Was a Navajo Nation member's college income exempt from New Mexico personal income tax when he lived and worked on Navajo land but remained domiciled in Farmington?

Plain-English summary

James Tutt's income from leading a Navajo Nation college was exempt from New Mexico personal income tax for 2002 through 2006. Although he remained legally domiciled in Farmington, he was an enrolled Navajo Nation member, worked for the Crownpoint Institute of Technology within the Navajo Nation, and physically lived there for most of each year at issue.

New Mexico assessed James and Nora Tutt for personal income tax, penalty, and interest after rejecting the exemption claimed for Mr. Tutt's college income. Mrs. Tutt's own income was not in dispute; the couple had paid New Mexico tax on it.

Physical presence, not domicile, controlled

Section 7-2-5.5 exempted income when a member of a federally recognized New Mexico tribe earned it from work performed within the relevant tribal lands and the member lived within those boundaries. The Department argued that “lives within” should be decided through a domicile analysis.

The hearing officer rejected that approach. The statute used “lives within,” not “domicile,” and its geographic focus matched the federal Indian-tax cases discussed in the decision. Legal domicile could consider intent and continuing ties to another place; the exemption instead called for a continuing physical presence within tribal boundaries.

The decision acknowledged that Mr. Tutt remained domiciled in Farmington: he and his wife owned a home there, his wife and adult son lived there, his vehicles and voter registration used that address, and most of his medical appointments occurred there. But those facts did not end the analysis.

Mr. Tutt lived in an apartment supplied by the college in Crownpoint and credibly reconstructed that he lived there or attended college business for 235 days in 2002, 269 days in 2003, 263 days in 2004, 255 days in 2005, and 224 days in 2006. Even after accounting for errors in his reconstructed calendars, he spent a majority of every relevant year within the Navajo Nation or conducting college business and was not physically present elsewhere in New Mexico for 185 days or more in any of those years.

Because his tribal membership, work location, and physical presence satisfied the exemption, the assessments could not stand. Result: protest granted.

The other arguments did not change the result

The hearing occurred nearly four years after the protest, but the decision said official delay was not a defense to the state's enforcement action. It reserved the taxpayers' separate argument that the federal presumption against taxing tribal members displaced the usual presumption that an assessment is correct, because the taxpayers won even under the ordinary presumption.

The decision also explained that, had the exemption failed, the Department could use the six-year assessment period for 2002 through 2004 because claiming all of Mr. Tutt's income as exempt would have understated liability by more than 25%. The taxpayers did not receive costs or fees because the Department's factual and legal position was reasonable, even though it lost.

What this means for you

Tribal members earning income on tribal land

This decision treated actual physical life within tribal boundaries as distinct from domicile. Keeping a home, voter registration, vehicle registration, or family ties elsewhere did not automatically defeat the exemption when the taxpayer proved that he lived and worked on Navajo land for most of the relevant period.

Taxpayers with two residences

Detailed records mattered. Mr. Tutt reconstructed his location from pay records, board meetings, leave requests, medical appointments, and other scheduling materials. The hearing officer found him credible even though the calendars contained some acknowledged errors.

Accountants and tax professionals

Test each statutory element separately: tribal membership, where the work was performed, and whether the taxpayer lived within the relevant tribal boundaries. Domicile evidence may still be relevant, but this decision did not treat domicile as the controlling test under Section 7-2-5.5.

Common questions

Q: Did the hearing officer find that James Tutt was domiciled on the Navajo Nation?
A: No. The decision found that he remained domiciled in Farmington but held that domicile was not determinative under the exemption.

Q: Why was the income exempt?
A: Mr. Tutt was an enrolled Navajo Nation member, earned the income from work for a college within the Navajo Nation, and physically lived within the Navajo Nation during the relevant years.

Q: Was Nora Tutt's income exempt too?
A: Her income was not disputed. The taxpayers had paid New Mexico personal income tax on all of her income.

Q: Did the four-year hearing delay cancel the assessments?
A: No. The decision held that the delay was not a defense to enforcement, although the taxpayers prevailed on the exemption itself.

Q: Did the taxpayers recover their legal costs and fees?
A: No. The hearing officer found the Department's position reasonable in a fact-intensive dispute involving an unresolved legal standard.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-2-3 — personal income tax on residents unless exempt
• NMSA 1978, § 7-2-5.5 — earnings by tribal members on Indian lands
• NMSA 1978, § 7-2-2(S) and Regulation 3.3.1.7 NMAC — domicile
• Regulation 3.3.4.12 NMAC — income from activities on tribal territories
• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• NMSA 1978, § 7-1-24(D) — prompt setting of protest hearings
• NMSA 1978, § 7-1-18(D) — six-year assessment period for substantial underreporting
• NMSA 1978, § 7-1-29.1 — costs and fees

Cases cited:

• McClanahan v. Arizona State Tax Commission, 411 U.S. 164 (1972)
• Oklahoma Tax Commission v. Sac & Fox Nation, 508 U.S. 114 (1993)
• Oklahoma Tax Commission v. Chickasaw Nation, 515 U.S. 450 (1995)
• Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95 (2005)
• Ranchers-Tufco Limestone v. Revenue, 1983-NMCA-126

