March 13, 2023- Gemini Las Colinas, LLC v. New Mexico Taxation & Revenue Department, No. A-1-CA-38672

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: Court of Appeals of New Mexico
Filed 3/13/2023 10:14 AM

Filing Date: March 13, 2023 A.
No. A-1-CA-38672 ~fe4
Mark Reynolds
GEMINI LAS COLINAS, LLC,
Protestant-A ppellant,

V.

NEW MEXICO TAXATION & REVENUE
DEPARTMENT,

Respondent- Appellee,

IN THE MATTER OF THE PROTEST
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L0294088832.

APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE
Chris Romero, Hearing Officer

Betzer, Roybal & Eisenberg, LLC
Benjamin C. Roybal
Albuquerque, NM

Rodey, Dickason, Sloan, Akin & Robb, P.A.
Edward Ricco
Albuquerque, NM

for Appellant

Raúl Torrez, Attorney General	1
David E. Mittle, Special Assistant Attorney General	2
Santa Fe, NM	3
for Appellee	4

OPINION	1
IVES, Judge.	2
{1} 	This appeal arises from an unsuccessful administrative tax protest brought by	3
Gemini Las Colinas, LLC (Taxpayer) against the New Mexico Department of	4
Taxation and Revenue (Department). Taxpayer challenges the denial of its protest,	5
arguing that the administrative hearing officer (AHO) (1) applied the presumption	6
of correctness and burden of proof in a manner contrary to law and (2) erred in	7
evaluating Taxpayer’s evidence.	8
{2} 	To address these claims of error, we must clarify aspects of the procedure for	9
tax protests under NMSA 1978, Section 7-1-24 (2017, amended 2019). To this end,	10
we conclude that (1) whether a protesting taxpayer has overcome the statutory	11
presumption of correctness is a purely legal determination, and (2) once this	12
presumption is overcome, a burden of production shifts to the department to come	13
forward with evidence to demonstrate that its assessment is correct, but the taxpayer	14
bears the ultimate burden of persuading the hearing officer that the assessment is	15
incorrect.	16
{3} 	Applying these legal conclusions to the facts of Taxpayer’s protest, we hold	17
that the AHO erred by applying the statutory presumption of correctness in a manner	18
contrary to law and that this error was not harmless. We therefore reverse the	19
decision of the AHO and remand for further proceedings.	20

2
FACTS AND PROCEDURAL BACKGROUND	1
{4} 	The facts are undisputed. Taxpayer owns and operates an independent living	2
facility in Albuquerque, renting apartments only to people who are at least fifty-five	3
years old. Residents sign an agreement that includes a monthly rental fee for the	4
apartments, as well as various services, such as housekeeping, community activities,	5
cable television, transportation services, and safety checks.	6
{5} 	The Department audited Taxpayer for the period of January 1, 2011, through	7
September 30, 2016. Eventually, the auditor concluded that Taxpayer had been	8
overstating certain deductions for its gross receipts tax liability, and the Department	9
issued a notice of assessment of taxes for $724,047.43 (gross receipts tax of	10
$551,325.84, a penalty of $110,265.21, and interest of $62,456.38). Taxpayer paid	11
the portions of this assessment that it did not dispute and timely filed a tax protest	12
pursuant to Section 7-1-24 for the disputed portions.	13
{6} 	The dispute concerns the method for calculating Taxpayer’s gross receipts tax.	14
In essence, although Taxpayer charges its residents one monthly fee for both rent	15
and services, only some of that comingled fee is subject to gross receipts tax.	16
Specifically, while the income from the services performed by Taxpayer for its	17
residents is subject to gross receipts tax, Taxpayer may take a deduction for income	18
earned from the rental value of real property. See NMSA 1978, § 7-9-3.5(A)(1)	19
(2007, amended 2019) (defining “gross receipts” to include “the total amount of	20

3
money or the value of other consideration received . . . from leasing or licensing	1
property employed in New Mexico . . . or from performing services in New	2
Mexico”); NMSA 1978, § 7-9-53(A) (1998) (“Receipts from the . . . lease of real	3
property . . . may be deducted from gross receipts.”). As such, the crux of Taxpayer’s	4
protest 	is 	that 	the 	Department 	incorrectly 	determined 	the 	rental 	value 	and,	5
consequently, assessed taxes in an amount greater than Taxpayer’s actual liability.	6
{7} 	During the audit, in an effort to accurately determine the amount of the	7
deduction and Taxpayer’s liability in light of this deduction, the auditor requested	8
various categories of documentation from Taxpayer. Taxpayer only provided some	9
of the requested documentation. As a result, the auditor experienced difficulties	10
reconciling the various sources of information pertinent to Taxpayer’s liability and	11
concluded that Taxpayer’s documentation provided an insufficient foundation on	12
which to calculate the rental deduction.	13
{8} 	In the end, to determine the rental income and gross receipts tax liability, the	14
auditor “significantly relied” on one type of document provided by Taxpayer:	15
Internal Revenue Service Form 8825, a federal tax form filed by Taxpayer’s parent	16
company for each of the tax years in question. Although the record provides few	17
substantive details about this document, the auditor’s reports state that Form 8825 is	18
titled 	“Rental 	Real 	Estate 	Income 	and 	Expenses 	of 	a 	Partnership 	or 	an 	S	19

