Case Information
*1
IN THE SUPREME COURT OF THE STATE OF NEW MEXICO
Opinion Number:
Filing Date: August 17, 2017
Docket No. S-1-SC-35148
EL CASTILLO RETIREMENT
RESIDENCES,
Petitioner-Respondent,
v.
DOMINGO MARTINEZ, ASSESSOR,
SANTA FE COUNTY,
Respondent-Petitioner.
ORIGINAL PROCEEDING ON CERTIORARI
Barbara J. Vigil, District Judge
Bridget Jacober
Santa Fe, NM
for Petitioner
Jones, Snead, Wertheim & Clifford, P.A.
Carol A. Clifford
Jerry Todd Wertheim
Santa Fe, NM
for Respondent
Betzer, Roybal & Eisenberg, P.C.
Gary D. Eisenberg
Albuquerque, NM
for Amicus Curiae
New Mexico Health Care Association
OPINION
DANIELS, Justice. Article VIII, Section 1(A) of the New Mexico Constitution sets forth a general
mandate that all property of the same class must be taxed in an “equal and uniform” manner, while Section 3 exempts from taxation property that is, among other exempt categories, “used for . . . charitable purposes.” In 2008, the New Mexico Legislature created a new tax exemption for a continuing care community defined under the Continuing Care Act, NMSA 1978, §§ 24-17-1 to -18 (1985, as amended through 2010), that “donates or renders gratuitously a portion of its services or facilities” and “uses all funds remaining after payment of its . . . expenses of operation . . . to further its charitable purpose, including the maintenance, improvement or expansion of its facilities,” among other qualifications. NMSA 1978, § 7-36-7(B)(1)(d) (2008); see § 24-17-3(B)-(C) (defining “community” and “continuing care”).
{2} Respondent El Castillo Retirement Residences is a self-sustaining retirement and continuing care community, funded entirely by admission and monthly fees paid by residents who have met El Castillo’s requirements for sufficient financial resources, including a minimum net worth, and have satisfied specific health criteria. It does not accept residents who are Medicare-dependent, Medicaid-dependent, or charity-dependent or any residents who cannot afford to buy their way into the community. It neither donates any significant services or property to charitable causes nor uses its property primarily and substantially for a charitable purpose. While we agree with the Court of Appeals that El Castillo does not use its property for charitable purposes and is therefore not exempt from the constitutional requirement of equal taxation, we write to clarify that Section 7-36-7(B)(1)(d) must be read in harmony with controlling constitutional requirements. Accordingly, we hold that El Castillo is not entitled to property-tax exemptions under either Section 7-36-7(B)(1)(d) or Article VIII, Section 3 of the New Mexico Constitution because El Castillo does not use its property primarily for substantial public benefit furthering charitable purposes.
I. BACKGROUND
{3} El Castillo Retirement Residences, located in Santa Fe County, provides graduated levels of care to its accepted residents, all of whom must pay an entry fee upon admission and monthly fees thereafter in return for living quarters, the use of shared facilities, access to coordinated social and recreational activities, and the assurance that El Castillo will provide any level of care that accepted residents may need as they age. El Castillo is funded primarily by resident fees calculated at the time of admission
and based on each resident’s life expectancy and projected level of required care. Fees are calculated to cover all of the operating costs of the facility and to provide additional reserves that can be drawn on to make up deficits. It is possible that particular residents will outlive their predicted life spans or require more expensive medical care than anticipated so that the fees they pay would not be enough to cover the entire cost of their lifetime care. Other residents may live fewer years than expected, and the entry fee and monthly fees they pay *3 to El Castillo will exceed the total cost of their lifetime care.
{5} To minimize the facility’s exposure to financial risk from this flat-fee arrangement, prospective residents must meet physical, mental, and financial requirements to be accepted for admission. El Castillo does not accept applicants who depend solely on Medicare or Medicaid, individuals whose net worth is less than $300,000 independent of social security benefits, or those whose health issues likely will require a high level of care.
{6} El Castillo’s property was valued at $9,860,000 for 2009 property-tax purposes by the petitioner, the Santa Fe County Assessor. After receiving the notice of valuation, El Castillo filed a claim for exemption of property used for charitable purposes under Article VIII, Section 3 of the New Mexico Constitution and Section 7-36-7(B)(1)(d) of the New Mexico Property Tax Code. The Assessor denied the claim because “El Castillo’s donation of services or facilities is minimal.” The Assessor acknowledged that the Legislature did not textually set forth a minimum level of charitable donation in Section 7-36-7(B)(1)(d) but concluded that “because the constitutional grant of exemption requires primary and substantial charitable use of the property, so must the statute.” {7} El Castillo protested the Assessor’s denial to the Santa Fe County Valuation Protests Board. The Board upheld the Assessor’s denial of the property-tax exemption after finding that El Castillo had not “donate[d] or render[ed] gratuitously a portion of its services or facilities” as the terms of Section 7-36-7(B)(1)(d) require. The Board did not purport to address the constitutional issue separately because El Castillo did not argue for an exemption under Article VIII, Section 3 separate from the statutory grounds, and the parties agreed that the Board did not have jurisdiction to address the “constitutional issue with regard to the statute itself.”
