The slip opinion is the first version of an opinion released by the Chief Clerk of the Supreme Court. Once an opinion is selected for publication by the Court, it is assigned a vendor-neutral citation by the Chief Clerk for compliance with Rule 23-112 NMRA, authenticated and formally published. The slip opinion may contain deviations from the formal authenticated opinion.
1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 Opinion Number: _____________
3 Filing Date: March 13, 2023
4 No. A-1-CA-38672
5 GEMINI LAS COLINAS, LLC,
6 Protestant-Appellant,
7 v.
8 NEW MEXICO TAXATION & REVENUE 9 DEPARTMENT,
10 Respondent-Appellee,
11 IN THE MATTER OF THE PROTEST 12 TO ASSESSMENT ISSUED UNDER 13 LETTER ID NO. L0294038832.
14 APPEAL FROM THE ADMINISTRATIVE HEARINGS OFFICE 15 Chris Romero, Hearing Officer
16 Betzer, Roybal & Eisenberg, LLC 17 Benjamin C. Roybal 18 Albuquerque, NM
19 Rodey, Dickason, Sloan, Akin & Robb, P.A. 20 Edward Ricco 21 Albuquerque, NM
22 for Appellant 1 Raúl Torrez, Attorney General 2 David E. Mittle, Special Assistant Attorney General 3 Santa Fe, NM
4 for Appellee 1 OPINION
2 IVES, Judge.
3 {1} This appeal arises from an unsuccessful administrative tax protest brought by
4 Gemini Las Colinas, LLC (Taxpayer) against the New Mexico Department of
5 Taxation and Revenue (Department). Taxpayer challenges the denial of its protest,
6 arguing that the administrative hearing officer (AHO) (1) applied the presumption
7 of correctness and burden of proof in a manner contrary to law and (2) erred in
8 evaluating Taxpayer’s evidence.
9 {2} To address these claims of error, we must clarify aspects of the procedure for
10 tax protests under NMSA 1978, Section 7-1-24 (2017, amended 2019). To this end,
11 we conclude that (1) whether a protesting taxpayer has overcome the statutory
12 presumption of correctness is a purely legal determination, and (2) once this
13 presumption is overcome, a burden of production shifts to the department to come
14 forward with evidence to demonstrate that its assessment is correct, but the taxpayer
15 bears the ultimate burden of persuading the hearing officer that the assessment is
16 incorrect.
17 {3} Applying these legal conclusions to the facts of Taxpayer’s protest, we hold
18 that the AHO erred by applying the statutory presumption of correctness in a manner
19 contrary to law and that this error was not harmless. We therefore reverse the
20 decision of the AHO and remand for further proceedings. 1 FACTS AND PROCEDURAL BACKGROUND
2 {4} The facts are undisputed. Taxpayer owns and operates an independent living
3 facility in Albuquerque, renting apartments only to people who are at least fifty-five
4 years old. Residents sign an agreement that includes a monthly rental fee for the
5 apartments, as well as various services, such as housekeeping, community activities,
6 cable television, transportation services, and safety checks.
7 {5} The Department audited Taxpayer for the period of January 1, 2011, through
8 September 30, 2016. Eventually, the auditor concluded that Taxpayer had been
9 overstating certain deductions for its gross receipts tax liability, and the Department
10 issued a notice of assessment of taxes for $724,047.43 (gross receipts tax of
11 $551,325.84, a penalty of $110,265.21, and interest of $62,456.38). Taxpayer paid
12 the portions of this assessment that it did not dispute and timely filed a tax protest
13 pursuant to Section 7-1-24 for the disputed portions.
14 {6} The dispute concerns the method for calculating Taxpayer’s gross receipts tax.
15 In essence, although Taxpayer charges its residents one monthly fee for both rent
16 and services, only some of that comingled fee is subject to gross receipts tax.
17 Specifically, while the income from the services performed by Taxpayer for its
18 residents is subject to gross receipts tax, Taxpayer may take a deduction for income
19 earned from the rental value of real property. See NMSA 1978, § 7-9-3.5(A)(1)
20 (2007, amended 2019) (defining “gross receipts” to include “the total amount of
2 1 money or the value of other consideration received . . . from leasing or licensing
2 property employed in New Mexico . . . or from performing services in New
3 Mexico”); NMSA 1978, § 7-9-53(A) (1998) (“Receipts from the . . . lease of real
4 property . . . may be deducted from gross receipts.”). As such, the crux of Taxpayer’s
5 protest is that the Department incorrectly determined the rental value and,
6 consequently, assessed taxes in an amount greater than Taxpayer’s actual liability.
