GEA Integrated Cooling Tech. v. State of New Mexico Taxation & Revenue Dep't

2012 -NMCA- 010

268 P.3d 48

GEA INTEGRATED COOLING TECHNOLOGY, Plaintiff–Appellant,

v.STATE OF New Mexico TAXATION AND REVENUE DEPARTMENT, Defendant–Appellee.In The Matter of the Protest of GEA Integrated Cooling Technology.

No. 30,790.

Court of Appeals of New Mexico.

Dec. 8, 2011.

Rodey, Dickason, Sloan, Akin & Robb, P.A., R. Tracy Sprouls, Albuquerque, NM, Hutchinson Black & Cook, LLC, Adam W. Chase, Boulder, CO, for Appellant.

Gary K. King, Attorney General, Amy Chavez–Romero, Special Assistant Attorney General, Santa Fe, NM, for Appellee.

OPINION

VANZI, Judge.

{1} This case requires us to decide whether a statutory increase in the civil penalty for failure to pay a tax should be imposed on a taxpayer whose tax liability arose prior to the effective date of the amendment that increased the cap on the penalty amount. GEA Integrated Cooling Technology (Taxpayer) failed to pay gross receipts taxes for tax periods between June 1, 2006, and July 1, 2007. At that time, the maximum statutory penalty for failure to pay was ten percent of the amount of the unpaid tax. On January 1, 2008, the Legislature increased the maximum statutory penalty to twenty percent of the amount of the unpaid tax. The New Mexico Taxation and Revenue Department (the Department) assessed Taxpayer in 2009 and imposed the twenty percent penalty. Taxpayer protested the imposition of the new statutory penalty on the tax liability that arose for tax periods occurring prior to 2008. The hearing officer denied Taxpayer's protest, ruling that the new statutory penalty in effect at the time the penalty was assessed was the applicable maximum penalty. We affirm.

BACKGROUND

{2} Taxpayer is a Colorado-based company that was engaged in work projects in New Mexico. Taxpayer was required to pay gross receipts pursuant to the Gross Receipts and Compensating Tax Act. NMSA 1978, § 7–9–4 (1990) (amended 2010). In July 2008, the Department began an audit of Taxpayer. The Department determined that Taxpayer owed $490,802.60 in tax liability that arose between June 1, 2006, and July 1, 2007. The liability reflected the gross receipts taxes that Taxpayer failed to pay. On September 21, 2009, the Department issued Taxpayer a notice of assessment for taxes, penalty, and interest, demanding payment pursuant to NMSA 1978, Section 7–1–17 (2007). The notice of assessment informed Taxpayer that the penalty for failure to pay was calculated at a rate of two percent per month or partial month to a maximum of twenty percent of the amount of tax due. Taxpayer timely filed a written protest of the assessment.

{3} The penalty assessed by the Department was based on NMSA 1978, Section 7–1–69 (2007), the civil penalty for failure to pay a tax or file a return. Section 7–1–69 provides in pertinent part,

[I]n the case of failure due to negligence or disregard of [D]epartment rules and regulations, but without intent to evade or defeat a tax, to pay when due the amount of tax required to be paid, to pay in accordance with the provisions of Section 7–1–13.1 NMSA 1978 when required to do so or to file by the date required a return regardless of whether a tax is due, there shall be added to the amount assessed a penalty in an amount equal to the greater of:

(1) two percent per month or any fraction of a month from the date the tax was due multiplied by the amount of tax due but not paid, not to exceed twenty percent of the tax due but not paid;

(2) two percent per month or any fraction of a month from the date the return was required to be filed multiplied by the tax liability established in the late return[.]

A prior version of the statute set the maximum statutory penalty at ten percent of the unpaid tax. NMSA 1978, § 7–1–69 (2003) (amended 2007). The Legislature amended Section 7–1–69 to increase the maximum statutory penalty, effective January 1, 2008. 2007 N.M. Laws, ch. 45, §§ 4, 16. Taxpayer argued that ten percent was the maximum penalty the Department could assess because it was the law in effect when Taxpayer first failed to pay the taxes it owed. Taxpayer further asserted that applying the new statutory penalty to its tax liability gave the legislative amendment improper retroactive effect.

{4} The Department requested a hearing to determine whether the new statutory penalty was properly applied to Taxpayer's tax liability that arose for tax periods occurring prior to January 1, 2008, but assessed after the legislative amendment took effect. The parties entered a joint stipulation of facts, filed briefs, and submitted the matter for determination by the hearing officer. The hearing officer determined that Section 7–1–69, as amended, applied to the calculation of Taxpayer's penalty because the penalty was assessed after the effective date of the amendment. The hearing officer also concluded the application of the new statutory penalty was not retroactive under the circumstances of Taxpayer's case. This appeal timely followed.