Source

• Listing: New Mexico Decisions & Orders
• Decision post: James and Nora Tutt
• Decision PDF: D&O 13-36

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
JAMES AND NORA TUTT No. 13-36
TO ASSESSMENTS ISSUED UNDER LETTER
ID NOs. L0133980224, L0986402880, L0258404416,
L0988878912 and L0215992384

DECISION AND ORDER

A protest hearing occurred on the above captioned matter on October 9, 2013 before

Brian VanDenzen, Esq., Tax Hearing Officer, in Santa Fe. James and Nora Tutt (“Taxpayers”)

appeared, represented by attorneys Earl Mettler and Daniel P. Estes. Staff attorney Cordelia

Friedman represented the State of New Mexico Taxation and Revenue Department

(“Department”). Protest Auditor Thomas Dillon appeared as a witness for the Department.

Taxpayer Exhibits #1-29 were admitted into the record. Department Exhibits A-K were admitted

into the record. As discussed in more detail below, Department Exhibit L will not be admitted

into the record because it is not reliable. See 3.1.8.10 (B) NMAC (08/30/01). All exhibits are

more thoroughly described in the Administrative Exhibit Coversheet. The parties submitted joint

stipulations of facts into the record before the hearing on October 9, 2013. After the hearing, on

October 25, 2013, the Department asked for the taking of administrative notice of certain facts, a

request that Taxpayers opposed on October 28, 2013. Based on the evidence and arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On December 15, 2009, the Department issued five Notices of Assessment, Letter

ID NOs. L0133980224, L0986402880, L0258404416, L0988878912, and L0215992384, to

Taxpayers for unpaid personal income tax, penalty, and interest as follows:
Tax Period Ending Tax Penalty Interest Total
December 31, 2002 $4,282.00 $856.40 $3,449.60 $8,588.00
December 31, 2003 $4,409.00 $881.80 $2,890.29 $8,181.09
December 31, 2004 $4,627.00 $925.40 $2,340.77 $7,893.17
December 31, 2005 $3,885.00 $777.00 $1,380.82 $6,042.82
December 31, 2006 $4,205.00 $841.00 $867.00 $5,913.00

2. On December 28, 2009, Taxpayers protested the Department’s assessments.

3. On January 5, 2010, the Department acknowledged receipt of Taxpayers’ protest.

4. On January 7, 2010, the Department’s Tom Dillon wrote a letter to Mr. Tutt

informing Mr. Tutt of the Department’s conclusion that despite living on the Navajo Nation in

Crownpoint, NM during the relevant period, Mr. Tutt remained domiciled in Farmington, NM.

The letter also asked Taxpayers whether they wished to have a formal protest hearing or

withdraw their protest in light of the Department’s conclusion. [Department Ex. A].

5. On January 25, 2010, Mr. Dillon again wrote Mr. Tutt and reiterated the

Department’s position that Mr. Tutt was only temporarily living on the Navajo Nation in

Crownpoint, NM but remained domiciled in Farmington. Mr. Dillon again asked Mr. Tutt

whether Taxpayers wished to proceed to formal hearing or withdraw their protest. [Department

Ex. B].

6. On February 10, 2010, Mr. Dillon wrote Taxpayers through their attorney Barton

L. Palmer, indicating that the matter had been assigned to Staff Attorney Peter Breen.

[Department Ex. C].

7. On June 25, 2010, Taxpayers, through their then attorney Barton L. Palmer, filed

a notice of unavailability for a period of July 8, 2010 through August 5, 2010. [Department Ex.

D].

8. On August 5, 2013, the Department requested a hearing with the Hearings

Bureau.

In the Matter of the Protest of James and Nora Tutt, page 2 of 20

9. On August 6, 2013, the Hearings Bureau issued Notice of Administrative

Hearing, scheduling this matter for a formal protest hearing on October 9, 2013.

10. On August 26, 2013, attorneys Earl Mettler and Daniel Estes entered their

appearances on behalf of Taxpayers.

11. In 1975, Taxpayers bought their home at 2108 Placer in Farmington, NM.

Taxpayers continue to own that property through the present day.

12. In 2002, 2003, 2004, 2005, and 2006, James and Nora Tutt filed their federal and

state personal income tax returns “married filing jointly.” Taxpayers listed their address on their

tax returns as 2108 Placer, Farmington, NM 87401. [Taxpayers Ex. #19].

13. At all relevant times, Nora Tutt lived and worked in Farmington, NM. Taxpayers

paid New Mexico personal income tax on all of Mrs. Tutt’s income during the relevant time.

14. Taxpayers’ adult-age son Dustin Tutt also lived with Nora Tutt at 2108 Placer,

Farmington, NM 87401 during the relevant period. Dustin attended college in Durango during

this time.

15. Taxpayers claimed an exemption from income tax on all of Mr. Tutt’s income

during the relevant time, and that is the income at dispute in this protest.