7 {7} During the audit, in an effort to accurately determine the amount of the
8 deduction and Taxpayer’s liability in light of this deduction, the auditor requested
9 various categories of documentation from Taxpayer. Taxpayer only provided some
10 of the requested documentation. As a result, the auditor experienced difficulties
11 reconciling the various sources of information pertinent to Taxpayer’s liability and
12 concluded that Taxpayer’s documentation provided an insufficient foundation on
13 which to calculate the rental deduction.
14 {8} In the end, to determine the rental income and gross receipts tax liability, the
15 auditor “significantly relied” on one type of document provided by Taxpayer:
16 Internal Revenue Service Form 8825, a federal tax form filed by Taxpayer’s parent
17 company for each of the tax years in question. Although the record provides few
18 substantive details about this document, the auditor’s reports state that Form 8825 is
19 titled “Rental Real Estate Income and Expenses of a Partnership or an S
3 1 Corporation,” and that each Form 8825 contains a figure reported as “gross rents”
2 from Taxpayer’s Albuquerque location.
3 {9} During the protest hearing before the AHO, Taxpayer sought to prove,
4 through testimony, that Form 8825 did not accurately reflect rental income for
5 purposes of determining Taxpayer’s gross receipts tax liability. Taxpayer’s
6 witnesses also testified to two alternative methodologies for separating its receipts
7 from rents and services: a cost-accounting method and a third-party market analysis.
8 After Taxpayer rested its case, the Department presented the testimony of its auditor
9 to defend its reliance on Form 8825 and its assessment more broadly.
10 {10} The AHO denied Taxpayer’s protest and explained the reasons for the denial
11 in a decision and order, which included a statement at the heart of this appeal:
12 [A]lthough there may be competing methods for calculating the amount 13 of a rental deduction under the facts of the protest, Taxpayer did not 14 prove by a preponderance of evidence that the method actually 15 employed by the Department resulted in an incorrect assessment, or that 16 the alternative methods proposed at the hearing were more reliable or 17 trustworthy under the facts of this protest. Therefore, Taxpayer did not 18 overcome the presumption of correctness that attached to the 19 assessment and Taxpayer’s protest should be denied.
20 (Emphases added.) Taxpayer appealed pursuant to NMSA 1978, Section 7-1-25
21 (2015).
22 DISCUSSION
23 {11} In reviewing the AHO’s decision, “we apply a whole-record standard of
24 review.” Town & Country Food Stores, Inc. v. N.M. Regul. & Licensing Dep’t, 2012- 4 1 NMCA-046, ¶ 8, 277 P.3d 490 (internal quotation marks and citation omitted). We
2 will only set aside the decision if it is “(1) arbitrary, capricious or an abuse of
3 discretion; (2) not supported by substantial evidence in the record; or (3) otherwise
4 not in accordance with the law.” Team Specialty Prods., Inc. v. N.M. Tax’n &
5 Revenue Dep’t, 2005-NMCA-020, ¶ 8, 137 N.M. 50, 107 P.3d 4 (internal quotation
6 marks and citation omitted); accord § 7-1-25(C). We review the interpretation of
7 administrative regulations de novo. State v. Hobbs, 2016-NMCA-022, ¶ 9, 366 P.3d
8 304.
9 {12} Taxpayer’s primary claim of error is that the AHO misunderstood what the
10 law required Taxpayer to do to overcome the statutory presumption that an
11 assessment is correct. See NMSA 1978, § 7-1-17(C) (2007). Specifically, Taxpayer
12 argues that the AHO mistakenly believed that in order to rebut that presumption,
13 Taxpayer was required to prove by a preponderance of the evidence that the
14 Department’s assessment was incorrect. According to Taxpayer, pursuant to a
15 regulation promulgated by the Department, the presumption of correctness can be
16 overcome by a more modest evidentiary showing. See 3.1.6.12(A) NMAC. Taxpayer
17 contends that as a result of this legal error, the AHO’s subsequent “findings are
18 invalid because the [AHO] conducted his analysis with the presumption still in force
19 and the burden of proof improperly placed on [Taxpayer] rather than on the
20 Department.” Relatedly, Taxpayer argues that once it overcame the presumption of
5 1 correctness, the burden of persuasion should have shifted to the Department.
2 Taxpayer’s second claim of error is that the AHO acted arbitrarily and capriciously
3 and abused the AHO’s discretion in imposing “unreasonable evidentiary burdens”
4 on Taxpayer. We address each claim of error in turn.
5 I. The AHO Erred in Applying the Presumption of Correctness
6 {13} Our discussion of Taxpayer’s first claim of error proceeds in three parts. First,
7 we discuss the established procedural framework for tax protest proceedings.
8 Second, we clarify that framework by answering legal questions of first impression
9 in New Mexico: (1) what a protesting taxpayer must do to overcome the presumption
10 of correctness, and whether evidentiary weighing is appropriate at this stage; and (2)
11 if a taxpayer overcomes the presumption, precisely what kind or kinds of burden
12 shift to the Department and which party ultimately bears the burden of persuasion.
