Court Opinion

ID: 9547211
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:43:46.472299+00
Date Added: 2024-06-11T15:17:28.586697
License: Public Domain

SUTIN, Judge (dissenting). I dissent. I dissent on Point 1, which affirms the Decision and Order of the Commissioner with respect to gross receipts on leases. The Commissioner’s written Decision and Order is (1) arbitrary, capricious and an abuse of discretion; (2) not supported by substantial evidence in the record; and (3) not in accordance with law. Section 72-13-39(D), N.M.S.A.1953 (Repl.Vol. 10, pt. 2, 1973 Supp.). (1) To find an equipment leasing arrangement between Universal and Co-Con disregards equitable principles and strains the public conscience. The Commissioner’s Decision and Order made the following conclusion: 2. Amounts attributable to equipment transactions between the taxpayers constitute gross receipts of each taxpayer within the meaning of § 72-16A-3(F), N.M.S.A.1953 (Supp.1969 and Supp. 1971) [being Laws 1966, ch. 47, § 3], [Emphasis added.] Section 72-16A-3(F), (J) and (K) says: F. “gross receipts” means the total amount of money or the value of other consideration, received * * * from leasing property employed in New Mexico * * *. J. “leasing” means any arrangement whereby, for a consideration, property is employed for or by any person other than' the owner of the property; K. “service” means all activities engaged in for other persons for a consideration, which activities involve primarily the performance of a service as distinguished from selling property; [Emphasis added.] Co-Con is a 100%-owned subsidiary of Universal Constructors, Inc. Each entity has paid all of its gross receipts tax on its operations. All of the equipment, regardless of legal title, is owned by Universal. To declare that Universal had a “lease” with itself, by virtue of allocations of its equipment between itself and its wholly-owned subsidiary, extorts taxes like a pickpocket. In the field of taxation, government agencies deliberately avoid principles of equity. “Equity seeks to do justice and avoid injustice, and is not bound by strict common-law rules.” 30 C.J.S. Equity § 89 at 974. Administrative agencies are quasi-judicial bodies when they sit as boards of review, and they should seek to do justice and avoid injustice the same as judicial tribunals. In the field of taxation, government agencies often avoid maxims of equity in order to collect money, show good results, and please the government. This is accomplished by settlement and litigation. These agencies close their eyes to equitable doctrines in interpretation of statutes and facts, not allowing equity to use its extraordinary powers so that justice may be done in each individual case. Pugh v. Phelps, 37 N.M. 126, 19 P.2d 315 (1932). A review of the law of taxation shows a complete absence of equity as a doctrine of decision. The Commissioner, or, as in this case, his deputy, is both the judge and attorney for the administrative agency. Ofttimes, in order to affirm administrative rulings which would not otherwise withstand the hard light of legal reasoning, courts must resort to “legal fictions”. This is true here, where there is a parent-subsidiary relationship. To call the arrangement that existed here a lease is to make use of a fiction. The corporate relationship in this case can be analogized with a father-son relationship. To tax a father and son for the use of each of the other’s clothes in common projects would strain the conscience of the public. Analogously, to tax Universal and Co-Con for the use by each of the other’s equipment, in common projects, strains the public conscience. (2) These equipment exchanges lack the essential elements of a contract. Therefore there was no lease. In Berkey v. Third Avenue Ry. Co., 244 N.Y. 84, 94, 155 N.E. 58, 61 (1926), Justice Cardozo said: The whole problem of the relation between parent and subsidiary corporations is one that is still enveloped in the mists of metaphor. Metaphors in law are to be narrowly watched, for starting as devices to liberate thought, they end often by enslaving it. We say at times that the corporate entity will be ignored when the parent corporation operates a business through a subsidiary which is characterized as an “alias” or a “dummy.” All this is well enough if the picturesqueness of the epithets does not lead us to forget that the essential term to be defined is the act of operation. What is the act of operation between Universal and Co-Con? The two corporations are engaged in related types of construction business, utilize similar types of equipment, and have overlapping management structures. Items of construction equipment common to the operations of both corporations were utilized by both corporations on their construction projects without regard to which corporation held legal title to the equipment. Based upon accounting entries which estimated the cost of usage of the equipment of each corporation, the Commissioner held that the amounts recorded represented rental income from lease of equipment; and he upheld assessment of a gross receipts tax of $16,330.22 against Universal, and one of $6,445.25 against Co-Con. However, no payment was made by either corporation to the other for such equipment usage, and there is no evidence of any intention to make any payment of money. There was no plan or agreement to exchange use of one’s equipment for use of the other’s equipment. The equipment