June 12, 2019- Peabody Coalsales Company v. New Mexico Taxation & Revenue Department, No. A-1-CA-36632

1 	IN THE COURT OF APPEALS OF THE STATE OF NEW-MEXICO
2 	PEABODY COALSALES COMPANY,
3 	Plaintiff-Appellant,
4 v.
5 NEW MEXICO TAXATION AND
6 REVENUE DEPARTMENT,
befendant-Appellee.
No. A~l-CA-36632
7 APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE
.8 Dee· Dee Hoxie, Hearing Officer
' 	9 	Sutin, Thayer & Browne
10 Suzanne W. Bruckner
11 	Christopher A. Holland
12 Wade L. Jackson
13 	Albuquerque, NM
14 for Appellant
15 	Peifer, Hanson & Mullins, P.A.
16 Mark T. Baker
17 Matthew E. Jackson
18 Albuquerque, NM
19 Keefe Law Firm
20 Lauren Keefe
21 	Albuquerque, NM
22 for Appellee
23
24 	B. ZAMORA, Judge.
MEMORANDUM OPINION
25 	{t} 	Based on the motion for amendment of opinion, the opinion filed May 31,.
26 	2019, is hereby withdrawn, and this opinion is filed in its stead. This case requires
J
Court of Appeals of New Mexico
Filed 6/12/2019 8:49 AM

1 us to determine whether the NMSA 1978, Section 7-9-65 (1969) deduction of the
2 Gross Receipts and Compensating Tax Act (the Act) applies to receipts from the sale
3 of coal. Peabody Coalsales Company (Taxpayer) appeals from the administrative
4 hearing officer's (AHO) decision and order denying its request for a tax refund
5 arguing that the AHO erred when she concluded that the sale of coal cannot be
6 deducted from gross receipts under Section 7-9-65. We conclude that the language
7 of Section 7-9-65 permitting "receipts from selling chemicals and reagents in lots in
8 excess of eighteen tons" to be deducted from gross receipts is inapplicable to receipts
9 for the sale of coal. We affirm.
10 BACKGROUND
11 	{2} 	Taxpayer consistently paid gross receipts taxes from its sale of coal to an
12 Arizona power plant. In 2015, Taxpayer filed an application for a refund of gross
13 	receipts taxes paid in the amount of $6,407,751.74 from December 2011 through
14 December 2012 for the receipts from the lots of coal sold to the power plant. Each
15 	car load of coal weighs approximately one hundred and twenty-five tons.
16 	{3} 	Taxpayer claimed the coal was a "chemical" under Section 7-9-65 because
17 the power plant utilized the coal to produce an "exothermic chemical reaction" and
18 thus, it was eligible to be deducted from its gross receipts under the Act. The coal
19 was crushed into dust at the power plant, blown into a boiler, and burned with
20 stabilizing fuel, which generated heat. The heat caused the water in the boiler pipes
2

1 to create steam. The steam turned steam turbines, which rotated through a magnetic
2 field and produced electricity for the power plant.
3 	{4} 	The Taxation and Revenue Department (the Department) denied Taxpayer's
4 claim for a tax refund, concluding that coal is not a chemical within the meaning of
5 Section 7-9-65. Taxpayer filed a formal protest and an administrative hearing was
6 scheduled before the AHO.
7 {5} 	The AHO conducted a full evidentiary hearing at which both parties tendered
8 expert witnesses. Taxpayer's expert, Dr. Richard Holder, a chemist, testified that
'i
9 "everything in this room is a chemical." In support of his explanation that everything
10 is a chemical, he explained that a "chemical reaction" is "the transformation of one
11 	chemical into another and ... involves the breaking and making of chemical bonds."
12 According to Dr. Holder, burning coal causes a chemical reaction when the coal
13 	breaks down and forms new substances such as water, carbon dioxide, and sulfur.
14 The Department countered with the testimony of Dr. Corey Leclerc, a professor in
15 	chemical engineering, who opined that he would not interpret the deduction for
16 chemicals under Section 7-9-65 to apply to fuels. As an example, he explained that
17 a paper mill using wood chips to make paper uses chemicals to treat the wood. Yet,
18 	he would never consider the wood chips coming into the paper mill or the paper
19 going out of the mill to be chemicals.
20 	{6} 	After the close of the evidence, the AHO issued extensive findings of fact and
. 21 	conclusions of law, concluding that (1) "[t]he deduction for sales of chemicals in
3