13 Third and finally, applying our legal conclusions to the facts of this case, we hold
14 that the AHO erred and that the error was not harmless, and we therefore reverse and
15 remand for further proceedings.
16 A. The Established Procedural Framework for Tax Protest Proceedings
17 {14} Many tax protest proceedings, including this one, begin when the department
18 issues a notice of assessment of taxes to a taxpayer. Section 7-1-17(B)(2). By statute,
19 this notice states the nature and amount of the assessed tax, demands payment of that
20 amount, and describes the taxpayer’s available remedies. Id. One such remedy is a
6 1 protest, Section 7-1-24(E), which may be resolved through an informal conference
2 or through an administrative hearing with the Department. NMSA 1978, § 7-1B-
3 8(B) (2015, amended 2019).
4 {15} Under the Tax Administration Act, the tax assessment in the notice “is
5 presumed to be correct.” Section 7-1-17(C); accord 3.1.6.12(A) NMAC. Under a
6 department regulation, and consistent with our precedent, “[t]he effect of the
7 presumption of correctness is that the taxpayer has the burden of [overcoming the
8 presumption].” 3.1.6.12(A) NMAC; accord Archuleta v. O’Cheskey, 1972-NMCA-
9 165, ¶ 11, 84 N.M. 428, 504 P.2d 638.
10 {16} As occurred in the case before us, a taxpayer can attempt to overcome this
11 initial burden factually, by “coming forward with some countervailing evidence
12 tending to dispute the factual correctness of the assessment made by the secretary.” 1
13 3.1.6.12(A) NMAC. “Unsubstantiated statements that the assessment is incorrect
14 cannot overcome the presumption of correctness.” Id. If a taxpayer overcomes the
15 presumption, “the burden shifts to the [d]epartment to demonstrate the correctness
16 of the tax assessment.” N.M. Tax’n & Revenue Dep’t v. Casias Trucking, 2014-
17 NMCA-099, ¶ 8, 336 P.3d 436. The precise nature of this burden is unclear.
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. 7 1 {17} What is clear is that, at some point in the process, the hearing officer acts as a
2 trier of fact and must ultimately “weigh the testimony, determine the credibility of
3 the witnesses, reconcile inconsistencies, and determine where the truth lies.” Id. ¶ 23
4 (internal quotation marks and citation omitted). The burden of proof during an
5 administrative hearing on a tax protest is preponderance of evidence. 22.600.1.18(A)
6 NMAC. 2 Finally, by statute, after the protest hearing concludes, the hearing officer
7 must issue a written decision and order which explains, among other things, the
8 decision of the hearing officer with findings of fact and law, as well as underlying
9 reasoning. Section 7-1B-8(I).
10 B. Unresolved Legal Issues
11 {18} Taxpayer’s appeal presents two legal issues related to this procedural
12 framework: (1) what must a taxpayer do to overcome the presumption of correctness
13 and whether, at this juncture, the hearing officer acts in their fact-finding capacity;
14 and (2) if a taxpayer overcomes the presumption, what type of burden shifts to the
15 department, and—relatedly—which party bears the ultimate burden of persuasion.
16 {19} Answering these questions is no easy task. A leading treatise on evidence
17 notes that the term “presumption” is “the slipperiest member of the family of legal
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. 8 1 terms, except its first cousin, ‘burden of proof.’” 2 Robert P. Mosteller et al.,
2 McCormick on Evidence § 342 (8th ed. 2022). Indeed, “burden of proof” is often
3 used imprecisely “to describe two distinct concepts”: “the burden of persuasion, i.e.,
4 the burden to persuade the fact[-]finder” and “the burden of production, i.e., the
5 burden to produce evidence.” Strausberg v. Laurel Healthcare Providers, LLC,
6 2013-NMSC-032, ¶ 24, 304 P.3d 409. Mindful of these challenges, we address the
7 questions before us.
8 1. The Operation of the Presumption of Correctness
9 {20} We begin our analysis with 3.1.6.12(A) NMAC, a department-promulgated
10 regulation that provides the following guidance about what suffices, and what does
11 not suffice, to overcome the statutory presumption of correctness:
12 The effect of the presumption of correctness is that the taxpayer has the 13 burden of coming forward with some countervailing evidence tending 14 to dispute the factual correctness of the assessment made by the 15 secretary. Unsubstantiated statements that the assessment is incorrect 16 cannot overcome the presumption of correctness.
17 We approach the interpretation of regulations just as we approach the interpretation
18 of statutes. Hobbs, 2016-NMCA-022, ¶ 9. In so doing, we give effect to clear and
19 unambiguous language and give words their ordinary meanings. Albuquerque
20 Bernalillo Cnty. Water Util. Auth. v. N.M. Pub. Regul. Comm’n, 2010-NMSC-013,
21 ¶ 52, 148 N.M. 21, 229 P.3d 494.