16. In 2002 through 2006, Mr. Tutt was registered to vote in New Mexico using the

2108 Placer, Farmington, NM 87401 address.

17. In 2002 through 2006, Mr. Tutt registered all his personal vehicles in New

Mexico using the 2108 Placer, Farmington, NM 87401 address.

18. Mr. Tutt is an enrolled member of the Navajo Nation. [Taxpayers Ex. #1].

19. Mr. Tutt voted in Navajo Nation elections in 2002, 2004, and twice in 2006 in

Red Valley, AZ. Red Valley is located southwest of Shiprock, NM. [Taxpayers Ex. # 29].

In the Matter of the Protest of James and Nora Tutt, page 3 of 20

20. Mr. Tutt is an engineer by education and training.

21. Mr. Tutt has a long and distinguished history as an educator and administrator at

college institutions on the Navajo Nation.

22. Before the relevant period, Mr. Tutt did not claim an exemption from his New

Mexico personal income taxes during times he worked for Navajo Community College (“NCC”)

on the Navajo Nation in both Tsalie, AZ and Shiprock, NM because he spent most of his time

living in Farmington, NM.

23. In 1989, Mr. Tutt accepted the position of President of the Crownpoint Institute of

Technology (“CIT”)1 in Crownpoint, NM. Mr. Tutt remained in this position until October 2006.

24. Crownpoint, NM and CIT is located within the exterior boundaries of the Navajo

Nation.

25. CIT was incorporated by the Navajo Nation as technical/vocational college

designed to provide work skills and basic adult education using traditional Navajo ways and

teaching methods. CIT is governed by a Board of Directors appointed by the President of the

Navajo Nation. CIT is funded by the Navajo Nation, the United States government, and private

donors.

26. While employed with CIT, and as part of his employment agreement, CIT

provided Mr. Tutt with an on-campus apartment and vehicle as part of his employment package.

[Taxpayers Ex. #2; Taxpayers Ex. #4].

27. CIT provided its employees with housing because it promoted community

involvement, it was a hiring incentive, and because it was otherwise difficult to secure housing in

Crownpoint.

1
CIT changed its name to Navajo Technical College in 2006. In 2013, it changed its name again to Navajo
Technical University. For simplicity sake, that institution will be called CIT throughout this decision and order.

In the Matter of the Protest of James and Nora Tutt, page 4 of 20

28. The utility bills for Mr. Tutt’s on-campus apartment were deducted directly from

his pay checks. [Taxpayers Ex. #6].

29. Mr. Tutt lived in Apartment B1 at CIT on the Navajo Nation in Crownpoint, NM

while employed as President of CIT.

30. While living at CIT, Mr. Tutt routinely attended to CIT business, meetings, and

Board Meetings in furtherance of CIT’s mission. [Taxpayers Ex. #10, Taxpayers #11;

Taxpayers Ex. #12].

31. In 2002 through 2006, Mr. Tutt maintained a P.O. Box in Crownpoint, NM.

32. During the relevant period, Mr. Tutt attended some medical appointments at

Indian Health Services on the Navajo Nation. [Taxpayers Ex. #13]. However, most of Mr.

Tutt’s medical appointments involved specialists living in Farmington, NM. [Taxpayers Ex.

14].

33. Beginning upon receiving the Department’s assessments through the time of

hearing, Mr. Tutt credibly reconstructed his monthly calendars in 2002 through 2006 using his

paystubs, his attendance at CIT Board Meetings, his leave requests, and other scheduling

notes/materials, to the extent available. [Taxpayers Ex. #6, Taxpayers Ex. #7; Taxpayers Ex.

8, Taxpayers Ex. #10, Taxpayers #13; Taxpayers Ex. #14; Taxpayers Ex. #20; Taxpayers

Ex. #26].

34. Based on those calendar reconstructions and Mr. Tutt’s credible testimony, Mr.

Tutt lived within Crownpoint or attended CIT business for 235-days in 2002, 269-days in 2003,

263-days in 2004, 255-days in 2005, and 224-days in 2006. [Taxpayers Ex. #6, Taxpayers Ex.

7; Taxpayers Ex. #8, Taxpayers Ex. #10, Taxpayers #13; Taxpayers Ex. #14, Taxpayers

Ex. #26].

In the Matter of the Protest of James and Nora Tutt, page 5 of 20

35. While Mr. Tutt acknowledged some dozen errors on his calendar reconstruction,

such errors are reasonable given that the relevant period occurred seven-to-11 years ago and

encompassed 1,460-days. These errors do not fundamentally alter the fact that Mr. Tutt lived

within the Navajo Nation during the relevant period.

36. Mr. Tutt was a particularly credible and convincing witness. Mr. Tutt was sincere

throughout the hearing, quickly acknowledged mistakes in his reconstruction of the monthly

calendars, and acknowledged when he did not know the answer to a particular question. Mr. Tutt

also demonstrated a genuine commitment to the betterment of the Navajo Nation through his role

at CIT and his later role with Nizhoni Smiles, Inc.

37. Taxpayers maintained a joint checking account with Wells Fargo. However, Nora

Tutt was responsible for nearly 95% of the transactions in the joint account. [Taxpayers Ex.

