Zhao v. Montoya

• Decision Date: 30 June 2014
• Docket Number: 33,594.,Nos. 33,589,s. 33,589
• Citation: 329 P.3d 676
• Parties: PINGHUA ZHAO, Plaintiff–Petitioner, v. Karen L. MONTOYA, Bernalillo County Assessor, Defendant–Respondent. and Gregg Vance Fallick and Janet M. Fallick, Plaintiffs–Petitioners, v. Karen L. Montoya, Bernalillo County Assessor, Defendant–Respondent.
• Court: New Mexico Supreme Court

329 P.3d 676

PINGHUA ZHAO, Plaintiff–Petitioner,

v.Karen L. MONTOYA, Bernalillo County Assessor, Defendant–Respondent.andGregg Vance Fallick and Janet M. Fallick, Plaintiffs–Petitioners,

v.Karen L. Montoya, Bernalillo County Assessor, Defendant–Respondent.

Nos. 33,589, 33,594.

Supreme Court of New Mexico.

June 30, 2014.

Tax, Estate & Business Law, Ltd., Clinton W. Marrs, Stephanie L. Dzur, Albuquerque, NM, for Petitioner Pinghua Zhao.

Davis, Gilchrist & Lee, P.C., Christopher David Lee, Ross & Garrett, Michael C. Ross, Aaron Garrett, Albuquerque, NM, for Petitioners Gregg Vance Fallick and Janet M. Fallick.

Sanders & Westbrook, P.C., Duff H. Westbrook, Albuquerque, NM, for Respondent.

OPINION

MAES, Justice.

{1} In these consolidated cases, Pinghua Zhao, Gregg Fallick, and Janet Fallick (Homeowners) appeal the valuation of their residences for property tax purposes as a result of what they allege is “tax lightning,” also known as acquisition-value taxation. Under acquisition-value taxation, a real estate owner's property tax liability is determined by the value of the property when acquired, not by the traditional practice of taxing real property on its current fair market value. In periods of rising real estate prices such a system compels later buyers to shoulder a higher annual tax liability than previous buyers. Consequently, there can be disparities in the tax liabilities of taxpayers owning similar properties. Homeowners challenge the constitutionality of NMSA 1978, Section 7–36–21.2(A)(3)(a), (B), and (E) (2003, amended 2010) of the Property Tax Code for creating an unauthorized class of residential property taxpayers based solely upon time of acquisition and for violating the equal and uniform clause of Article VIII, Section 1 of the New Mexico Constitution.

{2} We hold that Section 7–36–21.2 (2003) creates an authorized class based on the nature of the property and not the taxpayer. We also hold that the New Mexico tax system does not violate the equal and uniform clause of the New Mexico Constitution because it furthers a legitimate state interest. We further hold that the Court of Appeals erred in its interpretation of “owner-occupant.” Therefore, we affirm in part and reverse in part the Court of Appeals.

I. FACTS AND PROCEDURAL HISTORYZhao's Procedural History

{3} In 2007, Pinghua Zhao (Zhao) purchased residential property in Bernalillo County. At the time of purchase the property was assessed and valued at $243,786. In 2008, the property was valued at $362,600, an increase of 49 percent in one year. Zhao appealed the 2008 assessment to the Bernalillo County Valuation Protests Board (Board), asserting that the correct valuation should have been $251,100, a 3 percent increase in value based on the amount set in the preceding year. Zhao asserted that he was entitled to the 3 percent limitation on increases in valuation that applied to other properties in the area that had not changed ownership in 2007. Zhao asserted that the Legislature could only classify residential property taxpayers based on the three categories listed in Article VIII, Section 1(B) of the New Mexico Constitution, i.e., owner-occupancy, age, or income, and could not classify residential taxpayers based on change of ownership.

{4} The Board upheld the Bernalillo County Assessor's valuation of Zhao's property, explaining that the “assessed value of the subject property was increased by more than the 3% limitation of Section 7–36–21.2 because the property owners purchased the subject property during the 2007 tax year, and thus its value was raised to the market value as of January 1, 2008.” Zhao appealed the Board's decision to the Second Judicial District Court.

Fallicks' Procedural History

{5} Like Zhao, Janet and Gregg Fallick (Fallicks) own property in Bernalillo County. The Fallicks purchased a home “around the corner” from Mr. Fallick's prior home. The sale and purchase were simultaneous. The 2009 valuation for property tax purposes on the new home was $902,500, compared to $553,700 for Mr. Fallick's prior home. The Fallicks appealed the valuation of their home to the Board. Based on comparable properties in their neighborhood and certain permissible statutory increases, the Fallicks submittedthat their property should be assessed at $599,169. The County based its assessment on the market value of the home for the year 2009. The Fallicks asserted that the County's assessment practices amounted to tax lightning and violated the equal and uniform clause of Article VIII, Section 1 of the New Mexico Constitution. The Board upheld the valuation, finding that the Fallicks failed to meet their “burden of rebutting the presumption that the assessor's valuation is correct.” The Fallicks appealed the Board's determination to the Second Judicial District Court.