9 1 {21} The plain language of the first sentence of the regulation tells us that—at the
2 presumption stage—the taxpayer need not prove, by a preponderance of evidence or
3 otherwise, that the tax assessment performed by the department is incorrect. Instead,
4 to rebut the presumption, the taxpayer need only “come[] forward with some
5 countervailing evidence” that “tend[s] to dispute” the assessment. 3.1.6.12(A)
6 NMAC. We understand this language to imply a burden to produce evidence, rather
7 than a burden to persuade a fact-finder. Indeed, nothing in the language indicates
8 that the taxpayer must prove anything at all. Instead, it requires the taxpayer to
9 produce evidence that presents a factual dispute about the accuracy of the
10 assessment. And, importantly, the regulatory language only places a burden on the
11 taxpayer; at this juncture, nothing is required of the department. Id. (“[T]he taxpayer
12 has the burden of coming forward with some countervailing evidence.” (emphasis
13 added)). After the taxpayer has presented its evidence, the hearing officer is
14 positioned to determine whether the presumption has been overcome. Cf.
15 22.600.3.24(B) NMAC (“Because the taxpayer must overcome the presumption of
16 correctness or otherwise establish entitlement to the claim or relief sought during the
17 protest, the taxpayer will ordinarily present their case first, followed by [the
18 department], except as otherwise provided by law or as otherwise ordered by the
19 hearing officer for good cause.”). In short, 3.1.6.12(A) NMAC does not call for the
20 hearing officer to consider the department’s evidence in making this determination.
10 1 {22} The plain language of the second sentence of the regulation also supports our
2 interpretation. It provides that “[u]nsubstantiated statements that the assessment is
3 incorrect” do not suffice to overcome the presumption. 3.1.6.12(A) NMAC. As
4 Taxpayer points out, a proposition is “substantiated” if it “establish[es] the existence
5 or truth of by proof or competent evidence.” Substantiate, Webster’s Third New Int’l
6 Dictionary (Unabridged ed. 2002); cf. State v. Boyse, 2013-NMSC-024, ¶ 9, 303
7 P.3d 830 (recognizing that application of the plain language rule often entails
8 reliance on dictionary definitions). Accordingly, a proposition that is unsupported
9 by proof or evidence is unsubstantiated. See McConnell, 1971-NMCA-181, ¶ 7
10 (stating that the “presumption was not overcome because the record shows . . . [that
11 the taxpayer] presented no evidence tending to dispute the factual correctness of the
12 assessments” (emphasis added)). Importantly, like the first sentence of the
13 regulation, the second sentence does not require the taxpayer to present persuasive
14 evidence or to prove anything at all. It requires only that the taxpayer present some
15 evidentiary support, as opposed to a statement unsupported by evidence, for its
16 contention that the assessment is incorrect.
17 {23} Considering the plain language of the two sentences of the regulation together,
18 we conclude that determining whether the taxpayer has overcome the presumption
19 of correctness is the first step in resolving a tax protest, and that it will only be the
20 last step if the taxpayer fails to overcome the presumption. That is, if the taxpayer
11 1 has not overcome the presumption, the protest may simply be denied. In this
2 scenario, there is no need for the department to present any evidence. On the other
3 hand, if the taxpayer has overcome the presumption, the outcome of the protest, at
4 that point, remains undetermined. The taxpayer has overcome its initial hurdle, but
5 further legal and factual assessments remain before the hearing officer can determine
6 whether to grant or deny the protest.
7 {24} Our precedent buttresses this conclusion. As discussed, our tax protest cases
8 indicate that once the presumption of correctness is overcome, the “burden shifts to
9 the [d]epartment to demonstrate the correctness of the tax assessment.” Casias
10 Trucking, 2014-NMCA-099, ¶ 8; accord MPC Ltd. v. N.M. Tax’n & Revenue Dep’t,
11 2003-NMCA-021, ¶ 13, 133 N.M. 217, 62 P.3d 308. As a consequence, under this
12 burden-shifting framework, logic dictates that the initial presumption of correctness
13 inquiry is not necessarily dispositive. If the taxpayer rebuts the presumption, the
14 department must be given an opportunity to present evidence to support its
15 assessment, and the hearing officer may not grant or deny the protest without, at the
16 very least, determining whether the department has carried its burden. The precise
17 nature of this burden is a subject we address in the next section of this opinion.