4
Corporation,” and that each Form 8825 contains a figure reported as “gross rents”	1
from Taxpayer’s Albuquerque location.	2
{9} 	During the protest hearing before the AHO, Taxpayer sought to prove,	3
through testimony, that Form 8825 did not accurately reflect rental income for	4
purposes 	of 	determining 	Taxpayer’s 	gross 	receipts 	tax 	liability. 	Taxpayer’s	5
witnesses also testified to two alternative methodologies for separating its receipts	6
from rents and services: a cost-accounting method and a third-party market analysis.	7
After Taxpayer rested its case, the Department presented the testimony of its auditor	8
to defend its reliance on Form 8825 and its assessment more broadly.	9
{10} 	The AHO denied Taxpayer’s protest and explained the reasons for the denial	10
in a decision and order, which included a statement at the heart of this appeal:	11
[A]lthough there may be competing methods for calculating the amount	12
of a rental deduction under the facts of the protest, Taxpayer did not	13
prove by a preponderance of evidence 	that the method actually	14
employed by the Department resulted in an incorrect assessment, or that	15
the alternative methods proposed at the hearing were more reliable or	16
trustworthy under the facts of this protest. Therefore, Taxpayer did not	17
overcome 	the 	presumption 	of 	correctness 	that 	attached 	to 	the	18
assessment and Taxpayer’s protest should be denied.	19
(Emphases added.) Taxpayer appealed pursuant to NMSA 1978, Section 7-1-25	20
(2015).	21
DISCUSSION	22
{11} 	In reviewing the AHO’s decision, “we apply a whole-record standard of	23
review.” Town & Country Food Stores, Inc. v. N.M. Regul. & Licensing Dep’t, 2012-	24

5
NMCA-046, ¶ 8, 277 P.3d 490 (internal quotation marks and citation omitted). We	1
will only set aside the decision if it is “(1) arbitrary, capricious or an abuse of	2
discretion; (2) not supported by substantial evidence in the record; or (3) otherwise	3
not in accordance with the law.” Team Specialty Prods., Inc. v. N.M. Tax’n &	4
Revenue Dep’t, 2005-NMCA-020, ¶ 8, 137 N.M. 50, 107 P.3d 4 (internal quotation	5
marks and citation omitted); accord § 7-1-25(C). We review the interpretation of	6
administrative regulations de novo. State v. Hobbs, 2016-NMCA-022, ¶ 9, 366 P.3d	7
304.	8
{12} 	Taxpayer’s primary claim of error is that the AHO misunderstood what the	9
law required Taxpayer to do to overcome the statutory presumption that an	10
assessment is correct. See NMSA 1978, § 7-1-17(C) (2007). Specifically, Taxpayer	11
argues that the AHO mistakenly believed that in order to rebut that presumption,	12
Taxpayer was required to prove by a preponderance of the evidence that the	13
Department’s assessment was incorrect. According to Taxpayer, pursuant to a	14
regulation promulgated by the Department, the presumption of correctness can be	15
overcome by a more modest evidentiary showing. See 3.1.6.12(A) NMAC. Taxpayer	16
contends that as a result of this legal error, the AHO’s subsequent “findings are	17
invalid because the [AHO] conducted his analysis with the presumption still in force	18
and the burden of proof improperly placed on [Taxpayer] rather than on the	19
Department.” Relatedly, Taxpayer argues that once it overcame the presumption of	20

6
correctness, the burden of persuasion should have shifted to the Department.	1
Taxpayer’s second claim of error is that the AHO acted arbitrarily and capriciously	2
and abused the AHO’s discretion in imposing “unreasonable evidentiary burdens”	3
on Taxpayer. We address each claim of error in turn.	4
I. 	The AHO Erred in Applying the Presumption of Correctness	5
{13} 	Our discussion of Taxpayer’s first claim of error proceeds in three parts. First,	6
we discuss the established procedural framework for tax protest proceedings.	7
Second, we clarify that framework by answering legal questions of first impression	8
in New Mexico: (1) what a protesting taxpayer must do to overcome the presumption	9
of correctness, and whether evidentiary weighing is appropriate at this stage; and (2)	10
if a taxpayer overcomes the presumption, precisely what kind or kinds of burden	11
shift to the Department and which party ultimately bears the burden of persuasion.	12
Third and finally, applying our legal conclusions to the facts of this case, we hold	13
that the AHO erred and that the error was not harmless, and we therefore reverse and	14
remand for further proceedings.	15
A. 	The Established Procedural Framework for Tax Protest Proceedings	16
{14} 	Many tax protest proceedings, including this one, begin when the department	17
issues a notice of assessment of taxes to a taxpayer. Section 7-1-17(B)(2). By statute,	18
this notice states the nature and amount of the assessed tax, demands payment of that	19
amount, and describes the taxpayer’s available remedies. Id. One such remedy is a	20

