Must the New Mexico Property Tax Division tell a telecommunications company it may elect a different valuation method, and can the company switch methods later if it wasn't told?

Subject

American Communication Services of Alb., Inc. and ACSI (D&O 99-26)

Plain-English summary

Two telecommunications subsidiaries of e.spire Communications — American Communication Services of Albuquerque, Inc. and ACSI Local Switched Services, Inc. — owned network plant and equipment in New Mexico. Communications-system property gets a special valuation under Section 7-36-30 NMSA 1978, which requires each taxpayer to elect between two methods: the cost method (Subsection D) or the unit appraisal method (Subsection F). The Department has no separate election form; it reads the election from how the taxpayer files its property report.

Both companies filed their reports on the cost method — much of the equipment listed as Construction Work in Progress and valued at 50% of cost — and left out the schedules needed to value the property by unit appraisal. The Department issued 1999 Notices of Valuation using the cost method. The companies then protested, arguing they were entitled to unit-appraisal valuation because the Department had never told them the election existed, and that they would have chosen unit appraisal if they had known.

The Hearing Officer denied both protests (consolidated for decision):

• No duty to notify. Section 7-36-30(C) places the responsibility to elect on the taxpayer, not the Department. That is consistent with New Mexico being a self-rendition state under Section 7-38-8, where the taxpayer must report and value its own property. As the courts have said, every person has a duty to ascertain the tax consequences of its actions.
• They already elected — by how they filed. By reporting on the cost method and omitting the unit-appraisal schedules, the companies "necessarily elected" the cost method. The Department's notices simply followed the companies' own reports. They could not now demand revaluation under an election they never made.
• The evidence didn't support their story anyway. For American, an employee had actually called the Department in 1997, received a faxed copy of Section 7-36-30 (which spells out the election), and the company still kept filing on the cost method — evidence it knew about the election and chose cost. For ACSI, no evidence explained why it filed on the cost method or showed it would have picked unit appraisal.

Because property values set by the Property Tax Division are presumed correct (Section 7-38-6), the companies bore the burden to overcome that presumption, and they did not.

What this means for you

• Valuation-method elections are the taxpayer's job. For New Mexico communications-system (and similar centrally valued) property, you must affirmatively elect your method under Section 7-36-30. The Department is not required to prompt you.
• How you file is your election. File on the cost method and omit the unit-appraisal schedules, and you have elected the cost method — even if you never signed anything saying so. Include the right schedules for the method you actually want.
• You generally can't switch methods after the fact. An election is effective for later years and can be changed only with the secretary's prior permission, for good cause, and not until it has been in effect for at least three years. "We would have chosen differently if you'd told us" is not a basis for retroactive revaluation.
• Property Tax Division values are presumed correct. If you protest a Notice of Valuation, you carry the burden of proof. Come forward with the evidence and legal authority; silence loses.

Key questions answered

Does the Department have to tell me I can elect a valuation method?
No. Section 7-36-30(C) puts the duty to elect on the taxpayer, and New Mexico's self-rendition system (Section 7-38-8) makes reporting and valuing your property your responsibility. There is no statutory duty for the Department to notify you of the election.

How is the election actually made if there's no form?
Through the way you file your property report. If you report on the cost method and leave out the schedules required for unit appraisal, you have elected the cost method. The Department values your property according to what your own report supports.

Can I switch to the other method for a prior year if I filed the "wrong" one?
No. The election is effective going forward and can be changed only with the secretary's prior permission for good cause, and not before it has been in effect for at least three consecutive property tax years. It is not a retroactive do-over.

Who wins if the facts are unclear?
The Department. Property values determined by the Property Tax Division are presumed correct under Section 7-38-6, so the protesting taxpayer must produce evidence and authority to overturn them. Here neither company did.

Verbatim citations

The election is the taxpayer's to make:

Each taxpayer having property subject to valuation under this section shall elect to have that property valued by the department in accordance with either Subsection D or Subsection F of this section. The election shall be effective for subsequent property tax years unless prior permission of the secretary is obtained to change the election for good cause shown....

Filing on one method is electing it:

By failing to include the information needed to determine the value of property in accordance with the unit appraisal method set out in Subsection F of Section 7-36-30, the Taxpayers necessarily elected to have the Department determine value in accordance with the cost valuation method set out in Subsection D of that section.... The Taxpayers cannot now claim the right to have their property revalued in accordance with an election they never made.