27].

38. All of Mr. Tutt’s W-2 forms for his work at CIT listed Mr. Tutt’s address in

Crownpoint. [Department Ex. F-I].

39. Nizhoni Smiles, Inc., a corporation for which Mr. Tutt is a board member, listed

its place of business as Taxpayers’ Farmington address. Nizhoni Smiles is a non-profit dental

agency that provides dental services to low income members of the Navajo Nation on a sliding

cost scale. [Department Ex. G-J].

40. After leaving CIT in October 2006, Mr. Tutt returned to living at his home in

Farmington, NM.

41. In November 2006 Mr. Tutt became CEO of Nizhoni Smiles, Inc.

In the Matter of the Protest of James and Nora Tutt, page 6 of 20

42. Since leaving his position with CIT in Crownpoint, Mr. Tutt has not claimed the

exemption for income tax under Section 7-5.5 because he no longer lives within the Navajo

Nation.

DISCUSSION

The base issue at protest is whether Mr. Tutt’s personal income in tax years 2002, 2003,

2004, 2005, and 2006 was exempt from New Mexico Personal Income tax under the “earnings

by Indians… on Indian lands” exemption, as found under to NMSA 1978, Section 7-2-5.5

(1995). Although Nora Tutt was named in each assessment, she never claimed the exemption on

her income and she has no outstanding tax obligations in dispute (except for her interest in the

marital community property). Taxpayers and the Department also made five other arguments that

will be recited and addressed after discussion of the main, substantive issue at protest.

Presumption of Correctness and Burden of Proof.

Under NMSA 1978, Section 7-1-17 (C) (2007), the assessment issued in this case is

presumed correct. Consequently, Taxpayer has the burden to overcome the assessment. See

Archuleta v. O'Cheskey, 1972-NMCA-165, ¶11, 84 N.M. 428. Moreover, “[w]here an exemption or

deduction from tax is claimed, the statute must be construed strictly in favor of the taxing authority,

the right to the exemption or deduction must be clearly and unambiguously expressed in the statute,

and the right must be clearly established by the taxpayer.” Wing Pawn Shop v. Taxation and

Revenue Department, 1991-NMCA-024, ¶16, 111 N.M. 735 (internal citation omitted); See also

TPL, Inc. v. N.M. Taxation & Revenue Dep't, 2003-NMSC-7, ¶9, 133 N.M. 447. However, once a

taxpayer rebuts the presumption of correctness, the burden shifts to the Department to show the

correctness of the assessed tax. See MPC Ltd. v. N.M. Taxation & Revenue Dep't, 2003-NMCA-21,

¶13, 133 N.M. 217.

In the Matter of the Protest of James and Nora Tutt, page 7 of 20
Personal Income Tax and the Exemption.

Payment of New Mexico personal income tax is governed by NMSA 1978, Section 7-2-1

to -36. Unless otherwise exempted by law, a tax is imposed “upon the net income of every” New

Mexico resident. NMSA 1978, §7-2-3 (1981).

Under NMSA 1978, Section 7-2-5.5 (1995), “Exemption; earnings by Indians, their

Indian spouses and Indian dependants on Indian lands,”

Income earned by a member of a New Mexico federally
recognized Indian nation, tribe, band or pueblo, his spouse or
dependent, who is a member of a New Mexico federally
recognized Indian nation, tribe, band or pueblo, is exempt from
state income tax if the income is earned from work performed
within and the member, spouse or dependent lives within the
boundaries of the Indian member's or the spouse's reservation or
pueblo grant or within the boundaries of lands held in trust by the
United States for the benefit of the member or spouse or his nation,
tribe, band or pueblo, subject to restriction against alienation
imposed by the United States.

If Taxpayers can demonstrate that Mr. Tutt’s income was exempted under Section 7-2-5.5 during

the relevant time, then that income would not be subject to New Mexico personal income tax and

the assessments would not be supported.

Federal Origins of the Exemption.

Before breaking down the exemption under Section 7-2-5.5 further, it is necessary to

discuss the clear federal underpinnings necessitating that State exemption. The seminal federal

case on the prohibition of state personal income taxes imposed on tribal members living on tribal

lands from income derived from within tribal territory is the United States Supreme Court case

McClanahan v. Arizona State Tax Commission, 411 U.S. 164 (1972). In McClanahan, the State

of Arizona attempted to impose an income tax on an enrolled member of the Navajo Nation

living on the portion of that reservation within the State of Arizona. See id. at 165-166. The

In the Matter of the Protest of James and Nora Tutt, page 8 of 20
taxpayer at issue in McClanahan conceded that for purposes of Arizona law, she was a resident

of Arizona. See id. at 166, footnote 3. However, the fact that the McClanahan taxpayer legally

qualified as a resident of Arizona played no role in the Supreme Court’s analysis of the issue or

in the Supreme Court’s ultimate holding.

Three other factors were of greater importance to the Supreme Court in McClanahan.

First, the Supreme Court determined that Indian Sovereignty Doctrine—that is that native

peoples have the power to self-regulate their own affairs on native lands—provided a relevant

policy background against which the treaties and relevant statutes must be read. See id. at 172.