{6} The district court consolidated Homeowners' cases and certified the following question to the Court of Appeals pursuant to NMSA 1978, Section 39–3–1.1(F) (1999) (permitting the district court to certify an issue without making a decision): Whether NMSA 1978, Section 7–36–21.2(A)(3)(a), (B), and (E) (2003) violates Article VIII, Section 1 (as amended 1998) of the New Mexico Constitution “because the Subsections create a classification based on when residential property was acquired, not on the constitutionally permissible classifications of owner-occupancy, age, or income.”

{7} The Court of Appeals upheld the statute's exclusion of the class of properties that had changed ownership in the prior year from the 3 percent limitation as a constitutionally permissible classification based on owner-occupancy. Zhao v. Montoya, 2012–NMCA–056, ¶ 22, 280 P.3d 918. The Court reasoned that one is not entitled to the limitation until acquiring ownership of the property, at which point one enters the class of owner-occupants. Id. ¶ 19.

{8} Judge Sutin concurred with the majority “on the very limited ground that Subsections (A)(3)(a), (B), and (E) of Section 7–36–21.2 do not, as Homeowners contend, unconstitutionally go beyond owner-occupancy, age, and income by ‘creat[ing] a classification based on when residential property was acquired [.]’ ” Zhao, 2012–NMCA–056, ¶ 25, 280 P.3d 918 (Sutin, J., specially concurring) (alteration in original). Judge Sutin's concurrence did note concern that the application of Section 7–36–21.2 might violate Article VIII, Section 1's equal and uniform requirement by creating a method of valuation that results in unequal and non-uniform valuation and taxation of the same class of property. Zhao, 2012–NMCA–056, ¶¶ 34–35, 280 P.3d 918 (Sutin, J., specially concurring). However, the majority concluded that Homeowners had abandoned their reliance on the equal and uniform clause because they conceded that Section 7–36–21.2 “levies residential property taxes equally and uniformly within the same class of taxpayers.” Id. ¶ 11.

{9} Homeowners separately appealed to this Court pursuant to Rule 12–502 NMRA. Zhao raised three issues for review: (1) Whether the Court of Appeals erred in interpreting the New Mexico Constitution Article VIII, Section 1(B) as permitting classification of taxpayers based upon a change of ownership; (2) whether the Court of Appeals erred in holding that Section 7–36–21.2(B) is a classification based upon owner-occupancy; and (3) whether the Court of Appeals erred in holding that Zhao is not within a protected class entitled to a valuation limitation. The Fallicks raised the sole issue of whether the Court of Appeals erred when it held that Subsection (A)(3)(a), Subsection (B), and Subsection (E) of NMSA 1978, Section 7–36–21.2 (2003), does not violate the equal and uniform clause of the New Mexico Constitution. We granted certiorari and consolidated the appeals.

{10} We first address two of Zhao's arguments, which can be summarized as follows: Did the Legislature impermissibly create a class of taxpayer based on time of acquisition? Next we address the Fallicks' argument that New Mexico's tax scheme violates the equal and uniform clause of the New Mexico Constitution. Finally, we consider whether the Court of Appeals erred in holding that Zhao is not an owner-occupant entitled to a valuation limitation.

II. STANDARD OF REVIEW

{11} Questions of statutory and constitutional interpretation are reviewed de novo. Tri–State Generation & Transmission Ass'n, Inc. v. D'Antonio, 2012–NMSC–039, ¶ 11, 289 P.3d 1232. Legislative acts are presumed to be constitutional. See Garcia v. Village of Tijeras, 1988–NMCA–090, ¶ 6, 108 N.M. 116, 767 P.2d 355. The party contesting the constitutionality of a statute bears the burden of proving the statute is, in fact, unconstitutional. See id.

III. DISCUSSION

{12} The Legislature's authority to tax personal property is found in Article VIII, Section 1 of the New Mexico Constitution. Before 1998, Article VIII, Section 1 of the New Mexico Constitution included only what is now Subsection (A). Subsection (A) demanded that “taxes levied upon tangible property shall be in proportion to the value thereof, and taxes shall be equal and uniform upon subjects of taxation of the same class.” N.M. Const. art. VIII, Section 1(A) (1971). Then in 1998, Subsection (B) was added:

The legislature shall provide by law for the valuation of residential property for property taxation purposes in a manner that limits annual increases in valuation of residential property. The limitation may be applied to classes of residential property taxpayers based on owner-occupancy, age or income. The limitations may be authorized statewide or at the option of a local jurisdiction and may include conditions under which the limitation is applied. Any valuation limitations authorized as a local jurisdiction option shall provide for applying statewide or multi-jurisdictional property tax rates to the value of the property as if the valuation increase limitation did not apply.

N.M. Const. art. VIII, § 1(B) (1998).

{13} In response, the...