A-1-CA-36478 | Omnilex

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Court of Appeals of New Mexico
Filed 6/27/2019 9:41 AM

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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: Court of Appeals of New Mexico
Filed 6/27/2019 9:41 AM

Filing Date: June 27, 2019 A.
No. A-1-CA-36478 ~£e4
ark Reynolds

HELMERICH PAYNE INTERNATIONAL
DRILLING CO.,

Protestant-Appellee,

Vv.

NEW MEXICO TAXATION AND
REVENUE DEPARTMENT,

Respondent-Appellant.

APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE
Dee Dee Hoxie, Hearing Officer

Askew & Mazel, LLC
Timothy R. Van Valen
Albuquerque, NM

for Appellee
Hector H. Balderas, Attorney General
Tonya Noonan Herring, Special Assistant Attorney General

Santa Fe, NM

for Appellant

OPINION
BOGARDUS, Judge.
{} The New Mexico Taxation and Revenue Department (the Department)
appeals from a decision and order of the Administrative Hearings Office (AHO)
awarding Helmerich & Payne International Drilling Co. (Helmerich) $50,000 in
administrative costs and fees associated with its tax protest. The Department
challenges the AHO’s subject matter jurisdiction to make the award. The
Department further alleges that, assuming the AHO had jurisdiction, the AHO
abused its discretion in exercising it. We conclude that the AHO’s exercise of
jurisdiction was proper and that the AHO did not abuse its discretion in awarding
Helmerich the costs and fees. Further, we decline to consider the issue of award
amount because the Department failed to preserve it. Accordingly, we affirm the
AHO’s decision and order (the Decision).
BACKGROUND
{2} The following facts, which the parties do not dispute, are taken from the
Decision. The matter at issue in this case was prompted by a 2015 Department
corporate income tax audit of Helmerich. Following the Department’s assessment
against Helmerich for $391,178 in tax, a $78,235.60 penalty, and $21,220.07 in
interest, Helmerich filed a formal protest and included in it a request for an award of

fees and costs. The Department then requested, and the AHO made preparations for,

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a hearing on the protest. Before the hearing, Helmerich filed a motion for summary
judgment. The Department did not respond, instead, it abated the entire assessment.
The Department never explained to Helmerich or the AHO the reason for the
abatement.

3} After the abatement, Helmerich renewed its request for an award of costs and
fees. The Department objected, arguing that, because the assessment was abated in
its entirety before any ruling by the AHO, the AHO lacked jurisdiction to make the
award. The AHO vacated the originally scheduled merits hearing but issued an order
on the jurisdictional question in which it concluded that it had jurisdiction to
determine the prevailing party in the protest. After a hearing on the prevailing-party
issue, the AHO issued the Decision, the subject of this appeal.

DISCUSSION

{4 The Department raises several issues on appeal. Essentially, it argues that (1)
the AHO lacked subject matter jurisdiction to hold a hearing on Helmerich’s request
for costs and fees when the AHO did not decide the underlying issue of tax, interest,
and penalty owed; (2) even if the AHO had jurisdiction, it abused its discretion by
concluding that Helmerich was the prevailing party, thus entitled to an award of costs
and fees; and (3) the AHO abused its discretion in awarding the amount of costs and

fees it did.

{5} Helmerich filed a succinct answer brief stating that it materially agrees with
the Decision and requesting that we affirm it. Helmerich made no arguments in
response to the Department and stated that, to avoid incurring even more costs and
fees, it would participate no further in the appeal.

I. The AHO Had Jurisdiction to Decide Whether Helmerich Was the
Prevailing Party

6; | Whether the AHO, an administrative agency, had subject matter jurisdiction
to hold a hearing on the prevailing-party issue and to make the resulting award is a
question we review de novo. See Citizen Action v. Sandia Corp., 2008-NMCA-031,
q 12, 143 N.M. 620, 179 P.3d 1228. “The subject matter jurisdiction of an
administrative agency is defined by statute, and an agency is limited to exercising
only the authority granted by statute.” Jd. In construing a statute, we observe the
general principles that “the plain language of a statute is the primary indicator of
legislative intent” and that when “several sections of a statute are involved, they
must be read together so that all parts are given effect.” High Ridge Hinkle Joint
Venture v. City of Albuquerque, 1998-NMSC-050, { 5, 126 N.M. 413, 970 P.2d 599

(internal quotation marks and citation omitted).

