Were Berryman Ranch's receipts for nonexclusive hunting access deductible as a sale or lease of New Mexico real property?

Subject

Berryman Ranch (D&O 98-45)

Plain-English summary

Berryman Ranch could obtain up to 15 state hunting permits each year. In the early 1990s it signed three agreements titled "Lease for Hunting Rights." Each hunter paid $2,000 per year for a nonexclusive right to enter the ranch during state-designated hunting periods. The hunters could not use the land at other times or for other purposes, and the ranch's owners, employees, and guests remained on the property.

The Department assessed $1,713.90 of gross receipts tax, penalty, and interest on these receipts for 1992 through 1995. The parties split the proceeding so the Hearing Officer would decide the legal classification first; Berryman reserved any objections to the assessment calculations for later.

Berryman first argued that the hunting right was a profit a prendre — a transferable interest in real property allowing someone to take part of the land or its products. Hearing Officer Margaret B. Alcock rejected that theory. New Mexico holds wild animals in trust for its citizens; Berryman did not own the elk and could not convey a right to take them. A hunter still needed a license from the Department of Game and Fish. The ranch agreement only supplied permission to enter the land.

The agreements were not real-property leases either. A lease gives the tenant possession and control, while a license grants limited authority to use property in a specific way. These hunters received no exclusive possession: their access was limited by time and purpose, the ranch remained occupied, and Berryman could authorize additional hunters during the same periods. Calling the document a "lease" did not change its substance.

The agreements therefore created licenses to use real property. Receipts from licenses were taxable and did not qualify for the sale-or-lease deduction under Section 7-9-53. Berryman's protest was DENIED on the legal issue.

What this means for you

• Limited access is different from a real-property lease. A customer who may enter land only for a defined purpose and period, without exclusive possession, is generally receiving a license under this decision.
• The contract's title does not control. Berryman called each agreement a "Lease for Hunting Rights," but the actual rights conveyed determined the tax result.
• Nonexclusive hunting access did not convey the wildlife. The ranch did not own the elk, and the hunters still needed state licenses before they could lawfully hunt.
• The Section 7-9-53 deduction required an actual sale or lease of real property. A license to use real property was expressly outside the statutory definition of leasing.
• This partial decision resolved classification, not the assessment math. Berryman preserved the right to challenge the numbers used in the assessment later.

Key questions answered

Why wasn't the hunting right a profit a prendre?
A profit a prendre involves taking part of another person's land or its products. New Mexico, not the private landowner, held title to wild animals in trust, and Berryman could not transfer ownership of the elk. It granted only land access.

Why wasn't the agreement a lease?
The hunters did not receive exclusive possession or definite control of the ranch. Their access was nonexclusive, restricted to hunting during state-designated periods, and shared with the owners, employees, guests, and any additional hunters Berryman might authorize.

Did the words "Lease for Hunting Rights" make the receipts deductible?
No. The decision looked at the parties' actual rights and intent, not the name of the document.

What tax treatment applied?
The payments were receipts from licenses to use real property, so they were subject to gross receipts tax and did not qualify for the Section 7-9-53 deduction.

Verbatim citations

The statutory definition distinguishing a license from a lease:

any arrangement whereby, for a consideration, property is employed for or by a person other than the owner of the property, except that the granting of a license to use property is the sale of a license and not a lease.

The possession distinction applied by the decision:

A lease conveys exclusive possession of the premises to the tenant, and thus, the tenant holds an estate. In contrast, a licensor retains legal possession of the land, and the licensee has only a privilege to enter for a particular purpose.

The holding on the agreement's legal character:

Berryman's Lease for Hunting Rights was not a conveyance of an interest in real property or a lease of real property, and Berryman is not entitled to claim the deduction provided in NMSA 1978, Section 7-9-53 (1995 Repl. Pamp.).