Second, the Supreme Court considered the express terms of the United States and Navajo Nation

treaty (which is the same treaty involved in this protest) and found that the treaty precluded the

extension of state tax law to “Indians on the Navajo Reservation.” id. at 175. Finally, the

Supreme Court considered the Arizona Enabling Act (which the Supreme Court noted in

footnote 14 matched New Mexico’s Enabling Act) and found that under the Enabling Act,

Arizona was both precluded from asserting claims to lands within the Navajo Nation and

prohibited from taxing any lands within the Navajo Nation. See id. at 175-176. Against this

backdrop, even if the tribal member at issue in that case was also a resident of Arizona, the

Supreme Court ultimately held that Arizona could not impose a state personal income tax on a

tribal member living on tribal land whose income “derived wholly from reservation resources.”

id. at 179.

Subsequent United States Supreme Court cases have affirmed the rationale of the

McClanahan holding. In the case Oklahoma Tax Comm'n v. Sac & Fox Nation, 508 U.S. 114

(U.S. 1993), the United States Supreme Court emphasized that the McClanahan holding “relied

heavily on the doctrine of tribal sovereignty.” id. at 123. Because of this concept of tribal

In the Matter of the Protest of James and Nora Tutt, page 9 of 20
sovereignty expressed in McClanahan, the Supreme Court in Oklahoma Tax Comm'n v. Sac &

Fox Nation found that there is a presumption against taxability for Native Americans “living and

working” on tribal lands. id. at 124.

Although the term “residence” was mentioned at least twice in Oklahoma Tax Comm'n v.

Sac & Fox Nation, given the tribal Sovereignty Doctrine underlying its analysis, the Supreme

Court’s focus was much more on the physical location of the tribal member vis-à-vis tribal lands

than any analysis of domicile or that tribal member’s intent. In fact, the Supreme Court stated in

Oklahoma Tax Comm'n v. Sac & Fox Nation that to be exempt from State income tax, it is

enough that the tribal “member live in ‘Indian Country’.” id. at 123. Further, the Supreme Court

explained that “Indian sovereignty serves as a ‘backdrop’ only for those tribal members who live

on the reservation, and all others fall outside of McClanahan’s presumption against taxation.” id.

at 124 (bold added for emphasis). It is not a surprise then, based on this final point noted in

Oklahoma Tax Comm'n v. Sac & Fox Nation, that the Supreme Court allowed State taxation of

tribal members not living within tribal lands. See Okla. Tax Comm'n v. Chickasaw Nation, 515

U.S. 450, 462-463 (U.S. 1995).

More recently, in Wagnon v. Prairie Band Potawatomi Nation, 546 U.S. 95, 112 (U.S.

2005), the United States Supreme Court again affirmed the McClanahan presumption against

taxation for tribal members living on tribal lands. Importantly in Wagnon, the Supreme Court

stated that in its “unique Indian tax immunity jurisprudence”, the concept of tribal sovereignty

“has a significant geographical component.” id. This significant geographical component of

tribal sovereignty provides the “backdrop” in which the relevant treaties and statutes must be

analyzed in order to assess a State’s attempt at taxation of tribal members. id. In the discussion in

Wagnon, the geographical component appears to be the decisive operational distinction for the

In the Matter of the Protest of James and Nora Tutt, page 10 of 20
Supreme Court: while Native Americans living within a reservation are generally protected by

the McClanahan presumption against taxation, Native Americans “going beyond reservation

boundaries” are generally subject to State tax. id. at 112-113.

The Statutory Exemption.

This historical background provides context to the statutory exemption under Section 7-

2-5.5. The exemption under Section 7-2-5.5 can be set out into three elements. First, there must

be earned income by a member of a New Mexico federally recognized Indian nation. See id. In

this case, the evidence clearly established that Mr. Tutt is a member of the federally recognized

Navajo Nation.

The second element under Section 7-2-5.5 is that the earned income derived from work

performed within the boundaries of the Indian member’s or spouses’ land. See id. By regulation,

the Department requires that the income derive “from… activities on the tribal territories”. See

3.3.4.12(C) NMAC (5/15/2001). In this case, there is no dispute that Mr. Tutt derived income

from working for CIT, a college located on the Navajo Nation and funded by the Navajo Nation.

The third element under Section 7-2-5.5 presents the main controversy in this matter: the

“member, spouse or dependent” claiming the exemption “lives within the boundaries” of the

applicable tribal land. Neither the statute nor the regulation interpreting the statute provide a

definition, standard, or test to determine what is meant to “live within the boundaries” of tribal

land.

The Department argues that a domicile analysis is the appropriate standard to determine

whether under Section 7-2-5.5 a person lives within the boundaries of tribal land. In other

decisions and orders issued by the Department’s Hearings Bureau, the undersigned hearing

officer has declined to fully adopt and apply the domicile approach advocated by the

In the Matter of the Protest of James and Nora Tutt, page 11 of 20
Department, and has instead considered whether the person lived and had a physical presence

within the boundaries of Native American land . See Matter of Protest of Aurelia Shorty, No. 11-

17, Matter of Protest of John and Bonnie Yearley, No. 11-29, and Matter of Edward J. Clah and

Melvina Murphy, No. 12-19. This case is no different.

