Weil Constr. Inc. v. Monforte
| Decision Date | 08 January 2019 |
| Docket Number | NO. A-1-CA-35845,A-1-CA-35845 |
| Parties | WEIL CONSTRUCTION INC., a New Mexico Corporation, Plaintiff-Appellant, v. JOHN MONFORTE, Acting Secretary of Taxation and Revenue Department, and NEW MEXICO TAXATION AND REVENUE DEPARTMENT, Defendants-Appellees. |
| Court | Court of Appeals of New Mexico |
This memorandum opinion was not selected for publication in the New Mexico Appellate Reports. Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer-generated errors or other deviations from the official paper version filed by the Court of Appeals and does not include the filing date.
APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE
Dee Dee Hoxie, Hearing Officer
Santa Fe, NM
for Appellant
Hector H. Balderas, Attorney General
Cordelia A. Friedman, Special Assistant Attorney General
Santa Fe, NM
for Appellees
{1} Weil Construction, Inc. (Weil) appeals the decision and order of a Taxation and Revenue Department hearing officer disallowing a claimed deduction and denying Weil's request for a refund of gross receipts tax paid on items installed during the construction of a Santa Fe County fire station. Weil argues that the hearing officer erred by (1) concluding, as a matter of law, that Weil could not claim a deduction, and (2) determining that Weil failed to meet its burden to establish its right to the deduction. For purposes of this opinion, we assume the relevant law provided an avenue for Weil to claim a deduction of gross receipts tax, but we nevertheless conclude that the hearing officer did not err in ruling that Weil failed to meet its burden. As such, we affirm. Because this is a memorandum opinion, we set forth only such facts and law as are necessary to decide the merits.
{2} Santa Fe County hired Weil in 2012 to build a fire station in Edgewood, New Mexico. As the seller of services, Weil paid gross receipts tax on all its receipts from building the fire station, see NMSA 1978, §§ 7-9-3.5(A) (2007), -4(A) (2010), and, by agreement, passed the cost of the gross receipts tax on to Santa Fe County. After the completion of the project, Santa Fe County hired an accounting firm, Moss Adams LLP (Moss), to conduct a cost segregation study in order to determine whether any items installed in the fire station qualified for a tax deduction under the Gross Receipts and Compensating Tax Act, NMSA 1978,§§ 7-9-1 to -116 (1966, as amended through 2018). Moss conducted the study and identified thirty-four items in the fire station it believed were deductible.
{3} Weil filed a claim for refund of $30,851 in gross receipts tax paid on the thirty-four items identified in the cost segregation study. The claimed deduction in this case stems from Section 7-9-54(A) (2003, amended 2018),1 which permits a deduction for the sale of tangible personal property to a governmental entity, such as Santa Fe County. Section 7-9-54(A), however, does not permit the deduction for "construction material" or for the provision of construction services. See § 7-9-54(A)(3), (4). In claiming the deduction, Weil relied on regulation 3.2.1.11(J)(2) NMAC (Regulation J), which defines the term "building." Weil reasoned that—due to Regulation J—the claimed items were not part of the construction of the fire station building; instead, these items qualified as tangible personal property for purposes of the deduction in Section 7-9-54(A).
{4} The Department of Taxation and Revenue (the Department) initially took no action on Weil's request for refund, and Weil filed an administrative protest.
During the pendency of the protest, the Department refunded gross receipts tax on six of the thirty-four claimed items and denied the rest. The Department requested an administrative hearing on the remaining twenty-eight items. At the nearly five-hour hearing, both the Department and Weil called witnesses and submitted numerous exhibits for the hearing officer's review. Weil's exhibits included its application for refund, the cost segregation study, photos of the claimed items, its invoices, the blueprints and mission statement for the fire station, and a cost segregation study accepted as evidence in an unrelated case. The testimony at the hearing largely focused on the parties' differing perspectives on the operation and history of the relevant statutes and regulations, as well as the Department's historical treatment of refunds under Section 7-9-54(A).
{5} The hearing officer denied Weil's protest by written decision and order. As grounds for the denial, the hearing officer concluded (1) "all of the outstanding depreciable property was construction material as defined by . . . statute," and Regulation J could not override the applicable statutory provisions, and, alternatively, (2) even assuming Weil could rely on Regulation J for a deduction, Weil failed to meet its burden of demonstrating that the claimed items were not part of a "building" under Regulation J. Weil appealed the decision and order pursuant to NMSA 1978, Section 7-1-25 (2015).
{6} The Gross Receipts and Compensating Tax Act presumes that all persons engaging in business in New Mexico are subject to gross receipts tax. See § 7-9-5. "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. "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." Hammack v. N.M. Taxation & Revenue Dep't, 2017-NMCA-086, ¶ 6, 406 P.3d 978 (internal quotation marks and citation omitted); accord § 7-1-25(C). "When reviewing for sufficiency of the evidence, we look to the whole record and review the evidence in the light most favorable to the agency's findings." Arco Materials, Inc. v. N.M. Taxation & Revenue Dep't, 1994-NMCA-062, ¶ 2, 118 N.M. 12, 878 P.2d 330, rev'd on other grounds by Blaze Constr. Co. v. N.M. Taxation & Revenue Dep't, 1994-NMSC-110, ¶ 1, 118 N.M. 647, 884 P.2d 803.
3.2.1.11(J)(2) NMAC (emphasis added). Assuming, without deciding, that Weil is correct that Regulation J provides an avenue for the deduction of gross receipts tax in this case, it was Weil's burden to establish its entitlement to the deduction. Under Regulation J, Weil was required to produce sufficient evidence demonstrating that the items claimed are equipment, systems or components (1) "installed to perform, support or serve the activities and processes conducted in the building" and (2) "which are classified for depreciation purposes as three-year property, five-year property, seven-year property, 10-year property or 15-year property by Section 168 of the Internal Revenue Code[.]" Id.
{8} The hearing officer, while finding that Weil met its burden on the second element, determined that Weil failed to carry its burden on the first element. The hearing officer acknowledged that "[a] few outstanding items of the claimed depreciable property were mentioned [at the hearing] as part of the argument that they supported the activities and processes; [i.e.,] the exhaust fans, and part of the drainage in the garage." The hearing officer nonetheless found that "[t]here was no evidence on how exactly those items related to the provision of emergencyservices" and reiterated that the burden was on the taxpayer to prove its entitlement to the deduction. She concluded, "[g]iven the lack of evidence presented on the items claimed and their relation to provision of emergency services rather than the overall operation and maintenance of the building, [Weil] has failed to meet its burden."2
{9} Without citation to authority, Weil attempts to frame the issue before this Court as "whether [it] tendered sufficient evidence to connect any item of the fire station property to the provision of fire fighting or emergency services" and baldly asserts it can obtain reversal of the entire decision and order on this basis alone. (Emphasis added.) We question whether Weil's burden on appeal is met by simply arguing there was insufficient evidence on a single item. In the past, we have declined to consider a sufficiency of the evidence challenge when a party "fails to connect and support [its] argument with a recitation of all facts material to the issue . . . [and] fails to include the substance of all the evidence bearing upon a proposition[.]" Crutchfield v. N.M. Dep't of Taxation & Revenue, 2005-NMCA-022, ¶ 17, 137 N.M. 26, 106 P.3d 1273 (internal quotation marks and citation omitted)); cf. Martinez v. Sw. Landfills, Inc., 1993-NMCA-020, ¶ 15, 115 N.M.181, 848 P.2d 1108 ( .
{10} Even accepting...
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