The tax result:

Berryman's Lease for Hunting Rights was a license to use real property, and Berryman's receipts from the license are subject to gross receipts tax.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Berryman Ranch
• Decision PDF: D&O 98-45

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 BERRYMAN RANCH 98-45
ID. NO. 02-313557-00 3
ASSESSMENT NO. 2050878

PARTIAL DECISION AND ORDER

A formal hearing on the Taxpayer's protest was held on March 17, 1998, before Margaret

B. Alcock, Hearing Officer. Berryman Ranch ("Berryman") was represented by Barbara Vigil, its

attorney. The Taxation and Revenue Department ("Department") was represented by Bridget A.

Jacober, Special Assistant Attorney General. At the hearing, it was agreed to bifurcate the

proceeding to have the legal issue determined first, with the taxpayer reserving the right to raise

objections to the numbers used as the basis for the assessment at a later date. The matter was

submitted for decision on August 6, 1998. Based on the evidence in the record and the arguments

presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. As a private landowner, Berryman has the right to obtain up to 15 hunting permits

per year from the state. Each permit allows Berryman to authorize a third party to purchase a

private land license from the New Mexico Department of Game and Fish to hunt elk on

Berryman's land. See Taxpayer Exhibit 1.

2. The license year runs from April 1 through March 31. Within each license year,

the state allows specific animals to be hunted during specific periods of time by means of specific

weapons. For example, for the license year April 1, 1995 through March 31, 1996, mature bull
elk could be hunted by rifle during the following periods: October 21-October 25, October 28-

November 1, October 7-October 11, November 4-November 8. Taxpayer Exhibit 1.

3. During the early 1990s, Berryman entered into three agreements denominated

"Lease for Hunting Rights." The first agreement was between Berryman and John Faseler for the

ten-year period January 1, 1990 through December 31, 1999. The second agreement was between

Berryman and Ray Morgan for the five-year period January 1, 1992 through December 31, 1996.

The third agreement was between Berryman and Robert Guillary for the five-year period January

1, 1992 through December 31, 1997.

4. Each agreement provided that for an annual payment of $2,000, Berryman would

"let, lessee, demise to lessee non-exclusive hunting rights on the real property known as the

Berryman Ranch situated in Rio Arriba County, New Mexico."

5. Each agreement further provided: "Lessee agrees to abide by all state laws of the

State of New Mexico and stipulations made by Property Owner."

6. Each year, the three hunters agreed among themselves that each hunter would

select one of the designated hunting periods allowed by the state and limit himself to hunting

during that period. This arrangement was not part of the hunters' written agreements with

Berryman.

7. The only right granted to the hunters by Berryman was the non-exclusive right to

go onto ranch property during the hunting periods designated by the state for the purpose of

hunting. The hunters were not authorized to use the Berryman Ranch at other times or for other

purposes.

8. The owners of Berryman Ranch and their employees and guests continued to

occupy the ranch property during the time the hunters were present.

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9. Berryman would not deal with outfitters who were in the business of bringing

large hunting parties onto private land because Berryman wanted to deal directly with the people

it allowed onto the ranch.

10. Berryman did not pay New Mexico gross receipts tax on its receipts from selling

hunting access to its land.

11. On July 19, 1996, the Department issued Assessment No. 2050878 to Berryman in

the amount of $1,713.90, representing, gross receipts tax, penalty and interest on Berryman's

receipts from the Leases for Hunting Rights during the period January 1, 1992 through December

31, 1995.

12. On August 22, 1996, Berryman filed a protest of the assessment, together with a

request for a retroactive extension of time to file the protest. The request for extension of time

was granted by the Department.

DISCUSSION

The issue presented is whether Berryman's Lease for Hunting Rights was a conveyance of

an interest in real property, a lease of real property or a license to use real property. The

distinction is important because receipts from the sale or lease of real property may be deducted

from gross receipts under NMSA 1978, Section 7-9-53 (1995 Repl. Pamp.). Receipts from a

license to use real property are not deductible and are subject to gross receipts tax. Berryman

argues that the right to hunt on the land of another is a profit a prendre, and that its agreement

with the hunters conveyed an interest in real property. Alternatively, Berryman takes the position

that the agreement represents a lease of real property. The Department argues that the non-

exclusive right to hunt on Berryman Ranch is a license to use real property.

