January 28, 2020- Sacred Garden, Inc. v. New Mexico Taxation & Revenue Department, No. A-1-CA-37142

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO	1
Opinion Number: ___________________	2
Filing Date: January 28, 2020	3
No. A-1-CA-37142	4
SACRED GARDEN, INC.,	5
a New Mexico non-profit corporation,	6
Plaintiff-Appellant,	7
v.	8
NEW MEXICO TAXATION &	9
REVENUE DEPARTMENT,	10
Defendant-Appellee.	11
APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE	12
Chris Romero, Hearing Officer	13
Joe Lennihan	14
Santa Fe, NM	15
for Appellant	16
Hector H. Balderas, Attorney General	17
Cordelia Friedman, Special Assistant Attorney General	18
Santa Fe, NM	19
for Appellee	20
Court of Appeals of New Mexico
Filed 1/28/2020 8:57 AM

OPINION	1
M. ZAMORA, Judge.	2
{1} 	Sacred Garden (Taxpayer) appeals following the denial of its claims for tax	3
refunds. The issue before us concerns the application of the deduction from gross	4
receipts for prescription drugs, set forth in NMSA 1978, Section 7-9-73.2 (2007), to	5
medical marijuana dispensed, pursuant to the Lynn and Erin Compassionate Use	6
Act, 	NMSA 	1978, 	§§ 	26-2B-1 	to 	-7 	(2007, 	as 	amended 	through 	2019)	7
(Compassionate Use Act). Because we conclude that the refund claims were	8
erroneously denied, we reverse.	9
BACKGROUND	10
{2} 	Taxpayer is a licensed producer authorized to dispense medical marijuana to	11
qualified patients consistent with the Compassionate Use Act. In the course of the	12
underlying administrative proceedings Taxpayer sought refunds of gross receipts	13
taxes that it paid in association with sales of medical marijuana from 2011-2016.	14
Those claims were denied, Taxpayer filed formal protests, and the protests were	15
consolidated. Taxpayer filed a motion for summary judgment, which was denied.	16
The consolidated matters then proceeded to a hearing on the merits. The hearing	17
officer ultimately concluded that, notwithstanding Taxpayer’s compliance with the	18
Compassionate Use Act, the medical marijuana it dispenses to qualified patients	19
does not constitute a “prescription drug” for purposes of the statutory deduction set	20

2
forth in Section 7-9-73.2. Accordingly, Taxpayer’s protests were denied. This appeal	1
followed.	2
STANDARD OF REVIEW	3
{3} 	The facts are not in dispute, and the issue presented on appeal, which requires	4
us to engage in statutory construction, is purely legal. Under the circumstances, we	5
apply de novo review. A&W Rests., Inc. v. N.M. Taxation & Revenue Dep’t, 2018-	6
NMCA-069, ¶ 6, 429 P.3d 976.	7
PRESERVATION	8
{4} 	As an initial matter, we reject the New Mexico Taxation & Revenue	9
Department’s (the Department) suggestion that the issue presented on appeal was	10
not properly preserved. Taxpayer clearly raised the issue by way of motion for	11
summary judgment. The denial of that motion was sufficient to preserve the issue;	12
Taxpayer was not required to renew its argument in closing or otherwise. See	13
Gallegos v. State Bd. of Educ., 1997-NMCA-040, ¶ 12, 123 N.M. 362, 940 P.2d 468	14
(“[A]s long as (1) the facts are not in dispute, (2) the only basis of the ruling is a	15
matter of law which does not depend to any degree on facts to be addressed at trial,	16
(3) there is a denial of the motion, and (4) there is an entry of a final judgment with	17
an appeal therefrom, then the appellant may include in the appeal the purely legal	18
issues that were argued unsuccessfully in the motion for summary judgment, and the	19
appellant need not have renewed that legal issue during trial to preserve it.”); see	20

