Court Opinion

ID: 9596980
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:54:44.288404+00
Date Added: 2024-06-11T18:01:36.413478
License: Public Domain

SUTIN, Judge (dissenting). I respectfully dissent. On October 6, 1970, an accidental fire destroyed all the books of account of Tor-ridge Corporation for the periods in issue, including ledgers, journals, bank statements, deposit slips and checks. The entire records of El Camino Motel, Inc. were destroyed, except the journal and ledger for the year 1970. These were not. on the premises when the fire occurred. Both taxpayers were out of business from October 6, 1970, until June 3, 1971, a period of eight months. The Commissioner admitted that prior to the fire, the books and records of the taxpayers were adequate. The record discloses, without dispute, that both taxpayers followed generally accepted accounting practices. The books were kept in accordance with generally accepted accounting principles, and all tax returns were prepared from these books and records, not from bank deposits. The. only proper method of computing gross receipts were from the books and records, and it would be impossible to reconstruct gross receipts from the bank statements alone. All School Tax returns and Gross Receipts Tax returns for the periods in issue were timely filed. According to the testimony of a corporate officer — C.P.A., the tax returns were correct. The auditor employed by the Commissioner used some of the bank deposits and a “test month” practice to arrive at an assessment of approximately $40,000 for gross receipts tax, compensating tax and municipal tax. He admitted that a most extraordinary situation would cause him to use the bank deposit method, and it would be more than monumental to reconstruct a set of books from examination of some checks procured from a bank. In fact, it was impossible. However, where a taxpayer kept no books at all, 40% of all audits were actually prepared from bank statements. The taxpayers protested the assessments. The Commissioner denied the protests and found that the “gross receipts” or “gross proceeds of sales” by audit were correct and neither taxpayer established that they were incorrect. In my specially concurring opinion in Archuleta v. O’Cheskey, 84 N.M. 428, 504 P.2d 638 (Ct.App.) decided November 30, 1972, I said: The taxpayer has a duty to provide the commissioner with books and records upon which to establish a standard for taxation as provided by law. If he fails to do so, he cannot complain of the best methods used by the commissioner. In the present case, (1) the taxpayers did keep adequate and proper books and records; (2) they filed tax returns on time; (3) the existing books of El -Camino Motel, Inc. for the year 1970 corresponded with the gross receipts tax returns filed; (4) the books and records were destroyed by an accidental fire; (5) the Commissioner did not examine and inspect these books and records for any years in issue prior to the fire; and (6) no fraud, dishonesty or criminal conduct was involved in the operation of the businesses, the adequacy of the books and records, the preparation of all tax returns and the destruction of the books and records. Under these circumstances, does the Commissioner have the power under statutory law to order an assessment based upon some bank statements, checks and “test month” procedures? I say “no.” The basis upon which this type of audit was made is unknown. In order to determine the Commissioner’s powex-, we turn to the statutes. Legislative intent is determined primarily by the language of the act. We review the statutory language. Till v. Jones, 83 N.M. 743, 497 P.2d 745 (Ct.App.1972). Sections 72-13-22, 72-13-23, 72-13-27, 72-13-28 and 72-13-32, N.M.S.A.1953 (Repl. Vol. 10, pt. 2, Supp.1971), provide: 1. Every taxpayer shall maintain books of account or other records in a manner that will permit the accurate computation of state taxes and a consistent accounting method. The taxpayers did this. 2. The Commissioner had a duty to inspect and audit the records and books of account of the taxpayers at such times as he deems necessary for the effective execution of his responsibilities. The Commissioner did not deem it necessary to perform for the years 1966, 1967, 1968, 1969, and prior to the fire on October 6, 1970, while the books and records were in existence. “As he deems necessary” means “as he considers or determines it to be necessary.” King v. McElroy, 37 N.M. 238, 21 P.2d 80 (1933). The Commissioner did not deem it necessary during the years the books and records were in existence. He decided it was necessary after the accidental fire occurred when the taxpayers were denied the protection of the tax laws. The Commissioner failed to perform, not the taxpayers. When a commissioner fails to perform, a taxpayer should not he punished, because the taxpayer is not at fault. Dissenting Opinion, Cardinal Fence Co., Inc. v. Com’r of Revenue, 84 N.M. 314, 502 P.2d 1004 (Ct.App.1972). 