18 {25} Before turning to that topic, we make an observation that follows naturally
19 from the preceding discussion: the presumption of correctness assessment is made
20 by the hearing officer in a purely legal capacity. The regulation’s call for “some
12 1 countervailing evidence” that “tend[s]” to dispute the assessment, 3.1.6.12(A)
2 NMAC, is merely a threshold requirement for evidence, and that evidence need not
3 be credible or ultimately persuasive. As such, in determining whether the
4 presumption has been overcome, the hearing officer’s determination does not
5 involve fact-finding tasks such as making credibility determinations and weighing
6 evidence. These fact-finding tasks occur, if at all, after both sides have put forth
7 evidence. As we have explained, 3.1.6.12(A) NMAC does not require the taxpayer
8 to prove anything but only to produce. As a natural consequence, the presumption
9 of correctness assessment is a legal determination. If a protesting taxpayer
10 overcomes the presumption, the “burden shifts to the [d]epartment to demonstrate
11 the correctness of the tax assessment.” Casias Trucking, 2014-NMCA-099, ¶ 8.
12 2. Burden-Shifting and Burdens of Proof
13 {26} We now discuss what the department must do to carry its burden of
14 demonstrating or showing that its assessment is correct. See id.; see also MPC Ltd.,
15 2003-NMCA-021, ¶ 13 (“A taxpayer may rebut the presumption, shifting the burden
16 to the [d]epartment to show the correctness of the tax assessment.”). Conceivably,
17 the burden mentioned in our cases could refer to the burden of persuasion, the burden
18 of production, or both, Strausberg, 2013-NMSC-032, ¶ 24, and this appeal forces us
19 to determine the nature of this burden. Must the department simply put forth
20 evidence to justify its assessment (a burden of production), or must the department
13 1 ultimately prove the correctness of its assessment to the hearing officer by a
2 preponderance of evidence (burden of persuasion)? As Taxpayer acknowledges—
3 and we agree—our case law regarding this question is “inconclusive.” For the
4 following reasons, we conclude that the burden that shifts to the department is a
5 burden of production, and that the burden of persuasion is ultimately borne by the
6 taxpayer.
7 {27} To arrive at these conclusions, we first discuss which party has these burdens
8 initially. The regulations concerning tax protest hearings state that “[t]he taxpayer
9 shall have the burden of proof, except as otherwise provided by law.” 22.600.3.24(B)
10 NMAC. We interpret this regulation to refer to both the burden of persuasion and
11 the burden of production, which accords with the general principle that “the party
12 who has the burden of pleading a fact will have the burdens of producing evidence
13 and of persuading the [fact-finder] of its existence as well.” 2 McCormick on
14 Evidence, supra, § 337. Indeed, it is the taxpayer who seeks to challenge the
15 department’s tax assessment and the taxpayer who must initiate the litigation by
16 filing the protest. See § 7-1-24(B); Wallace v. Wanek, 1970-NMCA-049, ¶ 9, 81
17 N.M. 478, 468 P.2d 879 (stating that the party “who alleges the affirmative must
18 prove”). We therefore conclude that—at the outset of the tax protest—a protesting
19 taxpayer bears both the burden to produce evidence (in order to overcome the
20 presumption of correctness) and the burden to ultimately prove its case by a
14 1 preponderance of evidence. See 22.600.1.18(A) NMAC. And, importantly, while the
2 burden of production often shifts (or even disappears) during civil litigation, the
3 burden of persuasion generally remains on the party who bears it initially. See 2
4 McCormick on Evidence, supra, § 336 (noting that the burden of production “may
5 shift to the adversary when the pleader has discharged its initial duty,” but that the
6 burden of persuasion “does not shift from party to party during the course of the trial
7 simply because it need not be allocated until it is time for a decision”); 29 Am. Jur.
8 2d Evidence § 168, Westlaw (database updated Mar. 2023) (“The burden of
9 persuasion never leaves the party on whom it is originally cast.”).
10 {28} These considerations in mind, we believe that the statements about burden
11 shifting in Casias Trucking and MPC Ltd. refer to the burden of production, and that
12 the burden of persuasion remains with the taxpayer throughout the proceedings. We
13 know that the taxpayer bears both burdens at the outset, and that the burden of
14 persuasion generally does not leave the party who bears it initially. We believe these
15 propositions lead to an obvious conclusion, and we do not believe that any authority
16 compels us to reject it. Indeed, Taxpayer has not cited, and we have not found, any
17 statute or regulation stating, or even suggesting, that New Mexico law deviates from
18 general burden of persuasion principles in the context of tax protest proceedings.