No duty to notify:

The Department does not have a statutory duty to notify taxpayers of the election provided in Section 7-36-30 NMSA 1978; the responsibility for making the election is on the taxpayer, not the Department.

Source

• Listing: New Mexico Decisions & Orders
• Decision post: American Communication Services of Alb., Inc. and ACSI
• Decision PDF: D&O 99-26

Original ruling text

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

IN THE MATTER OF THE CONSOLIDATED
PROTESTS OF:
AMERICAN COMMUNICATION SERVICES No. 99-26
OF ALBUQUERQUE, INC. (CAB 310-014) and
ACSI LOCAL SWITCHED SERVICES, INC.,
(CAB 310-034)
TO 1999 NOTICES OF VALUATION

DECISION AND ORDER

A formal hearing on the above-referenced protests was held August 30, 1999, before

Margaret B. Alcock, hearing officer. American Communication Services of Albuquerque, Inc.

("American") and ACSI Local Switched Services, Inc. ("ACSI") were represented by Christopher

Zamora, Deloitte & Touche, LLP. The Taxation and Revenue Department ("Department") was

represented by Bridget A. Jacober, Special Assistant Attorney General. Based on the evidence and

arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. American, a subsidiary of e.spire Communications, Inc., is a telecommunications

company with a plant and equipment located in New Mexico.

2. In 1996, American first registered with the Department's Property Tax Division for

purposes of reporting its property values to the Department as required by Section 7-38-8 NMSA

1978.

3. The Department provided American with instructions that, in all pertinent respects,

were identical to the 1999 instructions admitted as Dept. Exhibit 9.

4. The section of the Department's instructions dealing with telecommunications

companies states: "The value of property that is part of a telecommunications system is determined

according to the special method of valuation as described in Section 7-36-30 NMSA 1978, as

amended." Dept. Exhibit 9, page 5.

5. Section 7-36-30(C) NMSA 1978 provides that each taxpayer having property that is

part of a communications system "shall elect to have that property valued by the department in

accordance with either Subsection D or Subsection F of this section." Subsection D provides for

valuation of property based on a cost valuation method; Subsection F provides for valuation of

property based on a unit appraisal method.

6. The Department does not have a separate form for taxpayers to use in making the

election provided in Section 7-36-30(C) NMSA 1978, but determines the method of valuation

elected by a taxpayer based on the taxpayer's method of reporting the value of its property to the

Department.

7. On March 27, 1996, American filed its 1996 property valuation report with the

Department. Dept. Exhibit 10.

8. American listed all of its equipment, supplies and other property on Form CAB-06,

Construction Work in Progress ("CWIP"). Pursuant to Section 7-36-30(D)(2) NMSA 1978,

communications system property listed as CWIP is valued under the cost valuation method and

reported at 50 percent of cost.

9. On April 17, 1996, a Department employee spoke with Kelly Groves, a senior tax

accountant at American, and confirmed that all property had been reported as CWIP because the

company's plant was under construction on January 1, 1996, the date of valuation.

10. Although American provided some information on the forms used to value property

under the unit appraisal method, the forms were incomplete and did not provide sufficient

information to allow the Department to value American's property in accordance with this method.

11. Based on the forms and information included in American's 1996 property valuation

report, the Department issued American a 1996 Notice of Valuation using the cost valuation method

set out in Section 7-36-30(D) NMSA 1978.

12. American did not protest the Department's 1996 Notice of Valuation or question the

method the Department used to value American's property.

13. On March 31, 1997, American filed its 1997 property valuation report with the

Department. Dept. Exhibit 11. American's report did not include any schedules pertaining to the

unit appraisal method of valuation.

14. At some point during the 1997 valuation process, the Department received a

telephone call from Kelly Groves, American's senior tax accountant, asking what method was used

to value the company's telecommunications property.

15. In response to this call, the Department faxed Ms. Groves a copy of Section 7-36-30

NMSA 1978. The Department did not receive any further inquiries from Ms. Groves or from anyone

else at American.

16. The Department issued American a 1997 Notice of Valuation using the cost

valuation method.