7
protest, Section 7-1-24(E), which may be resolved through an informal conference	1
or through an administrative hearing with the Department. NMSA 1978, § 7-1B-	2
8(B) (2015, amended 2019).	3
{15} 	Under the Tax Administration Act, the tax assessment in the notice “is	4
presumed to be correct.” Section 7-1-17(C); accord 3.1.6.12(A) NMAC. Under a	5
department regulation, and consistent with our precedent, “[t]he effect of the	6
presumption of correctness is that the taxpayer has the burden of [overcoming the	7
presumption].” 3.1.6.12(A) NMAC; accord Archuleta v. O’Cheskey, 1972-NMCA-	8
165, ¶ 11, 84 N.M. 428, 504 P.2d 638.	9
{16} 	As occurred in the case before us, a taxpayer can attempt to overcome this	10
initial burden factually, by “coming forward with some countervailing evidence	11
tending to dispute the factual correctness of the assessment made by the secretary.”1
12
3.1.6.12(A) NMAC. “Unsubstantiated statements that the assessment is incorrect	13
cannot overcome the presumption of correctness.” Id. If a taxpayer overcomes the	14
presumption, “the burden shifts to the [d]epartment to demonstrate the correctness	15
of the tax assessment.” N.M. Tax’n & Revenue Dep’t v. Casias Trucking, 2014-	16
NMCA-099, ¶ 8, 336 P.3d 436. The precise nature of this burden is unclear.	17
1 A protesting taxpayer can also attempt to overcome the presumption legally,
by “showing that the [department] failed to follow the statutory provisions contained
in the Tax Administration Act,” McConnell v. State ex rel. Bureau of Revenue, 1971-
NMCA-181, ¶ 7, 83 N.M. 386, 492 P.2d 1003, but Taxpayer did not pursue a legal
challenge here.

8
{17} 	What is clear is that, at some point in the process, the hearing officer acts as a	1
trier of fact and must ultimately “weigh the testimony, determine the credibility of	2
the witnesses, reconcile inconsistencies, and determine where the truth lies.” Id. ¶ 23	3
(internal quotation marks and citation omitted). The burden of proof during an	4
administrative hearing on a tax protest is preponderance of evidence. 22.600.1.18(A)	5
NMAC.2 Finally, by statute, after the protest hearing concludes, the hearing officer	6
must issue a written decision and order which explains, among other things, the	7
decision of the hearing officer with findings of fact and law, as well as underlying	8
reasoning. Section 7-1B-8(I).	9
B. 	Unresolved Legal Issues	10
{18} 	Taxpayer’s 	appeal presents 	two legal issues 	related 	to 	this 	procedural	11
framework: (1) what must a taxpayer do to overcome the presumption of correctness	12
and whether, at this juncture, the hearing officer acts in their fact-finding capacity;	13
and (2) if a taxpayer overcomes the presumption, what type of burden shifts to the	14
department, and—relatedly—which party bears the ultimate burden of persuasion.	15
{19} 	Answering these questions is no easy task. A leading treatise on evidence	16
notes that the term “presumption” is “the slipperiest member of the family of legal	17
2 The cited regulation provides that “[u]nless otherwise specified by statute,
the burden of proof in an administrative proceeding before the administrative
hearings office is the preponderance of evidence.” Id. Because the applicable tax
protest statutes do not specify otherwise, we conclude that this regulation articulates
the appropriate burden of proof.

9
terms, except its first cousin, ‘burden of proof.’” 2 Robert P. Mosteller et al.,	1
McCormick on Evidence § 342 (8th ed. 2022). Indeed, “burden of proof” is often	2
used imprecisely “to describe two distinct concepts”: “the burden of persuasion, i.e.,	3
the burden to persuade the fact[-]finder” and “the burden of production, i.e., the	4
burden to produce evidence.” Strausberg v. Laurel Healthcare Providers, LLC,	5
2013-NMSC-032, ¶ 24, 304 P.3d 409. Mindful of these challenges, we address the	6
questions before us.	7
1. 	The Operation of the Presumption of Correctness	8
{20} 	We begin our analysis with 3.1.6.12(A) NMAC, a department-promulgated	9
regulation that provides the following guidance about what suffices, and what does	10
not suffice, to overcome the statutory presumption of correctness:	11
The effect of the presumption of correctness is that the taxpayer has the	12
burden of coming forward with some countervailing evidence tending	13
to dispute the factual correctness of the assessment made by the	14
secretary. Unsubstantiated statements that the assessment is incorrect	15
cannot overcome the presumption of correctness.	16
We approach the interpretation of regulations just as we approach the interpretation	17
of statutes. Hobbs, 2016-NMCA-022, ¶ 9. In so doing, we give effect to clear and	18
unambiguous language and give words their ordinary meanings. 	Albuquerque	19
Bernalillo Cnty. Water Util. Auth. v. N.M. Pub. Regul. Comm’n, 2010-NMSC-013,	20
¶ 52, 148 N.M. 21, 229 P.3d 494.	21

