CAVU CO., a Nebraska Corporation, Respondent-Appellant, v. DOMINGO MARTINEZ, Santa Fe County Assessor, Petitioner-Appellee.
Docket No. 32,021
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
February 1, 2013
2013-NMCA-050
Certiorari Granted, April 5, 2013, No. 34,039
Elkhorn, NE
Sommer, Udall, Sutin, Hardwick & Hyatt P.A.
Kurt A. Sommer
Santa Fe, NM
for Appellant
Bridget Jacober
Santa Fe, NM
for Appellee
OPINION
Bustamante, Judge.
{1} This case presents two issues. The first is whether a statute and regulation stating
{2} The second concerns the proper remedy under New Mexico‘s Constitutional provision requiring uniform taxation when similarly situated properties are disparately granted exemptions from taxation. The district court reversed the Santa Fe County Protest Board‘s (Protest Board) decision that Taxpayer was entitled to an exemption because another similarly used property was not taxed. We affirm the district court‘s conclusion that Taxpayer was not entitled to tax exempt status for 2010 based on non-uniform treatment.
BACKGROUND
{3} Taxpayer, a Nebraska corporation, owns the рroperty at 7300 Old Santa Fe Trail in Santa Fe, New Mexico. The property was used as a school and determined to be exempt from property taxes through 2008.1 Between May 2008 and August 2010, Taxpayer sought an educational tenant for the property, but the property was not in active use, except for a few months during which it was used by an organization that taught people to train dogs. In the fall of 2010, the property was again used as an educational institution. It is undisputed that on January 1, 2010, the property was not in active use for educational purposes. In 2010, the Santa Fe County Assessor (Assessor) determined that the property was no longer exempt from ad valorem taxes and valued the property at $6,689,750. Taxpayer protested this determination to the Protest Board.
{4} The Protest Board restored the exemption based on its conclusion that denial of an exemption to Taxpayer constituted “non-uniform” treatment in the assessment of taxes, contrary to
{5} Although the Protest Board concluded that “it would appear that this case might present one of the rare instances in which temporary non[-]use actually constitutes an exempt use of property in the unique circumstances[,]” it did not decide the matter on that basis, stating, “[g]iven our dispositive ruling on [Taxpayer‘s] uniformity argument, we do not make a formal decision on this basis.” Assessor filed a petition for writ of certiorari with the district court. See Rule 1-075 NMRA (“Constitutional review by district court of administrative decisions and orders.“).
{6} The district court reversed the Protest Board. It concluded that the Protest Board‘s decision was “not in accordance with law” because Taxpayer did not “demonstrate that the Assessor‘s failure to tax a similarly used property . . . was the result of fraud or intentional discrimination by the Assessor” and, therefore, “there is no constitutional basis to warrant the remedy of exempting [Taxpayer‘s] property from taxation.” It found further that ”
{7} Taxpayer makes five points which we consolidate into two major arguments. First, it argues that the district court‘s interpretation of
A. The District Court Erred in Interpreting Section 7-38-7 Too Narrowly
{8}
A. TAXABLE STATUS OF PROPERTY FIXED AS OF JANUARY 1 OF EACH YEAR: January 1 of each year is the date which determines the tax status of all property subject to valuation for property taxation purposes . . . . This status includes determination of whether the property is exempt from property taxation. Therefore, if property is not entitled to exemption from property taxation under the Property Tax Code [
NMSA 1978, Sections 7-35-1 to-38-93 (1973, as amended through 2012)] on January 1 of the tax year, it is not exempted from taxation for that tax year. The sale or transfer of the property to a tax exеmpt owner at a later date during the tax year does not entitle the property to exemption for that tax year.
{9} Taxpayer argues that the district court‘s reliance on the use of the property on a single day—January 1—was a “gross misinterpretation” of the statute and that “January 1[] is the determination date of the property‘s tax status; it is not the classification date.” Taxpayer argues further that the question of whether the property was used for educational purposes “is to be decided on the basis of what educational use took place before the date of January 1.” Finally, Taxpayer maintains that the district court‘s focus on the use of the property on a single day was contrary to
{10} As a preliminary matter, we note again that the Protest Board did not decide the issue of whether the property qualified for an exemption on the basis of its use for educational purposes. Thus, there was no final order on this basis from which Assessor could seek redress. Rather, Assessor argued in its statement of issues that the Protest Board “act[ed] arbitrarily, capriciously[,] and not in accordance with law[] [when it] did not enter an order denying the protest and finding the property taxable” in spite of its finding that the property was not actively used for educational purposes on January 1, 2010. The district court apparently agreed that the Protest Board erred by not denying the exemption based on this finding of fact.
