Hammack v. N.M. Taxation & Revenue Dep't
34,432
| N.M. Ct. App. | May 1, 2017Background
- Thomas Hammack was an active-duty commissioned officer in the U.S. Public Health Service (USPHS) and a New Mexico resident; his USPHS worksite was in Arizona for tax years 2009–2012.
- On joint New Mexico returns for 2009–2012, the Hammacks omitted Mr. Hammack’s wages claiming the Section 7-2-5.11 exemption for "salary paid by the United States to a taxpayer for active duty service in the armed forces of the United States."
- The New Mexico Taxation & Revenue Department assessed unpaid income tax, penalties, and interest for those years; the Hammacks protested asserting USPHS service qualifies as ‘‘armed forces’’ active duty.
- A Department hearing officer upheld most assessments, concluding USPHS service did not qualify as active duty in the armed forces for the exemption; the officer reversed one penalty tied to a Department error.
- The Court of Appeals majority affirmed, reasoning federal statutes (including SCRA provisions) that treat certain USPHS officers like military for limited federal purposes do not expand New Mexico’s statutory phrase; the Department’s regulation defining "armed forces" did not impermissibly enlarge the statute.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether USPHS active-duty pay is exempt under NMSA § 7-2-5.11 as "active duty service in the armed forces of the United States" | Hammack: Federal law (SCRA and related statutes) treats USPHS commissioned officers as "active military service," so wages are exempt | Department: New Mexico law’s exemption covers service in the armed forces as commonly defined (Army, Navy, Air Force, Marine Corps, Coast Guard); USPHS is distinct and federal SCRA definitions are limited in scope | Held: Affirmed — USPHS service not within § 7-2-5.11 exemption; federal SCRA treatment is limited and statute must be strictly construed in favor of taxation |
| Whether the Department regulation 3.3.1.9(D)(5) improperly expands § 7-2-5.11 by defining "armed forces" to include certain USPHS officers | Hammack: Regulation should be read to align with federal treatment of USPHS officers and include those detailed to any service branch | Department: Regulation defines an undefined statutory term and does not modify the statute; it is a valid interpretive regulation | Held: Regulation is not void as an improper enlargement of the statute; court declined to adopt plaintiff’s broader reading |
| Whether federal withholding practice (5 U.S.C. § 5517) proves the Department treated Hammack as armed forces for state tax purposes | Hammack: USPHS withheld NM tax from his wages, implying recognition as armed forces member | Department: 5 U.S.C. § 5517 withholding applies for employees whose place of federal employment is in-state or for service as a member of the armed forces; Hammack’s federal place of employment was out-of-state and USPHS service is not "service as a member of the armed forces" for that statute | Held: Not persuasive — withholding does not establish that Hammack was treated as armed forces for purposes of § 7-2-5.11 |
| Standard of review and burden for exemptions | Hammack: (implicit) statute should be construed to include USPHS officers as armed forces for exemption | Department: Exemptions construed narrowly; taxpayer must clearly establish entitlement | Held: Exemption statutes construed strictly in favor of tax authority; taxpayer failed to clearly and unambiguously establish right to exemption |
Key Cases Cited
- Hedin v. Thompson, 355 F.3d 746 (4th Cir. 2004) (discusses limits on treating USPHS active service as equivalent to armed forces service)
- Wanner v. Glen Ellen Corp., 373 F. Supp. 983 (D. Vt. 1974) (federal court recognizing USPHS officers detailed with armed forces are treated like commissioned armed forces officers for certain federal rights)
- Reed v. Jones, 81 N.M. 481 (N.M. Ct. App.) (tax exemption/deduction rules require clear statutory authorization)
- Sec. Escrow Corp. v. N.M. Taxation & Revenue Dep’t, 107 N.M. 540 (N.M. Ct. App.) (statutory tax exemptions strictly construed against taxpayers)
- State ex rel. McCulloch v. Ashby, 73 N.M. 267 (N.M. 1963) (agency regulations cannot abridge, enlarge, or modify statutory rights)
- Rainbo Baking Co. of El Paso v. Comm’r of Revenue, 84 N.M. 303 (N.M. Ct. App.) (agency may not impose limitations not prescribed by the legislature)