3. The Commissioner was authorized to examine and require the production of any pertinent records, books, information and evidence. The Commissioner made no demand on the taxpayers for the production of anything, but the taxpayers made available the journal and ledger of El Camino for the year 1970, photostatic copies of bank statements and penciled copies of some tax returns. They had nothing else. 4. If the Commissioner determines that the taxpayer is liable for taxes, he shall promptly assess the amount thereof to the taxpayer and this assessment is presumed to he correct. The assessment of taxes is based upon the books and records of the taxpayer. Special Concurring Opinion, Archuleta v. O’Cheskey, supra. In my opinion, the presumption did not arise when the Commissioner failed to inspect and audit the taxpayers’ books and records prior to destruction by accidental fire. The presumption arises when the taxpayer fails to keep adequate books and records, or no records at all. It does not arise when the auditor bases his estimate on some bank statements, cancelled checks, or “test month” procedure. There is no statutory law or regulation which gives the Commissioner the power to assess taxes in this manner when books and records are destroyed by accidental fire. Even if a presumption of correctness does arise, it may be overcome by showing that the Commissioner failed to follow the statutory provisions contained in the Tax Administration Act or by presenting evidence to dispute the factual correctness of assessments. McConnell v. State ex rel. Bureau of Revenue, 83 N.M. 386, 492 P.2d 1003 (Ct.App.1971). In my opinion, both bases occurred. There is no presumption that the assessment was correct. 5. The Commissioner had the power to issue and file regulations to implement any provisions of any law administered by the bureau. It does not appear that any regulation was adopted to cover the troublesome problem in this case. This is a matter of first impression in New Mexico. No authority in point has been cited and none has been found. The Commissioner had the duty to establish and promulgate standards of assessment to insure that all businesses in this state, subject to gross receipts taxation, are assessed equally and uniformly when an extraordinary situation arises like the one in this case. See, New Mexico Prop. App. Dept. v. Board of County Com’rs, 82 N.M. 267, 479 P.2d 771 (1971). This was not done. If any ambigxiity or doubt exists as to the meaning or applicability of this tax statute, it must be construed most strongly against the taxing authority and in favor of those taxed. New Mexico Electric Service Co. v. Jones, 80 N.M. 791, 461 P.2d 924 (Ct.App.1969); Albuquerque National Bank v. Com’r of Revenue, 82 N.M. 232, 478 P.2d 560 (Ct.App.1970). It is obvious that the Tax Administration Act did not intend to oppress a taxpayer who had complied with the law. To do so, is unfair and reversible. Special Concurring Opinion, Eaton v. Bureau of Revenue, 84 N.M. 226, 501 P.2d 670 (Ct.App.1972). This court cannot extend the applicability of the statute beyond a clear import of the language used therein, Field Enterprises Ed. Corp. v. Com’r of Revenue, 82 N.M. 24, 474 P.2d 510 (Ct.App.1970), because it is not sufficiently broad in language to authorize a peripatetic method of assessment. Spillers v. Com’r of Revenue, 82 N.M. 41, 475 P.2d 41 (Ct.App.1970). Recently, this court did not hesitate to reverse the Commissioner when his order was not in compliance with statutory law or contrary to legislative intent. Eaton v. Bureau of Revenue, supra; Cardinal Fence Co., Inc. v. Com’r of Revenue, supra; Rainbo Baking Company v. Com’r of Revenue, 84 N.M. 303, 502 P.2d 406 (Ct.App.), decided October 13, 1972. In this type of case, where the taxpayer is not at fault, we must not cast the burden on the taxpayers to prove the Commissioner’s audit incorrect. The burden should be on the Commissioner to prove the tax returns of the taxpayers were incorrect, false or fraudulent. The taxpayers in this case proved by substantial evidence that their tax returns were correct. The Commissioner did not see fit to challenge this fact. The Commissioner’s order was not in accordance with law. The taxpayers’ protests should be affirmed.