{11} We “review a district court‘s decision in an administrative appeal under an administrative standard of review.” Gallup Westside Dev., LLC v. City of Gallup, 2004-NMCA-010, ¶ 10, 135 N.M. 30, 84 P.3d 78. In a case such as this one, where the district court reversed the Protest Board on one basis and ruled in favor of Assessor on a different, independent basis, “[w]e conduct the same review of an administrative order as the district court sitting in its appellate capacity, while at the same time determining whether the district court erred in the first appeal.” Id. (internal quotation marks and citation omitted). The district court may reverse the Protest Board if it acted “outside the scope of authority of the agency[,]” Rule 1-075(R)(3), or if “[the district court] determines that the administrative entity . . . acted fraudulently, arbitrarily, or capriciously; if the decision was not supported by substantial evidence in the whole record; or if the [Protest Board] did not act in accordance with the law.” Gallup Westside Dev., LLC, 2004-NMCA-010, ¶ 10; see
{12} “Property is presumed to be subject to taxation.” Georgia O‘Keefe Museum v. Cnty. of Santa Fe, 2003-NMCA-003, ¶ 32, 133 N.M. 297, 62 P.3d 754;
{13} The issue before us is whether the property was “used for” educational purposes at the times relevant to determination of its tax status for 2010. Assessor does not dispute the Protest Board‘s findings of fact that the property was used by a school until May 2008, that the property was used by an organization that taught people to train dogs between February and May 2010, and that educational use resumed again in August 2010. Nor does Assessor appear to challenge Taxpayer‘s assertion that the property has never been used for purposes other than educational. Rather, Assessor urges us to affirm the district court‘s decision based on the fact that the property was not in active use for educational purposes on January 1, 2010. Taxpayer argues that this approach is unreasonable because it fails to consider use of the property prior to that date. We agree with Taxpayer.
{14} Before reaching the merits, we dispose of Assessor‘s somewhat oblique assertion that the district court did not rely on the use of the property on January 1 alone. The district court‘s order states:
On January 1, 2010 [Taxpayer‘s] property while previously used for a school and developed for a school was not in use as a school on that date;
. . . Therefore, [Taxpayer‘s] property did not qualify on [sic] for an exemption from taxation based on educational use even though the property was later used as a school during the calеndar year[.]
(Emphasis added.) In addition, at the hearing, Assessor argued that
In my view,
Section 7-38-7 clearly speaks in terms of January [1] being the status date for valuation purposes. And on January 1 of the year in question, the old school had vacated the property and the school was not then being currently and actively used as an educational facility.
We conclude from this record that the district court‘s decision rested on the use of the property on January 1 without consideration of its use prior to that date.
{15} Turning now to the merits, we conclude that the district court erred in focusing on January 1 because such a narrow interpretation of
{16} Applying the district court‘s narrow construction of
{17} In addition,
{18} Similarly, the statutes and regulations applicable to exemptions do not limit claimants’ evidence of educational use to the property‘s use on January 1. See, e.g.,
{19} Our conclusion is also consistent with cases addressing educational and charitable use. Both parties cite to NRA and Georgia O‘Keefe Museum in support of their positions. In NRA and Georgia O‘Keefe Museum, this Court examined the boundaries of “educational use” and defined it as “the direct, immediate, primary and substantial use of property that embraces systematic instruction in any and all branches of learning from which a substantial public benefit is derived.” NRA, 92 N.M. at 548, 591 P.2d at 679 (internal quotation marks omitted). The parties accept this definition. Other New Mexico cases cited by the parties included Sisters of Charity of Cincinnati, Ohio v. Bernalillo County, 93 N.M. 42, 45, 596 P.2d 255, 258 (1979), BPOE, Lodge No. 461, 83 N.M. at 446-47, 493 P.2d at 412-13, and Grace, Inc. v. Board of County Commissioners, Bernalillo County, 97 N.M. 260, 261, 639 P.2d 69, 70 (Ct. App. 1981). These cases addressed the requirements for “charitable use” under
{20} Assessor does not argue that the district court was following a “long-standing administrative construction[] of [the] statute[] by the agency charged with administering [it]” to which we should “give persuasive weight.” AMREP Sw. Inc., 2012-NMCA-082, ¶ 9 (internal quotation marks and citation omitted). Nor does Assessor direct us to New Mexico cases that support the district court‘s approach. Assessor does cite Dillard v. New Mexico State Tax Commission, 53 N.M. 12, 201 P.2d 345 (1948), for the proposition that “a property‘s status on January 1 is determinative of whether it is entitled to an exemption for that year.” In that case, the Court considered whether a soldier discharged after January 1 of the tax year was entitled to a veteran‘s exemption for that year. Id. at 24, 201 P.2d at 353; see
{21} Neither are we convinced by the out-of-state cases cited by Assessor because both the facts and the statutes at issue there are unlike those here.
