Can cash from selling a vehicle to a private buyer count as a New Mexico trade-in allowance when the seller uses it the same day to buy a new vehicle from a dealer?

Plain-English summary

Cash proceeds from Barry D. Schoeneman's private sale of a Ford Explorer did not qualify as a trade-in allowance on his separate purchase of a Toyota Sequoia from a dealer. The transactions involved different parties, so the $555 motor vehicle excise tax refund was denied.

Schoeneman bought the new 2002 Explorer for $30,852 in May 2001 and paid New Mexico's motor vehicle excise tax on the full price.

On April 12, 2003, he sold it to a private party for $18,500 cash. The same day, he bought a new 2003 Toyota Sequoia from a dealer for $42,406 and applied the cash to that purchase.

When he registered the Sequoia, he paid $1,272.18, representing the 3% tax on its full purchase price. He then sought a $555 refund by treating the Explorer sale proceeds as a trade-in allowance.

A trade-in requires part exchange in the purchase transaction

Section 7-14-4 applied the tax rate to the vehicle's price but allowed a deduction for allowances granted for vehicle trade-ins.

The decision used ordinary dictionary definitions: a trade-in was merchandise accepted as partial payment, a part exchange, or an old vehicle turned in on a new one.

Schoeneman's dealer did not accept the Explorer. He sold it to one person and bought the Sequoia from another. Using the sale money for the purchase did not combine those transactions into a trade-in.

Regulation 3.11.4.8 NMAC supported that interpretation by treating a vehicle sale to one party and a new purchase from another as separate transactions.

Private parties could still make a qualifying trade-in

The rule was not limited to automobile dealers. A Department witness testified that a direct exchange between private parties could qualify—for example, when one vehicle owner accepts another vehicle as part payment.

The problem here was not Schoeneman's private-party status. It was the absence of a single exchange between the same buyer and seller.

The Department applied the same rule to dealers: a dealer buying a used vehicle from one customer and selling a new vehicle to someone else could not net the two transactions as a trade-in.

The tax was not invalid double taxation

Schoeneman paid tax when he bought the Explorer in 2001 and again when he bought the Sequoia in 2003. Those were two different vehicles and two different purchase transactions.

The decision found no double taxation on the same vehicle or event. It also cited federal and New Mexico authority rejecting a general constitutional prohibition on double taxation even if a transaction could otherwise be characterized that way.

Result: protest DENIED. The $555 refund was not allowed.

What this means for you

Vehicle owners selling before buying

A cash sale followed by a purchase from someone else is not a trade-in merely because the sale proceeds fund the new vehicle.

Private-party vehicle exchanges

The decision indicates that a true part exchange between the same parties can qualify even without a licensed dealer.

Dealers handling multiple customers

Separate acquisition and sale transactions cannot be combined simply because one brings in a used vehicle and another buys a new one.

Buyers claiming a trade-in allowance

Keep purchase documents showing that the seller of the new vehicle actually accepted the old vehicle and granted a specific allowance toward the price.

Common questions

Q: How much did Schoeneman receive for the Explorer?
A: $18,500.

Q: How much did the Sequoia cost?
A: $42,406.

Q: Why was the cash not a trade-in allowance?
A: The Explorer buyer and Sequoia seller were different parties, making two separate transactions.

Q: Can private parties ever make a qualifying trade-in?
A: Yes, according to the Department testimony cited, when one party accepts the other vehicle as part payment in the same exchange.

Q: How much refund was denied?
A: $555.

Citations and references

Statutes and regulation:

• NMSA 1978, § 7-14-3 — imposition of motor vehicle excise tax
• NMSA 1978, § 7-14-4 — tax rate and vehicle trade-in allowance
• NMSA 1978, § 9-11-6.2(G) — presumption that a Department regulation properly implements tax law
• Regulation 3.11.4.8 NMAC — separate vehicle sale and purchase are not a trade-in

Cases cited:

• Amoco Production Co. v. New Mexico Taxation and Revenue Department, 2003-NMCA-092, 74 P.3d 96
• State v. Rodriguez, 101 N.M. 192, 679 P.2d 1290 (Ct. App. 1984)
• Gonzales v. Allstate Insurance Co., 1996-NMSC-041, 921 P.2d 944
• New Mexico Pharmaceutical Association v. State, 106 N.M. 73, 738 P.2d 1318 (1987)
• In re Application of Sleeper, 107 N.M. 494, 760 P.2d 787 (Ct. App. 1988)
• Board of Directors and Officers, Forbes Federal Credit Union v. National Credit Union Administration, 477 F.2d 777 (10th Cir. 1973)
• Ft. Smith Lumber Co. v. Arkansas, 251 U.S. 532 (1920)
• New Mexico State Board of Public Accountancy v. Grant, 61 N.M. 287, 299 P.2d 464 (1956)
• Amarillo-Pecos Valley Truck Line, Inc. v. Gallegos, 44 N.M. 120, 99 P.2d 447 (1940)
• State ex rel. Attorney General v. Tittmann, 42 N.M. 76, 75 P.2d 701 (1938)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Barry D. Schoeneman
• Decision PDF: D&O 04-05

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
BARRY D. SCHOENEMAN No. 04-05
DENIAL OF REFUND CLAIM

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on April 26, 2004, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department ("Department") was

represented by Javier Lopez, Special Assistant Attorney General. Barry Schoeneman (“Taxpayer”)

represented himself. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On May 15, 2001, the Taxpayer purchased a new 2002 Ford Explorer from an

automobile dealer at a purchase price of $30,852.

2. The Taxpayer paid New Mexico’s 3% motor vehicle excise tax on the full purchase

price at the time the Ford Explorer was registered with the Motor Vehicle Division (“MVD”) of the

New Mexico Taxation and Revenue Department.

3. On April 12, 2003, the Taxpayer sold the 2002 Ford Explorer to a private party for a

cash price of $18,500.

4. On the same day, April 12, 2003, the Taxpayer purchased a new 2003 Toyota

Sequoia from an automobile dealer for a purchase price of $42,406.

5. The Taxpayer applied the $18,500 cash payment he received from the private sale of

his Ford Explorer to the purchase price of the new Toyota Sequoia.

6. On May 29, 2003, the Taxpayer registered the Toyota Sequoia with MVD and paid a

net excise tax of $1,272.18, representing 3% of the full purchase price of the vehicle.

7. The Taxpayer subsequently filed a claim for refund of $555 of the excise tax he had

paid, based on his contention that the $18,500 cash payment he received from the sale of his Ford

Explorer should be treated as a trade-in allowance on his purchase of the Toyota Sequoia.

8. On July 2, 2003, MVD denied the Taxpayer’s refund request on the ground that the

cash payment he received from his private sale of the Ford Explorer and applied to the purchase

price of the Toyota Sequoia did not qualify as a “trade-in” for purposes of calculating the motor

vehicle excise tax.

9. On June 9, 2003, the Taxpayer protested the denial of his claim for refund in a

written letter to Javier Lopez, an attorney with the Taxation and Revenue Department.

DISCUSSION

The issue to be decided is whether the $18,500 cash payment the Taxpayer received from the

private sale of his 2002 Ford Explorer and applied to the purchase of a new 2003 Toyota Sequoia

qualifies as an allowance “granted for vehicle trade-ins” for purposes of calculating the motor vehicle

excise tax due on the Toyota Sequoia.

NMSA 1978, § 7-14-3 imposes an excise tax “upon the sale in this state of every vehicle

...required under the Motor Vehicle Code to be registered in this state.” The issuance of an original or

subsequent certificate of title is presumed to constitute a sale for purposes of collecting the motor

vehicle excise tax. The method of calculating the tax is set out in NMSA 1978, § 7-14-4, which states:

The rate of the motor vehicle excise tax is three percent and is applied to the price
paid for the vehicle. If the price paid does not represent the value of the vehicle in
the condition that existed at the time it was acquired, the tax rate shall be applied to
the reasonable value of the vehicle in such condition at such time. However,
allowances granted for vehicle trade-ins may be deducted from the price paid or the
reasonable value of the vehicle purchased.