17. American did not protest the Department's 1997 Notice of Valuation or question the

method the Department used to value American's property.

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18. In 1998, American again filed its property valuation report based on the cost

valuation method and again received a Notice of Valuation based on the same method. Dept.

Exhibit 12. American did not protest or question the 1998 Notice of Valuation.

19. In 1999, American filed its property valuation report based on the cost valuation

method. American's report did not include any schedules pertaining to the unit appraisal method of

valuation.

20. On April 7, 1999, the Department issued its 1999 Notice of Valuation to American

using the cost valuation method.

21. On May 3, 1999, American protested the 1999 Notice of Valuation on the grounds

that the Department failed to notify American of its right to elect a valuation method under Section

7-36-30 NMSA 1978 and American was therefore entitled to have its property revalued using the

unit appraisal method rather than the cost valuation method.

22. On June 16, 1999, American supplemented its protest to clarify that only $4,222,200

of the $10,552,200 property valuation shown on the Department's 1999 Notice of Valuation was in

controversy and subject to protest.

23. ACSI, a subsidiary of e.spire Communications, Inc., is a telecommunications

company with plant equipment located in New Mexico.

24. In 1999, ACSI first registered with the Department's Property Tax Division for

purposes of reporting its property values to the Department as required by Section 7-38-8 NMSA

1978..

25. On March 1, 1999, ACSI filed its 1999 property valuation report with the

Department. Taxpayer Exhibit 1.

26. ACSI's report was based on the cost valuation method with almost all property

reported as CWIP on Form CAB-06 and valued at 50 percent of cost as provided in section 7-36-
30(D)(2) NMSA 1978. ACSI's report did not include any schedules pertaining to the unit appraisal

method of valuation.

27. On May 10, 1999, the Department issued its 1999 Notice of Valuation to ACSI based

on the cost valuation method.

28. On May 25, 1999, ACSI protested the 1999 Notice of Valuation on the grounds that

the Department failed to notify ACSI of its right to elect a valuation method under Section 7-36-30

NMSA 1978 and ACSI was therefore entitled to have its property revalued using the unit appraisal

method rather than the cost valuation method.

29. On June 16, 1999, ACSI supplemented its protest to clarify that only $480,000 of the

$813,087 property valuation shown on the Department's 1999 Notice of Valuation was in

controversy and subject to protest.

30. On June 23, 1999, the hearing officer notified American and ACSI that formal

hearings on their respective protests would be held on August 9, 1999.

31. The taxpayers and the Department subsequently filed a joint request to continue the

hearings on the taxpayers' protests until August 30, 1999, which request was granted by the hearing

officer.

33. At the beginning of the August 30, 1999 hearing on ACSI's protest, Christopher

Zamora of Deloitte & Touche, LLP, the taxpayers' authorized representative, asked that American's

protest be consolidated with ACSI's protest and that both matters be heard and decided together.

DISCUSSION

American and ACSI ("Taxpayers") maintain they are entitled to have their New Mexico

telecommunications property revalued for tax year 1999 in accordance with the unit appraisal

method of valuation. The Taxpayers' position is based on the following argument: (1) the

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Department had an affirmative duty to notify the Taxpayers of the election provided in Section 7-36-

30 NMSA 1978, and (2) if the Department had notified the Taxpayers of the election, they would

have elected to file their property valuation reports using the unit appraisal method rather than the

cost valuation method.

Burden of Proof. Section 7-38-6 NMSA 1978 states that values of property determined by

the Department's Property Tax Division are presumed to be correct. It is therefore the Taxpayers'

burden to come forward with evidence and legal authority to support their protests to the

Department's 1999 Notices of Valuation.

Valuation of Telecommunications Property. Section 7-36-30 NMSA 1978 sets out special

rules for valuing property that is part of a communications system. Subsection (C) states, in

pertinent part:

C. Each taxpayer having property subject to valuation under this
section shall elect to have that property valued by the department in accordance
with either Subsection D or Subsection F of this section. The election shall be
effective for subsequent property tax years unless prior permission of the
secretary is obtained to change the election for good cause shown. A taxpayer
may not seek permission to change an election unless the prior election has
been effective for at least three consecutive property tax years....

The statute places responsibility for electing a valuation method on the taxpayer, not the Department.

