Opinion ID: 2632648
Heading Depth: 3
Heading Rank: 2

Heading: Income analysis

Text: {16} In concluding that the property in question was not put to agricultural use, the Board relied in part on one of the Assessor's exhibits which contrasted the income the Lodge earned from elk hunting, big game parks, sport fishing, skeet-shooting, hiking, cross-country skiing, the restaurant, the lodge, and the corporation facilities, which the Assessor concluded were non-agricultural uses of the land, with the income earned from timber production and cattle grazing, which the Assessor conceded were agricultural. The exhibit showed that over eighty percent of the Lodge's income came from non-agricultural sources. {17} As authority for this income method of classification, the Board noted that Section 7-36-15 provided for such a method. Section 7-36-15(B), however, allows for such a method of valuation [u]nless a method or methods of valuation are authorized in Sections 7-36-20 through 7-36-33. As noted, Section 7-36-20 provides the method of valuation for agricultural property. Faced with these provisions, the Board concluded that the methods of Section 7-36-20 are not the exclusive methods by which the classification and valuation of the subject property can occur, and found support for that interpretation in the Department of Taxation's regulations, including 3.6.5.22 NMAC and 3.6.5.27(A)(2) NMAC. The latter regulation provides that [a] presumption exists that land is not used primarily for agricultural purposes if income from nonagricultural use of the land exceeds the income from agricultural use of the land. 3.6.5.27(A)(2) NMAC. {18} The Court of Appeals rejected this approach, noting first that to the extent the Board relied on Section 7-36-15, that section does not, by its plain terms, apply to agricultural property. Furthermore, the Court of Appeals argued that valuation is distinct from classification and [i]t makes no sense to classify property in the first instance by looking to its income potential or value, a step that should not take place until the property has first been classified. Jicarilla Apache Nation, 2004-NMCA-055, ¶ 22, 135 N.M. 630, 92 P.3d 642,. Finally, the Court of Appeals reasoned that the Board expressly did not rely on 3.6.5.27(A)(2) NMAC, other than as indirect support for their reliance on Section 7-36-15. Jicarilla Apache Nation, 2004-NMCA-055, ¶ 23, 135 N.M. 630, 92 P.3d 642. Noting that it had previously questioned the validity of this regulation creating such a factual presumption in Black, the Court of Appeals chose not to address reliance on the regulation because it concluded that the Board itself did not rely on the regulation. {19} Contrary to the Court of Appeals, we conclude that the Board did, in fact, rely on 3.6.5.27(A)(2) NMAC to support the use of an income analysis. As noted, the Board expressly concluded that the methods of valuation and classification found in Section 7-36-20 are not the only permissible methods, and it found support for that conclusion in two Department of Taxation regulations, one of which was 3.6.5.27(A)(2) NMAC. Its reasoning could have been clearer, and in general we evaluate an administrative agency's decision solely on the grounds that it itself used, but we may affirm an agency decision whose analysis is less than ideal. See Rio Grande Chapter of the Sierra Club v. N.M. Mining Comm'n, 2003-NMSC-005, ¶ 13, 133 N.M. 97, 61 P.3d 806. Furthermore, the use of such an income analysis is reasonable. When the subject property is used in multiple ways, some agricultural and some not, using a comparison of the income derived from each type of use is in this case a reasonable proxy for determining whether the agricultural use is primary. The fact that the regulation creates a presumption, rather than an inflexible conclusion, tends to make the regulation more, not less, reasonable. We thus do not share the same concerns as the Court of Appeals about the Department of Taxation creating a factual presumption of this kind by regulation. See Black, 95 N.M. at 141, 619 P.2d at 586. {20} Of course, as the Court of Appeals noted, when the parties dispute whether a given use is agricultural, this analysis is of limited utility. That is, it does not help determine whether a given use is agricultural, but only whether, in the case of multiple uses, the agricultural use or uses are primary. Further, the regulation only provides for a rebuttable presumption that uses which generate a higher income are primary. There may be circumstances in which that presumption can be rebutted. For example, in Alexander the Court of Appeals noted that taxpayers must come forward with evidence of intent to produce a crop. 1999-NMCA-021, ¶ 27, 126 N.M. 632, 973 P.2d 884. Furthermore, the Court of Appeals in that case did not read the subject provisions as requiring proof of actual sales. All that is required is an objective intent to produce a crop for sale or home consumption. Id. ¶ 28 (emphasis added). Thus, there may be circumstances in which, due to crop failure or unforeseen market conditions, a taxpayer may generate more income in some years from non-agricultural uses of the land than agricultural ones. Because Alexander only required proof of objective intent to produce a crop, and not proof of actual sales, a landowner with that intent could rebut the presumption. That is but one example; there may be other ways a taxpayer could rebut the presumption and establish that an agricultural use which generates less income than non-agricultural ones is, nevertheless, the primary use of the land. {21} In this case, the income analysis found in the regulation does not resolve the issues presented on appeal. That is, it does not answer the question whether or not raising elk in two 3,200-acre enclosed game preserves for the primary purpose of producing trophy bulls for hunters is agricultural. It does, however, support the Board's determination that, assuming that such a use is not agricultural, the Lodge should not enjoy the agricultural method of valuation because the income derived from the non-agricultural uses significantly exceeds that of the admittedly agricultural uses of timber production and cattle grazing. Thus, while we uphold the Board's reliance on 3.6.5.27(A)(2) NMAC generally, we do not rely on the regulation in resolving the remaining issues.