exchange simply reflected economical and efficient operating procedures by the parent and subsidiary corporations. There was no lease agreement or transaction between Universal and Co-Con. There was no consideration for the inter-corporate use of equipment. The equipment was not “employed for or by any person other than the owner of the property”. There was no contractual arrangement between these two corporations. “It is essential for the formation of a lease that all the essentials of a contract must be present. The very first requisite is that there must be a meeting of the minds- — -an offer, and an acceptance of the terms of that offer.” [Emphasis added.] First Nat. Bank in Albuquerque v. Tanney, 51 N.M. 60, 62, 178 P.2d 581, 582 (1947); Hoke v. Brown, 79 N.M. 682, 448 P.2d 483 (1968); 51C C.J.S. Landlord and Tenant, § 203 at 531. Here, there was no offer; no acceptance; no contract. (3) No consideration passed between the parties. Therefore there was no lease. The Bureau of Revenue has published a definition of “consideration”, upon which it relies in this case. It is as follows: “Consideration” is any benefit, interest, gain or advantage to one party, usually the seller, or any detriment, forbearance, prejudice, inconvenience, disadvantage, loss, or responsibility, act or service given, suffered, or undertaken by the other party, usually the buyer. G.R. Regulation 3(B)-1. This definition of “consideration” governs implementation of the “gross receipts” tax in this case. Section 72-13-23(G), N.M. S.A.1953 (Repl.Vol. 10, pt. 2, 1973 Supp.). The plain language of § 72-16A-3(F) indicates that for these equipment usages to be subject to gross receipts tax, “consideration [must have been] received from leasing [the equipment]”. It is obvious from a reading of this section that the “consideration” must have been “received” by the company that owned the equipment and gave use of it (i. e., leased it) to the other company. According to the Bureau’s regulation defining “consideration”, this means that the company which owns the equipment in a given exchange must receive “benefit, interest, gain, or advantage” in return for giving use of the equipment to the other company, or else the company which gets use of the equipment must suffer “detriment, forbearance, prejudice, inconvenience or disadvantage, [etc.]” in return for getting use of the equipment. There is not one shred of evidence in the record to indicate that “consideration”, as defined above, was an element in these equipment exchanges. In its brief on appeal, the Bureau offers no proof to show that there was “consideration”. What the Bureau does, instead, is to distort its own definition of “consideration” to fit the facts of this case. In support of its claim that there was “consideration”, the Bureau makes the following assertions (given here with my own answers to these assertions) : (1) “ . . . there is ample evidence to support a finding of mutuality of valuable promises, constituting consideration.” Answer Brief, at 3. Answer to (1): There is no evidence that any promises between Universal and Co-Con induced the intercorporate exchange of equipment. In any case, “mutuality of valuable promises”, whatever that means, does not at all conform to the definition of “consideration” given by the regulation. (2) “Because the lease arrangement was reciprocal, each company received a benefit without the need for money to exchange hands. Each, in turn, bore a detriment when it gave up for a time the right to use its own equipment.” Answer Brief, at 4. Answer to (2): According to the regulation defining “consideration”, a benefit must go to the party that owns the equipment, or else, a detriment must be suffered by the party that gets use of the equipment, in order for there to be “consideration”. The exact opposite set of circumstances is argued by the Bureau here. (3) “Giving up the right, for a time, to possess and use one’s own property is detriment. Receiving in return the right to possess and use someone else’s property is a benefit.” Answer Brief, at 4. Answer to (3): Same as to (2), supra. (4) “Further evidence of the existence of consideration is found in the regularly kept books and records of the taxpayers themselves. * * * In each instance^ the company owning the equipment reflects the transaction as a receivable. (The non-owning company reflects the transaction, its use of someone else’s property, as a liability on its books.)” Answer Brief, at 5. Answer to (4) : As the testimony at trial clearly shows, the accounting records and tax records of the two companies do not reflect the existence of any consideration. Rather, they are evidence of cost accounting allocations, each company keeping proper account in its books of the allocations of its equipment. In short, the language of the statute and of the governing regulation defining “consideration” is plain. The Commissioner has twisted that language in order to find a lease in a situation in which one simply does not exist. The arguments constructed by the Commissioner to justify a tax upon taxpayers’ use of each other’s equipment is mindful of an earlier, Biblical structure: Therefore is the name of it called Babel; because the Lord did there confound the language of all the earth. Genesis, 11:9. The Decision and Order of the Commissioner is arbitrary and capricious; it is not supported by the evidence in the record; and it is not in accordance with law. It should be reversed.