Security Escrow Corp. v. State Taxation and Revenue Dept.

Decision Date02 August 1988
Docket NumberNo. 10089,10089
Citation760 P.2d 1306,1988 NMCA 68,107 N.M. 540
PartiesSECURITY ESCROW CORPORATION and First Escrow, Inc., New Mexico Corporations, Plaintiffs-Appellees, v. STATE of New Mexico TAXATION AND REVENUE DEPARTMENT, Defendant-Appellant.
CourtCourt of Appeals of New Mexico


The State of New Mexico Taxation and Revenue Department (Department) appeals from the trial court's judgment and order granting plaintiffs' (taxpayers) application for a tax refund. Two issues are raised by the Department: (1) whether basic real estate contracts constitute loan transactions, such that receipts from charges for handling payments made under the contracts may be deducted from taxpayers' gross receipts; and (2) whether the trial court erred in granting summary judgment in favor of taxpayers and denying the Department's own motion for summary judgment. We hold that such real estate contracts do not constitute loan transactions under the specific statutory provision allowing deductions from gross receipts. We reverse the trial court and remand the case with directions that an order be entered granting the Department's summary judgment motion.

Taxpayers filed an application for tax refund for the alleged overpayment of gross receipts taxes, pursuant to NMSA 1978, Section 7-1-26(A) (Repl.1986). They, as escrow agents, processed installment payments paid on various real estate contracts held in escrow by taxpayers. It is the charges collected by them for handling these payments that are the subject matter of this appeal. The Department denied the refund, and taxpayers filed a complaint in the trial court pursuant to Section 7-1-26(A)(2). The trial court found that no genuine issues of material fact existed and that taxpayers were entitled to judgment as a matter of law. Judgment was thus entered in favor of taxpayers in the amount of $91,727.00, plus interest. The Department appeals from that judgment.

Taxpayers base their claim for refund on the language of NMSA 1978, Section 7-9-61.1 (Repl.1986), which allows the deduction of receipts from charges made in connection with a loan or made for handling loan payments when computing the gross receipts tax. The Department denied taxpayers' claim, contending that an estimated ninety percent of their receipts were for charges made in connection with payments on the subject contracts and that such transactions did not qualify as "loans" for gross receipts tax purposes. The Department, however, did refund gross receipts taxes paid on receipts from charges for handling payments on mortgages, notes, and deeds of trust. Thus, the amount of tax at issue is based upon gross receipts derived solely from the handling of the real estate contract payments.

The parties apparently do not differentiate between the specific contracts; instead, they desire that we determine whether real estate contracts, in general, constitute loan transactions. However, although standard real estate contract "forms" are available to the public, the real estate contract is a flexible legal instrument and may contain any pertinent provisions the contracting parties consider necessary or desirable. See L. Buchmiller, Real Estate Contracts in New Mexico Secs. 1.02 & 1.14 (1985). None of the real estate contracts were introduced into evidence and thus are not included in the record on appeal.

Section 7-9-61.1 provides: "Receipts from charges made in connection with the origination, making or assumption of a loan or from charges made for handling loan payments may be deducted from gross receipts." It is necessary to define the term "loan." The Department contends that the plain language of the statute indicates its purpose is to provide a deduction for handling loan payments under loan transactions involving borrowers and lenders in which a sum of money is delivered under a contract to return an equivalent amount at some future time. The Department further asserts that real estate contracts do not constitute loan transactions involving borrowers and lenders but are installment sales agreements involving buyers and sellers in a credit sale.

In construing the meaning of a particular statute, a reviewing court's central concern is to determine and give effect to the intention of the legislature. State ex rel. Klineline v. Blackhurst, 106 N.M. 732, 749 P.2d 1111 (1988). In determining this intent, we look primarily to the language of the act and the meaning of the words, and when they are free from ambiguity, we will not resort to any other means of interpretation. See State v. Pitts, 103 N.M. 778, 714 P.2d 582 (1986); New Mexico Beverage Co. v. Blything, 102 N.M. 533, 697 P.2d 952 (1985).

When a term is not defined by the statute, a court may interpret the word in accordance with its ordinary meaning. United States v. State of New Mexico, 536 F.2d 1324 (10th Cir.1976). Unless the legislature indicates a different intent, we must give statutory words their ordinary meaning. State ex rel. Klineline v. Blackhurst. Although we cannot add a requirement that is not provided for in the statute or read into it language that is not there, we do read the act in its entirety and construe each part in connection with every other part to produce a harmonious whole. Id.

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. Chavez v. Commissioner of Revenue, 82 N.M. 97, 476 P.2d 67 (Ct.App.1970); see also Pittsburgh & Midway Coal Mining Co. v. Revenue Div., Taxation & Revenue Dep't, 99 N.M. 545, 660 P.2d 1027 (Ct.App.), appeal dismissed, 464 U.S. 923, 104 S.Ct. 323, 78 L.Ed.2d 296 (1983); Stohr v. New Mexico Bureau of Revenue, 90 N.M. 43, 559 P.2d 420 (Ct.App.1976); Reed v. Jones, 81 N.M. 481, 468 P.2d 882 (Ct.App.1970).

Once it is determined that a tax is applicable, after allowing for any statutory deduction, the statute permitting the deduction must be narrowly, yet reasonably construed. Chavez v. Commissioner of Revenue. "A tax statute must also be given a fair, unbiased, and reasonable construction, without favor or prejudice to either the taxpayer or the State, to the end that the legislative intent is effectuated and the public interests to be subserved thereby are furthered." Id. 82 N.M. at 99, 476 P.2d at 69.

Thus, taxation is the rule and the claimant for an exemption must show that his demand is within the letter as well as the spirit of the law. Jones v. Iowa State Tax Comm'n, 247 Iowa 530, 74 N.W.2d 563 (1956). See generally 3A N. Singer, Sutherland Statutory Construction Sec. 66.09 (Sands 4th ed. 1986).

Although some of the cases cited, see, e.g., Chavez v. Commissioner of Revenue, refer to "construction" when ordinarily we speak of rules of construction in connection with ambiguity, we believe there is a difference between interpretation and construction that is relevant in this case. In "interpreting" a document or statute, courts are trying to decide what the words chosen by the author or legislature mean. In "construing" a document or statute, courts are applying principles of preferred meaning, because the meaning cannot otherwise be ascertained. Cf. T. Atkinson, Law of Wills Sec. 146 at 809 (2d ed. 1953) ("construction is necessary only when interpretation fails").

With these principles in mind, our analysis involves the following steps: (1) because the statute does not include a definition of the relevant terms, this court may interpret the words in accordance with their ordinary meaning; (2) in interpreting the words in accordance with their ordinary meaning, and in the absence of cases from this state, we can look to cases from other jurisdictions and from model statutes for guidance; (3) the definition found in these authorities supports the Department's position that a loan is distinguishable from a credit sale; (4) in applying the statute, we observe the rules that the taxpayer must establish a right to an exemption or deduction and that a statute establishing an exemption or deduction is to be narrowly construed; and (5) we must then decide whether the phrase "charges made for handling loan payments" as used in Section 7-9-61.1 encompasses the charges made by taxpayers in connection with installment payments on real estate contracts held in escrow.

The legislature, in enacting Section 7-9-61.1, did not expressly define the terms "loan" or "loan payments," and the disposition of this appeal consequently turns on the ordinary meaning of those...

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