FROM THE ADMINISTRATIVE HEARINGS OFFICE Monica Ontiveros,
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
MILES HANISEE, CHIEF JUDGE
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.
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.
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. 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." 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.
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
[Legislature 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." 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.
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.
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 Aha 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.").
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