January 8, 2019- Weil Construction Inc. v. John Monforte, No. A-1-CA-35845

1 	IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 WEIL CONSTRUCTION INC.,
3 	a New Mexico Corporation,
4 	Plaintiff-Appellant,
5 V. 	NO. A-1-CA-35845
6 JOHN MONFORTE, Acting Secretary of
7 Taxation and Revenue Department, and
8 NEW MEXICO TAXATION AND REVENUE
9 DEPARTMENT,
10 	Defendants-Appellees.
11 	APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE
12 Dee Dee Hoxie, Hearing Officer
13 	Joe Lennihan
14 Santa Fe, NM
15 	for Appellant
16 Hector H. Balderas, Attorney General
17 Cordelia A. Friedman, Special Assistant Attorney General
18 Santa Fe, NM
19 for Appellees
20 	MEMORANDUM OPINION
21 	ATTREP, Judge.·
22 	{t} 	Weil Copstruction, Inc. (Weil) appeals the decision and order of a Taxation
23 	and Revenue Department hearing officer disallowing a claimed deduction and
24 denying Weil' s request for a refund of gross receipts tax paid on items installed
Court of Appeals of New Mexico
Filed 1/8/2019 11:00 AM
Mark Reynolds

1 during the construction of a Santa Fe County fire station. Weil argues that the hearing
2 officer erred by (1) concluding, as a matter of law, that Weil could not claim a
3 deduction, and (2) determining that Weil failed to meet its burden to establish its
4 right to the deduction. For purposes of this opinion, we assume the relevant law
5 provided an avenue for Weil to claim a deduction of gross receipts tax, but we
6 nevertheless conclude that the hearing officer did not err in ruling that Weil failed to
7 meet its burden. As such, we affirm. Because this is a memorandum opinion, we set
8 forth only such facts and law as are necessary to decide the merits.
9 BACKGROUND
10 {2} 	Santa Fe County hired Weil in 2012 to build a fire station in Edgewood, New
11 	Mexico. As the seller of services, Weil paid gross receipts tax on all its receipts from
12 building the fire station, see NMSA 1978, §§ 7-9-3.S(A) (2007), -4(A) (2010), and,
13 	by agreement, passed the cost of the gross receipts tax on to Santa Fe County. After
14 the completion of the project, Santa Fe County hired an accounting fil'll1:, Moss
15 	Adams LLP (Moss), to conduct a cost segregation study in order to determine
16 whether any items installed in the fire station qualified for a tax deduction under the
17 Gross Receipts and Compensating Tax Act, NMSA 1978, §§ 7-9-1 to -116 (1966,
18 	as amended through 2018). Moss conducted the study and identified thirty-four
19 	items in the fire station it believed were deductible.
2

1 {3} 	Weil filed a claim for refund of $30,851 in gross receipts tax paid on the thirty-
2 four items identified in the cost segregation study. The claimed deduction in this
3 case stems 	from 	Section 7-9-54(A) (2003, 	amended 2018), 1 which permits a
4 deduction for the sale of tangible personal property to a governmental entity, such
5 as Santa Fe County. Section 7-9-54(A), however, does not permit the deduction for
6 "construction material" or for the provision of construction services. See § 7-9-
7 54(A)(3), (4). In claiming the deduction, Weil relied on regulation 3.2.l.1 l(J)(2)
8 NMAC (Regulation J), which defines the term "building." Weil reasoned that-due
9 to Regulation J-the claimed items were not part of the construction of the fire
10 	station building; instead, these items qualified as tangible personal property for
11 	purposes of the deduction in Section 7-9-54(A).
12 	{4} 	The Department of Taxation and Revenue (the Department) initially took no
13 	action on Weil' s request for refund, and Weil filed an administrative protest. During
14 the pendency of the protest, the Department refunded gross receipts tax on six of the
15 	thirty..:four 	claimed 	items 	and 	denied 	the 	rest. 	The 	Department requested 	an
1 We note that the statutory deduction at issue in this opinion-Section
7-9-54(A)-was amended during the pendency of this appeal. This amendment
appears to have been adopted to address the precise question at play in this case-
i.e., when can materials used in a construction project for a governmental entity be
deducted? Because we accept Weil' s legal interpretation for purposes 	of this
opinion, we need not address the interplay of the applicable regulations and statutes
and what, if anything, this recent amendment might tell us about legislative intent.
Further, our citation to Section 7-9-54 throughout this opinion is to the version of
the statute as it existed at the time of the protest. See § 7-9-54 (2003, amended 2018).
3