1 lots in excess of [eighteen] tons was not intended to apply to the sales of coal"; (2)
2 	[t]he coal sold by the Taxpayer was not a chemical for purposes of the statute or
3 regulation because it was not used for producing a chemical reaction"; and (3) [t]he
4 Taxpayer failed to establish that it was entitled to the deduction as the right was not
5 clearly 	and unambiguously expressed in the 	statute, 	and the 	statute must be
6 construed strictly in favor of the [Department]." Thus, the AHO concluded that
7 Taxpayer was not entitled to a deduction under Section 7-9-65 and denied its protest.
8 DISCUSSION
9 Standard of Review
10 	{7} 	An appellate court may only reverse an AHO's decision if the decision is "(1)
11 	arbitrary, capricious or an abuse of discretion; (2) not supported by substantial
12 evidence in the record; or (3) otherwise not in accordance with the law." NMSA
13 	1978, § 7-l-25(C) (2015); Stockton v. N.M 	Taxation & Revenue Dep 't, 2007-
14 NMCA-071, 18, 141 N.M. 860, 161 P.3d 905. It is the taxpayer's burden to establish
15 	the basis for vacating the AHO's decision. Holt v. 	N.M 	Dep 't of Taxation 	&
16 Revenue, 2002-NMSC-034, 1 4, 133 N.M. 11, 59 P.3d 491. The interpretation and
17 application of the Act is a question of law that we review de novo. City of Eunice v.
18 N.M Taxation & Revenue Dep 't, 2014-NMCA-085, 18, 331 P.3d 986.
19 {8} 	In reviewing the AHO's decision, we presume that "[a]ny assessment of taxes
20 	or demand for payment made by the department is presumed to be correct." NMSA
4

1 1978, § 7-1-17(C) (2007). "The burden is on the taxpayer protesting an assessment
2 by the Department to overcome the presumption that the Department's assessment
3 	is correct." Holt, 2002-NMSC-034, , 	4 (alterations, internal quotation marks, and
4 citation omitted).
5 	Section 7-9-65 is Inapplicable to the Sale of Coal
6 {9} 	The issue before us is whether Section 7-9-65 of the Act entitled Taxpayer to
7 deduct the sale of coal to the power plant from its gross receipts.
8
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10
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14
Section 7-9-65 of the Act, provides:
Receipts from selling chemicals or reagents. to any mining, milling or
oil company for use in processing ores or oil in a mill, smelter or
refinery or in acidizing oil wells, and receipts from selling chemicals
or reagents in lots in excess of eighteen tons may be deducted from
gross receipts. Receipts from selling explosives, blasting powder or
dynamite may not be deducted from gross receipts. (Emphasis added.)
15 	The Department's corresponding regulation defines the term "chemical" as "a
16 substance used for producing a chemical reaction." 3.2.223.7(B) NMAC.
17 	{to} 	Taxpayer argues that coal used for energy production in sufficient quantities
18 is a "chemical" under Section 7-9-65 and that the AHO improperly construed the
19 statute to exclude coal as a chemical in light of the unambiguous plain meaning of
20 the statute. In support of this argument, Taxpayer points to the explicit exclusions
21 	set out in Section 7-9-65 of other chemicals and chemical substances, such as
22 	dynamite, 	explosives 	and 	blasting powder, 	claiming 	that 	had 	the 	Legislature
23 	intended to exclude coal, it would have explicitly stated so in the statute. The
5

1 Department responds that "Section 7-9-65 does not clearly and unambiguously
2 establish a deduction for receipts from the sale of coal" and that the Legislature did
3 not intend Section 7-9-65 to apply to receipts from the sale of coal.
4 	{11} 	In determining legislative intent, we first look to the plain language of the
5 statute, and refrain from further interpretation if the language is not ambiguous.
6 Mar bob Energy Corp. v. N.M Oil Conservation Comm 'n, 2009-NMSC-O 13, 1 9,
7 146 N.M. 24, 206 P.3d 135. "[W]here the language of the legislative act is doubtful
8 or an adherence to the literal use of words would lead to injustice, absurdity or
9 contradiction, the statute will be construed according to its obvious spirit or reason,
10 even though this requires the rejection of words or the substitution of others." NM
11 	Real Estate Comm 'n v. Barger, 2012-NMCA-081, 1 7, 284 P.3d 1112 (internal
12 quotation marks and citation omitted). See City of Eunice, 2014-NMCA-085, 1 8
13 	("Tax statutes, like any other statutes, are to be interpreted in accordance with the
14 	legislative intent and in a manner that will not render the statutes' application a~surd,
15 	unreasonable, 	or unjust." 	(internal 	quotation marks 	and citation omitted)). 	In
16 ascertaining legislative intent, we must read all provisions of a statute together. Key
17 v. Chrysler Motors Corp., 1996-NMSC-038114, 121 N.M. 764,918 P.2d 350.
18 	{12} 	We apply the principles 	of statutory construction to determine whether
19 Taxpayer's receipts for the sale of coal constitutes the selling of "chemicals" under
20 	Section 7-9-65. Because Taxpayer is claiming a tax deduction, we must strictly
21 	construe Section 7-9-65 in favor of the Department and "the right to the ... deduction
6

