U.S. Xpress v. Taxation and Revenue Dept.

• Decision Date: 13 April 2006
• Docket Number: No. 29,272.,29,272.
• Citation: 2006 NMSC 017,136 P.3d 999
• Parties: U.S. XPRESS, INC., a Nevada corporation, M.S. Carriers, Inc., a Tennessee corporation, and Swift Transportation Company, Inc., an Arizona corporation, individually and on behalf of a class of all similarly situated taxpayers, Plaintiffs-Respondents, v. STATE of New Mexico, NEW MEXICO TAXATION AND REVENUE DEPARTMENT and Jan Goodwin, Secretary of the New Mexico Taxation and Revenue Department, Defendants-Petitioners.
• Court: New Mexico Supreme Court

Page 999

136 P.3d 999

2006 NMSC 017

U.S. XPRESS, INC., a Nevada corporation, M.S. Carriers, Inc., a Tennessee corporation, and Swift Transportation Company, Inc., an Arizona corporation, individually and on behalf of a class of all similarly situated taxpayers, Plaintiffs-Respondents, v. STATE of New Mexico, NEW MEXICO TAXATION AND REVENUE DEPARTMENT and Jan Goodwin, Secretary of the New Mexico Taxation and Revenue Department, Defendants-Petitioners.

No. 29,272.

Supreme Court of New Mexico.

April 13, 2006.

C. Joseph Lennihan, Jeffrey W. Loubet, Santa Fe, NM, for Petitioners.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Timothy J. De Young, Angelo J. Artuso, Albuquerque, NM, for Respondents.

Patricia A. Madrid, Attorney General, Reynold E. Romero, Special Assistant Attorney General, Steven L. Bunch, Special Assistant Attorney General, Javier Lopez, Special Assistant Attorney General, Santa Fe, NM, for Amicus Curiae New Mexico Department of Transportation.

Patricia A. Madrid, Attorney General, James C. Jacobsen, Assistant Attorney General, Albuquerque, NM, for Amicus Curiae Attorney General of the State of New Mexico.

OPINION

CHAVEZ, Justice.

{1} This case requires us to decide whether the Tax Administration Act permits the courts to recognize the doctrine of "vicarious" or "virtual" exhaustion of remedies to allow a class action to proceed when only a few members of the proposed class have exhausted their administrative remedies. Because the Tax Administration Act provides the exclusive remedies for tax refunds and requires the taxpayer to individually seek the refund, we decline to adopt vicarious or virtual exhaustion for proceedings under the Tax Administration Act, and reverse the opinion of the Court of Appeals. We affirm the district court's finding that the numerosity requirement of the class action rule is not met in this case because the court lacks subject matter jurisdiction over proposed class members who have not exhausted their administrative remedies.

{2} Plaintiffs-Respondents in this case are three interstate trucking companies. In December of 2002, each company filed claims with the Department of Taxation and Revenue ("Department") for refunds of four road-related taxes and fees paid for the years 1997-2000: the Weight Distance Tax Identification Card ("Cab Card") Fee, the Litter Control and Beautification Act, the Fifty-cent Motor Vehicle Division ("MVD") Administrative Fee, and the Hazardous Material Transportation ("Hazmat") Fee. The claims for refunds were based on Respondents' assertions that the collection of these taxes and fees violated the Commerce Clause of the United States Constitution. The Department granted each trucking company's claim for refunds for the Cab Card fee, the Beautification fee, and the Hazmat fee for the years 1999-2000, but denied the claims for refunds of taxes for the years 1997-1998 based on the statute of limitations in NMSA 1978, Section 7-1-26(D) (2006) of the Tax Administration Act. The Department also denied all of the claims for refunds of the MVD administrative fee for all years. In addition to the refund claims of these three trucking companies, approximately twenty-five additional trucking companies also filed refund claims with the Department. These claims were partially refunded and partially denied by the Department in exactly the same manner and proportion as the claims of Respondents.

{3} After exhausting their administrative remedies, U.S. Xpress, M.S. Carriers, and Swift Transportation, as named plaintiffs, filed a class action complaint for return of taxes in the First Judicial District Court. The complaint defined the class as "all interstate and intrastate motor carriers authorized to conduct business in New Mexico that have paid and/or that may be required to pay the New Mexico Weight Distance Tax Annual Filing Fee and/or the New Mexico Hazardous Material Transportation Permit Fee" and estimated the number of members of the class as exceeding three thousand companies. The named plaintiffs moved for class certification under Rule 1-023 NMRA, alleging that the class was too numerous for joinder, questions of law or fact were common to the class, the claims or defenses of the named Plaintiffs were typical of the class, and that the named Plaintiffs would adequately represent the class.