3
Woolwine v. Furr’s, Inc., 1987-NMCA-133, ¶ 20, 106 N.M. 492, 745 P.2d 717 (“To	1
preserve an issue for review on appeal, it must appear that [the] appellant fairly	2
invoked a ruling of the [district] court on the same grounds argued in the appellate	3
court.”). We therefore proceed to the merits.	4
DISCUSSION	5
{5} 	Well-established 	principles 	of 	statutory 	construction 	guide 	us 	in 	our	6
interpretation of the state tax code. Our primary goal is “to give effect to the intent	7
of the [L]egislature.” Dell Catalog Sales L.P. v. N.M. Taxation & Revenue Dep’t,	8
2009-NMCA-001, ¶ 19, 145 N.M. 419, 199 P.3d 863 (internal quotation marks and	9
citation omitted). “We discern legislative intent by first looking at the plain meaning	10
of the language of the statute, reading the provisions . . . together to produce a	11
harmonious whole. Id. (internal quotation marks and citation omitted). Additionally,	12
we may consider the statute’s history and background. Valenzuela v. Snyder, 2014-	13
NMCA-061, ¶ 16, 326 P.3d 1120.	14
{6} 	“There exists a statutory presumption that all receipts from engaging in	15
business in New Mexico are taxable.” A&W Rests., Inc., 2018-NMCA-069, ¶ 7	16
(citing NMSA 1978, § 7-9-5(A) (2002)). The right to a deduction must be clearly	17
and unambiguously expressed, and the taxpayer bears the burden of establishing that	18
it is entitled to the statutory deduction. See TPL, Inc. v. N.M. Taxation & Revenue	19
Dep’t, 2003-NMSC-007, ¶ 9, 133 N.M. 447, 64 P.3d 474. Nevertheless, these	20

4
provisions must also be given “fair, unbiased, and reasonable construction, without	1
favor or prejudice to either the taxpayer or the [s]tate, to the end that the legislative	2
intent is effectuated and the public interests to be subserved thereby are furthered.”	3
Chavez v. Comm’r of Revenue, 1970-NMCA-116, ¶ 7, 82 N.M. 97, 476 P.2d 67.	4
{7} 	The statutory deduction at issue in this case, Section 7-9-73.2, provides in	5
relevant part:	6
A. 	Receipts from the sale of prescription drugs . . . may be	7
deducted from gross receipts.	8
B. 	For the purposes of this section, “prescription drugs”	9
means insulin and substances that are:	10
(1) 	dispensed by or under the supervision of a licensed	11
pharmacist or by a physician or other person authorized under state law	12
to do so;	13
(2) 	prescribed 	for 	a 	specified 	person 	by 	a 	person	14
authorized under state law to prescribe the substance; and	15
(3) 	subject to the restrictions on sale contained in	16
Subparagraph 1 of Subsection (b) of 21 [U.S.C. §] 353 [2018].	17
The question before us is whether medical marijuana dispensed, pursuant to the	18
Compassionate Use Act, may be characterized as a prescription drug within the	19
meaning of Section 7-9-73.2(A).	20
{8} 	Subsection B defines “prescription drugs” for purposes of the statutory gross	21
receipts deduction, and this definition is controlling. See, e.g., Amarillo-Pecos Valley	22
Truck Lines v. Gallegos, 	1940-NMSC-004, ¶ 7, 44 N.M. 120, 99 P.2d 447	23

5
(illustrating that when the Legislature provides a specific definition within a statute,	1
that specific definition controls for the purpose of that statute); see Hi-Country Buick	2
GMC, Inc. v. N.M. Taxation & Revenue Dep’t, 2016-NMCA-027, ¶ 21, 367 P.3d	3
862 (applying the fundamental principle of statutory construction favoring the	4
application of a more specific statutory definition over a general definition that	5
covers the same subject matter). It establishes three requisites.	6
{9} 	First, the substance must be “dispensed by or under the supervision of a . . .	7
person authorized under state law to do so[.]” Section 7-9-73.2(B)(1). Insofar as	8
Taxpayer 	is 	a 	licensed 	producer 	under 	the 	Compassionate 	Use 	Act 	that 	is	9
undisputedly authorized under state law to dispense medical marijuana, the first	10
requirement was satisfied.	11
{10} 	Second, the substance must be “prescribed for a specified person by a person	12
authorized under state law to prescribe the substance[.]” Section 7-9-73.2(B)(2). The	13
word “prescribed” is not further defined in Section 7-9-73.2. However, the following	14
related statutory section provides, “ ‘prescribe’ means to authorize the use of an item	15
or substance for a course of medical treatment.” NMSA 1978, § 7-9-73.3(G)(4)	16
(2014). We deem this applicable. See State v. Ogden, 1994-NMSC-029, ¶ 28, 118	17
N.M. 234, 880 P.2d 845 (“Statutes on the same general subject should be construed	18
by reference to each other, the theory being that the Court can discern legislative	19
intent behind an unclear statute by reference to similar statutes where legislative	20