10
{21} 	The plain language of the first sentence of the regulation tells us that—at the	1
presumption stage—the taxpayer need not prove, by a preponderance of evidence or	2
otherwise, that the tax assessment performed by the department is incorrect. Instead,	3
to rebut the presumption, the taxpayer need only “come[] forward with some	4
countervailing evidence” that “tend[s] to dispute” the assessment. 3.1.6.12(A)	5
NMAC. We understand this language to imply a burden to produce evidence, rather	6
than a burden to persuade a fact-finder. Indeed, nothing in the language indicates	7
that the taxpayer must prove anything at all. Instead, it requires the taxpayer to	8
produce 	evidence 	that 	presents 	a 	factual 	dispute 	about 	the 	accuracy of 	the	9
assessment. And, importantly, the regulatory language only places a burden on the	10
taxpayer; at this juncture, nothing is required of the department. Id. (“[T]he taxpayer	11
has the burden of coming forward with some countervailing evidence.” (emphasis	12
added)). After the taxpayer has presented its evidence, the hearing officer is	13
positioned 	to 	determine 	whether 	the 	presumption 	has 	been 	overcome. 	Cf.	14
22.600.3.24(B) NMAC (“Because the taxpayer must overcome the presumption of	15
correctness or otherwise establish entitlement to the claim or relief sought during the	16
protest, the taxpayer will ordinarily present their case first, followed by [the	17
department], except as otherwise provided by law or as otherwise ordered by the	18
hearing officer for good cause.”). In short, 3.1.6.12(A) NMAC does not call for the	19
hearing officer to consider the department’s evidence in making this determination.	20

11
{22} 	The plain language of the second sentence of the regulation also supports our	1
interpretation. It provides that “[u]nsubstantiated statements that the assessment is	2
incorrect” do not suffice to overcome the presumption. 3.1.6.12(A) NMAC. As	3
Taxpayer points out, a proposition is “substantiated” if it “establish[es] the existence	4
or truth of by proof or competent evidence.” Substantiate, Webster’s Third New Int’l	5
Dictionary (Unabridged ed. 2002); cf. State v. Boyse, 2013-NMSC-024, ¶ 9, 303	6
P.3d 830 (recognizing that application of the plain language rule often entails	7
reliance on dictionary definitions). Accordingly, a proposition that is unsupported	8
by proof or evidence is unsubstantiated. See McConnell, 1971-NMCA-181, ¶ 7	9
(stating that the “presumption was not overcome because the record shows . . . [that	10
the taxpayer] presented no evidence tending to dispute the factual correctness of the	11
assessments” 	(emphasis 	added)). 	Importantly, 	like 	the 	first 	sentence 	of 	the	12
regulation, the second sentence does not require the taxpayer to present persuasive	13
evidence or to prove anything at all. It requires only that the taxpayer present some	14
evidentiary support, as opposed to a statement unsupported by evidence, for its	15
contention that the assessment is incorrect.	16
{23} 	Considering the plain language of the two sentences of the regulation together,	17
we conclude that determining whether the taxpayer has overcome the presumption	18
of correctness is the first step in resolving a tax protest, and that it will only be the	19
last step if the taxpayer fails to overcome the presumption. That is, if the taxpayer	20

12
has not overcome the presumption, the protest may simply be denied. In this	1
scenario, there is no need for the department to present any evidence. On the other	2
hand, if the taxpayer has overcome the presumption, the outcome of the protest, at	3
that point, remains undetermined. The taxpayer has overcome its initial hurdle, but	4
further legal and factual assessments remain before the hearing officer can determine	5
whether to grant or deny the protest.	6
{24} 	Our precedent buttresses this conclusion. As discussed, our tax protest cases	7
indicate that once the presumption of correctness is overcome, the “burden shifts to	8
the [d]epartment to demonstrate the correctness of the tax assessment.” Casias	9
Trucking, 2014-NMCA-099, ¶ 8; accord MPC Ltd. v. N.M. Tax’n & Revenue Dep’t,	10
2003-NMCA-021, ¶ 13, 133 N.M. 217, 62 P.3d 308. As a consequence, under this	11
burden-shifting framework, logic dictates that the initial presumption of correctness	12
inquiry is not necessarily dispositive. If the taxpayer rebuts the presumption, the	13
department must be given an opportunity to present evidence to support its	14
assessment, and the hearing officer may not grant or deny the protest without, at the	15
very least, determining whether the department has carried its burden. The precise	16
nature of this burden is a subject we address in the next section of this opinion.	17
{25} 	Before turning to that topic, we make an observation that follows naturally	18
from the preceding discussion: the presumption of correctness assessment is made	19
by the hearing officer in a purely legal capacity. The regulation’s call for “some	20

13
countervailing evidence” that “tend[s]” to dispute the assessment, 3.1.6.12(A)	1
NMAC, is merely a threshold requirement for evidence, and that evidence need not	2
be 	credible 	or 	ultimately 	persuasive. 	As 	such, 	in 	determining 	whether 	the	3
presumption has been overcome, the hearing officer’s determination does not	4
involve fact-finding tasks such as making credibility determinations and weighing	5
evidence. These fact-finding tasks occur, if at all, after both sides have put forth	6
evidence. As we have explained, 3.1.6.12(A) NMAC does not require the taxpayer	7
to prove anything but only to produce. As a natural consequence, the presumption	8
of 	correctness 	assessment 	is 	a 	legal 	determination. 	If 	a 	protesting 	taxpayer	9
overcomes the presumption, the “burden shifts to the [d]epartment to demonstrate	10
the correctness of the tax assessment.” Casias Trucking, 2014-NMCA-099, ¶ 8.	11
2. 	Burden-Shifting and Burdens of Proof	12
{26} 	We now discuss what the department must do to carry its burden of	13
demonstrating or showing that its assessment is correct. See id.; see also MPC Ltd.,	14
2003-NMCA-021, ¶ 13 (“A taxpayer may rebut the presumption, shifting the burden	15
to the [d]epartment to show the correctness of the tax assessment.”). Conceivably,	16
the burden mentioned in our cases could refer to the burden of persuasion, the burden	17
of production, or both, Strausberg, 2013-NMSC-032, ¶ 24, and this appeal forces us	18
to determine the nature of this burden. Must the department simply put forth	19
evidence to justify its assessment (a burden of production), or must the department	20