1 must be clearly and unambiguously expressed in the statute," and clearly proven by
2 Taxpayer. Sec. Escrow Corp. v. NM Taxation & Revenue Dep 't, 1988-NMCA-068,
3 ,r 8, 107 N.M. 540, 760 P.2d 1306. With this in mind, we must determine whether
4 the plain meaning of Section 7-9-65 clearly and unambiguously provides a deduction
5 for receipts from the sale of coal. It does not. Section 7-9-65 and its corresponding
6 regulations do not mention the word coal or fuels. Had the Legislature intended to
7 provide a deduction for the receipts from the sale of coal, it could have explicitly
8 mentioned coal in Section 7-9-65, as it has in the enactment of other legislation. See,
9 e.g., NMSA 1978, § 7-9-88.2 (2001) (discussing a tax credit for "receipts from
10 selling coal severed from Navajo Nation land"). Taxpayer does not dispute that coal
11 	is not explicitly mentioned in Section 7-9-65 and as such, Taxpayer asks us to
12 	construe the word "chemical" to encompass coal.
13 	{13} 	Taxpayer argues that the word "chemicals" in Section 7-9-65 is "manifestly
14 unambiguous" and includes coal. [RB 7] We disagree. "A statute is ambiguous when
15 	it can be understood by reasonably well-informed persons in two or more different
16 	senses." Maestas v. Zager, 2007-NMSC-003, ,r 9, 141 N.M. 154, 152 P.3d 141
17 (internal quotation marks and citation omitted). Dr. Holder and Dr. Leclerc disagree
18 	on the meaning of the word "chemical" as it is used in the Act. While it is true that
19 	coal can produce a chemical reaction so can numerous other substances, including
20 for example, the application of chemicals to paper and/or wood chips in a paper mill,
21 	as Dr. LeClerc. explained. Presumably, as Dr. Ho_lder conceded, the burning of any
7

1 object or substance will cause a chemical reaction. Indeed, during his testimony, Dr.
2 Holder stated, "Everything in this room is a chemical." This disagreement illustrates
3 the ambiguity in the statute. We conclude that the word "chemical" in Section 7-9-
4 	65 is ambiguous, thus, we proceed further in our quest to ascertain legislative intent.
· 5 See Pub. Serv. Co. ofN.M v. Diamond D. Const. Co., 2001-NMCA-082, ,-r 49, 131
6 N.M. 100, 33 P.3d 651 (stating when a statute is ambiguous we must "resort to
7 principles of statutory construction to ascertain the [L]egislature's intent").
8 	{14} 	Taxpayer also contends that the AHO improperly considered the intent of the
9 Legislature in her analysis, as there was no ambiguity, need to correct a mistake, or
10 absurdity 	in the 	application 	of the 	statute that required her to 	resort to 	the
11 	consideration of legislative intent. We disagree. As we have already established the
12 	statute is ambiguous. Moreover,"[i]n interpreting statutes, we seek to give effect to
13 	the Legislature's intent, and in determining intent we look to the language used and
14 consider the statute's history and background." Valenzuela v. Snyder, 2014-NMCA-
15 	061, ,-r 16, 326 P.3d 1120 (internal quotation marks and citation omitted). The AHO
16 did not err in considering the intent of the Legislature when she interpreted the
17 statute.
18 	{15} 	In determining Legislative intent, we read the statutory provisions together
19 with "the presumption that the [L ]egislature acted with full knowledge of relevant
20 statutory and common law [t]hus, two statutes covering the same subject matter
21 	should be harmonized and construed together when possible, in a way that facilitates
8

