571 P.2d 822 (Ct.App.1977). When a deduction is claimed, the taxpayer also has the burden of clearly establishing his right to it. Reed v. Jones, 81 N.M. 481, 468 P.2d 882 (Ct.App.1970). This is also true when a right to an exemption is claimed. United Veterans Organization v. New Mexico Property Appraisal Department, 84 N.M. 114, 500 P.2d 199 (Ct.App.1972). The Department asserts that any claimed diminution in property value due to obsolescence is clearly a deduction. It reaches this conclusion from reading the New Mexico statute that provides a definite method for arriving at the value of property used in connection with mineral property for purposes of ad valorem taxes. ¹ Both parties agree that § 7-36-33, N.M.S.A. 1978 is the statute under which certain Anaconda properties were to be assessed in 1976. They disagree as to which party has the burden of establishing the amount of the deduction. Anaconda argues that the amount of deduction for obsolescence of the property need not be proven by the taxpayer because, under the statute, the Department is required to determine it. The Department has a duty to establish the tangible property cost. Section 7-36-33(C)(1), N.M.S.A. 1978. From this tangible property cost the obsolescence factor is to be deducted. Section 7-36-33(C)(2). The statute does not require the Department to establish a deduction for Anaconda. It is the taxpayer who must establish the right to a deduction. Reed, supra. Law in other states and federal law concerning the concept of obsolescence confirms our position that the burden is on the taxpayer to prove the amount of the deduction for obsolescence to which it is entitled.

"Obsolescence" is generally understood to be the process "whereby property, because of causes other than physical deterioration,...