CCA of Tenn. v. N.M. Taxation & Revenue Dep't
| Jurisdiction | New Mexico,United States |
| Parties | CCA OF TENNESSEE, LLC, Appellant-Respondent, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Appellee-Petitioner. IN THE MATTER OF THE PROTEST TO ASSESSMENT ISSUED UNDER LETTER ID. NO L1081049392 |
| Decision Date | 16 January 2024 |
| Court | New Mexico Supreme Court |
| Docket Number | S-1-SC-38681 |
Hector H. Balderas, Attorney General New Mexico Taxation and Revenue Department David E. Mittle, Special Assistant Attorney General Santa Fe, NM for Petitioner
Sutin Thayer &Browne, P.C. Suzanne W. Bruckner Andrew J. Simons Wade L. Jackson Albuquerque, NM for Respondent
{¶1} The issue on appeal is whether taxpayer CCA of Tennessee, LLC (CCA), a private prison corporation, accepted in good faith a nontaxable transaction certificate (NTTC) executed by Torrance County (the County) for CCA's housing of federal prisoners at the Torrance County Detention Center (the Detention Center). An NTTC establishes a taxpayer's entitlement to claim a deduction for the gross receipts it receives from the sale of certain licenses or services. NMSA 1978, § 7-9-43(A) (2011, amended 2018); NMSA 1978 § 7-9-47 (1994, amended 2021); NMSA 1978, § 7-9-48 (2000, amended 2021).[1] The issuance of an NTTC for such sales is predicated on the buyer reselling the license or services it purchased from the taxpayer. Section 7-9-47; § 7-9-48. When the taxpayer accepts a properly executed NTTC in good faith, the NTTC is conclusive evidence that the proceeds are deductible from that taxpayer's otherwise taxable gross receipts. Section 7-9-43(A). Generally speaking, this provides the taxpayer with safe harbor protection from liability for payment of gross receipts tax in situations where, unbeknownst to the seller, the buyer is not reselling the license or services in the intended manner. See § 7-9-43(A).
{¶2} The administrative hearing officer for the New Mexico Taxation and Revenue Department (the Department) concluded that CCA, as the seller, did not in good faith accept the NTTC, executed by the County as buyer, and therefore was not entitled to the deduction from gross receipts it received for housing federal prisoners. See id. The Court of Appeals came to the opposite conclusion. CCA of Tenn. v. N.M. Tax'n &Revenue Dep't, A-1-CA-37548, mem. op. ¶ 27 (N.M. Ct. App. Jan. 21, 2021) (nonprecedential).
{¶3} We agree with the conclusion of the hearing officer and hold that under the plain language of Section 7-9-43(A), CCA did not accept the NTTC in good faith and is therefore not entitled to safe harbor protection from the payment of gross receipts tax. We reverse the Court of Appeals.
{¶4} CCA owned and operated the Detention Center during the times relevant to this appeal. CCA incarcerated inmates for the County at the Detention Center pursuant to the contract it executed with the County in 2010. The contract required CCA to provide services for booking inmates, safekeeping inmate property, medical care, transporting inmates, and supervising inmate work programs. Some years earlier, in 2002, the County had entered into a separate contract with the United States Marshals Service (Marshals Service) to house federal prisoners. CCA agreed to fulfill the County's obligation to the Marshals Service to house and supervise federal prisoners at the Detention Center. CCA directly invoiced, and directly received payments from, the Marshals Service for housing federal prisoners.
{¶5} CCA sought a refund of gross receipts taxes from the Department that it had purportedly overpaid from January 1, 2010, through December 31, 2012, on the gross receipts it received from the Marshals Service. To secure that refund, CCA needed the Department to issue an NTTC to the County, which the County would then execute with CCA. See Section 7-9-43(D). CCA's tax advisor communicated with an audit bureau chief in the Department about the NTTC. In email correspondence with the Department's audit bureau chief, CCA's tax advisor wrote: CCA concedes that this was a misstatement because the Marshals Service was sending payments directly to CCA. In reliance on CCA's assertion that the receipts were not coming directly from the Marshals Service to CCA, the Department's audit bureau chief informed CCA's tax advisor that CCA could accept an NTTC for the receipts derived from housing the Marshals Service inmates.