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{7 The resolution of this question of jurisdiction lies in NMSA 1978, Section 7-
1-29.1 (2015, amended 2019),' which addresses the awarding of costs and fees in
tax disputes. Section 7-1-29.1(A) reads:
In any administrative . . . proceeding that is brought by or against the
taxpayer . . . in connection with the determination, collection or refund
of any tax, interest or penalty for a tax governed by . . . the Tax
Administration Act, [NMSA 1978, §§ 7-1-1 to -83 (1965, as amended
through 2019)] the taxpayer shall be awarded a judgment or a
settlement for reasonable administrative costs incurred in connection
with an administrative proceeding with . . . the administrative hearings
office . . . if the taxpayer is the prevailing party.
In short, if a taxpayer is the prevailing party, it is entitled to an award of reasonable
administrative costs.
{8} | Subsection (B) of the statute consists of internal definitions. As relevant here,
(1) “administrative proceeding” is defined as “any procedure or other action before
... the [AHO]”; and (2) “reasonable administrative costs” is defined to include AHO
and attorney charges incurred in the context of an administrative proceeding. Section
7-1-29.1(B)(1), (3).
93 Lastly, Subsection (C) of the statute states that a taxpayer (1) is the prevailing

party if the taxpayer has “substantially prevailed with respect to the amount in

controversy”; and (2) is not the prevailing party if “the hearing officer finds that the

' The version of Section 7-1-29.1 in effect on the date Helmerich filed its protest and
through the date the Decision was filed, and not the most recent version of that
section reflecting 2019 amendments, is referenced throughout this opinion.

position of the [D]epartment in the proceeding was based upon a reasonable
application of the law to the facts of the case.” Section 7-1-29.1(C)(1)(a), (2). The
determination of whether the taxpayer is the prevailing party is made either: (1) by
party agreement; (2) “in the case where the final determination with respect to the
tax, interest or penalty is made in an administrative proceeding, by the hearing
officer”; or (3) “in the case where the final determination is made by the court, the
court.” Section 7-1-29.1(C)(4).

{10} The Department asserts that the AHO acted outside Section 7-1-29.1’s scope
and, thus, its jurisdiction. The Department reasons that the prerequisite for the AHO
to address the prevailing-party matter—that is, the AHO’s deciding the tax issue
central to Helmerich’s protest—was not met. The Department further argues that, in
the absence of an AHO hearing on the tax issue, it is the role of the parties, not the
hearing officer, to resolve the prevailing-party issue—specifically, by party
agreement. Here, the Department and Helmerich reached no such agreement.
Therefore, the Department contends, the AHO wrongly inserted itself in the
prevailing-party matter and, in so doing, exceeded its jurisdiction.

4113. We decline to read the statute as leaving an otherwise eligible protesting
taxpayer cut off from Section 7-1-29.1’s relief by reason only of (1) abatement of
the taxpayer’s assessed tax; and (2) absence of agreement that the taxpayer is the

prevailing party. First, the statute contains no such limitation. Second, such a reading

is incompatible with the statute’s purpose, which we must help effectuate. See
Valenzuela v. Snyder, 2014-NMCA-061, § 16, 326 P.3d 1120 (noting that we seek
to give effect to the Legislature’s intent when interpreting statutes).

{12} The statute gives a taxpayer a remedy for having to defend itself against an
unreasonable assessment. In adopting the measure, the Legislature sought to curb
unfairness by the Department and expand a taxpayer’s opportunity to enforce its
rights. The Fiscal Impact Report? associated with the measure supports this view;
the report states that the measure “seeks to remedy perceived unfair treatment of
certain taxpayers by the ... Department.” We note too that the federal corollary to
New Mexico’s taxpayer award provision, 26 U.S.C. § 7430 (2018), on which New
Mexico’s provision was closely modeled, was enacted to “deter abusive actions or
overreaching by the Internal Revenue Service [(I-R.S.)] and to enable individual
taxpayers to vindicate their rights.” Dani Michele Miller, Can the Internal Revenue
Service Be Held Accountable for Its Administrative Conduct? The I.R.C. Section
7430 Fee Recovery Controversy, 18 Golden Gate U. L. Rev. 371, 375 (1988)
(alteration, internal quotation marks, and citation omitted).