B. Taxpayer‘s Property Did Not Qualify for the Educational Use Exemption
{22} In spite of the district court‘s overly narrow interpretation of
{23} “An exemption dependent on the use of property is solely a question of fact.” Grand Lodge, 106 N.M. at 181, 740 P.2d at 1166. An exempt “property need not be used exclusively for charitable or educational purposes, but those must be the primary or substantial uses. . . . In addition, it is the actual use of the property, not the owner‘s declared objects and purposes, that determines the right to an exemption.” Id. The Protest Board found that the property‘s design made it “most suited” for a school and that there was “no dispute that . . . use [of the property through May 2008] was a bona fide educational use entitling the owner to a full exemption.” It concluded that beginning in August 2010, thе property was again used for a “bona fide educational use.” It also made the following findings:
[Finding] 21. There is also no significant dispute that the property ceased being used actively as a school in May, 2008 and was not used actively as a full-time elementary school again until August, 2010.
. . . .
[Finding] 23. More to the point, [Taxpayer] actively sought an educational tenant for the subject property during the interim, including protracted negotiation with Desert Academy, which proved fruitless.
. . . .
[Finding] 27. There is evidence that during this time [Taxpayer] was actively seeking a school tenant and, in fact, was negotiating with one or more potential
tenants. Moreover, there is evidence of the owner‘s commitment to an educational use of the subject property in the form of nominal or significantly reduced rents for such use. . . . .
[Finding] 30. The subject property was not put to active educational use as of January 1. . . .
{24} Our case law makes clear that the only relevant facts are those pertaining to the use of the property—not whether the property is built for a certain purpose, the owner‘s intent for the property, or the owner‘s support of educational or charitable causes through reduced rent. Grand Lodge, 106 N.M. at 181, 740 P.2d at 1166. Thus, findings 23 and 27, as well as the Protest Board‘s observations about the suitability of the property for a schоol, are of limited or no relevance to the question before us. See Grace, Inc., 97 N.M. at 260-61, 639 P.2d at 69-70 (holding that property purchased by a church for a new building was taxable in spite of the church‘s intent to build a new facility on it); Georgia O‘Keefe Museum, 2003-NMCA-003, ¶ 40 (stating that the educational use exemption does not distinguish between organizations that make a profit and those that do not). The focus on actual use derives from the basic principle on which the educational use exemption is based: “The rationale for this [exemption] provision is that all property should bear its share of the cost of government. Property which is exempt from taxation does not share in the burden. Therefore, in еxchange for its exempt status, such property must confer a substitute substantial benefit on the public.” NRA, 92 N.M. at 548, 591 P.2d at 679; see 71 Am. Jur. 2d State and Local Taxation § 269 (2012). Only property in actual use can provide a “substitute substantial benefit.” NRA, 92 N.M. at 548, 551, 591 P.2d at 578, 682 (”
C. There Is no Constitutional Basis on Which Taxpayer Is Entitled to an Exemption
{25} Taxpayer next argues that “[t]he district court erred in rejecting the Protest Board‘s determination that the [p]roperty should be rendered exempt under [the]
{26} Our analysis encompasses three distinct questions. First, was there a disparity in taxation of two similarly situated properties? Second, was the disparity constitutional in nature? Finally, what is the proper remedy?
{27} The Protest Board made the following findings:
[Finding] 34. . . . .
- The St. Francis School, owned by the Archdiocese of Santa Fe, was not operating as a school on January 1, 2010.
- School operations at the site, as the New Mexico School for the Arts, began for the fall semester of 2010.
- The school was in fact leased to a real estate developer for potential redevelopment during at least part of 2010.
- The tax rolls for the property containing the school reflected no valuation for improvements for 2010 (a portion of the lot was leased to the City of Santa Fe for parking during this
time, and it may be only that portion which carried a land valuation). - The school building was thus exempt from taxation for the 2010 tax year, as it was not placed on the tax rolls.
[Finding] 35. [Taxpayer‘s] property is in a very similar situation, with no actual educational use on January [1], but with active educational use starting in the fall semester.
. . . .
[Finding] 41. Thus, if [Taxpayer‘s] property and the [St. Francis] School property were treated differently, but were otherwise in factually similar positions, that disparate treatment would constitute lack of uniformity.
[Finding] 42. The Board does find such non-uniform treatment.
The parties dispute whether and to what extent the St. Francis School property was exempted from taxation. Assessor also argues that the Protest Board‘s findings were not supported by substantial evidence. We need not resolve this issue, however, because even if we assume there was a disparity, we determine that Taxpayer was not entitled to exempt status on that basis.
