Court Opinion

ID: 9628806
Source: CourtListenerOpinion
Date Created: 2023-08-22 09:32:18.826176+00
Date Added: 2024-06-11T18:07:11.674287
License: Public Domain

SUTIN, Judge (specially concurring). I concur in the result. A. Western Electric is not subject to the Gross Receipts Tax Act. The Commissioner decided that Western Electric, from out of state, sold property to Mountain Bell for use in this state. When this sale occurred, Western Electric was not liable for the gross receipts tax. Therefore, it had a duty to collect the compensating tax from Mountain Bell and pay over the tax collected to the Bureau. Western Electric paid the compensating tax on the purchase price of the property sold, but it did not pay the compensating tax on the freight charges, which freight charges were a part of the purchase price of the property sold. Western Electric paid the freight charges f. o. b., and billed Mountain Bell separately for the freight charged. The Commissioner ordered Western Electric to pay the compensating tax on the freight charges which would have been due and owing from Mountain Bell as a compensating tax or due and owing from Western Electric as a gross receipts tax. I disagree. An analysis of the Gross Receipts Tax Act convinces me that Western Electric is not subject to any tax. The two sections of the Act with which we are involved are §§ 72-16A-7(A), and 72-16A-10(A), N.M.S. A.1953 (Repl.Vol. 10, pt. 2, 1973 Supp.). (1) Section 72-16A — 7(A) is a compensating tax and not applicable to Western Electric. Section 72-16A-7(A) is a compensating tax imposed for the privilege of using property in New Mexico. The tax is imposed in two ways: (1) “* * * on the person using property”. Under this phrase, anyone who merely uses property in New Mexico cannot be subject to any tax. This phrase has meaning when read in connection with § 72-16A-10(A), infra. (2) * * * or of conversion to use by the manufacturer of property that was: (1) manufactured by the person using the property in the state; (2) acquired outside this state as the result of a transaction that would have been subject to the gross receipts tax had it occurred within the state; or (3) acquired as the result of a transaction which was not initially subject to the compensating tax imposed by subsection A(2) of this section or the gross receipts tax but which transaction, because of the buyer’s subsequent use of the property, should have been subject to the compensating tax imposed by subsection A(2) of this section or the gross receipts tax. (Emphasis added.) What is meant by the phrase: “conversion to use by the manufacturer of property”? Its meaning is doubtful. “* * * [A]ll doubts as to the meaning and intent of a tax statute must be construed in favor of the taxpayer.” Field Enterprises Ed. Corp. v. Commissioner of Rev., 82 N.M. 24, 28, 474 P.2d 510, 514 (Ct.App.1970). To me, the words “conversion to use” means that after a product is manufactured and sold to a purchaser, and the purchaser uses the manufactured product, the manufacturer has converted this property to use. It has changed the function of the product from its original manufactured state to one of use. Western Electric is the manufacturer. Western Electric must fall within one of the categories to be subject to a compensating tax. First, Western Electric did not manufacture property in New Mexico and then convert it to use. Second, Western Electric did not acquire property outside of this state, property that would have been subject to the gross receipts tax if the transaction had occurred in this state. Third, Mountain Bell’s subsequent use of the property purchased from Western Electric could not be subject to tax unless Western Electric carried on an activity in this state to exploit New Mexico’s markets as set forth in § 72-16A-10(A), supra. Western Electric does not fall within the first and second categories. On the third category, the test is the applicability of § 72-16A-10(A). (2) Section 72-16A- 10(A) is not applicable to Western Electric. Section 72-16A-10(A) provides: Every person carrying on or causing to be carried on any activity within this state attempting to exploit New Mexico’s markets, who sells property or sells property and service for use in this state and who is not subject to the gross receipts tax on receipts from these sales shall collect the compensating tax from the buyer and pay over the tax collected to the bureau. (Emphasis added.) The word “activity” is defined. The relationship between Western Electric and Mountain Bell is contractual in nature. Although Western Electric is authorized to do business in New Mexico, the record does not disclose any activity in this state, nor does it show that Western Electric attempts to exploit New Mexico’s markets. Although its sales to Mountain Bell are not subject to the gross receipts tax, Mountain Bell is not subject to a compensating tax. Therefore, Western Electric has no duty to collect a compensating tax. Western Electric is not subject to taxation in this case. B. The Administrative Hearing was not fair and impartial. A review of the record discloses that the Commissioner admitted in evidence Bureau’s Exhibit 3. This exhibit includes a letter from the Executive Secretary of the Board of Tax Appeals of the State of Washington to the New Mexico legal division of the Bureau of Revenue. This letter enclosed: (1) A certified true copy of a final decision of the Board of Tax Appeals in the case of Western Electric Company, Inc. v. State of Washington Department of Revenue dated January 17, 1974. (2) A Stipulation of Facts. (3) A Supplemental Stipulation of Facts. (4) Eight exhibits. (5) A Determination of the Department of Revenue of the State of Washington “In the Matter of the Petition for Correction of Assessment of Western Electric Company, Inc.” (6) A Standard Supply contract dated July 1, 1961 between Western Electric Company and Pacific Northwest Bell Telephone Company. (7) A Western Electric Company document called “Preface” which was a General Supplies Price List. This exhibit covered 59 pages of the transcript. The Washington Opinion involved the applicability of Retail Sales Tax and Business and Occupation Tax by the State of Washington on transportation charges. The Commissioner’s attorney argued for admission that “the Western Electric Company raised the very same issues that they are raising in this protest in that matter and the Board of Tax Appeals ruled against them on that matter.” “ ‘Relevant evidence’ means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” Section 20-4-401, N.M.S.A. 1953 (Repl.Vol. 4, 1975 Supp.). Bureau’s Exhibit 3 was not admissible. The Commissioner had a right to rely on this exhibit to arrive at his decision and order. It is not important to determine whether he did or did not. It is subject to inference that the Commissioner would rely on the evidence of his own attorney; that in case of doubt, he would favor the state and not the taxpayer, and that he would not be objective in nature. Every taxpayer is entitled to a fair and impartial hearing. Western Electric was denied one in this case. The decision and order of the Commissioner was not in accordance with law.