6
intent is more clear.” (citation omitted)). There is no dispute that the use of the	1
medical marijuana at issue in this case was authorized by and for specific persons,	2
in accordance with state law (i.e., the Compassionate Use Act). Accordingly, we	3
conclude that the second requirement was satisfied as well.	4
{11} 	The 	hearing 	officer 	arrived 	at 	a 	different 	conclusion 	regarding 	this	5
requirement because the Compassionate Use Act does not expressly provide that	6
medical marijuana is a prescription drug or is to be prescribed. On appeal, the	7
Department similarly focuses on this feature of the Compassionate Use Act.	8
However, this essentially ignores the definition of “prescribe” set forth in Section 7-	9
9-73.3(G)(4). We reject such an approach. Moreover, we have previously recognized	10
that 	the 	certifications 	contemplated 	by 	the 	Compassionate 	Use 	Act 	are 	the	11
“functional equivalent” of prescriptions. Vialpando v. Ben’s Auto. Servs., 2014-	12
NMCA-084, ¶ 12, 331 P.3d 975; see also Lewis v. Am. Gen. Media, 2015-NMCA-	13
090, ¶ 20, 355 P.3d 850 (observing that under the Compassionate Use Act, “medical	14
certification forms are the functional equivalents of prescriptions”). Although the	15
Department contends that this aspect of the Court’s decision in Vialpando is dicta,	16
and should not be regarded as persuasive authority outside the context of workers’	17
compensation, we do not hesitate to draw guidance from that opinion.	18
{12} 	Third and finally, the substance must be “subject to the restrictions on sale	19
contained in Subparagraph 1 of Subsection (b) of 21 [U.S.C. §] 353.” Section 7-9-	20

7
73.2(B)(3). This provision, which appears within the federal Food, Drug and	1
Cosmetics Act, restricts the sale of any drug which, “because of its toxicity or other	2
potentiality for harmful effect, or the method of its use, or the collateral measures	3
necessary to its use, is not safe for use except under the supervision of a practitioner	4
licensed by law to administer such drug[.]” 21 U.S.C. § 353(b)(1)(A). Medical	5
marijuana is such a restricted drug, insofar as the Compassionate Use Act provides	6
for access only after the patient has been duly diagnosed with a debilitating medical	7
condition and has received written certification from a licensed practitioner that, in	8
the practitioner’s professional opinion, the potential health benefits of medical	9
marijuana would likely outweigh the health risks to the patient. See § 26-2B-3(G),	10
(H). The relevant provision within the federal Food, Drug and Cosmetics Act further	11
provides 	that 	restricted 	drugs 	“shall 	be 	dispensed 	only . . . upon 	a 	written	12
prescription of a practitioner licensed by law to administer such drug[s.]” 21 U.S.C.	13
§ 353(b)(1)(B). In this state, the dispensing of medical marijuana is so restricted. See	14
Vialpando, 2014-NMCA-084, ¶ 12 (explaining that the certification required under	15
the 	terms 	of 	the 	Compassionate 	Use 	Act 	is 	the 	functional 	equivalent 	of 	a	16
prescription, and observing that the control that underlies the dispensing of a	17
prescription drugs is similarly present under the Compassionate Use Act and	18
associated regulations). Accordingly, we conclude that the third requirement is	19
satisfied as well. See United Rentals Nw., Inc. v. Yearout Mech., Inc., 2010-NMSC-	20