{28} The second question is whether a disparity in taxation is a violation of the
{29} Finally, we affirm the district court‘s rejection of Taxpayer‘s requested remedy. When there is a violation of the constitutional uniformity requirement, “[t]axpayers are entitled to a reduction in their assessment for the [relevant] tax year to a level which will achieve the practiсal uniformity required by
{30} Both Taxpayer and the Protest Board seek to distinguish Skinner, Hahn, and Appelman on the ground that thеy pertain to valuations only. The Protest Board found that Skinner was not “helpful” because, unlike valuations which are “susceptible to shades of estimation or inexactitude[,]” classification of property as exempt is “a binary inquiry.” Taxpayer makes a similar argument on appeal. We do not agree that classification of a property as tax exempt based on educational use is materially different from valuation of property. An educational use exemption is granted when the use of the
{31} In addition, the Skinner, Hahn, and Appelman holdings did not hinge on reasonable variation in values based on assessments of market value. Instead, they revolved around the timing of appraisals. In each case, the county conducted reappraisals of the protestants’ properties but not on other properties in the county, which resulted in higher valuations of, and higher taxes on, the protestants’ properties than on those of their neighbors. Appelman, 94 N.M. at 238-39, 608 P.2d at 1120-21; Hahn, 92 N.M. at 610-11, 592 P.2d at 966-67; Skinner, 66 N.M. at 222-23, 345 P.2d at 751. The focus of the Court‘s inquiry in those cases was the county‘s reappraisal program and whether it was bаsed on a “systematic and definite plan for the reappraisal of all lands in [the c]ounty.” Hahn, 92 N.M. at 613, 592 P.2d at 969. Thus, the question was whether the county was administering the reappraisal program in a discriminatory, non-uniform manner, not whether the reappraisal values or valuation methods were infirm. Appelman, 94 N.M. at 238, 608 N.M. at 1120 (stating that the taxpayer sought “to have her property tax valuation reduced to the level of other county non-reassessed property“); Hahn, 92 N.M. at 612, 592 P.2d at 968 (stating that “singling out one or a few taxpayers for reappraisals for several years in succession while virtually all other owners of comparable properties do not undergo a single reappraisal in the same period is an inequality that is neither tеmporary nor constitutional“); Skinner, 66 N.M. at 223, 345 P.2d at 751 (stating that the protestants “do not seriously protest their valuations nor claim that they are higher than the law allows, but . . . say that their assessments cannot be raised unless and until all other property in the county is similarly treated“). Only in Hahn, where certain properties were reappraised repeatedly while others were not reappraised at all, did the Court determine that the conduct of the reappraisal program and resulting inequity in taxation was unconstitutional. 92 N.M. at 612, 592 P.2d at 968. We conclude that Skinner and its progeny are not distinguishable on these grounds.
{32} Since here we have determined that there was no fraud or systematic discrimination by Assessor, the only remedy for any disparity is to remove the exemрtion from properties to which it was erroneously granted, rather than to exempt Taxpayer‘s property from taxes. Taxpayer did not request this remedy, arguing instead that the St. Francis School property was correctly granted an exemption and that Taxpayer‘s property should be similarly treated. See Appelman, 94 N.M. at 240, 608 P.2d at 1122 (stating that the taxpayer “sought the improper remedy; she should have requested that the [c]ounty be ordered to raise the valuation level of other property in the county to full market value“). The district court did not err in its conclusion that Taxpayer was not entitled to an exemption on the basis of non-uniform exemptions.
CONCLUSION
{33} Taxpayer is not entitled to an exemption from taxation in 2010 based on educational use of the property because the property was not in use for any eligible purposes for the entire previous tax year. Although the district court erred in focusing too narrowly on the use of the property on January 1, we nevertheless affirm its ruling to this effect. In addition, we agree with the district court‘s reasoning and conclusion that Taxpayer is not entitled to exemption from taxation based on non-uniform treatment of a similarly used property.
{34} IT IS SO ORDERED.
MICHAEL D. BUSTAMANTE, Judge
WE CONCUR:
LINDA M. VANZI, Judge
J. MILES HANISEE, Judge
Topic Index for CAVU Co. v. Martinez, No. 32,021
ADMINISTRATIVE LAW AND PROCEDURE
Administrative Appeal
Standard of Review
Sufficiency of Evidence
APPEAL AND ERROR
Standard of Review
Substantial or Sufficient Evidence
CONSTITUTIONAL LAW
New Mexico Constitution, General
TAXATION
Exemptions
Property Tax
STATUTES
Interpretation
Legislative Intent