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Tucson Electric Power Co. v. Taxation and Revenue Department of State

Court of Appeals of New Mexico

November 4, 2019

TUCSON ELECTRIC POWER CO., Petitioner-Appellant

          APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE Monica Ontiveros, Hearings Officer

          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



         {¶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.


         {¶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 [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."[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.


         {¶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 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.").

         {¶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, ΒΆ 9, 133 ...

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