19 Moreover, our precedents recognizing that the department bears some burden,
20 Casias Trucking and MPC Ltd., do not include any holdings or set forth any legal
15 1 conclusions about the precise nature of the department’s burden. That issue was not
2 before this Court in those cases, and we decline to infer from the scant and
3 ambiguous statements therein that this Court intended to deviate from the general
4 rule that burdens of persuasion do not shift.3 Cf. Sangre de Cristo Dev. Corp. v. City
5 of Santa Fe, 1972-NMSC-076, ¶ 23, 84 N.M. 343, 503 P.2d 323 (“The general rule
6 is that cases are not authority for propositions not considered.”). In short, we are
7 unwilling—in the absence of explicit authority addressing the specific question
8 before us—to interpret these ambiguous statements in a manner that would cut
9 sharply against the grain of general legal principles regarding the burden of
10 persuasion.4
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 16 1 {29} We therefore conclude that if a taxpayer rebuts the presumption of
2 correctness, the burden that shifts to the department is a burden of production. To
3 overcome this burden, the department must put forth evidence to show the
4 correctness of its assessment—that is, evidence sufficient to make the correctness of
5 the department’s assessment a question of fact. The imposition of this burden is
6 sensible and pragmatic; it ensures that when the hearing officer decides the case on
7 its merits and acts as a fact-finder, the hearing officer can consider the evidence
8 presented by both parties. Likewise, the existence of this burden means that the
9 department cannot simply rely on the unreliability or incredibility of the taxpayer’s
10 evidence. Instead, the department must produce evidence to justify its assessment.
11 If the department’s evidence creates a question of fact about the correctness of the
12 assessment, it has fulfilled its burden of production, and the case is ripe for the
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. 17 1 hearing officer to resolve factual disputes and decide the protest on the merits.
2 Ultimately, at the merits stage, the burden of persuasion remains on the taxpayer—
3 the party who bore it at the outset. As a result, if the evidence is in equipoise, the
4 hearing officer should deny the taxpayer’s protest. Cf. UJI 13-304 NMRA (noting
5 that “[e]venly balanced evidence is not sufficient” to carry the burden of persuasion).
6 {30} To conclude our analysis, we note that the legal conclusions discussed in this
7 opinion—regarding the presumption of correctness and burden-shifting
8 framework—do not substantively alter the ordinary procedural sequence of tax
9 protest proceedings. Consistent with agency regulations, we believe it will ordinarily
10 be the taxpayer who presents its case in chief first. See 22.600.3.24(B) NMAC. At
11 this point, the taxpayer will attempt to overcome the presumption of correctness, as
12 well as to persuade the hearing officer-as-fact-finder of the protest’s merit. Then, if
13 the presumption is overcome, a burden to produce evidence shifts to the department.
14 If the department meets this burden (by way of its own case in chief), the hearing
15 officer has heard the evidence of both sides and must then perform fact-finding
16 duties to grant or deny the protest. As such, although we have clarified the types of
17 legal determinations that the hearing officer makes along the way, we do not modify
18 the basic underlying procedure of the protest hearings. Moreover, we recognize that
19 hearing officers—like many adjudicative decision-makers—have a general
18 1 discretionary authority to “regulate the course of hearings,” and may adapt basic
2 procedure to fit the needs of a particular dispute. 22.600.3.23(B)(6) NMAC.
3 We now turn to Taxpayer’s claim of error, applying our legal conclusions to
4 the AHO’s decision in this case
5 C. The AHO Erred, and the Error Is Not Harmless
6 {31} Taxpayer’s argument is straightforward: the AHO erred in applying an
7 “improperly high standard on [Taxpayer]” to rebut the presumption of correctness.
8 Specifically, Taxpayer argues that the AHO erred by concluding that Taxpayer had
9 not rebutted the presumption of correctness because it did not prove by “a
10 preponderance of evidence” that the assessment was incorrect. As a result, Taxpayer
11 claims that “[t]he [AHO]’s evaluation of the evidence and his resulting findings are
12 invalid because the [AHO] conducted his analysis with the presumption still in force
13 and the burden of proof improperly placed on [Taxpayer] rather than on the
14 Department.”
15 {32} We agree with Taxpayer that the decision and order indicates that the AHO
16 sought a preponderance of evidence to overcome the statutory presumption of
17 correctness, and we agree that this evidentiary standard was “not in accordance with
18 the law.” Section 7-1-25(C)(3). Indeed, the causal language in the decision and order
19 supports our understanding of the AHO’s reasoning: “the [AHO] determined that . .
20 . Taxpayer did not prove by a preponderance of evidence that the method actually
19 1 employed by the Department resulted in an incorrect assessment, or that the
2 alternative methods proposed at the hearing were more reliable or trustworthy under
3 the facts of this protest. Therefore, Taxpayer did not overcome the presumption of
4 correctness that attached to the assessment and Taxpayer’s protest should be
5 denied.” (Emphasis added.) This reasoning cannot be reconciled with our conclusion
6 that a protesting taxpayer overcomes the presumption of correctness by presenting
7 “some countervailing evidence tending to dispute the factual correctness of the
8 assessment.” 3.1.6.12(A) NMAC. Moreover, to the extent that the AHO performed
9 various forms of fact-finding to determine whether the presumption of correctness
10 had been overcome, the AHO erred. As we have stated, the presumption of
11 correctness determination is made by the hearing officer acting in a purely legal
12 capacity. For these reasons, the AHO misapplied the relevant law as it relates to
13 overcoming the presumption of correctness, and in so doing, erred.
