Giant Industries Arizona, Inc. v. Taxation and Revenue Dept.

• Decision Date: 26 June 1990
• Docket Number: No. 11787,11787
• Citation: 1990 NMCA 74,110 N.M. 442,796 P.2d 1138
• Parties: GIANT INDUSTRIES ARIZONA, INC., Appellant, v. TAXATION AND REVENUE DEPARTMENT, Appellee.
• Court: Court of Appeals of New Mexico

Page 1138

796 P.2d 1138

110 N.M. 442

GIANT INDUSTRIES ARIZONA, INC., Appellant, v. TAXATION AND REVENUE DEPARTMENT, Appellee.

No. 11787.

Court of Appeals of New Mexico.

June 26, 1990.

[110 NM 443] Joseph E. Earnest, Catherine E. Pope, Montgomery & Andrews, P.A., Santa Fe, for appellant.

Hal Stratton, Atty. Gen., Carolyn A. Wolf, Sp. Asst. Atty. Gen., Santa Fe, for appellee.

OPINION

BIVINS, Chief Judge.

Giant Industries Arizona, Inc. (taxpayer) appeals a decision and order of the New Mexico Taxation and Revenue Department (Department) denying taxpayer's protest of gasoline excise tax assessments and finding taxpayer liable for those assessments. We reverse and remand.

NMSA 1978, Sections 7-13-4.1 to -4.3 (Repl. Pamp.1988) provide a deduction from the gasoline excise tax, NMSA 1978, Sec. 7-13-3 (Supp.1989), for "gasoline received in New Mexico containing a minimum of ten percent by volume of denatured ethanol alcohol manufactured exclusively in New Mexico." Sec. 7-13-4.1. In order to qualify for the deduction, the gas must be exclusively manufactured in New Mexico, and at least 50% of the agricultural feedstocks by volume used in fermentation must be produced in New Mexico. Sec. 7-13-4.2(A). Thus, if the ethanol is manufactured outside of New Mexico, or if more than half of the agricultural feedstocks used in fermentation are produced outside of New Mexico, the deduction is not available.

Taxpayer has received ethanol-blended fuel manufactured in New Mexico and in other states. Since 1988, taxpayer has withheld payment of gasoline excise taxes on all ethanol-blended gas, including ethanol gas not manufactured exclusively in New Mexico. Department assessed taxpayer for nonpayment of taxes on ethanol-blended gasoline that was not manufactured exclusively in New Mexico for the period of August 1988 to December 1988. The decision and order upheld these assessments.

In appealing the assessments, taxpayer contends (1) the statutory limitation on the tax deduction for ethanol-blended fuel imposes an impermissible burden on interstate commerce; (2) the limitation on the deduction also violates the equal protection clause; and (3) the unconstitutional limitation on the tax deduction should be severed and the deduction continued without reference to where the ethanol is manufactured. Because we hold the statutory limitation on the tax deduction unconstitutional as an impermissible burden on interstate commerce, we do not reach taxpayer's second issue attacking the statute on equal protection grounds. We also hold the unconstitutional portion of the statute is not severable; therefore, the deduction is invalid. Although the Department argued to the contrary, the hearing officer concluded that he lacked authority to determine the constitutionality of the statutory limitation on the tax deduction for ethanol-blended fuel.

I. Constitutionality of the Ethanol-Blended Fuel Deduction

Taxpayer claims that limiting the deduction to ethanol-blended fuel manufactured exclusively in New Mexico constitutes an impermissible burden on interstate commerce in violation of article 1, section 8 of the United States Constitution. The Department concedes the unconstitutionality of the deduction.

In New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988), the Supreme Court reviewed an Ohio statutory provision similar to our own. The Ohio statute provided a tax credit for ethanol producers from Ohio or from states granting reciprocal tax credits, exemptions, or refunds for Ohio-produced ethanol fuel. The Court held that the Ohio provision "explicitly deprives certain products of generally available beneficial tax treatment because they are made in certain other States," 486 U.S. at 274, 108 S.Ct. at 1807, and the provision was therefore violative of the cardinal requirement of nondiscrimination on its face. The Court determined that the statute exacted a higher tax upon a product manufactured in other states than the same product made by Ohio manufacturers without justification for the disparity. Furthermore, the Court found that the alleged justifications for the discrimination, the protection of health and increase of commerce in ethanol, were not sufficiently advanced by the provision to justify the discrimination. "In sum, appellees' health and commerce justifications amount to no more than implausible speculation, which does not suffice to validate this plain discrimination against products of out-of-state manufacture." Id. at 280, 108 S.Ct. at 1811.