1 administrative hearing on the remaining twenty-eight items. At the nearly five-hour
2 hearing, both the Department and Weil called witnesses and submitted numerous
3 exhibits for the hearing officer's review. Weil's exhibits included its application for
4 refund, the cost segregation study, photos of the claimed items, its invoices, the
5 blueprints and mission statement for the fire station, and a cost segregation study
6 accepted as e,vidence in an unrelated case. The testimony at the hearing largely
7 focused on the parties' differing perspectives on the operation and history of the
8 relevant statutes and regulations, as well as the Department's historical treatment of
9 refunds under Section 7-9-54(A).
10 {5} 	The hearing officer denied Weil's protest by written decision and order. As
11 	grounds for the denial, the hearing officer concluded (1) "all of the outstanding
12 depreciable property was construction material as defined by ... statute," and
13 	Regulation 	J 	could 	not 	override 	the 	applicable 	statutory 	provisions, 	and,
14 alternatively, (2) even assuming Weil could rely on Regulation J for a deduction,
15 	Weil failed to meet its burden of demonstrating that the claimed items were not part
16 	of a "building" under Regulation J. Weil appealed the decision and order pursuant
17 to NMSA 1978, Section 7-1-25 (2015).
18 	DISCUSSION
19 	{6} 	The Gross Receipts and Compensating Tax Act presumes that all persons
20 engaging in business in New Mexico are subject to gross receipts tax. See§ 7-9-5.
4

1 "Where an exemption or deduction from tax is claimed, the statute must be construed
2 strictly in favor of the taxing authority, the right to the exemption or deduction must
3 be clearly and unambiguously expressed in the statute, and the right must be clearly
4 established by the taxpayer." Sec. Escrow Corp. v. N.M Taxation & Revenue Dep 't,
5 	1988-NMCA-068, ~ 8, 107 N.M. 540, 760 P.2d 1306. "On appeal, this Court shall
6 set aside a decision and order of_ the hearing officer only if it is (1) arbitrary,
7 capricious, or an abuse of discretion; (2) not supported by substantial evidence in the
8 record; or (3) otherwise not in accordance with the law." Hammackv. N.M Taxation
9 	& Revenue Dep 't, 2017-NMCA-086, ~ 6, 406 P.3d 978 (internal quotation marks
10 and citation omitted); accord§ 7-1-25(C). "When reviewing for sufficiency of the
11 	evidence, we look to the whole record and review the evidence in the light most
12 favorable to the agency's findings." 	Arco Materials, 	Inc. 	v. 	N.M 	Taxation &
13 Revenue Dep 't, 1994-NMCA-062, ~ 2, 118 N.M. 12, 878 P.2d 330, rev 'don other
14 grounds by Blaze Constr. Co. v. N.M Taxation & Revenue Dep 't, 1994-NMSC-110,
15 	~ 1, 118 N.M. 647, 884 P.2d 803.
16 	{7} 	Weil 	asks 	us 	to 	conclude, 	as 	a matter 	of law, that items meeting the
17 requirements of Regulation J are deductible under Section 7-9-54(A) as tangible
18 personal property. Regulation J provides in relevant part that
19
20
21
22
[a] 	"building" 	includes 	the 	structural 	components 	integral 	to 	the
building and necessary to the operation or maintenance of the building
but does not include equipment, systems or components installed to
perform, support or serve the activities and processes conducted in the
5

