Hammack v. Taxation, 34,432

• Decision Date: 01 May 2017
• Docket Number: NO. 34,432,34,432
• Parties: THOMAS and LESLIE HAMMACK, Protestants-Appellants, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Respondent-Appellee.
• Court: Court of Appeals of New Mexico

THOMAS and LESLIE HAMMACK, Protestants-Appellants, v. NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Respondent-Appellee.

NO. 34,432

COURT OF APPEALS OF THE STATE OF NEW MEXICO

MAY 1, 2017

APPEAL FROM TAXATION AND REVENUE DEPARTMENT

Monica Ontiveros, Hearing Officer

Betzer, Roybal & Eisenberg, P.C.

Gary D. Eisenberg

Albuquerque, NM

for Appellants

Hector H. Balderas, Attorney General

Elena Romero Morgan, Special Assistant Attorney General

Santa Fe, NM

for Appellee

OPINION

ZAMORA, Judge.

{1} Thomas and Leslie Hammack (collectively, Taxpayers) appeal from the decision and order of the hearing officer affirming the New Mexico Taxation and Revenue Department's (the Department) assessment of unpaid personal income tax and interest for tax years 2009-2010, and unpaid personal income tax, penalties, and interest for tax years 2011-2012. The sole issue on appeal is whether the hearing officer correctly determined that Mr. Hammack's service in the United States Public Health Service (USPHS) was not active duty service in the armed forces of the United States (armed forces), within the meaning of NMSA 1978, Section 7-2-5.11 (2007). See § 7-2-5.11 ("A salary paid by the United States to a taxpayer for active duty service in the armed forces of the United States is exempt from state income taxation."). Having considered Taxpayers' arguments raised on appeal and concluding that the hearing officer's decision and order is supported by substantial evidence, we affirm.

BACKGROUND

{2} For the tax years 2009-2012, Mr. Hammack was employed as an active duty commissioned officer for USPHS. During that period of time Mr. Hammack was a New Mexico resident and his regular place of employment for USPHS was inArizona. For tax years 2009-2012, Taxpayers filed New Mexico personal income tax returns. Taxpayers were married and filed jointly for those tax years. On their joint returns, Taxpayers claimed an exemption for Mr. Hammack's wages and omitted his wages from their joint returns.

{3} On January 3, 2014, the Department issued two notices of assessment for unpaid personal income tax and interest for tax years 2010 and 2011. On January 10, 2014, the Department issued two notices of assessment for unpaid personal income tax, penalties, and interest for tax years 2011 and 2012. On May 7, 2014, the Department issued one notice of assessment for unpaid personal income tax, penalties, and interest for tax year 2009.

{4} Taxpayers timely filed a written protest to the assessments, asserting that Mr. Hammack's wages were exempt from New Mexico income tax under the armed forces salaries exemption. Taxpayers claimed that when Mr. Hammack contacted the Department in 2009 a Department employee confirmed that his wages were exempt. Taxpayers' protest was heard by a Department hearing officer on December 10, 2014.

{5} After the hearing, the hearing officer entered a decision and order concluding that Mr. Hammack was not in the armed forces for tax years 2009-2012, and therefore did not qualify for the armed forces salaries exemption. The hearing officer reversed the Department's penalty assessment for tax year 2009 since the Departmentmistakenly issued a refund for that year allowing the exemption. The Department's remaining assessments of unpaid personal income tax and interest for tax years 2009-2010, and unpaid personal income tax, penalties, and interest for tax years 2011-2012, were affirmed. This appeal followed.

DISCUSSION

{6} On appeal, this Court shall set aside a decision and order of the 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); Holt v. N.M. Dep't of Taxation & Revenue, 2002-NMSC-034, ¶ 4, 133 N.M. 11, 59 P.3d 491.

{7} To determine whether Mr. Hammack's wages from the USPHS were exempt from state income taxes, pursuant to Section 7-2-5.11, we must interpret the relevant statute, which is a question of law that we review de novo. See Schuster v. N.M. Dep't of Taxation & Revenue, 2012-NMSC-025, ¶ 9, 283 P.3d 288. "Where an exemption or deduction from tax is claimed, the statute must be construed strictly in favor of the taxing authority, the right to the exemption or deduction must be clearly and unambiguously expressed in the statute, and the right must be clearly established by the taxpayer." Sec. Escrow Corp. v. N.M. Taxation & Revenue Dep't, 1988-NMCA-068, ¶ 8, 107 N.M. 540, 760 P.2d 1306; see also Reed v. Jones,1970-NMCA-050, ¶ 9, 81 N.M. 481, 468 P.2d 882 (noting that taxpayer did not clearly establish a right to the deduction because, if the statute clearly and unambiguously authorized the deduction, the court would not have had to construe the phrase, "initial use"). "Thus, taxation is the rule and the claimant[s] for an exemption must show that [their] demand is within the letter as well as the spirit of the law." Sec. Escrow Corp., 1988-NMCA-069, ¶ 10.