{13}, This taxpayer right is not dispensable. The statute says that a taxpayer “shall”

be awarded costs if it is the prevailing party. Section 7-1-29.1(A). The Department

? Fiscal Impact Report for H.B. 64, Taxpayer Bill of Rights, 1 (Feb. 28, 2003),
https://nmlegis.gov/Sessions/03%20Regular/firs/hb0064.pdf.

thus does not have the discretion to, in effect, deny costs to a prevailing-party
taxpayer. See NMSA 1978, §§ 12-2A-1, -4(A) (1997) (stating that “shall,” used in a
statute, expresses a requirement).

{14} The question becomes, which actor or actors will make the prevailing-party
determination? The three possibilities are the parties, the AHO, and the court. This
matter was initiated through the protest process over which the AHO, not a court,
has jurisdiction. The parties did not agree on whether Helmerich was the prevailing
party. In the absence of such an agreement, the AHO, then, was the appropriate,
indeed the only, entity in a position to determine whether Helmerich was the
prevailing party.

{15} Contrary to the Department’s assertion, it does not matter that the AHO did
not, following a formal hearing or otherwise, make the final determination of
Helmerich’s tax liability. That determination was made by the Department when it
issued the abatement, but its action did not defeat the AHO’s jurisdiction over the
matter. This is because, for one thing, the prevailing-party issue was outstanding. In
other words, not every aspect of the dispute arising from Helmerich’s protest had
been fully resolved, and so the AHO’s jurisdiction continued. See 20 Am. Jur. 2d
Courts § 95 (2019) (“[O]nce a court has acquired jurisdiction of a case, its
jurisdiction continues until the . . . cause is finally determined or disposed of, or is

resolved, subject to appellate review, that is, all the issues of fact and law are

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determined and a final judgment is entered.” (footnotes omitted)). For another, once
the AHO assumes jurisdiction over a taxpayer’s protest, the Department cannot
deprive the AHO of jurisdiction by abating the assessment. Cf McGowan v. Comm’r
of Internal Revenue, 67 T.C. 599, 601, 608 (1976) (holding that the I.R.S.’s
concession of an issue in a tax case, which resulted in no taxpayer liability, does not
automatically deprive the United States Tax Court of jurisdiction to decide the case
on its merits); Bowman v. Comm’r of Internal Revenue, 17 T.C. 681, 685-86 (1951)
(citing Last Chance Min. Co. v. Tyler Min. Co., 157 U.S. 683, 694-95 (1895) and
stating that, once the tax court assumes jurisdiction over a taxpayer’s protest of an
I.R.S. tax assessment, the I.R.S. cannot deprive the court of jurisdiction by canceling
the assessment).

{16} Given Section 7-1-29.1’s purpose of deterring Department unfairness and our
role to support the Legislature’s aim, we reject the Department’s narrow reading of
Section 7-1-29.1 and reject the notion that, through its action or inaction, the
Department may terminate the AHO’s jurisdiction. Accordingly, we conclude that
the AHO’s assertion of jurisdiction to resolve the prevailing-party issue was proper.

II. The AHO Did Not Abuse Its Discretion in Designating Helmerich the
Prevailing Party

117), Wenext address the basis for the award: the AHO’s decision that Helmerich
was the prevailing party. We will set aside such a decision only if it is “(1) arbitrary,

capricious or an abuse of discretion; (2) not supported by substantial evidence in the
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record; or (3) otherwise not in accordance with the law.” NMSA 1978, § 7-1-25(C)
(2015). “[E]ven when we review for an abuse of discretion, our review of the
application of the law to the facts is conducted de novo. Accordingly, we may
characterize as an abuse of discretion a discretionary decision that is premised on a
misapprehension of the law.” Harrison v. Bd. of Regents of Univ. of N.M., 2013-
NMCA-105, ¢ 14, 311 P.3d 1236 (internal quotation marks and citations omitted).

