Cavu Co. v. Martinez

• Decision Date: 04 August 2014
• Docket Number: No. 34,039.,34,039.
• Parties: CAVU CO., a Nebraska Corporation, Respondent–Petitioner, v. Domingo P. MARTINEZ, Santa Fe County Assessor, Petitioner–Respondent.
• Court: New Mexico Supreme Court

332 P.3d 287

CAVU CO., a Nebraska Corporation, Respondent–Petitioner,

v.Domingo P. MARTINEZ, Santa Fe County Assessor, Petitioner–Respondent.

No. 34,039.

Supreme Court of New Mexico.

Aug. 4, 2014.

Sommer, Udall, Sutin, Hardwick & Hyatt, P.A., Kurt A. Sommer, Santa Fe, NM, Francis P. Matthews, Elkhorn, NE, for Petitioner.

Bridget Ann Jacober, Santa Fe, NM, for Respondent.

OPINION

DANIELS, Justice.

{1} In this property tax case, we hold that the appropriate inquiry into the validity of a property's educational exemption from taxation under the exemption provision of Article VIII, Section 3 of the New Mexico Constitution is whether use during the tax year furthers the exempt purpose. Because the taxpayer in this case had only used the property for educational purposes, had declined to use it for noneducational purposes, and was actively negotiating with schools capable of relocating to his campus property during the relevant tax year when the property was temporarily vacant, we reverse the conclusions of the lower courts that the property could not qualify for an educational use exemption and remand the case to the Santa Fe County Valuation Protests Board for further consideration.

I. BACKGROUND

{2} The relevant facts are undisputed. Petitioner CAVU Company (Taxpayer), a Nebraska corporation, was the owner of a twenty-six-acre school campus (the Property) in Santa Fe that was developed and improved beginning in 1997 solely for operation as a school. Since opening its doors over fifteen years ago, the Property has been used for educational purposes by several schools and has never been used for any other purpose. The following time line indicates the changes in occupancy of the Property since its development for use as a school.

August 1998 to May 2008:

New Mexico Academy for Science and Mathematics

June 2008 to January 2010:

(vacant)

February 2010 to May 2010:

Clever Canines, L.L.C. (training school for dog owners)

June 2010:

(vacant)

July 2010 to May 2012:

Santa Fe International Elementary School

May 2012 to Present:

Desert Academy

{3} Taxpayer purchased the Property in 2004, when the New Mexico Academy for Science and Mathematics (NMASM) was experiencing financial difficulties. Taxpayer leased the Property to NMASM for $1.00 per year for several academic years and supported the school with donations in an effort to help NMASM succeed. In August 2007, Taxpayer raised the rent to $10,000 per month, although by November 2007 it was clear that NMASM could not afford that rate. At this point, Taxpayer allowed the school to occupy the building rent free until June 2008, when it closed.

{4} Throughout the remainder of 2008 and all of 2009, Taxpayer actively sought to lease the Property to various other educational tenants, negotiating in particular with Desert Academy. Taxpayer listed the Property for sale on the residential or commercial market but refused to lease the building to anyone other than an educational tenant. According to Taxpayer's affidavit, a film company offered to lease the Property for $15,000 per month in November 2009, but Taxpayer turned down the offer, insisting on “maintain[ing] the property for educational uses only,” “continu[ing] in that category” as long as Taxpayer owned it, and “[passing up] any lease, however attractive, other than to an educational facility.”

{5} In March 2010, shortly after Taxpayer began temporarily leasing the Property to a training school for dogs and their owners, the Santa Fe County Assessor discovered the Property's sale listing. Although the Assessor was apparently aware that the Property had been vacant, it was the sale listing that motivated the Assessor to put the Property on the tax rolls and issue Taxpayer a notice of valuation for $6,689,750 for the 2010 tax year. Taxpayer filed an application for an educational use exemption for 2010, which the Assessor denied because “on January 1st of 2009 and 2010” the property “was not used directly and immediately for educational purposes.”

{6} In July 2010, after protracted negotiations with Desert Academy ended without a deal, Taxpayer successfully entered into a lease with the Santa Fe International Elementary School (SFIES). In his affidavit, Taxpayer states that the lease to SFIES was “for a rental far below market value.”

{7} Following a March 2011 hearing before the Santa Fe County Valuation Protests Board, the Board reinstated Taxpayer's exemption for 2010. The Board concluded that because Assessor had allowed a similar vacant school—the St. Francis Cathedral School—to remain exempt during the same tax year, Assessor was required to give Taxpayer's property equal treatment under Article VIII, Section 1(A) of the New Mexico Constitution.