{8} El Castillo appealed the Board’s decision to the district court pursuant to the district court’s appellate jurisdiction. El Castillo asked the district court to review the Board’s decision which denied the exemption on statutory grounds. El Castillo argued that the Board’s decision “was not supported by substantial evidence and was reached in an arbitrary and capricious manner.” Additionally, El Castillo asked the district court to exercise its original jurisdiction and decide whether El Castillo was exempt from property valuation under Article VIII, Section 3 of the New Mexico Constitution. El Castillo argued that by enacting Section 7-36-7(B)(1)(d) the Legislature had made
a policy decision within its purview, giving “new depth and meaning to Article VIII, Section 3” in “acknowledg[ing] the great public benefit provided by nonprofit continuing care retirement communities” and by “helping assure [their] financial viability,” noting that the exemption is available to such communities that meet the other requirements of Section 7- 36-7(B)(1)(d) “so long as a portion of services and facilities are donated or rendered gratuitously.” In addition, El Castillo argued that satisfaction of the statutory claim necessarily satisfied the constitutional claim in “alleviating a burden on the government by sustaining its members to a significant degree, certainly far more than the tax burden that it *4 is seeking to relieve itself of.”
{10} The district court did not exercise its appellate jurisdiction over the Board’s decision interpreting Section 7-36-7(B)(1)(d) but instead exercised its original jurisdiction over both El Castillo’s statutory and constitutional claims. Without addressing any of the Board’s findings of fact, the district court issued new findings of fact which contradicted the findings of the Board. The district court concluded that Article VIII, Section 3 was not self-executing and that by enacting Section 7-36-7(B)(1)(d), the Legislature had “spelled out how the constitutional provision ‘used for charitable purposes’ is to be interpreted.” Consequently the district court declined to “read into the statute a requirement that El Castillo render a ‘primary or substantial’ public benefit” and held that, by meeting the plain language requirements of Section 7-36-7(B)(1)(d), El Castillo had also fulfilled the charitable use requirements for tax exemption under Article VIII, Section 3 of the New Mexico Constitution.
{11}
The Santa Fe County Assessor appealed the district court’s decision to the Court of
Appeals as an appeal of right pursuant to Rule 12-201 NMRA and Rule 12-202 NMRA.
El
Castillo Ret. Residences v. Martinez
,
constitutionally exempt from property taxation and held that “El Castillo did not directly and
immediately use its property primarily and substantially for a charitable purpose recognized
under Article VIII, Section 3 of the New Mexico Constitution because it does not confer a
substantial benefit of real worth and importance to an indefinite class of persons who are
members of the general public.”
El Castillo
,
govern permissible exemptions from equal taxation of real property in New Mexico and to clarify the subject matter appropriate for appellate review in circumstances such as these.
II. DISCUSSION Article VIII, Section 3 of the New Mexico Constitution provides no specifics in its
exemption of “all property used for . . . charitable purposes” from property taxation. The Legislature, which previously had recognized in Section 7-36-7(B)(1) that taxes may not be imposed on “property exempt from property taxation under the federal or state constitution, federal law, the Property Tax Code or other laws,” added Subsection (B)(1)(d) in a 2008 amendment, providing that
this includes property that is operated either as a community to which the Continuing Care Act . . . applies or as a facility licensed by the department of health to operate as a nursing facility, a skilled nursing facility, an adult residential care facility, an intermediate care facility or an intermediate care facility for the developmentally disabled; and is owned by a charitable nursing, retirement or long-term care organization that: 1) has been granted exemption from the federal income tax by the United States commissioner of internal revenue as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended or renumbered; 2) donates or renders gratuitously a portion of its services or facilities; and 3) uses all funds remaining after payment of its usual and necessary expenses of operation, including the payment of liens and encumbrances upon its property, to further its charitable purpose, including the maintenance, improvement or expansion of its facilities.
The statute provides no guidelines for determining what level of charitable donations will satisfy the requirement of donating or rendering gratuitously “a portion of its services or facilities.” Id. El Castillo asserts that it is entitled to be exempt from taxation because it has met the
terms of the statute but does not challenge the Court of Appeals holding that it is not exempt under Article VIII, Section 3 of the New Mexico Constitution. The Assessor argues that El Castillo’s failure to meet the requirements of Article VIII, Section 3 necessarily means that Section 7-36-7(B)(1)(d) cannot be constitutionally applied to grant El Castillo an exemption. For the reasons that follow, we agree with the Assessor.