8
030, ¶ 16, 148 N.M. 426, 237 P.3d 728 (“We have long adhered to the notion that	1
the spirit, as well as the letter of the statute, must be respected; and where the whole	2
context of a law demonstrates a particular intent in the [L]egislature to effect a	3
certain object, some degree of implication may be called in to aid that intent.”	4
(alteration, internal quotation marks, and citation omitted)).	5
{13} 	We understand the Department to contend that insofar as federal law does not	6
recognize that medical marijuana can be safe for use or dispensed on written	7
prescription, 	we 	should 	arrive 	at 	a different 	conclusion. However, 	we have	8
previously rejected the notion that potential conflict with equivocal federal policy	9
precludes medical marijuana from receiving similar treatment to other drugs that are	10
dispensed under carefully controlled circumstances. See Lewis, 2015-NMCA-090,	11
¶¶ 24-32; Vialpando, 2014-NMCA-084, ¶¶ 15-16. We therefore remain unpersuaded	12
that consideration of federal law requires a different result.	13
{14} 	The Department further contends that insofar as medical marijuana is not a	14
“prescription drug” in other statutory contexts, it should not be so classified for	15
purposes of the statutory deduction from gross receipts. However, as previously	16
stated, the definitions within the gross receipts tax provisions are controlling for the	17
present purposes and we need not look further.	18
{15} 	Medical marijuana dispensed pursuant to the Compassionate Use Act meets	19
the criteria set forth in Section 7-9-73.2(B). However, to the extent that the statutory	20

9
terminology might be susceptible to different construction, we briefly turn to other	1
indicia of legislative intent. Renzenberger, Inc. v. N.M. Taxation & Revenue Dep’t,	2
2018-NMCA-010, ¶ 7, 409 P.3d 922 (“If there is an ambiguity or a lack of clarity,	3
we will turn to other aspects of statutory construction, including the purpose of the	4
statute and its legislative history.”).	5
{16} 	Beginning with relevant legislative history, although cited by neither party, it	6
is noteworthy that the financial impact report issued in association with the	7
Compassionate Use Act did not contemplate that any tax revenue would be	8
generated thereby. See Griego v. Oliver, 2014-NMSC-003, ¶ 47 n.7, 316 P.3d 865	9
(“This Court . . . may take judicial notice of legislative facts by resorting to whatever	10
materials it may have at its disposal establishing or tending to establish those facts.”	11
(alteration, internal quotation marks, and citation omitted)); State ex rel. Helman v.	12
Gallegos, 1994-NMSC-023, ¶ 35, 117 N.M. 346, 871 P.2d 1352 (indicating that	13
financial impact reports may be considered by courts in discerning legislative intent).	14
This suggests that the Legislature intended receipts from the sale of medical	15
marijuana to be deductible from gross receipts.	16
{17} 	Consideration 	of 	underlying 	legislative 	purposes 	supports 	the 	same	17
conclusion. The Compassionate Use Act was expressly intended “to allow the	18
beneficial use of medical cannabis in a regulated system for alleviating the	19
symptoms caused by debilitating medical conditions and their medical treatments.”	20

10
Section 26-2B-2. To paraphrase, the Compassionate Use Act was intended to make	1
medical marijuana accessible to those with debilitating medical conditions who	2
might benefit from the use thereof. It is reasonably self-evident that the deduction	3
from gross receipts for prescription drugs was similarly intended to make medical	4
treatment more accessible, by lessening the expense to those who require it. These	5
statutes should be read harmoniously, to give effect to their commonality of purpose.	6
See Rauscher, Pierce, Refsnes, Inc. v. N.M. Taxation & Revenue Dep’t, 2002-	7
NMSC-013, ¶ 24, 132 N.M. 226, 46 P.3d 687 (observing that we construe statutes	8
relating to the same subject matter together so as to maintain a consistent and	9
sensible scheme); State v. Ordunez, 2010-NMCA-095, ¶ 5, 148 N.M. 620, 241 P.3d	10
621 (“We read statutes harmoniously with each other whenever possible, and we	11
interpret statutes to facilitate and promote the Legislature’s accomplishment of its	12
purpose.” (alteration, internal quotation marks, and citations omitted)), aff’d in part,	13
disapproved in part by, 2012-NMSC-024, 283 P.3d 282. Applying the statutory	14
deduction set forth in Section 7-9-73.2 to receipts from the sale of medical marijuana	15
dispensed pursuant to the Compassionate Use Act best achieves this legislative	16
purpose.	17
CONCLUSION	18
{18} 	For 	the 	foregoing 	reasons, 	we 	reverse 	the 	hearing 	officer’s 	denial 	of	19
Taxpayer’s request for gross receipt tax refunds.	20

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{19} 	IT IS SO ORDERED.	1
2
M. MONICA ZAMORA, Judge	3
WE CONCUR:	4
________________________________	5
J. MILES HANISEE, Chief Judge	6
________________________________	7
JULIE J. VARGAS, Judge	8