{8} Addressing the Property's educational use, the Board found that during the Property's vacancy, Taxpayer “was actively seeking a school tenant [,] ... negotiating with one or more potential tenants[,] ... commit[ted] to an educational use of the subject property in the form of nominal or significantly reduced rents for such use[, and] ... not putting the property to any commercially remunerative use—or even any non-educational use at all.” Because of the Board's dispositive decision to grant the exemption based on Taxpayer's equal treatment constitutional claim, however, the Board declined to “make a formal decision” on the Property's educational use. Nevertheless, the Board observed that “this case might present one of the rare instances in which temporary nonuse actually constitutes an exempt use of property.”

{9} On Assessor's appeal, the First Judicial District Court reversed the Board's decision and denied the exemption pursuant to NMSA 1978, Section 7–38–7 (1997) because the Property was not “currently and actively used as an educational facility” specifically on January 1, 2010, the Property had been listed for sale to residential or commercial buyers, and no showing of fraud or intentional discrimination entitled the Property to an exemption under Article VIII, Section 1(A). Soon after the district court's ruling, Taxpayer sold the Property to Desert Academy.

{10} The Court of Appeals affirmed the district court's denial of the exemption but on different grounds. See CA VU Co. v. Martinez, 2013–NMCA–050, ¶¶ 1, 33, ––– N.M. ––––, 302 P.3d 126, cert. granted,2013–NMCERT–004, ––– N.M. ––––, 301 P.3d 859. The Court held that (1) the district court erred in determining that Section 7–38–7 limited the qualification period for an exemption to January 1 alone because the appropriate qualification period was the previous calendar year and January 1 was simply “the cut-off date,” seeid. ¶¶ 18, 22 & n. 2; (2) the Property did not qualify for an exemption because taxes are assessed annually and because the educational use was not “ ‘primary and substantial’ ” and “ ‘present and actual’ ” during the previous (2009) calendar year, see id. ¶¶ 22 & n. 2, 24; and (3) Taxpayer's property was not entitled to an exemption under the constitutional equal treatment provision because the unequal taxation between the two “similarly situated propert[ies]” was not intentional, fraudulent, or discriminatory, see id. ¶¶ 25, 32.

{11} We granted certiorari to determine whether Taxpayer's active negotiations with potential educational tenants and Taxpayer's rejection of a commercial lease during 2009 qualify as use eligible for exemption. We expressly affirm the other two Court of Appeals holdings as follows. First, the prior calendar year is the appropriate time period upon which to base a property's exemption status, and January 1 is the appropriate “cutoff date” under Article VIII, Section 3 of the New Mexico Constitution; the Property Tax Code, NMSA 1978, Sections 7–35–1 through –38–93 (1973, as amended through 2013); and the Property Taxes chapter of the New Mexico Administrative Code, 3.6 NMAC (03/30/1973, as amended through 04/15/2013). See CAVU Co., 2013–NMCA–050, ¶¶ 15, 17, 33, ––– N.M. ––––, 302 P.3d 126. Second, a taxpayer is not entitled to an exemption under Article VIII, Section 1(A) of the New Mexico Constitution based on evidence that another taxpayer with similarly used property received such an exemption, absent a finding that the unequal taxation was intentional, fraudulent, or discriminatory. See CAVU Co., 2013–NMCA–050, ¶¶ 28, 33, ––– N.M. ––––, 302 P.3d 126. Because the Court of Appeals provided a thorough analysis on these two holdings, we do not add to them. See State v. Ulibarri, 2000–NMSC–007, ¶¶ 2–3, 128 N.M. 686, 997 P.2d 818 (writing primarily to emphasize certain points of law and secondarily to affirm the Court of Appeals without “add[ing] anything further to the analysis contained in the opinion of the Court of Appeals”).

II. DISCUSSIONA. Standard of Review

{12} This Court reviews an administrative appeal under an administrative standard of review, seeking to determine if the decisions below are fraudulent, arbitrary, capricious, an abuse of discretion, not supported by substantial evidence in the record, or not in accordance with law. SeeNMSA 1978, § 39–3–1.1(D)–(E) (1999); Rayellen Res., Inc. v. N.M. Cultural Prop. Review Comm., 2014–NMSC–006, ¶ 15, 319 P.3d 639; see also Rio Grande Chapter of Sierra Club v. N.M. Mining Comm'n, 2003–NMSC–005, ¶¶ 14 n. 7, 15, 133 N.M. 97, 61 P.3d 806 (explaining that authority to review for abuse of discretion is in the appellate court “solely”). In other words, we “conduct the same review of an administrative order as the district court sitting in its appellate capacity, while at the same time determining whether the district court erred in the first appeal.” Rio Grande Chapter of Sierra Club, 2003–NMSC–005, ¶ 16, 133 N.M. 97, 61 P.3d 806. When an administrative decision is based on an issue of law, such as statutory or constitutional interpretation, our review is de novo. See Rayellen, 2014–NMSC–006, ¶ 16, ––– N.M. ––––, 319 P.3d 639.

B. Determination of Eligibility for Educational Property Exemption

{13} We begin our...