{183 Again, Section 7-1-29.1(C) provides that a taxpayer (1) is the prevailing party
if the taxpayer has “substantially prevailed with respect to the amount in
controversy”; and (2) is not the prevailing party if “the hearing officer finds that the
position of the [D]epartment in the proceeding was based upon a reasonable
application of the law to the facts of the case.” The section continues by listing two
conditions under which the Department’s position is presumptively based on an
unreasonable application of law to the facts of the case: (1) when “the department
did not follow applicable published guidance in the proceeding”; and (2) when “the
assessment giving rise to the proceeding is not supported by substantial evidence
determined at the time of the issuance of the assessment[.]” Section 7-1-29.1(C)(2).
{19} In its summary judgment motion, Helmerich maintained that it was the
prevailing party because the Department’s position in the matter was unreasonable.
Helmerich explained how, in its view, the assessment represented an improper

application of law to the facts of its case. Following the motion, the Department had

several opportunities to rebut Helmerich’s status as the prevailing party, but failed
to address the issue each time. It failed to respond to Helmerich’s motion for
summary judgment; it failed to respond to Helmerich’s renewed request for an award
after the abatement; it failed to file a written argument on the prevailing-party issue;
and it failed to present testimony or evidence at the prevailing-party hearing. In
summary, the Department never explained how its original assessment was the result
of a reasonable application of law to the facts. In the end, the AHO concluded that
Helmerich was the prevailing party because it “prevailed as to the entire amount in
controversy when the assessment was abated” and because there was insufficient
evidence to establish that the Department’s position was based on a reasonable
application of law to the facts.

A. _ Prevailing-Party Designation as a Matter of Law

{20} The Department contends first that Helmerich cannot be the prevailing party
as a matter of law. The Department quotes case law to suggest that a judgment, court-
ordered decree, administrative tribunal decision, or settlement in a party’s favor is
prerequisite to a party’s designation of “prevailing party” in the fee-award context.
One of the cases on which the Department relies remarks that it is not a “voluntary
change in conduct” that triggers the fee-award shift, but rather an alteration in the
legal relationship of the parties. Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't

of Health & Human Res., 532 U.S. 598, 605 (2001). The Department seems to argue

that here, given the absence of either an AHO decision on the tax issue or a party
settlement, there has been no formal alteration in the legal relationship and thus
Helmerich’s prevailing-party designation is improper.

21} We disagree that the AHO’s designation of Helmerich as the prevailing party
was conditioned on the AHO’s deciding the tax issue. First, as previously discussed,
premising the fee shift on an AHO or court decision or party settlement would be
incompatible with the statute’s purpose of targeting Department unfairness. As this
case demonstrates, not all tax protests end in one of those formal resolutions. But it
is always possible that a given protest began because the Department abused its
powers. That abuse is the statute’s target, and we will not diminish the statute’s force
by reading into it the finality requirement proposed by the Department. Second, such
a formalistic reading in this case’s context would entail overlooking the apparent
alteration in the legal relationship between Helmerich and the Department. The facts
here suggest something more than merely “voluntary change in conduct[,]” see id.,
by the Department. The Department does not argue that it reserves the right to revive
the assessment at the core of Helmerich’s protest. Without such a reservation, the
element of finality—which the Department urges us to adopt as a requirement—is
materially satisfied. Accordingly, in this instance, Helmerich is a prevailing party
under Section 7-1-29.1(C), even in the absence of an AHO decision on the matter

central to Helmerich’s protest.

B. Procedural and Evidentiary Challenges to Prevailing-Party Designation
{22} The Department next argues that the AHO’s determination that Helmerich is
the prevailing party suffers from procedural and evidentiary flaws. Namely, the
Department cites as error that (1) the AHO and Helmerich violated the Rules of Civil
Procedure for the District Courts governing Helmerich’s summary judgment motion;
and (2) essentially, the AHO did not make findings negating the reasonableness of
the Department’s position.

23} The Department’s arguments are premised on the assumptions that (1) tax-
protest hearings are subject to the Rules of Civil Procedure for the District Courts;
(2) Helmerich had the burden of proving that the Department’s position in the
proceeding was based on an unreasonable application of law to facts; and (3) the
AHO was precluded from deeming Helmerich the prevailing party in the absence of
evidence of such unreasonableness. The Department’s assumptions are faulty.

(24 Concerning the first point, the Rules of Civil Procedure for the District Courts
do not apply to tax-protest hearings. See NMSA 1978, § 7-1B-6(D)(2) (2019).
Instead, 3.1.8 NMAC applies. See 3.1.8.2 NMAC. Regulation 3.1.8.16(C) NMAC
provides that an opposing party is deemed to have consented to the granting of relief
asked for in a motion if the party does not timely respond to the motion. This has
two implications relevant here: (1) the Department’s assertions predicated on the

rules of civil procedure fail; and (2) by not answering Helmerich’s motion for

summary judgment and its request for an award of costs and fees, the Department in
effect consented to the award ultimately granted.