{¶6} The Department issued the requested NTTC and the County executed an NTTC to CCA in August 2013 for the gross receipts from CCA's purported sale of a license for housing federal prisoners at the Detention Center. CCA then filed for a tax refund for the years 2010-2012 asserting it was entitled to a deduction under Section 7-9-47 for the sale of a license to the County to use the Detention Center, which the County resold to the Marshals Service to house federal prisoners. In April 2014, CCA received the requested refund.
{¶7} In August 2016, the Department conducted an audit of CCA for 2010 through September 30, 2015. The auditor concluded that CCA was not entitled to the refund it had received for gross receipts tax paid on the 2010-2012 receipts from the Marshals Service and that it was liable for gross receipts tax in the amount of $2,686,632.18, plus penalties and interest. The auditor found that there was no resale of the license and that CCA was not entitled to a tax deduction because CCA was selling services, not a license. CCA protested the audit. The hearing officer held a hearing on CCA's protest and issued a decision and order denying the protest. In the decision and order, the hearing officer first determined that CCA was not entitled to a tax deduction under Section 7-9-47, which was predicated on the County reselling a license to use the Detention Center to the Marshals Service in the ordinary course of the County's business.[2] The hearing officer found that the predominant feature of the transaction-to house federal prisoners-was not the licensing of an interest in real property. Instead, the predominant feature was the provision of services within the building, such as providing adequate food, clothing, shelter, and medical care for inmates. The hearing officer found that there was not an agreement between the County and the Marshals Service for the resale of the license, and that there was no evidence that the County was reselling licenses in the ordinary course of its business. Therefore, the hearing officer concluded CCA was not entitled to its claimed deduction.
{¶8} The hearing officer next analyzed whether CCA was nonetheless entitled to safe harbor protection under Section 7-9-43(A). Section 7-9-43(A) provides in relevant part that when a seller or lessor accepts a properly executed NTTC "in good faith that the buyer or lessee will employ the property or service transferred in a nontaxable manner," the NTTC is "conclusive evidence" that the proceeds from that transaction can be deducted from the seller's gross receipts. To support its position, CCA relied on the email it received from the Department agreeing that CCA could accept an NTTC "for the receipts derived from hous[ing] the inmates." The hearing officer rejected as unreasonable CCA's reliance on this email because the facts the Department relied upon "were undeniably and undisputedly incorrect." The hearing officer observed that "safe harbor protection only applies when the underlying transaction is covered by a recognized deduction." He then concluded that because CCA's underlying transaction was taxable, "mere possession of an NTTC" did not transform it into a nontaxable transaction.
{¶9} The Court of Appeals reversed the hearing officer, holding that "[a]bsent evidence that [CCA] did not accept the NTTC from the County in good faith," CCA was entitled to safe harbor protection under Section 7-9-43(A). CCA of Tenn., A-1-CA-37548, mem. op. ¶ 27. We granted the Department's petition for certiorari to decide whether CCA accepted the NTTC in good faith and was therefore entitled to safe harbor protection under Section 7-9-43(A).[3]
{¶10} We will set aside a decision and order of an administrative hearing officer only if 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(C) (2015). Within that framework, we review issues of statutory interpretation de novo. High Desert Recovery, LLC v. N.M. Tax'n &Revenue Dep't, 2022-NMCA-048, ¶ 7, 517 P.3d 258. In reviewing the administrative hearing officer's decision "we apply a whole-record standard of review." Gemini Las Colinas, LLC v. N.M Tax'n &Revenue Dep't, 2023-NMCA-039, ¶ 11, 531 P.3d 622 (internal quotation marks and citation omitted); Section 7-1-25(A). We view the evidence in the light most favorable to the hearing officer's decision to determine whether that decision is supported by substantial evidence. Vigil v. N.M. Tax'n &Revenue Dep't, 2022-NMCA-032, ¶ 9, 514 P.3d 15.
{¶11} The Department argues that the plain meaning of Section 7-9-43(A) "provides a clear answer to legislative intent-a seller must accept the NTTC in good faith- therefore, the statutory analysis begins and ends there." Based on its interpretation of the plain language of the statute, CCA counters that the good faith requirement of Section 7-9-43(A) requires only "...
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