14
ultimately prove the correctness of its assessment to the hearing officer by a	1
preponderance of evidence (burden of persuasion)? As Taxpayer acknowledges—	2
and we agree—our case law regarding this question is “inconclusive.” For the	3
following reasons, we conclude that the burden that shifts to the department is a	4
burden of production, and that the burden of persuasion is ultimately borne by the	5
taxpayer.	6
{27} 	To arrive at these conclusions, we first discuss which party has these burdens	7
initially. The regulations concerning tax protest hearings state that “[t]he taxpayer	8
shall have the burden of proof, except as otherwise provided by law.” 22.600.3.24(B)	9
NMAC. We interpret this regulation to refer to both the burden of persuasion and	10
the burden of production, which accords with the general principle that “the party	11
who has the burden of pleading a fact will have the burdens of producing evidence	12
and of persuading the [fact-finder] of its existence as well.” 2 McCormick on	13
Evidence, supra, § 337. Indeed, it is the taxpayer who seeks to challenge the	14
department’s tax assessment and the taxpayer who must initiate the litigation by	15
filing the protest. See § 7-1-24(B); Wallace v. Wanek, 1970-NMCA-049, ¶ 9, 81	16
N.M. 478, 468 P.2d 879 (stating that the party “who alleges the affirmative must	17
prove”). We therefore conclude that—at the outset of the tax protest—a protesting	18
taxpayer bears both the burden to produce evidence (in order to overcome the	19
presumption of correctness) and the burden to ultimately prove its case by a	20

15
preponderance of evidence. See 22.600.1.18(A) NMAC. And, importantly, while the	1
burden of production often shifts (or even disappears) during civil litigation, the	2
burden of persuasion generally remains on the party who bears it initially. See 2	3
McCormick on Evidence, supra, § 336 (noting that the burden of production “may	4
shift to the adversary when the pleader has discharged its initial duty,” but that the	5
burden of persuasion “does not shift from party to party during the course of the trial	6
simply because it need not be allocated until it is time for a decision”); 29 Am. Jur.	7
2d Evidence § 168, Westlaw (database updated Mar. 2023) (“The burden of	8
persuasion never leaves the party on whom it is originally cast.”).	9
{28} 	These considerations in mind, we believe that the statements about burden	10
shifting in Casias Trucking and MPC Ltd. refer to the burden of production, and that	11
the burden of persuasion remains with the taxpayer throughout the proceedings. We	12
know that the taxpayer bears both burdens at the outset, and that the burden of	13
persuasion generally does not leave the party who bears it initially. We believe these	14
propositions lead to an obvious conclusion, and we do not believe that any authority	15
compels us to reject it. Indeed, Taxpayer has not cited, and we have not found, any	16
statute or regulation stating, or even suggesting, that New Mexico law deviates from	17
general burden of persuasion principles in the context of tax protest proceedings.	18
Moreover, our precedents recognizing that the department bears some burden,	19
Casias Trucking and MPC Ltd., do not include any holdings or set forth any legal	20

16
conclusions about the precise nature of the department’s burden. That issue was not	1
before this Court in those cases, and we decline to infer from the scant and	2
ambiguous statements therein that this Court intended to deviate from the general	3
rule that burdens of persuasion do not shift.3 Cf. Sangre de Cristo Dev. Corp. v. City	4
of Santa Fe, 1972-NMSC-076, ¶ 23, 84 N.M. 343, 503 P.2d 323 (“The general rule	5
is that cases are not authority for propositions not considered.”). In short, we are	6
unwilling—in the absence of explicit authority addressing the specific question	7
before us—to interpret these ambiguous statements in a manner that would cut	8
sharply against the grain of general legal principles regarding the burden of	9
persuasion.4
10
3 We recognize that Casias Trucking includes the statement that “the burden
shifts back to the [d]epartment to prove the correctness of its assessment.” 2014-
NMCA-099, ¶ 26 (emphasis added). Although this statement could be read to imply
that the department bears the burden of persuasion, Casias Trucking cites MPC Ltd.
for this proposition, and the description of the burden in that case—“to show”—
more clearly implies a burden of production. See MPC Ltd., 2003-NMCA-021, ¶ 13.
4 Taxpayer contends that our case law regarding property tax valuation
protests—an adjacent area of state tax law—more explicitly states that the burden of
persuasion shifts once the presumption of correctness is overcome. See, e.g., First
Nat’l Bank v. Bernalillo Cnty. Valuation Protest Bd., 1977-NMCA-005, 90 N.M.
110, 560 P.2d 174; Addis v. Santa Fe Cnty. Valuation Protests Bd., 1977-NMCA-
122, 91 N.M. 165, 571 P.2d 822; 2727 San Pedro LLC v. Bernalillo Cnty. Assessor,
2017-NMCA-008, 389 P.3d 287. Taxpayer argues that, in reading these cases, “[i]t
is difficult to interpret th[is] Court’s analysis as doing anything but shifting the
burden of persuasion to the taxing authority once the presumption of correctness has
been rebutted.” After examining these cases closely, we cannot agree that they
conclusively demonstrate this notion. Like the tax assessment cases pertinent to this
appeal, the property valuation cases cited by Taxpayer are ultimately inconclusive
regarding the true nature of the burden shift. Although we agree that the cases may