1
2
3
4
building and which are classified for depreciation purposes as three-
year 	property, 	five-year 	property, 	seven-year 	property, 	10-year
property or 15-year property by Section 168 of the Internal Revenue
Code[.]
5 3.2.l.1 l(J)(2) NMAC (emphasis added). Assuming, without deciding, that Weil is
6 correct that Regulation J provides an avenue for the deduction of gross receipts tax
7 in this case, it was Weil's burden to establish its entitlement to the deduction. Under
8 Regulation J, Weil was required to produce sufficient evidence demonstrating that
9 the items claimed are equipment, systems or components (1) "installed to perform,
10 	support or serve the activities and processes conducted in the building" and (2)
11 	"which are classified for depreciation purposes as three-year property, five-year
12 property, seven-year property, 10-year property or 15-year property by Section 168
13 	of the Internal Revenue Code[.]" Id.
14 	{8} 	The hearing officer, while finding that Weil met its burden on the second
15 	element, determined that Weil failed to carry its burden on the first element. The
16 hearing officer acknowledged that "[a] 	few outstanding items 	of the claimed
17 depreciable property were mentioned [at the hearing] as part of the argument that
18 they supported the activities and processes; [i.e.,] the exhaust fans, and part of the
19 drainage in the garage." The hearing officer nonetheless found that "[t]here was no
20 evidence on how exactly those items related to the provision of emergency services"
21 	and reiterated that the burden was on the taxpayer to prove its entitlement to the
22 deduction. She concluded, "[g]iven the lack of evidence presented on the items
6

1 claimed and their relation to provision of emergency services rather than the overall
2 operation and maintenance of the building, [Weil] has failed to meet its burden."2
3 {9} 	Without citation to authority, Weil attempts to frame the issue before this
4 Court as "whether [it] tendered sufficient evidence to connect any item of the fire
5 station property to the provision of fire fighting or emergency services" and baldly
6 asserts it can obtain reversal of the entire decision and order on this basis alone.
7 (Emphasis added.) We question whether Weil' s burden on appeal is met by simply
8 arguing there was insufficient evidence on a single item. In the past, we have
9 declined to consider a sufficiency of the evidence challenge when a party "fails to
10 connect and support [its] argument with a recitation of all facts material to the issue
11 	. . . [and] 	fails to include the substance 	of all the evidence bearing upon a
12 proposition[.]" Crutchfield v. N.M Dep 't of Taxation & Revenue, 2005-NMCA-022,
13 117, 137 N.M. 26, 106 P.3d 1273 (internal quotation marks and citation omitted));
14 cf Martinez v. Sw. Landfills, Inc., 1993-NMCA-020, 115, 115 N.M. 181, 848 P.2d
15 	1108 ("[I]t is not the responsibility of the reviewing court to search through the
2 Weil mischaracterizes the decision and order, claiming that the "hearing
officer categorically excluded all of Weil's evidence because the hearing officer
could not see how any of the property 'related to the provision of emergency
services.'" The hearing officer did not exclude Weil's evidence; she, instead,
determined that the evidence presented was insufficient to meet Weil' s burden to
prove that the claimed items were related to the provision of emergency services.
7

1 record to determine whether substantial evidence exists to support a finding. That is
2 the obligation of the appellant." (citation omitted)).
3 	{to} 	Even accepting Weil' s framing of the issue, its threshold premise does not
4 withstand scrutiny. In claiming the hearing officer erred, Weil asserts the parties did
5 not dispute the deductibility of a single item-a "special drain" installed in the
6 firetruck bay. A review of the hearing, however, reveals that Weil's characterization
7 is incomplete and misleading. The only pertinent testimony with respect to the drain
8 was elicited from an auditor with the Department. When initially discussing the
9 drain, the auditor testified that the drainage system is similar to a gutter system that
10 is part of any new construction. Subsequently, Weil asked the auditor if the drain is
11 	used for special activities that take place inside the building. In response, the auditor
12 	stated, "I wouldn't say there [are] any activities, I think it is just a place for them to
13 	park 	their 	fire 	trucks." 	Upon 	further 	questioning, 	the 	auditor 	testified 	that
14' "maintaining [and] cleaning the firetruck[ s] are activities" but did not elaborate
15 	further. Given this equivocal testimony, the hearing officer was free to draw her own
16 inferences in reaching the conclusion that Weil failed to demonstrate that the special
17 drain was related to the provision of emergency services, as opposed to the operation
18 	or maintenance of the building. 3 See 3.2.l.ll(J)(2) NMAC; see also In re Rescue
3 As an additional basis for affirming the hearing officer's determination as to
the special drain, the Department argued in its answer brief that Weil failed to
demonstrate that the drain was depreciable under Section 	168 	of the Internal
8