DISCUSSIONStandard of Review

{5} The questions presented in this appeal are (1) whether the 2007 amendment to Section 7–1–69 applies to tax liabilities that arose for tax periods occurring prior to January 1, 2008, but were assessed after the effective date of the amendment; and (2) whether the application of the new statutory penalty to these earlier tax periods gives Section 7–1–69 improper retroactive effect. These questions present us with issues of statutory interpretation and the application of the law, thus, our review is de novo. Hess Corp. v. N.M. Taxation & Revenue Dep't, 2011–NMCA–043, ¶ 11, 149 N.M. 527, 252 P.3d 751, cert. denied, 2011–NMCERT–003, 150 N.M. 619, 264 P.3d 520; N.M. Taxation & Revenue Dep't v. Dean Baldwin Painting, Inc., 2007–NMCA–153, ¶ 7, 143 N.M. 189, 174 P.3d 525. This Court can only set aside the hearing officer's decision if it was arbitrary and capricious, not supported by substantial evidence, or not in accordance with the law. NMSA 1978, § 7–1–25(C)(1)–(3) (1989); Kewanee Indus., Inc. v. Reese, 114 N.M. 784, 786, 845 P.2d 1238, 1240 (1993). Though our review is de novo, we give some deference to the hearing officer's reasonable interpretation and application of the statute. Jicarilla Apache Nation v. Rodarte, 2004–NMSC–035, ¶ 25, 136 N.M. 630, 103 P.3d 554 (“[W]e are not bound by an agency's interpretation of the law, but we do give deference to an agency's reasonable interpretation or application of law.”).

{6} When construing a statute, our task is to determine and give effect to the Legislature's intent and to interpret the statute in a way that will not render its application absurd, unreasonable, or unjust. Hess Corp., 2011–NMCA–043, ¶ 12, 149 N.M. 527, 252 P.3d 751. In discerning legislative intent, New Mexico courts adhere to a classic rule of statutory construction: We are required to look at the plain language of the statute, giving the words their ordinary meaning, unless the Legislature indicated that a different meaning is intended. Delfino v. Griffo, 2011–NMSC–015, ¶ 12, 150 N.M. 97, 257 P.3d 917; see also NMSA 1978, § 12–2A–19 (1997) (“The text of a statute ... is the primary, essential source of its meaning.”). “When statutory language is clear and unambiguous, this Court must give effect to that language and refrain from further statutory interpretation.” Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009–NMSC–013, ¶ 9, 146 N.M. 24, 206 P.3d 135 (alteration, internal quotation marks, and citation omitted).

{7} We follow the plain language rule closely here, particularly in light of the fact that “[s]tatutes imposing taxes and providing means for the collection of the same should be construed strictly in so far as they may operate ... to impose penalties ... upon [the taxpayer.]” NBS Corp. v. Valdez, 75 N.M. 379, 383, 405 P.2d 224, 226–27 (1965) (internal quotation marks and citation omitted); Colfax Cnty. v. Angel Fire Corp., 115 N.M. 146, 148, 848 P.2d 532, 534 (Ct.App.1993) (internal quotation marks and citation omitted). Consequently, because Section 7–1–69 imposes a penalty on the taxpayer, we strictly construe the statute.

Section 7–1–69 Applies to Taxes Assessed After January 1, 2008

{8} Taxpayer argues that it is subject to the ten percent statutory penalty that was in effect when it first failed to pay its taxes, as opposed to the twenty percent penalty imposed by the Department under the 2007 amendment. Taxpayer asserts that the plain language of Section 7–1–69 requires this Court to reverse the hearing officer's decision. Specifically, it is Taxpayer's position that the State's right to a penalty from a delinquent taxpayer comes into existence when the due date for filing the return occurred and the tax liability remained unpaid. We disagree.

{9} Under an ordinary reading of the plain language of the statute, we find the meaning of the words clear and unambiguous. The statute states that a penalty “shall be added to the amount assessed.” Section 7–1–69(A). Accordingly, assessment is the specific point in time that the statutory penalty is triggered and thereby applied. Our reading is in accordance with the general principle that “[t]he amendment of a taxing statute by the addition or change of penalty ... is commonly regarded as prescribing the amount to be paid in respect of all taxes, whether levied before or after the date of the [amendment].” Retroactive Effect of Statutes Relating to Interest on or Penalties in Respect of Delinquent Taxes, 77 A.L.R. 1034 (2011). Absent language to the contrary, we presume the Legislature so intended the new statutory penalty to apply here. In this case, because Taxpayer's outstanding taxes were assessed on September 21, 2009, and the new statutory amendment was the law in effect at that time, the Department applied the correct maximum penalty to this tax liability.

{10} Section 7–1–69(A) directs the Department to look at the date of assessment to calculate the penalty to be applied. Section 7–1–69(A)(1), (2) contains the...