High Desert Recovery, LLC v. N.M. Taxation & Revenue Dep't

• Court: Court of Appeals of New Mexico
• Writing for the Court: HANISEE, Chief Judge.
• Citation: High Desert Recovery, LLC v. N.M. Taxation & Revenue Dep't, 517 P.3d 258 (N.M. App. 2021)
• Decision Date: 06 December 2021
• Docket Number: A-1-CA-37852
• Parties: HIGH DESERT RECOVERY, LLC, Protestant-Appellant, v. NEW MEXICO TAXATION & REVENUE DEPARTMENT, Respondent-Appellee.

517 P.3d 258

HIGH DESERT RECOVERY, LLC, Protestant-Appellant,

v.NEW MEXICO TAXATION & REVENUE DEPARTMENT, Respondent-Appellee.

No. A-1-CA-37852

Court of Appeals of New Mexico.

Filing Date: December 6, 2021

Certiorari Denied, June 27, 2022, No. S-1-SC-39162

Sanchez, Mowrer & Desiderio, P.C., Robert J. Desiderio, Isaac S. Emmanuel, Albuquerque, NM, Betzer, Roybal & Eisenberg, P.C., Benjamin C. Roybal, Albuquerque, NM, for Appellant

Hector H. Balderas, Attorney General, Cordelia Friedman, Special Assistant Attorney General, Santa Fe, NM, for Appellee

HANISEE, Chief Judge.

{1} This appeal concerns the State's effort to collect unpaid gross receipts taxes from High Desert Recovery, LLC (High Desert). High Desert appeals from an Administrative Hearing Officer's (AHO) decision and order (the Order) determining it to be a successor in business, as well as a mere continuation, of West Rock Incorporated (WRI) and concluding that High Desert is liable for $127,764.92 in back taxes assessed to WRI. We affirm.

BACKGROUND

{2} WRI was formed in 1995 as a three-member LLC. Although not a shareholder himself, Daniel Brown acted as a board member, the president, and the manager of WRI's daily operations. Brown additionally owned and leased a facility to WRI located at an address on Franciscan Street NE in Albuquerque, New Mexico, at which WRI conducted its automobile repossession business.

{3} In 2008, the Taxation and Revenue Department (the Department) assessed WRI for unpaid gross receipts taxes and interest for approximately $270,000. WRI protested the assessment, and an order denying the protest was filed in April 2013. On May 31, 2013, Brown formed High Desert as a single-member LLC, providing his personal P.O. Box address as High Desert's mailing address and listing an address on Cherry Hills Road in Albuquerque, New Mexico as its "place of business." On October 16 and 17, 2013, High Desert purchased two new tow trucks and provided WRI's Franciscan Street NE address in its title application. On October 25, 2013, High Desert applied for a warrant application that would allow it to perform repossessions using the Cherry Hills Road address. The application listed ownership of a single tow truck and identified two employees—Brown and a driver who was still employed by WRI.

{4} Upon approval of its application, High Desert purchased an additional tow truck from WRI for $700, the fair market value of which was later determined by the Department of Motor Vehicles (MVD) to be $14,720, for purposes of calculating excise tax from the transfer. In this transaction, as well as the related title application and registration, High Desert provided the Cherry Hills Road address. High Desert also used WRI's liability insurance policy number to register its newly acquired tow trucks. In March 2014, Brown terminated WRI's lease on the Franciscan Street NE address and WRI passed a resolution to dissolve. Later that same year, High Desert filed a change of address with the transportation division, indicating that it would begin operating from the Franciscan Street NE address. As was the case with WRI, Brown also leased the Franciscan Street NE property to High Desert.

{5} On November 28, 2016, the Department assessed High Desert, as a successor in business to and a mere continuation of WRI, for a total of $271,359.77, of which $143,594.85 was interest. The Department ultimately abated the interest portion. High Desert protested the assessment, which the AHO denied in full. This appeal followed.

DISCUSSION

{6} On appeal, High Desert asserts that (1) the AHO erred in determining that High Desert is a successor in business to WRI; (2) the AHO erred in determining that High Desert is a mere continuation of WRI; and (3) High Desert is entitled to recover attorney fees because the Department's position contradicts binding precedent.

Standard of Review

{7} Since the issue presented is one of statutory interpretation regarding the meaning of NMSA 1978, Section 7-1-61 (2017), we review the Order de novo. See A&W Rests., Inc. v. Tax'n & Revenue Dep't , 2018-NMCA-069, ¶ 6, 429 P.3d 976 ("The meaning of language used in a statute is a question of law that we review de novo." (internal quotation marks and citation omitted)). While we are not bound by the AHO's interpretation of the statute, this Court will set aside the Order 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) ; see Stockton v. N.M. Tax'n & Revenue Dep't , 2007-NMCA-071, ¶ 8, 141 N.M. 860, 161 P.3d 905 (same) (internal quotation marks and citation omitted).