14 {33} We now must consider whether this error is harmless or whether it warrants
15 reversal. See Hi-Country Buick GMC, Inc. v. N.M. Tax’n & Revenue Dep’t, 2016-
16 NMCA-027, ¶ 11, 367 P.3d 862 (conducting harmless error analysis in review of a
17 tax protest proceeding). Although the burden is on the appellant to show that its
18 alleged error was prejudicial, see Christopherson v. St. Vincent Hosp., 2016-NMCA-
19 097, ¶ 37, 384 P.3d 1098, reversal is required where the appellant “provides the
20 slightest evidence of prejudice,” and this Court will “resolve all doubt in favor of the
20 1 complaining party.” Kennedy v. Dexter Consol. Schs., 2000-NMSC-025, ¶ 26, 129
2 N.M. 436, 10 P.3d 115.
3 {34} On appeal, the Department argues that any procedural error, in the event one
4 occurred, “does not rise to the level of prejudice or necessitate reversal.” To support
5 this view, the Department argues that both sides presented their cases at the hearing
6 and cross-examined each other’s witnesses, and that the AHO subsequently weighed
7 all the evidence from both sides. At the end of this process, the AHO came to a
8 conclusion that fully resolved the merits of the protest:
9 The method selected and utilized by the Department in this protest, 10 which relied on . . . Form[] 8825, was wholly reasonable given the 11 apparent lack of records available for employing other reasonable 12 methods, including the alternatives proposed by Taxpayer at the 13 hearing. The [AHO] is unable to conclude based on the evidence 14 presented that the Department’s determination of Taxpayer’s liability 15 was incorrect.
16 On the basis of these facts, we understand the Department to argue that the AHO’s
17 error was not prejudicial because, ultimately, the AHO conducted a full merits
18 assessment and concluded that Taxpayer had been unable to show by a
19 preponderance of evidence that the Department’s assessment was incorrect.
20 {35} Taxpayer, on the other hand, argues that because the decision and order
21 “commingles and muddles consideration of the presumption and determination of
22 the merits, . . . it is impossible to say where one begins and the other ends.” In
23 Taxpayer’s view, it is impossible for this Court to determine to what extent, if any,
21 1 the erroneous treatment of the presumption of correctness affected the later
2 determination of the case on its merits. In essence, Taxpayer argues that it presented
3 sufficient evidence to overcome the presumption of correctness, and thus it was
4 entitled to a merits determination “[f]ree of the [p]resumption of [c]orrectness” in
5 which “the Department bears the burden of proving the correctness of its assessment
6 in light of all the evidence.” The error, on this view, was not harmless.
7 {36} Although we agree with only some of Taxpayer’s contentions, we conclude
8 that the error was not harmless. To explain why, we consider Taxpayer’s prejudice
9 argument sequentially: (1) whether its evidence should have overcome the
10 presumption of correctness; (2) whether the presumption should therefore have
11 played no role in the AHO’s analysis; and (3) whether the Department should have
12 been ultimately responsible for proving its case by a preponderance of evidence.
13 {37} First, we agree that Taxpayer’s evidence overcame the presumption of
14 correctness. At the outset of the proceeding, Taxpayer sought to rebut the
15 presumption factually, by “coming forward with some countervailing evidence
16 tending to dispute the factual correctness of the assessment.” 3.1.6.12(A) NMAC.
17 To this end, Taxpayer introduced evidence in the form of sworn testimony that the
18 tax form relied upon by the Department to assess Taxpayer’s tax liability—Form
19 8825—did not accurately represent Taxpayer’s rental revenue for the purpose of
20 determining gross receipts tax liability. This testimony went beyond mere
22 1 conclusory statements: it provided a specific rationale for why the relevant rental
2 revenue was not accurately represented on the tax forms. In essence, Taxpayer’s
3 testimonial evidence sought to show that, because the tax form in question was filed
4 by Taxpayer’s “parent company,” and because that parent company is principally
5 owned by a “real estate investment trust,” the income reported on Form 8825 was
6 subject to “certain adjustments” and ultimately reflected a “stripped down version
7 of the rent” that was inaccurate for gross receipts tax purposes. Even if this evidence
8 may be susceptible to criticism, we believe that it nevertheless went beyond mere
9 “unsubstantiated statements,” and clearly “tend[ed] to dispute the factual correctness
10 of the assessment.” 3.1.6.12(A) NMAC. It was relevant to the Department’s
11 assessment method and included a factual basis for concluding that the form
12 underrepresented Taxpayer’s rental income. Whether or not this explanatory account
13 was convincing or persuasive (i.e., what evidentiary weight it should be given), or
14 whether the testifying witness was credible, are considerations to be assessed at the
15 merits stage by the AHO as fact-finder. Taxpayer’s evidence was therefore sufficient
16 to rebut the presumption of correctness and shift the burden of production to the
17 Department to demonstrate a triable issue of fact as to the correctness of the
18 assessment.