Although the entire exemption is cited above, the portion of Section 7-2-5.5 subject to

interpretative dispute is worth restating here: whether the tribal member “…lives within the

boundaries of the Indian member's or the spouse's reservation or pueblo grant or within the

boundaries of lands held in trust by the United States…” Extra words should not be read into a

statute if the statute is plain on its face, especially if it makes sense as written. See Johnson v.

N.M. Oil Conservation Comm'n, 1999-NMSC-21, ¶ 27, 127 N.M. 120.

The Department’s position would require reading the word “domicile” into the statute,

where that word is currently not present. Since the statute does not use the word “domicile,” that

word should not be added to Section 7-2-5.5’s “lives within” requirement. Despite the fact that

the Legislature was aware of the meaning of “domicile” given it gave that word legal

significance under a separate statute, NMSA 1978, Section 7-2-2 (S) (2003), the Legislature

chose instead to use the distinct phrase “lives within the boundaries” under the exemption,

Section 7-2-5.5. Moreover, the exemption under Section 7-2-5.5 does not cross reference the

New Mexico statutes and regulations on “domicile,” Section 7-2-2 (S) and Regulation 3.3.1.7

NMAC (4/29/2005). Regulation 3.3.4.12 NMAC (5/15/01), which addresses the exemption at

issue under Section 7-2-5.5 neither defines “lives within the boundaries” as equivalent to

“domicile,” nor references the word “domicile” in any manner.

Unlike “domicile”, which also gives weight to a person’s intention, the term “lives within

the boundaries” used in the exemption is much more literal phrase related to a person’s physical

In the Matter of the Protest of James and Nora Tutt, page 12 of 20
presence within a defined geographical location. “Lives within the boundaries” suggests a

continuing physical presence inside a defined geographical space. This reading of “lives within

the boundaries” under the exemption statute is consistent with the federal case law addressed by

McClanahan and its progeny. McClanahan found that treaties and relevant statutes must be read

against the policy background of tribal sovereignty. See id. at 172. Further, in Wagnon, 112, the

Supreme Court emphasized that the significant geographical component of tribal sovereignty

serves a backdrop in reading relevant treaties and statutes. In light of this geographical

component in the federal case law, it is logical that the Legislature would give greater priority to

the geographical location and physical presence of a person within Native American land rather

than that person’s intent and the other factors that are part of a classic domicile analysis.

Therefore, domicile is not the determinative factor under the exemption at issue in this protest.

Application of Exemption to the Facts at Protest.

In this case, especially in light of the stipulations of facts, there is no doubt that Taxpayer

remained “domiciled” in Farmington, NM throughout the relevant period. Mr. Tutt and Mrs. Tutt

owned a home in Farmington where his wife and college-aged son lived throughout the period.

Mr. Tutt attended most of his medical appointments in Farmington (though Mr. Tutt also

attended medical appointments in Crownpoint). Mr. Tutt registered his personal vehicles in

Farmington. Mr. Tutt was registered to vote in New Mexico using his Farmington address. Mr.

Tutt conducted business on behalf of Nizoni Smiles in Farmington. See Regulation §3.3.1.9

NMAC (4/29/2005). To that extent, if the Department is correct that domicile is the appropriate

analysis to determine whether a person is entitled to the Section 7-2-5.5 exemption, then

Taxpayer is liable for all assessed tax regardless of his physical location in each year.

In the Matter of the Protest of James and Nora Tutt, page 13 of 20
However, the United Stated Supreme Court decided McClanahan regardless of residency.

In McClanahan, the taxpayer conceded that she was a resident of Arizona under Arizona law.

See id. at 166, footnote 3. Similarly, Mr. Tutt meets the legal definition of a domiciled resident of

New Mexico. However, like in McClanahan, the analysis in this matter does not stop with that

fact of New Mexico domicile.

Here, Mr. Tutt physically lived in Crownpoint while working for CIT, a Navajo Nation

community college. In addition to being an employee benefit, it is perfectly logical for Mr. Tutt

to reside in his CIT apartment while working for CIT because it benefited CIT. By living on

campus, Mr. Tutt was part of the community of students and faculty at CIT in furtherance of

CIT’s mission. The convenience of the apartment allowed Mr. Tutt to focus on CIT operations

and to attend numerous CIT board meetings both on campus and across the Navajo Nation. Mr.

Tutt’s work at CIT was closely attached to one of the core sovereign values of the Navajo

Nation: providing job training and an education to tribal members using traditional Navajo

values. Like in McClanahan, New Mexico cannot impose an income tax on Mr. Tutt’s income

from CIT while he was living within the boundaries of the Navajo Nation even if he also met the

legal definition of being domiciled in New Mexico.

Mr. Tutt lived within the boundaries of the Navajo Nation during the relevant period,

satisfying the plain language requirements of Section 7-2-5.5 and the federal case law

establishing an exemption of state income taxes on Native Americans living on native lands. Mr.