17
{29} 	We 	therefore 	conclude 	that 	if 	a 	taxpayer 	rebuts 	the 	presumption 	of	1
correctness, the burden that shifts to the department is a burden of production. To	2
overcome this burden, the department must put forth evidence to show the	3
correctness of its assessment—that is, evidence sufficient to make the correctness of	4
the department’s assessment a question of fact. The imposition of this burden is	5
sensible and pragmatic; it ensures that when the hearing officer decides the case on	6
its merits and acts as a fact-finder, the hearing officer can consider the evidence	7
presented by both parties. Likewise, the existence of this burden means that the	8
department cannot simply rely on the unreliability or incredibility of the taxpayer’s	9
evidence. Instead, the department must produce evidence to justify its assessment.	10
If the department’s evidence creates a question of fact about the correctness of the	11
assessment, it has fulfilled its burden of production, and the case is ripe for the	12
be read in a manner that implies a shifting of a burden of persuasion, we likewise
believe 	they 	may be 	coherently read 	to 	imply a 	shifting 	of 	the 	burden 	of
production—they are, as such, ambiguous. See, e.g., 2727 San Pedro LLC, 2017-
NMCA-008, ¶ 25 (holding that “a reasonable person” could not conclude that the
tax authority bore its burden to show that the assessor’s assessment used a “generally
accepted appraisal technique[]” after the presumption of correctness had been
overcome, and thus this Court concluded that the hearing officer erred in ruling that
the tax authority overcame its post-presumption of correctness burden); First Nat’l
Bank, 1977-NMCA-005, ¶ 25 (“When a taxpayer overcomes the presumption of the
correctness of the assessor’s method of valuation, the burden shifts to the assessor
to prove that his method of valuation utilized a ‘generally accepted appraisal
technique.’ The board shall then determine the merits of the protest.”). Because these
cases are not directly pertinent to this appeal, we need not interpret them definitively.
We simply note that, on our reading, these cases do not have the persuasive power
required to sustain Taxpayer’s argument.

18
hearing officer to resolve factual disputes and decide the protest on the merits.	1
Ultimately, at the merits stage, the burden of persuasion remains on the taxpayer—	2
the party who bore it at the outset. As a result, if the evidence is in equipoise, the	3
hearing officer should deny the taxpayer’s protest. Cf. UJI 13-304 NMRA (noting	4
that “[e]venly balanced evidence is not sufficient” to carry the burden of persuasion).	5
{30} 	To conclude our analysis, we note that the legal conclusions discussed in this	6
opinion—regarding 	the 	presumption 	of 	correctness 	and 	burden-shifting	7
framework—do not substantively alter the ordinary procedural sequence of tax	8
protest proceedings. Consistent with agency regulations, we believe it will ordinarily	9
be the taxpayer who presents its case in chief first. See 22.600.3.24(B) NMAC. At	10
this point, the taxpayer will attempt to overcome the presumption of correctness, as	11
well as to persuade the hearing officer-as-fact-finder of the protest’s merit. Then, if	12
the presumption is overcome, a burden to produce evidence shifts to the department.	13
If the department meets this burden (by way of its own case in chief), the hearing	14
officer has heard the evidence of both sides and must then perform fact-finding	15
duties to grant or deny the protest. As such, although we have clarified the types of	16
legal determinations that the hearing officer makes along the way, we do not modify	17
the basic underlying procedure of the protest hearings. Moreover, we recognize that	18
hearing 	officers—like 	many 	adjudicative 	decision-makers—have 	a 	general	19

19
discretionary authority to “regulate the course of hearings,” and may adapt basic	1
procedure to fit the needs of a particular dispute. 22.600.3.23(B)(6) NMAC.	2
We now turn to Taxpayer’s claim of error, applying our legal conclusions to	3
the AHO’s decision in this case	4
C. 	The AHO Erred, and the Error Is Not Harmless	5
{31} 	Taxpayer’s argument is straightforward: the AHO erred in applying an	6
“improperly high standard on [Taxpayer]” to rebut the presumption of correctness.	7
Specifically, Taxpayer argues that the AHO erred by concluding that Taxpayer had	8
not rebutted the presumption of correctness because it did not prove by “a	9
preponderance of evidence” that the assessment was incorrect. As a result, Taxpayer	10
claims that “[t]he [AHO]’s evaluation of the evidence and his resulting findings are	11
invalid because the [AHO] conducted his analysis with the presumption still in force	12
and the burden of proof improperly placed on [Taxpayer] rather than on the	13
Department.”	14
{32} 	We agree with Taxpayer that the decision and order indicates that the AHO	15
sought a preponderance of evidence to overcome the statutory presumption of	16
correctness, and we agree that this evidentiary standard was “not in accordance with	17
the law.” Section 7-1-25(C)(3). Indeed, the causal language in the decision and order	18
supports our understanding of the AHO’s reasoning: “the [AHO] determined that . .	19
. Taxpayer did not prove by a preponderance of evidence that the method actually	20