19 {38} Second, we agree with Taxpayer and the Department that the presumption of
20 correctness should have played no subsequent role in the determination of the merits
23 1 of the protest. We accept the Department’s concession that “[o]nce the presumption
2 is rebutted, it disappears from the case.” This concession is consistent with the plain
3 language of 3.1.6.12(A) NMAC, which states that “[t]he effect” of the presumption
4 of correctness is that the taxpayer bears the burden of disputing the correctness of
5 the assessment. (Emphasis added.) In other words, the only effect of the presumption
6 is the placement of an initial burden of production on the taxpayer. The presumption
7 plays no additional role. But the AHO appears to have conducted the ultimate merits
8 analysis under the mistaken belief that the presumption had not been overcome, and
9 we therefore cannot say that the AHO’s conclusions on the merits would have
10 resulted in the denial of Taxpayer’s protest in the absence of the presumption.
11 Because the decision and order indicates that the presumption could have impacted
12 the outcome of the protest, we conclude that the record reflects, at the very least,
13 “the slightest evidence of prejudice,” Kennedy, 2000-NMSC-025, ¶ 26, and was
14 therefore not harmless.
15 {39} Third, we disagree with Taxpayer’s argument that, after it rebutted the
16 presumption, the Department bore the burden of persuasion. As we have explained,
17 the taxpayer bears the burden of persuasion throughout; it never shifts to the
18 department.
19 {40} For the reasons outlined here, we reverse and remand the case to the AHO for
20 further proceedings consistent with this opinion. We leave to the discretion of the
24 1 AHO what proceedings are necessary—whether a further hearing or briefing are
2 required or whether the determination can be made on the record as it exists. We
3 now turn to a discussion of Taxpayer’s claims of evidentiary error.
4 II. The AHO Imposed an Erroneous Evidentiary Requirement on Taxpayer
5 {41} On appeal, Taxpayer makes two claims of error related to the AHO’s
6 treatment of its evidence. First, it argues that the AHO erroneously faulted Taxpayer
7 for not presenting its alternative methods of determining the rental receipts
8 deduction until the protest hearing itself (i.e., well after it was audited and assessed).
9 Taxpayer contends that its evidence of alternative methods should not have been
10 “disparage[d]” on this basis, because according to Taxpayer, it presented its
11 evidence of alternative methods “at the exact point it was expected to do so: during
12 the protest hearing.”
13 {42} Second, it argues that it was “blindsided” by the AHO’s dissatisfaction—as
14 reflected in the decision and order—regarding a perceived lack of supporting
15 documentation to support its alternative methods. Taxpayer contends that “[h]ad the
16 hearing officer raised such a concern [at the hearing], [Taxpayer] could have
17 introduced the underlying general ledger records into evidence at that time or asked
18 that the evidentiary record be held open to allow it to do so after the hearing
19 concluded.”
25 1 {43} As to the first argument, assuming without deciding that Taxpayer’s
2 alternative methods of assessing tax liability are relevant to whether the
3 Department’s assessment was correct, we conclude that the AHO erred in
4 discounting or “disparag[ing]” this evidence during the presumption of correctness
5 determination. As we have explained, when determining whether a taxpayer has
6 rebutted the presumption of correctness, a hearing officer does not weigh the
7 evidence or perform other fact-finding duties. Consequently, we believe the AHO
8 erred by negatively weighing Taxpayer’s evidence at this threshold stage of the
9 analysis.
10 {44} However, we are unpersuaded by Taxpayer’s second argument. Taxpayer has
11 cited no authority for the dubious proposition that an administrative adjudicator—
12 whether acting in the capacity of evidentiary gatekeeper or finder-of-fact—has a
13 duty to make the parties aware of evidence it believes the parties should present.
14 Accordingly, we hold that the AHO did not abuse his discretion or act arbitrarily or
15 capriciously by not alerting Taxpayer of its perceived evidentiary shortcomings.
16 CONCLUSION
17 {45} We reverse and remand for further proceedings consistent with this opinion.
18 {46} IT IS SO ORDERED.
19 _________________________ 20 ZACHARY A. IVES, Judge
26 1 WE CONCUR:
2 _________________________ 3 MEGAN P. DUFFY, Judge
4 _________________________ 5 GERALD E. BACA, Judge