PROFITS A PRENDRE.

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The term "profit a prendre" is defined as "[a] right exercised by one person in the soil of

another, accompanied with participation in the profits of the soil thereof. A right to take a part of

the soil or produce of the land." Black's Law Dictionary, 1211 (Rev. 6th Ed. 1990). This right

constitutes an interest in real property, which is generally transferable and inheritable. Hahner,

An Analysis of Profits A Prendre, 25 Or. L. Rev. 217, 241 (1946); J. W. Jones Construction Co. v.

Revenue Division, 94 N.M. 39, 43, 607 P.2d 126, 130 (Ct. App. 1979, Sutin concurring). A profit

a prendre may be acquired by deed or lease1 and may be held as an exclusive right or a non-

exclusive right in common with the owner of the property or with a small group of other

nonowners. See, discussion in Hahner, supra, pp. 227-228, 234. See also, Jon W. Bruce & James

W. Ely, Jr., The Law of Easements and Licenses in Land, para. 1.04[4] (Rev.Ed. 1995).

Berryman contends that the right to hunt on the land of another is a profit a prendre and

that its Lease for Hunting Rights conveyed an interest in real property. In support of its position,

Berryman quotes the following passage from Allen v. McClellan, 75 N.M. 400, 403, 405 P.2d

405, 407 (1965):

The landowner...does own, as private property, the right to pursue game
upon his own lands. That right is property, just as are the trees on the land
and the ore in the ground, and is subject to lease, purchase and sale in like
manner. The right to hunt on another's premises, the right of venery, is an
interest in real estate in the nature of an incorporeal hereditament...
(emphasis Berryman's).

At issue in Allen was whether the state's inclusion of private land in a game management area

denied the plaintiffs hunting privileges enjoyed by other, similarly situated landowners in

violation of the plaintiffs' constitutional rights to due process and equal protection of the laws.

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The Department argues that a profit a prendre must be conveyed by formal deed. Response Brief at 2. This
view is too restrictive. New Mexico courts have consistently recognized the use of "leases" to convey mineral
rights and royalties, which are profits a prendre. Barela v. Locer, 103 N.M. 395, 398-399, 708 P.2d 307, 310-

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The New Mexico Supreme Court concluded that it did, holding that the state could not create a

game refuge on private land unless it first obtained the landowner's consent or acquired the

necessary interest in the land by eminent domain. The passage Berryman quotes from Allen is

itself a quote from a Florida case on the same issue. The language Berryman places in italics is

dicta. The court in Allen held that a landowner's right to pursue game on his own land is a

property right that cannot be taken by the state without just compensation. The holding in Allen

did not address the issue of whether the right to hunt on another's land is an interest in real

property.

There are a number of cases from other jurisdictions that recognize hunting rights as

profits a prendre. See, Annotation, Right Created by Private Grant or Reservation to Hunt or

Fish on Another's Land, 49 ALR 2d 1395, 1404, Section 7 (1956). At least some commentators

assert, however, that these decisions are based on a misapplication of the legal principles

underlying profits a prendre. As discussed in Bruce & Ely, supra, para. 1.04[2][a][i]:

[i] Water, fish, and game. If the object in question is not really part
of the property involved, then theoretically the landowner cannot grant a
profit in that item. For example, because no one owns flowing water or
fish or game in their natural habitats, the owner of the land on which one
of these objects is found cannot convey away that item. Therefore, the
right to enter and take water, fish, or game logically should be found to be
either an easement or a license, depending on the nature of access
intended; it should not be considered a profit.
...