1 their operation and the achievement of their goals." N.M Indus. Energy Consumers
2 v. PRC, 2007-NMSC-053, , 	20, 142 N.M. 533, 168 P.3d 105 (emphasis, internal
3 quotation marks, 	and 	citation omitted). 	Here, 	there 	is 	no 	indication that the
4 Legislature intended to create a deduction for receipts for the sale of coal. During
5 the 1966 legislative session, the Legislature enacted the deduction at issue and
6 simultaneously enacted a separate deduction for sales of coal by the car load-sales
7 of coal in excess of eighteen tons. See 1966 N.M. Laws, ch. 47, § 14(R) (codified as
8 NMSA 1953, § 72-16A-14.20 (1969) ("Receipts from selling coal in carload lots
9 may be deducted from gross receipts."); 1966 N.M. Laws, ch. 47, § 14(S) (codified
10 as NMSA 	1978, 	§ 72-16A-14.21 	(1969) ("receipts from selling chemicals or
11 	reagents ... in lots in excess of eighteen tons may be deducted from gross receipts").
12 	In 1973, the Legislature repealed the deduction for receipts from coal sold by the car
13 	load and thus, repealed a deduction for the sale of coal in excess of eighteen tons.
14 See 1973 N.M. Laws, ch. 190, § 1. Despite this repeal, the Legislature did not amend
15 	Section 7-9-65 to include the sale of coal as part of the deduction. Since the repeal,
16 the Department has published reports showing that it imposes gross receipts taxes
17 on the sale of coal. See High Ridge Hinkle Joint Venture v. City of Albuquerque,
18 	1998-NMSC-050,, 5, 126 N.M. 413, 970 P.2d 599 (When presented with a question
19 	of 	statutory 	construction 	we 	will 	"give 	persuasive 	weight 	to 	long-standing
20 administrative constructions of statutes by the agency charged with administering
21 	them." (internal quotation marks and citations omitted)).
9

1 {16} 	Enacting a deduction for the sale of chemicals in excess of eighteen tons, and
2 a separate deduction for the sale of coal in car loads, leads us to conclude that the
3 Legislature did not intend for the Section 7-9-65 deduction to apply to the receipts
4 	from coal sales in lots more than eighteen tons. See Valenzuela, 2014-NMCA-061,
5 , 	16 (recognizing that "in determining intent we look to the language used and
6 consider the 	statute's history and background." (internal quotation marks 	and
7 citation omitted)). The omission of the word "coal" from Section 7-9-65 and its
8 inclusion in the now repealed Section 72-16A-14.20 signals the Legislature's intent
9 that coal is not deductible under Section 7-9-65. See United Rentals Nw., Inc. v.
10 	Yearout Mech., Inc., 2010-NMSC-030,, 25, 148 N.M. 426, 237 P.3d 728 ("[I]f a
11 	statute on a particular subject omits a particular provision, inclusion of that provision
12 	in another related statute indicates an intent that the provision is not applicable to the
13 statute from which it was omitted." (alteration, internal quotation marks, and citation
14 omitted)).
15 	{17} 	Lastly, the Legislature's most recent amendment of Section 7-9-65, effective
16 July 1, 2019 reads:
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Receipts from selling chemicals or reagents to any mining, milling or
oil company for use in processing ores or oil in a mill, smelter or
refinery or in acidizing oil wells, and receipts from selling chemicals or
reagents in lots in excess of eighteen tons to any hard-rock mining or
milling company for use in any combination of extracting, leaching,
milling, smelting, refining or processing ore at a mine site, may be
deducted from gross receipts. Receipts from selling explosives, blasting
powder or dynamite may not be deducted from gross receipts.
10

1 2019 N.M. Laws ch. 172, § 1 (emphasis added to new addition to the statute). By
2 qualifying the sale of chemicals and reagents in this specific manner, the Legislature
3 has further clarified its intent that Section 7-9-65 should not apply to the sale of coal
4 to power plants for production of electricity. Although this amendment to Section 7-
5 9-65 has not yet become effective, we look to the amendment as a useful tool in
6 ascertaining legislative intent and to affirm. what we have already concluded in our
7 prior analysis.
8 	{18} 	The AHO's interpretation of the Section 7-9-65 deduction for the sale of coal
9 was not arbitrary, capricious or contrary to law. Therefore, we hold that Section 7-
-
10 9-65 of the Act does not apply to receipts from the sale of coal.
11 	CONCLUSION
12 	{19} 	For the foregoing reasons, we affirm.
13 	{20} 	IT IS SO ORDERED.
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15
16 WE CONCUR:
11