Tutt was a highly credible, believable, and sincere witness. His testimony was highly persuasive

in this matter. While even Mr. Tutt acknowledged that his reconstruction of where he lived

during the relevant period was not perfect, Taxpayers easily established by the preponderance

that Mr. Tutt was physically present within the Navajo Nation or conducting CIT business more

In the Matter of the Protest of James and Nora Tutt, page 14 of 20
than half the time of each relevant year. In fact, although the Department did find dozen or so

days over the reconstruction where Mr. Tutt was in error as to where he was located, even with

those errors, Mr. Tutt still spent a majority of each relevant year living within the Navajo Nation

and attending CIT business. Mr. Tutt was not physically present in New Mexico outside of the

Navajo Nation for 185-days or more in any of the relevant years.

Mr. Tutt’s credibility is further bolstered by the fact that Taxpayers did not always

attempt to claim the exemption under Section 7-2-5.5 in years where Mr. Tutt did not live within

the Navajo Nation for most of the year. While working for NCC on the Navajo Nation in Tsalie

and Shiprock before the relevant period, Mr. Tutt spent most of his time living with his wife in

their Farmington home. Therefore Taxpayers did not attempt to claim the exemption on Mr.

Tutt’s NCC income during that time. Moreover, after leaving CIT, Taxpayers have not attempted

to claim the exemption on Mr. Tutt’s income because he returned to living with his wife in

Farmington and working with the non-profit Nizoni Smiles headquartered in Farmington to

provide dental services across the Navajo Nation.

Once Taxpayers overcame the presumption of correctness, the burden shifted to the

Department to substantiate the validity of the assessments. See MPC Ltd., ¶13. Here, the

Department did successfully point out some discrepancies in Mr. Tutt’s calendar reconstruction, but

as discussed above, these discrepancies do not fundamentally alter Mr. Tutt’s credibility or his

continuing physical presence within the Navajo Nation during the relevant period.

The Department also tendered its own calendar reconstruction summary as Department Ex.

L. Department Ex. L was a controversial exhibit tendered into the record late in the hearing

process that had not previously been disclosed to Taxpayers. The undersigned hearing officer

initially indicated that he intended to reserve ruling, but then expressed the position that

In the Matter of the Protest of James and Nora Tutt, page 15 of 20
Department Ex. L would be admitted, with its weight significantly limited by the cross-

examination of Mr. Dillon. However, upon further consideration, Department Ex. L is not

admitted into the record because it simply is not reliable enough to consider.

Mr. Dillon prepared Department Ex. L before the hearing. Mr. Dillon, who has always

been an extremely credible and conscientious witness in protest hearings, acknowledged that

after hearing the testimony over the course of the protest hearing, he had concerns about the

reliability of the Department Ex. L. In particular, Mr. Dillon indicated that Department Ex. L was

construed in part by relying on the locations of financial transactions listed on Taxpayers’ joint

bank account, Taxpayers Ex. #27. However, as Mr. Tutt credibly testified and Mr. Dillon

acknowledged, Ms. Tutt was responsible for 95% of the transactions that occurred in the

couples’ joint bank account. It is undisputed that Ms. Tutt’s lived and worked exclusively in

Farmington. Consequently, a transaction in Farmington from the couples’ joint bank account

does not establish that Mr. Tutt was present in Farmington at the time of the transaction because

it is far more likely that Ms. Tutt was responsible for the transaction. In light of these reliability

concerns from the credible witness who prepared the document before the hearing, Department

Ex. L is not admitted under Regulation 3.1.8.10 (B) NMAC (8/30/01), which states that

unreliable evidence may be excluded. Even if Department Ex. L is arguably admissible, its lack

of reliability undermines its weight significantly, and it is insufficient in the face of Mr. Tutt’s

credible testimony to establish the validity of the assessments.

Other Issues in Dispute.

In addition to the main substance of the protest, Taxpayers raised four other issues.

First, Taxpayers argued that their protest must be granted in light of the extensive prehearing

delay. Both parties briefed this issue before the hearing and argued the issue at hearing.

In the Matter of the Protest of James and Nora Tutt, page 16 of 20
The Department assessed Taxpayers on December 15, 2009. On December 28, 2009,

Taxpayers protested the assessments. On January 5, 2010, the Department acknowledged

receipts of Taxpayers’ protest. Mr. Dillon twice wrote Taxpayers for additional information in

January 2010. On June 25, 2010, Taxpayers attorney filed a notice of unavailability for a hearing

from July 8, 2010 through August 5, 2010. The Department requested a hearing with the

Hearings Bureau on August 5, 2013. Upon receipt of the request for hearing, which is the first

indication the Hearings Bureau had about this pending protest, the Hearings Bureau promptly

sent notice of hearing, setting this matter for October 9, 2013.