A. The Assessor Has Standing to Challenge the Constitutionality of Section 7-36-
7(B)(1)(d) as It Applies to El Castillo
As a preliminary matter, El Castillo challenges the Assessor’s standing to raise the
constitutionality of Section 7-36-7(B)(1)(d), relying on
State ex rel. Overton v. N.M. State
Tax Comm’n
,
statutory and constitutional issues relating to whether El Castillo is entitled to an exemption from real property taxation.
B. Both the District Court and the Court of Appeals Erred in Their Exercise of
Appellate Jurisdiction
It is incumbent on this Court to address the jurisdictional errors which occurred in
the exercise of appellate jurisdiction in both the district court and the Court of Appeals.
Jurisdictional questions are questions of law which this Court reviews de novo.
Smith v. City
of Santa Fe
,
1. The District Court Erred When It Did Not Exercise Its Appellate Jurisdiction
over the Board’s Determination
*7
The Legislature conferred power in the district court to review, as a court of first
appeal, a final decision of the Board. NMSA 1978, § 7-38-28(A) (2015); NMSA 1978,
§ 39-3-1.1 (1999). When acting in its appellate role, the district court may reverse an agency
decision if it determines that “(1) the agency acted fraudulently, arbitrarily, or capriciously;
(2) the final decision was not supported by substantial evidence; or (3) the agency did not
act in accordance with law.” Section 39-3-1.1(D). The district court, in its appellate capacity,
“is limited in the same manner as any other appellate body . . . and must defer to the
agency’s factual determinations if supported by substantial evidence.”
N.M. Bd. of
Psychologist Exam’rs v. Land
,
determination regarding the applicability of Section 7-36-7(B)(1)(d) to El Castillo and
reviewed whether the Board’s decision was arbitrary and capricious, unsupported by
substantial evidence, or otherwise contrary to law as required under Section 39-3-1.1(D).
Exercising its original jurisdiction over the statutory claim and issuing new findings of fact
which contradicted the findings of the Board was error. In issuing new findings of fact, the
district court acted outside its proper appellate jurisdiction.
See, e.g.
,
Cadena v. Bernalillo
Cty. Bd. of Cty. Comm’rs
,
Constitutionality of the Section 7-36-7(B)(1)(d) Exemption as Applied to El *8 Castillo In addition to the district court’s jurisdictional error, the Court of Appeals erred when
it reviewed the constitutional question apart from the statutory question. The Court of
Appeals took the position that it did “not have jurisdiction to review the question of whether
El Castillo is entitled to a charitable property-tax exemption under Section 7-36-7(B).”
El
Castillo
,
C. Legislation Granting Tax Exemptions Must Be Interpreted in Light of
Restrictions Set Forth in Article VIII of the New Mexico Constitution
Whether Section 7-36-7(B)(1)(d) can grant a tax exemption to El Castillo raises
issues of constitutional interpretation that we review de novo.
Pinghua Zhao v. Montoya
,
“[S]tate constitutions are not grants of power to the legislative, to the executive and to the judiciary, but are limitations on the powers of each. No branch of the state may add to, nor detract from its clear mandate. It is a function of the judiciary when its jurisdiction is properly invoked to measure the acts of the executive and the legislative branch solely by the yardstick of the constitution.”
State ex rel. Clark v. Johnson
,
and we “give effect to the legislative intent unless it clearly appears to be in conflict with the
Constitution.”
Bounds v. State ex rel. D’Antonio
,
20,
and does not require statutory enactment.
See CAVU Co. v. Martinez
,
D. El Castillo Does Not Qualify for Tax Exemption Under Article VIII, Section 3
or Section 7-36-7(B)(1)(d) Because Its Property Does Not Create Substantial Public Benefit Through Primary Use That Furthers a Constitutionally Authorized Exempt Purpose Controlling New Mexico precedent has consistently interpreted Article VIII, Section
3 to exempt only property that creates substantial public benefit through use that directly,
immediately, primarily, and substantially furthers its exempt purpose.
See, e.g.
,
CAVU
,
and charitable institutions proceeds upon the theory of the public good accomplished by
them and the peculiar benefits derived by the public in general from their conduct.”
Pecos
River Open Spaces
,
Castillo’s use of its property did not create any substantial public benefit.
See El Castillo
,
with similar admission requirements and financial structures are ineligible for a charitable
purpose tax exemption.
See, e.g.
,
Cape Ret. Cmty., Inc. v. Kuehle
,
III. CONCLUSION We hold that El Castillo is not entitled to property-tax exemptions under either
Section 7-36-7(B)(1)(d) or Article VIII, Section 3 of the New Mexico Constitution. We reverse the district court and remand for entry of a judgment in conformity with this opinion. IT IS SO ORDERED.
____________________________________ CHARLES W. DANIELS, Justice WE CONCUR:
____________________________________
JUDITH K. NAKAMURA, Chief Justice
____________________________________
PETRA JIMENEZ MAES, Justice
____________________________________
EDWARD L. CHÁVEZ, Justice
____________________________________
KAREN L. TOWNSEND, Judge, sitting by designation