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The Taxpayer maintains that the phrase “allowances granted for vehicle trade-ins” covers the

situation where an owner sells his vehicle to a private party and then uses the cash proceeds of the

sale to purchase a new vehicle from an automobile dealership. The Department disagrees, arguing

that the reference to “vehicle trade-ins” is limited to situations where an automobile dealer accepts a

customer’s old vehicle as partial payment for a new vehicle, giving the customer a specified

allowance or credit for the value of the old vehicle.

Plain Meaning Rule. In determining the meaning of a statute, the plain language of the

statute is the primary indicator of legislative intent. Amoco Production Co. v. New Mexico Taxation

and Revenue Department, 2003-NMCA-092, ¶ 12, 134 N.M. 162, 166, 74 P.3d 96, 100 (Ct. App.).

Words in the statute should be given their ordinary meaning unless the legislature indicates a

different intent. State v. Rodriguez, 101 N.M. 192, 194, 679 P.2d 1290, 1292 (Ct. App.), cert.

denied, 101 N.M. 189, 679 P.2d 1287 (1984). The term “trade-in” is defined in The American

Heritage Dictionary of the English Language (4th ed. 2000) as “merchandise accepted as partial

payment for a new purchase” and in The New Shorter Oxford English Dictionary, Vol. 2 (1993)

as “a transaction in which something is traded in; a part exchange.” Merriam Webster’s Collegiate

Dictionary (10th ed. 1993) defines the verb “trade in” as “to turn in as payment or part payment for a

purchase or bill (trade the old car in on a new one).”

These common dictionary definitions are consistent with the Department’s interpretation of

the term “trade-in” as set out in Regulation 3.11.4.8 NMAC, which makes the following distinction

between sale/purchase transactions and trade-ins:

3.11.4.8 – Vehicles sold under certain agreements are not trade-ins.
A “factory repurchase agreement” is an agreement under which a person who
maintains a fleet of vehicles purchased through one or more dealers sells used
vehicles from its fleet directly to the manufacturer. Because two separate

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transactions with different parties are occurring, the value of the vehicles sold by
the fleet owner to the manufacturer under a factory repurchase agreement may
not be deducted for purposes of the motor vehicle excise tax as an allowance for
vehicles traded in when the fleet owner purchases new vehicles from a dealer.

NMSA 1978, § 9-11-6.2(G) states that any regulation issued by the Department “is presumed to be a

proper implementation” of the state’s tax laws. Case law holds that an agency's reasonable

interpretation of a statute the agency is charged with administering is persuasive and will be given

deference by the courts. Gonzales v. Allstate Ins. Co., 1996-NMSC-041, 122 N.M. 137, 142, 921

P.2d 944, 949 (1996); New Mexico Pharmaceutical Ass'n v. State, 106 N.M. 73, 75, 738 P.2d 1318,

1320 (1987). When an administrative construction is of long standing, it is given even greater

weight. In re Application of Sleeper, 107 N.M. 494, 498, 760 P.2d 787, 791 (Ct. App.), cert.

quashed, 107 N.M. 413, 759 P.2d 200 (1988).

The issue here is not whether the Taxpayer’s suggested interpretation of § 7-14-4 has merit.

The issue is whether the Department's ten-year-old construction of the statute is reasonable and in

accord with legislative intent. As stated by the Tenth Circuit Court of Appeals in Board of Directors

and Officers, Forbes Federal Credit Union v. National Credit Union Administration, 477 F.2d 777, 784

(10th Cir. 1973), an administrative agency's interpretation "is to be accorded great deference and is

controlling as long as it is one of several reasonable interpretations, and even though it may not appear

quite as reasonable as some other." Examined in light of the commonly accepted definition of a vehicle

trade-in, the Department’s interpretation of § 7-14-4 is both reasonable and fully in accord with

accepted principles of statutory construction.

Unequal Treatment. The Taxpayer argues that limiting the allowance for trade-in vehicles to

automobile dealers results in unequal treatment of taxpayers. At the administrative hearing, the

Department called Belinda Garland, the manager of its Dealer Services Bureau, as a witness. Although

Ms. Garland testified that all of the trade-in transactions she sees are with automobile dealers, she

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acknowledged that nothing in the statute limits the trade-in allowance to dealers. Ms. Garland stated

that she would also allow a credit for a trade-in transaction between private parties. Assume, for

example, that a driver with an eight-year-old Honda offers to purchase his neighbor’s two-year-old

BMW. The neighbor is looking for a used car for his teenage son and agrees to take the driver’s Honda

as part payment for the BMW. This transaction would qualify as a “trade-in” under the common

dictionary definition of a trade-in and, based on Ms. Garland’s testimony, would be accepted as such by

the Department.

