Tucson Elec. Power Co. v. Taxation & Revenue Dep't of State

• Decision Date: 04 November 2019
• Docket Number: No. A-1-CA-35781,A-1-CA-35781
• Citation: 456 P.3d 1085
• Parties: TUCSON ELECTRIC POWER CO., Petitioner-Appellant v. TAXATION AND REVENUE DEPARTMENT of the State of New Mexico, Respondent-Appellee.
• Court: Court of Appeals of New Mexico

456 P.3d 1085

TUCSON ELECTRIC POWER CO., Petitioner-Appellant

v.TAXATION AND REVENUE DEPARTMENT of the State of New Mexico, Respondent-Appellee.

No. A-1-CA-35781

Court of Appeals of New Mexico.

Filing Date: NOVEMBER 4, 2019

Sutin, Thayer & Browne, Suzanne W. Bruckner, Christopher A. Holland, Albuquerque, NM, for Appellant

Peifer, Hanson & Mullins, P.A., Matthew E. Jackson, Mark T. Baker, Albuquerque, NM, New Mexico Taxation & Revenue Department, Marek Grabowski, Staff Attorney, Santa Fe, NM, for Appellee

HANISEE, Chief Judge.

{1} Tucson Electric Power Company (Taxpayer) appeals from the administrative hearing officer’s (AHO) decision and order denying its protest of the New Mexico Taxation and Revenue Department’s (the Department) denial of Taxpayer’s request for a tax refund. We affirm, but on a basis different than that relied on by the AHO.

BACKGROUND

{2} Taxpayer co-owns Luna Energy Facility, a power plant located near Deming, New Mexico. Taxpayer purchases natural gas from various third parties, including out-of-state vendors, for use in producing electricity at the plant. In December 2014 Taxpayer applied to the Department for a refund of $434,860.92 for the tax period July 1, 2011, through December 31, 2011, based on its belief that its purchases of natural gas qualified for a deduction under the Gross Receipts and Compensating Tax Act (the Act), NMSA 1978, §§ 7-9-1 to -117 (1966, as amended through 2019). The Department denied Taxpayer’s refund application, and Taxpayer filed an administrative protest.

{3} In its protest, Taxpayer argued that it was entitled to a refund "for compensating taxes paid in error ... for purchases that are not subject to compensating tax" under the Act.¹ Taxpayer argued that its purchases of natural gas fell within Section 7-9-65 of the Act, which provides, inter alia, that "receipts from selling chemicals or reagents in lots in excess of eighteen tons ... may be deducted from gross receipts."² Section 7-9-65. The Department responded that Section 7-9-65 is inapplicable to Taxpayer’s purchases of natural gas for use in generating electricity and that Taxpayer had failed to clearly establish its entitlement to the deduction.

{4} Following a hearing, the AHO found that Taxpayer had "paid compensating tax on the purchase of natural gas during the tax period" from various companies, all of which the AHO found "have no nexus with New Mexico and are out-of-state companies." The AHO’s analysis began with a discussion of the relationship between New Mexico’s compensating tax and gross receipts tax and included a threshold determination that "[d]eductions that are applicable to the gross receipts tax may be used to determine whether compensating tax is due on a transaction." The AHO cited Western Electric Co. v. New Mexico Bureau of Revenue , 1976-NMCA-047, ¶ 14, 90 N.M. 164, 561 P.2d 26, for the proposition that "the [L]egislature intended to make our gross receipts tax and our compensating tax correlate[ ]: a [deduction] from the gross receipts tax must also be treated as a [deduction] from the compensating tax."³ The AHO nonetheless determined Taxpayer’s transactions did not qualify for the deduction because Taxpayer failed to present sufficient evidence that it purchased and received natural gas in "lots" greater than eighteen tons as required by Section 7-9-65. Ultimately concluding that Taxpayer had failed to meet its burden of establishing its right to the deduction, the AHO denied Taxpayer’s protest. Taxpayer appeals.

DISCUSSION

{5} On appeal, Taxpayer argues that the AHO made two errors of law: first, determining that "natural gas delivered by pipe to a power plant is not sold or delivered by ‘lots’ because gas is a ‘good’ " and " ‘goods’ and ‘lots’ are mutually-exclusive"; and second, that "the statute mandates that gas must be both sold and delivered in lots greater than [eighteen] tons to qualify for the deduction." Taxpayer contends that the AHO’s ruling "flies in the face of the statute’s plain language." The Department argues that the AHO’s "decision should be affirmed because the Legislature did not intend Section 7-9-65 to apply to the sale or use of natural gas" and that Taxpayer "failed to meet its burden to show that the natural gas it purchased was sold in lots of eighteen tons." We agree that the statute’s plain language controls here, and that Section 7-9-65—permitting deduction for "receipts from selling chemicals or reagents in lots in excess of eighteen tons"—is inapplicable to receipts for natural gas, and that the AHO erred in applying it. Because Section 7-9-65 does not apply, we affirm denial of Taxpayer’s protest.