NMSA 1978, Section 7-1-24 (D) (2003, before 2013) requires the Department or the

hearing office to “promptly set a date for hearing” for a timely received protest. In this case, the

protest hearing did not occur until nearly 4-years after Taxpayers protest. However, the New

Mexico Court of Appeals squarely addressed a claim of undue delay under Section 7-1-24 (D) in

Ranchers-Tufco Limestone v. Revenue, 1983-NMCA-126, ¶13, 100 NM 632. In that case, the

Court of Appeals found that the general rule applies under Section 7-1-24: that is, tardiness of

public officers in the performance of statutory duties is not a defense to an action by the state to

enforce a public right or protect public interest. See id. The Department is statutorily obligated to

pursue an outstanding tax liability exceeding $25.00 under Section 7-1-17 of the Tax

Administration Act. Moreover, the Department is arguably obligated to pursue an outstanding

tax liability under the anti-donation clause of the New Mexico Constitution, Article IX, §14.

Therefore, under Ranchers-Tufco Limestone, the prehearing delay is not a defense against the

Department’s action to enforce a public right under the Tax Administration Act and the State

Constitution.

In the Matter of the Protest of James and Nora Tutt, page 17 of 20
Second, Taxpayers argued that the presumption of correctness does not attach in this

matter because the above-discussed federal law established its own presumption against taxation

of native people on native lands. However, since Taxpayers prevail even under the presumption

of correctness in this matter, it is not necessary to reach Taxpayers arguments against the

application of the presumption of correctness. Therefore, the undersigned Hearing Officer

reserves ruling on this issue.

Third, Taxpayers argued that the three-year statute of limitations on the Department’s

ability to assess taxes should preclude the assessment of taxes for tax years 2002, 2003, and

2004. Again, since Taxpayers prevailed on the merits of the protest, it is not necessary to address

this issue in detail. Under NMSA 1978, Section 7-1-18 (D) (1994), the Department has six years

from the end of the calendar year in which the taxes were due to assess taxes in the event

Taxpayers underreported their liability by more than 25%. Since Taxpayers claimed an

exemption on all of Mr. Tutt’s income, if that exemption did not apply, then Taxpayers certainly

would have underreported their income by more than 25% in their joint tax filings. Therefore,

the Department had authority to assess taxes for 2002, 2003, and 2004 under the six-year period

articulated in Section 7-1-18(D).

Fourth, in its prehearing memorandum, Taxpayers asked for all appropriate costs and fees

under NMSA 1978, Section 7-1-29.1. However, that issue was not raised during the seven-hour

hearing. As such, there is no basis to consider this argument further. Moreover, while Taxpayers

ultimately prevailed under the legal analysis under Section 7-2-5.5, the exemption under Section

7-2-5.5 is difficult factually. This specific case largely turned on a close examination of the facts

and a credibility determination. While the undersigned Hearing Officer has a differing view of

the legal standard under Section 7-2-5.5 than the Department, it must be acknowledged that the

In the Matter of the Protest of James and Nora Tutt, page 18 of 20
New Mexico Court of Appeals has never considered the issue. Consequently, Taxpayers are not

entitled to costs and fees because under Section 7-1-29.1 (C) (2), the Department had a

reasonable application of the facts in this matter even if it did not ultimately prevail under the

final legal analysis.

After the Hearing, on October 25, 2013, the Department asked the undersigned hearing

officer to take administrative notice of certain facts regarding the agency location of Mr. Tutt’s

voting history on the Navajo Nation. On October, 28, 2013, Taxpayers opposed the

Department’s request. During the hearing, Mr. Tutt testified that he voted in Navajo Nation

elections in Red Valley, Arizona, which he testified was located southwest of Shiprock, NM. The

undersigned hearing officer declines to take any additional administrative notice beyond Mr.

Tutt’s own testimony. This testimony, and the reasonable inferences drawn there from,

established that Mr. Tutt did not vote in tribal elections near Crownpoint but rather near

Shiprock.

CONCLUSIONS OF LAW

A. Taxpayers filed a timely, written protest of the assessments for 2002, 2003, 2004,

2005, and 2006 personal income taxes, penalty, and interest, and jurisdiction lies over the parties

and the subject matter of this protest.

B. Mr. Tutt was domiciled in Farmington, NM during the relevant period.

C. Mr. Tutt is a registered and enrolled member of the Navajo Member, a federally

recognized sovereign tribe.

D. During the relevant period, Mr. Tutt earned income from CIT, an institution within

the Navajo Nation and chartered by the Navajo Nation.

In the Matter of the Protest of James and Nora Tutt, page 19 of 20
E. Mr. Tutt was physically present and living within the boundaries of the Navajo

Nation at CIT in Crownpoint during the relevant period. Therefore, Mr. Tutt’s income during that

period was entitled to the exemption under NMSA 1978, §7-2-5.5 (1995). See McClanahan v.

Arizona State Tax Commission, 411 U.S. 164 (1972).

For the foregoing reasons, the Taxpayers’ protest IS GRANTED.

DATED: November 27, 2013.

Brian VanDenzen, Esq.
Tax Hearing Officer
Taxation & Revenue Department
Post Office Box 630
Santa Fe, NM 87504-0630

In the Matter of the Protest of James and Nora Tutt, page 20 of 20