{4} Recognizing that the unnamed members of the proposed class had not yet exhausted their administrative remedies by filing refund claims with the Department, Plaintiffs argued that "virtual exhaustion" by the named members obviates the need for each class member to exhaust. The Department opposed the motion for class certification, arguing that only the legislatively crafted, comprehensive statutory tax scheme could address taxpayer refunds. The district court denied class certification on the basis that Plaintiffs were unable to meet the numerosity requirement, "because under Section 7-1-22 NMSA 1978, this court lacks jurisdiction over those members of the proposed class who have not exhausted their administrative remedies by each filing a claim for refund" with the Department. The district court recognized that the question of "vicarious exhaustion" and "virtual representation" in class actions presented "an unsettled and fundamental issue of New Mexico law," and stayed all proceedings pending appeal under Rule 1-023(F). Respondents appealed the order denying class certification to the Court of Appeals.

{5} The Court of Appeals framed the issue on appeal as requiring a determination of "whether the legislature intended the administrative exhaustion requirement to preclude our courts from exercising jurisdiction over the purely legal claims of the absent members of a class who have not exhausted their remedies when exhaustion would be futile." U.S. Xpress, Inc. v. N.M. Taxation & Revenue Dept., 2005-NMCA-091, ¶ 9, 138 N.M. 55, 116 P.3d 846. The Court of Appeals held that because the named plaintiffs in this case had exhausted their own administrative remedies, that exhaustion gave the district court jurisdiction over claims for refunds of the contested taxes for all putative class members, including those who had not themselves exhausted administrative remedies. Id. ¶ 23. The Court of Appeals based its decision on the Department's uniform denial of part of each of the requested refunds, determining that further exhaustion of identical claims would be futile. Id. ¶ 15. Thus, the Court of Appeals decision allowed a form of representative exhaustion, characterized by the parties as "vicarious" or "virtual exhaustion," when individual exhaustion of administrative remedies for each member of the class would be futile. Id. ¶ 22.

{6} The question we consider is whether the Tax Administration Act requires individual exhaustion of remedies before proceeding to challenge the constitutionality of a tax in court, and if so, whether we will recognize a doctrine of "vicarious" exhaustion. "The meaning of language used in a statute is a question of law that we review de novo." Cooper v. Chevron U.S.A., Inc., 2002-NMSC-020, ¶ 16, 132 N.M. 382, 49 P.3d 61 (citation omitted). When this Court interprets the statutes of New Mexico, our "principal objective . . . is to determine and give effect to the intent of the legislature." Regents of the Univ. of N.M. v. N.M. Fed'n of Teachers, 1998-NMSC-020, ¶ 28, 125 N.M. 401, 962 P.2d 1236 (internal quotations and citations omitted). The primary indicator of the legislature's intent is the plain language of the statute. General Motors Acceptance Corp. v. Anaya, 103 N.M. 72, 76, 703 P.2d 169, 173 (1985).

{7} Applying these principles of statutory construction to the Tax Administration Act, we begin by noting that it provides taxpayers with a choice of two exclusive remedies when the taxpayer disputes liability for a tax. NMSA 1978, § 7-1-23 (2006). Under the administrative hearing remedy, a taxpayer may protest the assessment of the tax without making payment. NMSA 1978, § 7-1-24 (2006). Alternatively, the taxpayer may pay the disputed tax and then request a refund. NMSA 1978, § 7-1-26 (2006). With either choice, Section 7-1-22 requires exhaustion of administrative remedies, stating:

No court of this state has jurisdiction to entertain any proceeding by a taxpayer in which the taxpayer calls into question the taxpayer's liability for any tax or the application to the taxpayer of any provision of the Tax Administration Act, except as a consequence of the appeal by the taxpayer to the court of appeals from the action and order of the secretary, all as specified in Section 7-1-24 NMSA 1978, or except as consequence of a claim for refund as specified in Section 7-1-26 NMSA 1978.

{8} Section 7-1-22 has been interpreted as requiring taxpayers to follow the procedures in the Tax Administration Act. Neff v. State Taxation and Revenue Dep't., 116 N.M. 240, 244, 861 P.2d 281, 285 (Ct.App. 1993). "Additionally, by using broad language, the Legislature intended, with respect to the Tax Administration Act, to require that challenges to the validity of the Act be first presented either through the protest remedy, Section 7-1-24, or the refund remedy, Section 7-1-26." Neff, 116 N.M. at 244, 861 P.2d at 285. The Department argues that Section 7-1-22 requires mandatory exhaustion of administrative remedies by each taxpayer, while the Respondents argue that the Legislature has not clearly required individual taxpayer exhaustion.

{9} Respondents support their argument against requiring individual exhaustion by relying on an Arizona case, Ariz. Dep't. of Revenue v. Dougherty, 200 Ariz. 515, 29 P.3d 862 (2001). Respondents' reliance on Dougherty was represented as follows: "After carefully analyzing the state's similar refund statutes and applicable authority, the [Arizona] Court found `no reason why the statutory requirements cannot be satisfied through a single representative claim. . . .'" However, a careful reading of Dougherty...