Hunting and fishing rights are commonly categorized as profits rather
than as easements or licenses. This anomaly may be attributed to an
unwarranted application of the English common-law concept of ratione
soli, which gave landowners certain property rights to wild animals found
on their property. Sometimes, however, hunting and fishing rights have
been found to constitute a license or an easement.

311 (1985). Ultimately, the nature of the interest created depends on the intent of the parties, not the name given
to the transferring document.

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See also, Hahner, supra, at 221 ("A strict adherence to the definition of a profit as laid down by

the cases and by textbook writers would exclude hunting and fishing privileges from classification

as profits....").

In New Mexico, the state holds title to wild animals in trust for its citizens. In State ex.

rel. Sofeico v. Heffernan, 41 N.M. 219, 225, 67 P.2d 240, 243 (1936), the New Mexico Supreme

Court soundly rejected the appellee's argument that wild animals belong to the owner of the land

where the animals are located:

Appellee supports this argument with a citation from Holdsworth's History
of English Law.... It is appellee's contention that the generally accepted
American doctrine, to wit, that the state, in the exercise of its police
power, has the right to regulate the taking of game so as to protect the
same in the interest of the food supply, is a mere fiction.... [W]e are not
impressed with this intriguing argument. We believe the prevailing
American doctrine sound in law, principle, and common sense.

Given the supreme court's refusal to accept outdated concepts of English law as a basis for vesting

ownership of wild animals in private landowners, it makes no sense to rely on these same

concepts to find that a grant of hunting rights qualifies as a profit a prendre.

Perpetuating the misapplication of law underlying decisions from other jurisdictions could

well create a cloud on title to real estate held by New Mexico landowners who allow third parties

to hunt on their land. Absent restrictive language in the granting document, a profit a prendre is

both transferable and inheritable. It is highly unlikely that property owners who give hunters

written permission to access their land intend to burden the land with a freely transferable interest

in real property. In Luevano v. Group One, 108 N.M. 774, 778, 779 P.2d 552, 556 (Ct. App.

1989), the court recognized similar concerns behind the public policy favoring easements

appurtenant over transferable easements in gross, stating: "Construing doubtful easements as

easements in gross would allow assignment of the easement to strangers to the area who could

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then control the use of the property. Such construction could also result in increased burdens on

land beyond that contemplated by the original grantor."2

Berryman does not own the elk and other wild animals found on its land. Accordingly,

these animals are not "profits" of the land subject to transfer by Berryman. In order for someone

to whom Berryman grants hunting rights to legally hunt on Berryman's land, he must first obtain a

license from the New Mexico Department of Game & Fish. If a hunter were to kill an elk on

Berryman's land based solely on the document entitled "Lease for Hunting Rights", that hunter

would be in violation of New Mexico law. See, Taxpayer Exhibit 1 and NMSA 1978, Section 17-

3-1 ("No person shall shoot, hunt, kill, injure or take, in any manner, any game animal...without

paying for, and having in his possession, the proper license required by law...."). The Lease for

Hunting Rights granted each hunter non-exclusive access to Berryman's land for the purpose of

hunting in accordance with the requirements of New Mexico law. The Lease for Hunting Rights

did not—and legally could not—grant the hunter a right to shoot or kill wild elk located on the

land, nor did it convey a profit a prendre.

LEASE v. LICENSE.

As an alternative to its position that the Lease of Hunting Rights conveyed a profit a

prendre, Berryman argues that it was a true lease of an interest in real property and therefore

qualifies for the deduction provided in NMSA 1978, Section 7-9-53. "Leasing" is defined in

NMSA 1978, Section 7-9-3(J) as:

2
A review of the evidence raises questions concerning Berryman's intent to convey an interest in real property to
the hunters accessing its land. Maurice Ezell, the Berryman's certified public accountant, testified that unlike
other landowners, Berryman would not deal with outfitters who were in the business of bringing large hunting
parties onto private land. Berryman wanted to know and deal directly with the people it allowed onto the ranch.

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any arrangement whereby, for a consideration, property is employed for or
by a person other than the owner of the property, except that the granting
of a license to use property is the sale of a license and not a lease.