{25} | Concerning the second point, we disagree that the burden of proof on the issue
of reasonableness fell on Helmerich. Section 7-1-29.1 does not explicitly or
implicitly state that it is the taxpayer’s burden to prove that the Department’s
position in a proceeding was based on an unreasonable application of law to facts,
one of the considerations controlling the prevailing-party designation. See § 7-1-
29.1(C). Rather, the statute first sets forth the “substantially prevailed” terms under
which a taxpayer is initially entitled to the prevailing-party status. Section 7-1-
29.1(C)(1). The statute then provides an exception, a way for the taxpayer to lose
that status: “[I]f.. . the hearing officer finds that the position of the [D]epartment in
the proceeding was based upon a reasonable application of law to the facts of the
case.” Section 7-1-29.1(C)(2). The hearing officer would only be able to make this
finding if given some basis for it. That basis is more within the Department’s ability
to establish than it is within the taxpayer’s; the Department will have more insight
into the underpinnings of its position than will the taxpayer. This observation
suggests that the burden to prove the exception and rebut the taxpayer’s status as the
prevailing party falls on the Department.

26} Furthermore, the statute uses the term “reasonable,” not its inverse,

“unreasonable,” as construed by the Department. Section 7-1-29.1(C)(2). It stands

to reason that the Department, not the taxpayer, would take the position that its
application of law to the facts of a case was reasonable. This, too, suggests that the
Department has the burden to prove the exception. Consequently, we reject the
Department’s contention that Helmerich was entitled to an award only upon proving
that the Department’s position in the proceeding was based on an unreasonable
application of law to facts.

{27} Concerning the third point, we disagree that the AHO erred by not making the
findings the Department now argues are requisite to the award. The Department had
several opportunities to argue in favor of the reasonableness of its position, yet it
remained silent on the question. That the AHO did not make findings to rebut
Helmerich’s status as the prevailing party is to be expected: the Department supplied
no evidence for their support.

28} We conclude that the AHO did not abuse its discretion in designating
Helmerich the prevailing party, thereby entitling it to an award of costs and fees. The
Department does not challenge that Helmerich substantially prevailed. Having
substantially prevailed, Helmerich was the prevailing party under the statute unless
the AHO found that the “reasonable application” exception applied. The Department
offered scant evidence that it fell within the exception: that is, that its position was a
reasonable application of law to the facts of Helmerich’s case. We are not persuaded

that Section 7-1-29.1(C) requires the AHO to specifically find that the exception

does not apply before designating a substantially prevailing taxpayer the prevailing
party. Accordingly, we uphold the AHO’s decision to award costs and fees based on
its determination that Helmerich was the prevailing party.

III. The Department Did Not Preserve the Award Amount Issue

429} We lastly address the award amount. Before the prevailing-party hearing,
Helmerich requested $50,000, the statutory maximum, in administrative costs. It
provided an affidavit that the attorney fees and costs it incurred in connection with
the protest exceeded that amount.

30} On appeal, the Department contends that the award amount was improper
because the AHO neither applied objective standards to determine its reasonableness
nor provided a reasoned explanation for the award amount.

31} We decline to review this issue because the Department did not preserve it.
See § 7-1-25(A) (stating that a party may appeal to this Court for relief from an AHO
decision, but only to the same extent and on the same theory as was asserted in the
hearing before the hearing officer). The Department did not raise the issue in its
pleadings or challenge the amount requested at the prevailing-party hearing. On
appeal, the Department does not explain how, nor cite to the record where, it
preserved this issue as Rule 12-318(A)(4) NMRA requires. Consequently, we will

not address the propriety of the award amount.

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CONCLUSION
432}, We affirm.

33} ITISSO ORDERED.

WE CONCUR:

A! Aw’ A
NZI, Judge

ZACHARY. WES, Judge

his too Govt Hud

KRISTINA BOGARDUS, Judge

June 27, 2019- Helmerich Payne International Drilling Co. v. New Mexico Taxation and Revenue Department, No. A-1-CA-36478

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