{8} Section 7-2-5.11 exempts salaries "paid by the United States to a taxpayer for active duty service in the armed forces of the United States . . . from state income taxation." Taxpayers argue that they are eligible for the exemption because Mr. Hammack's service, as a commissioned officer of the USPHS, is considered active military service in the armed forces of the United States under federal law. We are unpersuaded.

{9} The Surgeon General administers the USPHS under the supervision and direction of the Secretary of Health and Human Services. 42 U.S.C. § 202 (2012). The USPHS maintains a Regular Corps and a Ready Reserve Corps, both of which consist of commissioned officers. 42 U.S.C. § 204 (2012). The commissioned corps of the USPHS are part of the United States' "uniformed services." See 10 U.S.C. § 101(a)(5) (2012) ("The term 'uniformed services' means—(A) the armed forces; (B) the commissioned corps of the National Oceanic and Atmospheric Administration; and(C) the commissioned corps of the [USPHS]."). In times of war or emergency involving national defense, the president may declare the commissioned corps of the USPHS to be a military service. See 42 U.S.C. § 217 (2012). Commissioned officers of the USPHS can be detailed for duty with other government departments including the armed forces. See 42 U.S.C. § 215(a) (2012). In some limited circumstances, they are entitled to the same rights, privileges, immunities, and benefits as members of the armed forces. See 42 U.S.C. § 213(a), (d), (e), (f) (2012).

{10} Taxpayers suggest that because Mr. Hammack's service in the USPHS is considered active military service under 42 U.S.C. § 213(e) and 50 App. U.S.C. §§ 511(1), (2) (2012), and 50 App. U.S.C. § 571(b) (2012) of the Servicemembers Civil Relief Act (SCRA), which are now codified as 50 U.S.C. § 3911(1), (2) (2015), and 50 U.S.C. § 4001 (2015)¹, it should also be considered active military service under Section 7-2-5.11. This argument is unavailing.

{11} Under 42 U.S.C. § 213(e), the "[a]ctive service of commissioned officers of the [USPHS] shall be deemed to be active military service in the Armed Forces of the United States for the purposes of all rights, privileges, immunities, and benefits now or hereafter provided under the [SCRA]." Likewise, "military service" is defined within the SCRA to include the active service of commissioned officers of theUSPHS. 50 U.S.C. § 3911(2)(B). However, these federal statutes on which Taxpayers rely apply only in the context of the SCRA. See 42 U.S.C. § 213(e) (deeming USPHS officer service as military service "for the purposes of all rights, privileges, immunities, and benefits now or hereafter provided under the [SCRA]" (emphasis added)); see also 50 U.S.C. § 3911 (defining "military service" for the purposes of Chapter 50-SCRA only). By specifically granting USPHS officers the same status of officers in the armed forces in only limited circumstances and for only limited purposes, Congress has recognized that USPHS officers are not regularly considered to be officers in the armed forces. Cf. Hedin v. Thompson, 355 F.3d 746, 749-50 (4th Cir. 2004) (discussing fact that, if active duty in USPHS was the same as active duty in the armed forces, there would be no reason for Section 213(f)). We do not agree that the SCRA, which is limited in scope and application, indicates that USPHS officers are considered members of the armed forces by the federal government, or should be considered such for purposes of Section 7-2-5.11.

{12} Section 7-2-5.11 also does not support Taxpayers' argument. In construing our statutes, this Court "will not read into a statute . . . language which is not there, particularly if it makes sense as written." Johnson v. N.M. Oil Conservation Comm'n, 1999-NMSC-021, ¶ 27, 127 N.M. 120, 978 P.2d 327 (internal quotation marks and citation omitted). Section 7-2-5.11 states that "[a] salary paid by the United States toa taxpayer for active duty service in the armed forces of the United States is exempt from state income taxation." To the extent that Taxpayers argue that the New Mexico Legislature intended to include commissioned officers of the USPHS within the term "armed forces" in Section 7-2-5.11, we are not persuaded. Although "armed forces" is not defined in the New Mexico tax code, the statutory provision allowing for tuition for veterans defines "armed forces" as "the United States army, navy, air force, marine corps or coast guard." NMSA 1978, § 21-1-4.5(I) (2016). Likewise, the federal government, which governs the armed forces, has defined "armed forces" in Title 10—Armed Forces, as "the [a]rmy, [n]avy, [a]ir [f]orce, [m]arine [c]orps, and [c]oast [g]uard." 10 U.S.C. § 101(a)(4) (2012). Neither of these definitions includes commissioned officers of the USPHS. Given the federal government's classification of USPHS officers vis a vis the armed forces, as well as New Mexico's consistent definition of armed forces in Section 21-1-4.5(I), we cannot agree with...