20
employed by the Department resulted in an incorrect assessment, or that the	1
alternative methods proposed at the hearing were more reliable or trustworthy under	2
the facts of this protest. Therefore, Taxpayer did not overcome the presumption of	3
correctness that attached to the assessment and Taxpayer’s protest should be	4
denied.” (Emphasis added.) This reasoning cannot be reconciled with our conclusion	5
that a protesting taxpayer overcomes the presumption of correctness by presenting	6
“some countervailing evidence tending to dispute the factual correctness of the	7
assessment.” 3.1.6.12(A) NMAC. Moreover, to the extent that the AHO performed	8
various forms of fact-finding to determine whether the presumption of correctness	9
had been overcome, the AHO erred. As we have stated, the presumption of	10
correctness determination is made by the hearing officer acting in a purely legal	11
capacity. For these reasons, the AHO misapplied the relevant law as it relates to	12
overcoming the presumption of correctness, and in so doing, erred.	13
{33} 	We now must consider whether this error is harmless or whether it warrants	14
reversal. See Hi-Country Buick GMC, Inc. v. N.M. Tax’n & Revenue Dep’t, 2016-	15
NMCA-027, ¶ 11, 367 P.3d 862 (conducting harmless error analysis in review of a	16
tax protest proceeding). Although the burden is on the appellant to show that its	17
alleged error was prejudicial, see Christopherson v. St. Vincent Hosp., 2016-NMCA-	18
097, ¶ 37, 384 P.3d 1098, reversal is required where the appellant “provides the	19
slightest evidence of prejudice,” and this Court will “resolve all doubt in favor of the	20

21
complaining party.” Kennedy v. Dexter Consol. Schs., 2000-NMSC-025, ¶ 26, 129	1
N.M. 436, 10 P.3d 115.	2
{34} 	On appeal, the Department argues that any procedural error, in the event one	3
occurred, “does not rise to the level of prejudice or necessitate reversal.” To support	4
this view, the Department argues that both sides presented their cases at the hearing	5
and cross-examined each other’s witnesses, and that the AHO subsequently weighed	6
all the evidence from both sides. At the end of this process, the AHO came to a	7
conclusion that fully resolved the merits of the protest:	8
The method selected and utilized by the Department in this protest,	9
which relied on . . . Form[] 8825, was wholly reasonable given the	10
apparent lack of records available for employing other reasonable	11
methods, including the alternatives proposed by Taxpayer at the	12
hearing. The [AHO] is unable to conclude based on the evidence	13
presented that the Department’s determination of Taxpayer’s liability	14
was incorrect.	15
On the basis of these facts, we understand the Department to argue that the AHO’s	16
error was not prejudicial because, ultimately, the AHO conducted a full merits	17
assessment 	and 	concluded 	that 	Taxpayer 	had 	been 	unable 	to 	show 	by 	a	18
preponderance of evidence that the Department’s assessment was incorrect.	19
{35} 	Taxpayer, on the other hand, argues that because the decision and order	20
“commingles and muddles consideration of the presumption and determination of	21
the merits, . . . it is impossible to say where one begins and the other ends.” In	22
Taxpayer’s view, it is impossible for this Court to determine to what extent, if any,	23

22
the erroneous treatment of the presumption of correctness affected the later	1
determination of the case on its merits. In essence, Taxpayer argues that it presented	2
sufficient evidence to overcome the presumption of correctness, and thus it was	3
entitled to a merits determination “[f]ree of the [p]resumption of [c]orrectness” in	4
which “the Department bears the burden of proving the correctness of its assessment	5
in light of all the evidence.” The error, on this view, was not harmless.	6
{36} 	Although we agree with only some of Taxpayer’s contentions, we conclude	7
that the error was not harmless. To explain why, we consider Taxpayer’s prejudice	8
argument 	sequentially: 	(1) 	whether 	its 	evidence 	should 	have 	overcome 	the	9
presumption of correctness; (2) whether the presumption should therefore have	10
played no role in the AHO’s analysis; and (3) whether the Department should have	11
been ultimately responsible for proving its case by a preponderance of evidence.	12
{37} 	First, we agree that Taxpayer’s evidence overcame the presumption of	13
correctness. 	At 	the 	outset 	of 	the 	proceeding, 	Taxpayer 	sought 	to 	rebut 	the	14
presumption factually, by “coming forward with some countervailing evidence	15
tending to dispute the factual correctness of the assessment.” 3.1.6.12(A) NMAC.	16
To this end, Taxpayer introduced evidence in the form of sworn testimony that the	17
tax form relied upon by the Department to assess Taxpayer’s tax liability—Form	18
8825—did not accurately represent Taxpayer’s rental revenue for the purpose of	19
determining 	gross 	receipts 	tax 	liability. 	This 	testimony 	went 	beyond 	mere	20