Standard of Review

{6} This Court will only set aside an AHO’s decision if the decision 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) ; Stockton v. N.M. Taxation & Revenue Dep’t , 2007-NMCA-071, ¶ 8, 141 N.M. 860, 161 P.3d 905. The issue presented requires us to interpret Section 7-9-65. We are not bound by the AHO’s interpretation as the interpretation of statutes presents a question of law that we review de novo. See In re Final Order in Alta Vista Subdivision DP No. 1498 WQCC 07-11(A) , 2011-NMCA-097, ¶¶ 1, 10, 150 N.M. 694, 265 P.3d 745 ("We are not bound by the [Water Quality Control] Commission’s interpretation of the statute, as this is a matter of law that we review de novo."). We may affirm the AHO’s ruling on a ground not relied upon by the AHO if reliance on the new ground would not be unfair to Taxpayer. See Cordova v. World Fin. Corp. of N.M. , 2009-NMSC-021, ¶ 18, 146 N.M. 256, 208 P.3d 901 ("Even if the issue had not been preserved below, it is established law that our appellate courts will affirm a district court’s decision if it is right for any reason, so long as the circumstances do not make it unfair to the appellant to affirm.").

{7} In reviewing the AHO’s decision, we presume that the "assessment of taxes or demand for payment made by the [D]epartment is ... correct." NMSA 1978, Section 7-1-17(C) (2007). Moreover, we presume that all property bought by any person for delivery into New Mexico is subject to a compensating tax on the value of the property. Section 7-9-8. As such, "deductions are construed strictly against the taxpayer." TPL, Inc. v. N.M. Taxation & Revenue Dep’t , 2003-NMSC-007, ¶ 9, 133 N.M. 447, 64 P.3d 474. The taxpayer bears the burden of proving that it is eligible for the deduction. Id. ¶ 31.

Applicable Rules of Statutory Construction

{8} "The guiding principle in statutory construction requires that we look to the wording of the statute and attempt to apply the plain meaning rule, recognizing that when a statute contains language which is clear and unambiguous, we must give effect to that language and refrain from further statutory interpretation." City of Santa Fe ex rel. Santa Fe Police Dep’t v. One (1) Black 2006 Jeep , 2012-NMCA-027, ¶ 7, 286 P.3d 1223 (internal quotation marks and citation omitted). "In interpreting statutes, we seek to give effect to the Legislature’s intent, and in determining intent we look to the language used and consider the statute’s history and background." Valenzuela v. Snyder , 2014-NMCA-061, ¶ 16, 326 P.3d 1120 (internal quotation marks and citation omitted). "[W]here the language of the legislative act is doubtful or an adherence to the literal use of words would lead to injustice, absurdity or contradiction, the statute will be construed according to its obvious spirit or reason, even though this requires the rejection of words or the substitution of others." N.M. Real Estate Comm’n v. Barger , 2012-NMCA-081, ¶ 7, 284 P.3d 1112 (internal quotation marks and citation omitted). Moreover, "[w]e consider all parts of the statute together, reading the statute in its entirety and construing each part in connection with every other part to produce a harmonious whole." Dep’t of Game & Fish v. Rawlings , 2019-NMCA-018, ¶ 6, 436 P.3d 741 (alterations, internal quotation marks, and citation omitted).

Taxpayer’s Purchases of Natural Gas Do Not Qualify for Section 7-9-65’s Deduction

{9} In full, the previous version of Section 7-9-65 provides:

Receipts from selling chemicals or reagents to any mining, milling or oil company for use in processing ores or oil in a mill, smelter or refinery or in acidizing oil wells, and receipts from selling chemicals or reagents in lots in excess of eighteen tons may be deducted from gross receipts. Receipts from selling explosives, blasting powder or dynamite may not be deducted from gross receipts.

NMSA 1978, § 7-9-65 (1969) (emphasis added). The question, then, is whether natural gas is a category of chemical or reagent under the Act. "Chemical" as defined by the Department’s regulations is "a substance used for producing a chemical reaction." 3.2.223.7(B) NMAC. Taxpayer argues that based on parties’ stipulations, and specifically the Department’s concession, the AHO correctly found that the natural gas purchased and used by Taxpayer was a "chemical" within the meaning of Section 7-9-65. Relying on the right-for-any-reason doctrine, the Department now contends—despite its past stipulation to the contrary—that the Legislature did not intend for the statutory deduction for chemicals or reagents to apply to natural gas.

{10} We apply the principles of statutory construction to determine whether Taxpayer’s receipts for the purchase of natural gas falls under "chemicals or reagents" in the statute. Section 7-9-65. At the outset, we note that while we generally look to parties’ stipulations with favor, "we [are] not ... bound by parties’ stipulations [or the Department’s concessions] as to applicable law[,]" Williams v. Mann , 2017-NMCA-012, ¶ 30, 388 P.3d 295, because we must conduct our own analysis; and we also will not enforce stipulations if they are "unreasonable, ... against good morals or sound public...