Section 7-13-4.1 similarly discriminates between the tax treatment of ethanol-blended fuel manufactured in New Mexico and ethanol-blended fuel manufactured elsewhere. We therefore hold that, under New Energy Co., this discrimination violates the commerce clause. See also Archer Daniels Midland Co. v. State ex rel. Allen, 315 N.W.2d 597 (Minn.1982). We now address whether the unconstitutional portions of the deduction sections are severable from the remainder of the ethanol deduction sections.

II. Severability

It is a fundamental principle that a part of a statute may be invalid and the remainder valid, where the invalid part can be separated from other portions, without impairing the force and effect of the remaining portions. Bradbury & Stamm Constr. Co. v. Bureau of Revenue, 70 N.M. 226, 372 P.2d 808 (1962). Before a partially invalid statute can continue in force, it must satisfy three tests: (1) the invalid part must be separable from the other portions without impairing the force and effect of the remaining parts; (2) the legislative purpose expressed in the valid portion can be given force and effect without the invalid part; and (3) when considering the entire act, it cannot be said that the legislature would not have passed the remaining part if it had known that the objectionable part was invalid. Id.; State v. Spearman, 84 N.M. 366, 503 P.2d 649 (Ct.App.1972).

Taxpayer argues that the unconstitutional parts should be severed from the remainder of the deduction, thereby extending the deduction to all ethanol-blended fuel. The Department contends that the limitations in the deduction to the New Mexico ethanol, which render it unconstitutional, cannot be severed from the remainder of the statute, and therefore the entire deduction must be invalidated. The Department concedes that it is possible to delete the words "manufactured exclusively in New Mexico" from NMSA 1978, Section 7-13-2(N) (Repl. Pamp.1988) and Sections 7-13-4.1 and -4.2(A), and to delete the phrase "provided that at least fifty percent of the agricultural feedstocks by volume used in fermentation are produced in New Mexico" from Section 7-13-4.2, and still have grammatically complete sentences. The real question, according to the Department, is whether the third test under Bradbury & Stamm can be satisfied. Thus, as we understand the Department's position, it does not challenge the first two criteria under Bradbury & Stamm, only the third. Consequently, we must decide whether, on a consideration of the whole act, the legislature would have passed the valid part if it had known that the objectionable part was invalid.

In deciding that question, we are aided by the legislature's findings and declaration of purpose as set forth in Section 7-13-4.3, which provides:

The legislature finds and declares that the production and sale of ethanol blended fuel is of great importance to the state of New Mexico because such motor fuel pollutes the air less than conventional motor fuel, provides a new use and market for new [sic] Mexico agricultural products and reduces dependence on limited oil resources. Accordingly, it is declared to be the public policy of the state of New Mexico to encourage, through tax relief, the production within the state of ethanol blended fuel which contains denatured ethanol alcohol derived from New Mexico agricultural products.

The parties do not seem to question that, by expanding the deduction, two of the purposes would be furthered. Air pollution would be reduced, as well as dependence on limited oil resources. The pivotal question is whether the third purpose, providing a new use and market for New Mexico agricultural products, would be served by expanding the deduction.

The Department focuses on the second sentence of Section 7-13-4.3, noting that the single stated purpose of the legislature was to encourage the New Mexico ethanol industry to help New Mexico agriculture.

The fundamental principle of any attempt at statutory interpretation is to further the legislative intent and purposes underlying the statute. See Security Escrow Corp. v. State Taxation & Revenue Dep't, 107 N.M. 540, 760 P.2d 1306 (Ct.App.1988). "All rules of statutory construction are but aids in arriving at the true legislative intent." Quintana v. New Mexico Dep't of Corrections, 100 N.M. 224, 226, 668 P.2d 1101, 1103 (1983).

Examining first Section 7-13-4.3, we find two sentences. The first sentence makes...