In this case, the Taxpayer’s sale of his Ford Explorer to one person and his purchase of a

Toyota Sequoia from a different person does not qualify as a “trade-in.” For this reason, the trade-in

allowance would not be available to the Taxpayer even if he were a licensed automobile dealer. At the

administrative hearing, Ms. Garland confirmed that an automobile dealer who purchases a used vehicle

from one customer and sells a new vehicle to another person would not be entitled to a trade-in

allowance on the two transactions. Given the facts of this case, the Department’s refusal to deduct the

sales price of the Taxpayer’s Ford Explorer when determining the amount of motor vehicle excise tax

due on his Toyota Sequoia does not result in unequal tax treatment.

Double Taxation. Finally, the Taxpayer argues that refusing to allow him a credit for the

value of his used Ford Explorer constitutes double taxation. There is no dispute that the Taxpayer

paid the motor vehicle excise tax when he purchased the Explorer in May 2001. This complies with

the requirements of NMSA 1978, § 7-14-3, which imposes the tax “upon the sale in this state of every

vehicle....” Two years later, the Taxpayer purchased a Toyota Sequoia and paid the motor vehicle

excise tax on this sale. Under these circumstances, it is difficult to see how the Taxpayer can argue that

he was taxed twice on the same vehicle or on the same transaction.

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Even assuming that the Department’s refusal to deduct the value of the Ford Explorer from

the price of the Toyota Sequoia could be seen as a second tax on the Explorer, this is not sufficient to

invalidate the tax. It is a popular misconception that there is something inherently illegal or

unconstitutional with double taxation. Almost 85 years ago, in Ft. Smith Lumber Co. v. Arkansas,

251 U.S. 532 (1920), the United States Supreme Court summarily disposed of the argument that the

federal constitution prohibits a state from taxing the same transaction twice. As stated by Justice

Oliver Wendell Holmes, writing for the majority:

The objection to the taxation as double may be laid on one side. That is
a matter of State law alone. The Fourteenth Amendment no more
forbids double taxation than it does doubling the amount of a tax...."

251 U.S. at 533. New Mexico courts have also held, on numerous occasions, that there is no

constitutional prohibition against double taxation. New Mexico State Board of Public Accountancy v.

Grant, 61 N.M. 287, 299 P.2d 464 (1956); Amarillo-Pecos Valley Truck Line, Inc. v. Gallegos, 44 N.M.

120, 99 P.2d 447 (1940); State ex rel. Attorney General v. Tittmann, 42 N.M. 76, 75 P.2d 701 (1938).

The Taxpayer’s argument of double taxation does not provide a basis for granting his claim for a partial

refund of the motor vehicle excise tax paid on his Toyota Sequoia.

CONCLUSIONS OF LAW

1. The Taxpayer filed a timely, written protest to MVD’s denial of his claim for a refund

of $555.00 of motor vehicle excise tax, and jurisdiction lies over the parties and the subject matter of

this protest.

2. The Taxpayer’s sale of his used Ford Explorer to a private individual and his

subsequent purchase of a new Toyota Sequoia from an automobile dealer does not qualify as a “vehicle

trade-in” for purposes of calculating the value of the Toyota Sequoia under the Motor Vehicle Excise

Tax Act.

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3. Because the Department’s interpretation of NMSA 1978, § 7-14-4 precludes both

private individuals and licensed automobile dealers from treating the sale of a vehicle to one person and

the purchase of a vehicle from a different person as a “vehicle trade-in” for purposes of calculating the

motor vehicle excise tax, this interpretation does not result in unequal treatment of private individuals

and automobile dealers.

4. New Mexico’s imposition of the motor vehicle excise tax on the Taxpayer’s 2001

purchase of a Ford Explorer and again on his 2003 purchase of a Toyota Sequoia does not constitute

double taxation.

For the foregoing reasons, the Taxpayer's protest IS DENIED.

DATED April 28, 2004.

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