1 EcoVersity Petition, 2013-NMSC-039, 1 19, 308 P.3d 125 ("Where the exercise of
2 judicial discretion involves fact-finding, we will not reweigh the evidence nor
3 substitute our judgment for that of the fact finder." (internal quotation marks and
4 citation omitted)); cf State v. 	Martinez, 	2018-NMSC-007, 1 15, 410 P.3d 186
5 ("Factfinding frequently involves selecting which inferences to draw." (internal
6 quotation marks and citation omitted)). Viewing the evidence in the light most
7 favorable to the agency's findings, we cannot say it was error for the hearing officer
8 to deny the deduction for the special drain. See Arco Materials, Inc., 1994-NMCA-
9 062, 12. We, therefore, reject Weil's contention that the entire decision and order
10 should be reversed on the basis of the drain alone.
11 	{11} 	As to the remaining twenty-seven items, Weil fails to assert a colorable
12 	sufficiency challenge. Instead of "identiflying] with particularity the fact or facts
13 	that are not supported by substantial evidence," as required by Rule 12-318(A)(4)
14 NMRA, Weil asserts that "[g]iven the [special] purpose of a fire station, the hearing
15 	officer did not need further proof to know that much of the property installed in the
16 Edgewood fire station would support the activity of fire fighting." 4 This bald
Revenue Code, pursuant to 3 .2.1.11 (J)(3 )( d) NMAC. Weil did not address this issue
in its reply brief and thus has conceded the same. See Delta Automatic Sys., Inc. v.
Bingham, 1999-NMCA-029, 1 31, 126 N .M. 71 7, 97 4 P .2d 1174 (stating that the
failure to respond to contentions made in an answer brief "constitutes a concession
on the matter").
4 Only in its reply brief does Weil contend that the cost segregation study
submitted with its protest should serve as sufficient evidence of its entitlement to the
9

1 assertion is insufficient to meet Weil's burden on appeal. See Rule 12-318(A)(4);
2 see also Wachocki v. Bernalillo Cty. Sheriff's Dep 't, 201 O-NMCA-021, ,r 17, 147
3 N.M. 720, 228 P.3d 504 ("Where the appellant fails to include the substance of all
4 the evidence bearing upon a proposition, [we] will riot consider a challenge to the
5 sufficiency of the evidence." (internal quotation marks and citation omitted)), aff'd,
6 2011-NMSC-039, 150 N.M. 650, 265 P.3d 701; City of Albuquerque v. Westland
7 Dev. Co., 1995-NMCA-136, ,r 34, 121 N.M. 144, 909 P.2d 25 ("The appellant has
8 the burden to point out clearly and specifically the error it asserts on appeal.").
9 	{12} 	Having determined that Weil failed to mount a successful sufficiency of the
10 evidence 	challenge 	even 	under 	its 	interpretation 	of 	Section 	7-9-54(A) 	and
11 	Regulation J, we need not address Weil's remaining claim that the hearing officer
12 misconstrued the law.
13 	CONCLUSION
14 	{13} 	The decision and order of the hearing officer is affirmed.
deduction. Weil, however, does not explain how the cost segregation study meets
the two elements of Regulation J for any of the claimed items. And we need not
address such an undeveloped argument, particularly when raised for the first time in
reply. See Greentree Solid Waste Auth. v. Cty. of Lincoln, 2016-NMCA-005, ,r 27,
365 P.3d 509 (declining to consider undeveloped arguments); Wilcox v. N.M Bd. of
Acupuncture & Oriental Med., 2012-NMCA-106, ,r 15,288 P.3d 902 (declining to
consider an appellant's argument raised for first time in the reply brief).
10

1 {14} 	IT IS SO ORDERED.
2
3
4 WE CONCUR:
6 M. MONICA ZAMO
~~~JEN~ 	L~TTREP, Judge
7 	-~-1J&~8 DANIE 	iGA 	EGOS, Judge Pro Tempore
11