This is consistent with Section 7-38-8 NMSA 1978, which places the initial responsibility for

reporting and valuing property on the taxpayer. See, Zwaagstra v. Board of County Commissioners,

119 N.M. 675, 894 P.2d 1031 (Ct. App. 1995) (New Mexico is a self-rendition state and a taxpayer is

required to report all property subject to valuation under Section 7-38-8). See also, Tiffany

Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976), cert. denied, 90

N.M. 255, 561 P.2d 1348 (1977) (every person is charged with the reasonable duty to ascertain the

possible tax consequences of his actions).
In this case, the Department's reporting instructions notified American and ACSI that their

telecommunications property should be valued according to the special method of valuation

described in Section 7-36-30 NMSA 1978. By failing to include the information needed to

determine the value of property in accordance with the unit appraisal method set out in Subsection F

of Section 7-36-30, the Taxpayers necessarily elected to have the Department determine value in

accordance with the cost valuation method set out in Subsection D of that section. The Department's

notices of valuation were based on the Taxpayers' own reports, and the Department's use of the cost

valuation method was dictated by the manner in which American and ACSI completed those reports.

The Taxpayers cannot now claim the right to have their property revalued in accordance with an

election they never made.

Taxpayers' Election of Valuation Method. American and ACSI contend they are entitled

to revalue their property based on the unit appraisal method because this is the method they would

have chosen if the Department had informed them of the election provided in Section 7-36-30

NMSA 1978. The evidence does not support the Taxpayers' position on this issue.

American's Election. At the August 30, 1999 hearing, Christopher Zamora testified

that none of the employees responsible for filing American's property valuation reports for prior

years are still with the company. Mr. Zamora acknowledged that no one now employed by

American knows whether the former employees were aware of the election provided in Section 7-36-

30 NMSA 1978. Nor do the current employees know why the reports American filed for prior years

did not include information to support a valuation based on the unit appraisal method.

What the evidence does show is that Kelly Groves, an American employee who worked on

both the 1996 and 1997 reports, called the Department sometime in 1997 to ask what method was

used to value the company's property. At that time, the Department faxed Ms. Groves a copy of

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Section 7-36-30 NMSA 1978, which clearly states that taxpayers must elect between the cost

valuation and unit appraisal methods of valuing telecommunications property. The Department did

not receive any follow-up inquiries from Ms. Groves or anyone else at American. Instead, American

continued to file its property valuation reports based on the cost valuation method. Although

American would have been eligible to apply for permission to change to the unit appraisal method of

valuation for the 1999 tax year, American did not do so. Nor has American applied for permission to

change its method of valuation for the 2000 tax year.

These facts do not support American's contention that it would have chosen the unit appraisal

method of valuation if it had been aware of the election provided in Section 7-36-30 NMSA 1978.

To the contrary, the evidence supports the conclusion that American was aware of the election and

knowingly chose to value its telecommunications property in accordance with the cost valuation

method set out in Subsection D of Section 7-36-30 NMSA 1978.

ACSI's Election. In 1999, ACSI filed its first property valuation report with the

Department. ACSI's report was based on the cost valuation method with almost all property reported

as CWIP on Form CAB-06 and valued at 50 percent of cost as provided in Section 7-36-30(D)(2)

NMSA 1978. ACSI's report did not include any schedules pertaining to the unit appraisal method of

valuation. No testimony or other evidence was presented at the hearing to explain why ACSI filed

its 1999 report based on the cost valuation method. Nor was there any
testimony to support ACSI's contention that the company would have used the unit appraisal method

of valuation if it had been aware of the election provided in Section 7-36-30 NMSA 1978.

CONCLUSIONS OF LAW

1. American and ACSI filed timely, written protests to the Department's 1999 Notices of

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

2. The Department does not have a statutory duty to notify taxpayers of the election

provided in Section 7-36-30 NMSA 1978; the responsibility for making the election is on the

taxpayer, not the Department.

3. Both American and ACSI elected to have the Department value their New Mexico

telecommunications property in accordance with the cost valuation method set out in Subsection D

of Section 7-36-30 NMSA 1978 and may not change their election except as specifically provided in

Subsection C of Section 7-36-30 NMSA 1978.

For the foregoing reasons, the protests filed by American and ACSI are denied.

Dated September 16, 1999.