{8} "Our primary goal [in interpreting a statute] is to give effect to the intent of the Legislature." Sacred Garden, Inc. v. N.M. Tax'n & Revenue Dep't , 2021-NMCA-038, ¶ 5, 495 P.3d 576 (alteration, internal quotation marks, and citation omitted), cert. granted , 2021-NMCERT- –––– (No. S-1-SC-38164, Mar. 29, 2021). "We discern legislative intent by first looking at the plain meaning of the language of the statute, [and] reading the provisions together to produce a harmonious whole." Id . (omission, internal quotation marks, and citation omitted).

{9} "There is a presumption that all persons engaging in business in New Mexico are subject to gross receipts tax."

TPL, Inc. v. N.M. Tax'n & Revenue Dep't , 2003-NMSC-007, ¶ 9, 133 N.M. 447, 64 P.3d 474 ; see NMSA 1978, § 7-9-5(A) (2019) ("To prevent evasion of the gross receipts tax and to aid in its administration, it is presumed that all receipts of a person engaging in business are subject to the gross receipts tax."). The Department's assessment of taxes or demand for payment "is presumed to be correct." NMSA 1978, § 7-1-17(C) (2007). Because the Department has the authority to enact regulations that interpret statutes, those regulations similarly carry a presumption that they are a "proper implementation of the provisions of the laws[.]" NMSA 1978, § 9-11-6.2(G) (2015) ; see Chevron U.S.A., Inc. v. State ex rel. Tax'n & Revenue Dep't , 2006-NMCA-050, ¶ 16, 139 N.M. 498, 134 P.3d 785 ("Agency regulations that interpret statutes and are promulgated under statutory authority are presumed proper[.]"). Nevertheless, "[a] tax statute must also be given a fair, unbiased, and reasonable construction, without favor or prejudice to either the taxpayer or the [s]tate, to the end that the legislative intent is effectuated and the public interests to be subserved thereby are furthered." Wing Pawn Shop v. N.M. Tax'n & Revenue Dep't , 1991-NMCA-024, ¶ 16, 111 N.M. 735, 809 P.2d 649 (internal quotation marks and citation omitted).

I. Successor in Business

{10} High Desert first argues that the AHO misapplied 3.1.10.16(A) NMAC, which provides the factors used to determine whether a given entity is a successor in business, wrongly concluding that High Desert is a successor in business to WRI. The Department answers that the AHO properly determined that High Desert "became a successor in business as a matter of law" when it "took [WRI's] office equipment, liability insurance policy and tow truck to provide the same services using the same equipment with the same employees to the same customers at the same business location[.]"

A. The Successor in Business Framework

{11} New Mexico's successor in business framework is established by statute, as well as by regulations promulgated by the Department. See § 7-1-61 ; 3.1.10.16 NMAC. Section 7-1-61(C) requires a person acquiring a business to set aside from the purchase price, or other sources, sufficient funds to cover any remaining tax liability from the previous owner. By its terms, the statute places this duty on a "successor" who acquires the business from the entity liable for the taxes. Section 7-1-61(C) provides:

If any person liable for any amount of tax from operating a business transfers that business to a successor, the successor shall place in a trust account sufficient money from the purchase price or other source to cover such amount of tax until the secretary or secretary's delegate issues a certificate stating that no amount is due, or the successor shall pay over the amount due to the department upon proper demand for, or assessment of, that amount due by the secretary.

{12} The Department considers eight factors to determine whether a business is a successor:

(1) Has a sale and purchase of a major part of the materials, supplies, equipment, merchandise or other inventory of a business enterprise occurred between a transferor and a transferee in a single or limited number of transactions?

(2) Was a transfer not in the ordinary course of the transferor's business?

(3) Was a substantial part of both equipment and inventories transferred?

(4) Was a substantial portion of the business enterprise that had been conducted by the transferor continued by the transferee?

(5) By express or implied agreement did the transferor's goodwill follow the transfer of the business properties?

(6) Were uncompleted sales, service or lease contracts of the transferor honored by the transferee?

(7) Was unpaid indebtedness to suppliers, utility companies, service contractors, landlords or employees of the transferor paid by the transferee?

(8) Was there an agreement precluding the transferor from engaging in a competing business to that which was transferred?

3.1.10.16(A) NMAC. No single factor is determinative; however, the presence of one of these factors permits the Department to presume that the business is a successor. See 3.1.10.16(B) NMAC ("If one or more of the indicia mentioned above are present, the [Department] may presume that ownership of a business enterprise has transferred to a successor in business.").

{13} In addition to these factors, the regulations provide a definition of successor. " ‘[S]uccessor’ means any transferee of a business or property of a business" and "may include a business that is a mere...