In Cutter Flying Service, Inc. v. Property Tax Department, 91 N.M. 215, 219, 572 P.2d 943, 947

(Ct. App. 1977), the court defined leasing as "an agreement under which the owner gives up the

possession and use of his property for a valuable consideration and for a definite term." See also,

Transamerica Leasing Corporation v. Bureau of Revenue, 80 N.M. 48, 51,450 P.2d 934, 937 (Ct.

App. 1969). As noted in 3 Thompson on Real Property, Sections 1031 and 1032 (Thompson ed.

1994):

The relation of landlord and tenant cannot be inferred as a matter of law
from the mere fact of lawful occupancy. The tenant must acquire some
definite control and possession of the premises.
...
It is said that the difference between a license and a lease is that a lease
gives to the tenant the right of possession against the world, while a
license creates no interest in the land, but it is simply the authority or
power to use it in some specific way.

And in Bruce & Ely, supra, para. 11.01:

A lease conveys exclusive possession of the premises to the tenant, and
thus, the tenant holds an estate. In contrast, a licensor retains legal
possession of the land, and the licensee has only a privilege to enter for a
particular purpose.

Based on the evidence in this case, it is clear that the hunters allowed onto Berryman

Ranch did not acquire the dominion and control necessary to constitute a leasehold interest in the

ranch. The only right granted to each hunter was the non-exclusive right to go onto Berryman's

property during the limited hunting periods designated by the state for the purpose of hunting.

The hunters were not authorized to use Berryman Ranch at other times or for other purposes. The

owners of Berryman Ranch and their employees and guests continued to occupy the ranch

This desire to prevent strangers from obtaining access to the ranch indicates an intent to create a license, which is

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property during the time the hunters were present. Although the hunters agreed among

themselves that each would limit his hunting to one of the designated hunting periods allowed by

the state, this arrangement was not part of their written agreements with Berryman. Nothing in

the agreements prohibited Berryman from entering into additional "leases" with other hunters

who would be entitled to come onto the ranch during the same periods.

Berryman argues that the Department's characterization of non-exclusive hunting rights as

a license rather than a lease is contrary to Section 7-1-53 because hunting rights are not listed

among the exceptions set out in Subsection (B), which states:

(B) Receipts from the rental of a manufactured home for a period of
at least one month may be deducted from gross receipts. Receipts
received by hotels, motels, rooming houses, campgrounds, guest ranches,
trailer parks or similar facilities, except receipts received by trailer parks
from the rental of a space for a manufactured home for a period of at least
one month, from lodgers, guests, roomers, or occupants are not receipts
from leasing real property for purposes of this section.

Berryman appears to argue that receipts from the transfer of any right or interest in real property

must be treated as lease receipts unless the receipts come within the exceptions listed in

Subsection (B). This construction of the statute is too narrow. First, there is nothing to indicate

that the legislature intended the listing in Subsection (B) to be exclusive. Second, a transaction

must meet the legal definition of a lease before receipts from that transaction will qualify as lease

receipts deductible under Section 7-9-53. In this case, Berryman's transfer of non-exclusive

access rights does not meet the legal requirements for creation of a leasehold estate. The Lease of

Hunting Rights created a license to use real property, not a lease of real property.

CONCLUSIONS OF LAW

personal to the licensee, not a freely transferable interest in real property.

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1. Berryman filed a timely, written protest to Assessment No. 2050878, and

jurisdiction lies over the parties and the subject matter of this protest.

2. Berryman's Lease for Hunting Rights was not a conveyance of an interest in real

property or a lease of real property, and Berryman is not entitled to claim the deduction provided in

NMSA 1978, Section 7-9-53 (1995 Repl. Pamp.).

3. Berryman's Lease for Hunting Rights was a license to use real property, and

Berryman's receipts from the license are subject to gross receipts tax.

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

DONE, this 1st day of September 1998.

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