23
conclusory statements: it provided a specific rationale for why the relevant rental	1
revenue was not accurately represented on the tax forms. In essence, Taxpayer’s	2
testimonial evidence sought to show that, because the tax form in question was filed	3
by Taxpayer’s “parent company,” and because that parent company is principally	4
owned by a “real estate investment trust,” the income reported on Form 8825 was	5
subject to “certain adjustments” and ultimately reflected a “stripped down version	6
of the rent” that was inaccurate for gross receipts tax purposes. Even if this evidence	7
may be susceptible to criticism, we believe that it nevertheless went beyond mere	8
“unsubstantiated statements,” and clearly “tend[ed] to dispute the factual correctness	9
of the assessment.” 3.1.6.12(A) NMAC. It was relevant to the Department’s	10
assessment method and included a factual basis for concluding that the form	11
underrepresented Taxpayer’s rental income. Whether or not this explanatory account	12
was convincing or persuasive (i.e., what evidentiary weight it should be given), or	13
whether the testifying witness was credible, are considerations to be assessed at the	14
merits stage by the AHO as fact-finder. Taxpayer’s evidence was therefore sufficient	15
to rebut the presumption of correctness and shift the burden of production to the	16
Department to demonstrate a triable issue of fact as to the correctness of the	17
assessment.	18
{38} 	Second, we agree with Taxpayer and the Department that the presumption of	19
correctness should have played no subsequent role in the determination of the merits	20

24
of the protest. We accept the Department’s concession that “[o]nce the presumption	1
is rebutted, it disappears from the case.” This concession is consistent with the plain	2
language of 3.1.6.12(A) NMAC, which states that “[t]he effect” of the presumption	3
of correctness is that the taxpayer bears the burden of disputing the correctness of	4
the assessment. (Emphasis added.) In other words, the only effect of the presumption	5
is the placement of an initial burden of production on the taxpayer. The presumption	6
plays no additional role. But the AHO appears to have conducted the ultimate merits	7
analysis under the mistaken belief that the presumption had not been overcome, and	8
we therefore cannot say that the AHO’s conclusions on the merits would have	9
resulted in the denial of Taxpayer’s protest in the absence of the presumption.	10
Because the decision and order indicates that the presumption could have impacted	11
the outcome of the protest, we conclude that the record reflects, at the very least,	12
“the slightest evidence of prejudice,” Kennedy, 2000-NMSC-025, ¶ 26, and was	13
therefore not harmless.	14
{39} 	Third, we disagree with Taxpayer’s argument that, after it rebutted the	15
presumption, the Department bore the burden of persuasion. As we have explained,	16
the taxpayer bears the burden of persuasion throughout; it never shifts to the	17
department.	18
{40} 	For the reasons outlined here, we reverse and remand the case to the AHO for	19
further proceedings consistent with this opinion. We leave to the discretion of the	20

25
AHO what proceedings are necessary—whether a further hearing or briefing are	1
required or whether the determination can be made on the record as it exists. We	2
now turn to a discussion of Taxpayer’s claims of evidentiary error.	3
II. 	The AHO Imposed an Erroneous Evidentiary Requirement on Taxpayer	4
{41} 	On appeal, Taxpayer makes two claims of error related to the AHO’s	5
treatment of its evidence. First, it argues that the AHO erroneously faulted Taxpayer	6
for not presenting its 	alternative methods of determining the 	rental receipts	7
deduction until the protest hearing itself (i.e., well after it was audited and assessed).	8
Taxpayer contends that its evidence of alternative methods should not have been	9
“disparage[d]” on this basis, because according to Taxpayer, it presented its	10
evidence of alternative methods “at the exact point it was expected to do so: during	11
the protest hearing.”	12
{42} 	Second, it argues that it was “blindsided” by the AHO’s dissatisfaction—as	13
reflected in the decision and order—regarding a perceived lack of supporting	14
documentation to support its alternative methods. Taxpayer contends that “[h]ad the	15
hearing officer raised such a concern [at the hearing], [Taxpayer] could have	16
introduced the underlying general ledger records into evidence at that time or asked	17
that the evidentiary record be held open to allow it to do so after the hearing	18
concluded.”	19

26
{43} 	As 	to 	the 	first 	argument, 	assuming 	without 	deciding 	that 	Taxpayer’s	1
alternative 	methods 	of 	assessing 	tax 	liability 	are 	relevant 	to 	whether 	the	2
Department’s 	assessment 	was 	correct, 	we 	conclude 	that 	the 	AHO 	erred 	in	3
discounting or “disparag[ing]” this evidence during the presumption of correctness	4
determination. As we have explained, when determining whether a taxpayer has	5
rebutted the presumption of correctness, a hearing officer does not weigh the	6
evidence or perform other fact-finding duties. Consequently, we believe the AHO	7
erred by negatively weighing Taxpayer’s evidence at this threshold stage of the	8
analysis.	9
{44} 	However, we are unpersuaded by Taxpayer’s second argument. Taxpayer has	10
cited no authority for the dubious proposition that an administrative adjudicator—	11
whether acting in the capacity of evidentiary gatekeeper or finder-of-fact—has a	12
duty to make the parties aware of evidence it believes the parties should present.	13
Accordingly, we hold that the AHO did not abuse his discretion or act arbitrarily or	14
capriciously by not alerting Taxpayer of its perceived evidentiary shortcomings.	15
CONCLUSION	16
{45} 	We reverse and remand for further proceedings consistent with this opinion.	17
{46} 	IT IS SO ORDERED.	18
_________________________	19
ZACHARY A. IVES, Judge	20

1
WE CONCUR:
Megan P Duffy
MEGAN P. DUFFY Judge
GERALD E. BACA, Judge
27
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