Are mutual domestic water consumers associations (MDWCAs) in New Mexico exempt from paying property taxes on the land and infrastructure they own?

Plain-English summary

Senator Jeff Steinborn asked whether mutual domestic water consumers associations (MDWCAs), the small community-water systems that serve much of rural New Mexico, are exempt from property tax. The Department of Finance and Administration regulation (3.6.5.15(I) NMAC, last revised in 2001) says they are not, and a 1968 AG opinion (No. 68-38) said the same. The 2024 AG opinion concluded the answer has changed: MDWCAs are exempt.

The reasoning has two layers. First, the New Mexico Constitution at Article VIII, Section 3 exempts the property of "the United States, the state and all counties, towns, cities and school districts and other municipal corporations." MDWCAs, the AG argues, are "other municipal corporations." Second, that conclusion only became defensible after the Legislature rewrote the Sanitary Projects Act in 2006. The 2006 amendments designated MDWCAs as political subdivisions of the state, gave them eminent domain power, the ability to impose fees and assessments, and the authority to "sue and be sued." The 1968 opinion was decided before those amendments, when MDWCAs lacked the sovereign-power attributes that define a municipal corporation.

The opinion also tackles the secondary question Senator Steinborn asked about NMSA § 7-36-28(G), which exempts "commercial water property owned or sold by a nonprofit mutual domestic water association" from property tax valuation. The AG concludes that statute is constitutional only to the extent it exempts personal property (which the Legislature can exempt by supermajority vote under Article VIII, Section 3). It cannot expand the categories of real property exempt from tax beyond what the constitution itself authorizes. Because the constitutional exemption already covers MDWCA property as municipal-corporation property, that limit is not a problem.

Importantly, the 2001 NMAC regulation contradicts this analysis but predates the 2006 statutory rewrite. The AG flags that under New Mexico's interpretive hierarchy, the statute prevails over an inconsistent regulation, citing Jones v. Employment Services Division.

What this means for you

If you serve on an MDWCA board or manage one

The AG opinion is a strong basis for treating your association's property as exempt from county property tax. Practical step: contact your county assessor with a copy of the opinion and request reclassification. Be aware that the Taxation and Revenue Department regulation 3.6.5.15(I) NMAC still says MDWCA property is taxable. Until that regulation is updated, you may face inconsistent treatment from county to county. Document everything and be prepared to litigate or seek a refund if the assessor refuses to follow the AG opinion.

If you're a county assessor or taxation official

The AG concluded MDWCAs are "municipal corporations" within the meaning of Article VIII, Section 3, and that the 2006 SPA amendments changed the legal analysis from the 1968 opinion. The Taxation and Revenue Department regulation that says otherwise predates those amendments and conflicts with the controlling statute. You will need to coordinate with the TRD on whether to treat MDWCA property as exempt going forward, or risk inconsistent applications across counties and a refund-claim exposure if your treatment is later overturned.

If you're a customer of an MDWCA

If your association is exempt from property tax, that should reduce its operating costs. Whether that translates into lower water rates or more reinvestment in infrastructure depends on the board. The opinion does not affect what the association can charge you for water service, only what taxes it pays on its own assets.

If you're a state legislator or policy advisor

The opinion implicitly invites the Legislature to clarify two things. First, the Taxation and Revenue Department regulation should be updated to align with the 2006 SPA amendments and this opinion. Second, the statute at NMSA § 7-36-28(G) is constitutional as applied to personal property (because of the supermajority vote under HB 297 in 2009) but cannot extend the exemption to real property. If you want comprehensive statutory clarity for MDWCAs, that gap is worth filling.

If you serve a similar special-district entity (water and sanitation districts, conservancy districts, etc.)

The opinion treats MDWCAs as analogous to water and sanitation districts, which a 2002 AG opinion already exempted. The same constitutional reasoning applies to other special-district entities that exercise sovereign power. Worth checking your enabling statute for the kinds of attributes the AG identified: political-subdivision status, eminent domain, fee/assessment authority, suit capacity, and continuity.

Common questions

What is a mutual domestic water consumers association?

A community-owned water system created under New Mexico's Sanitary Projects Act, NMSA §§ 3-29-1 to -21. They typically serve rural unincorporated communities that would otherwise have no organized water provider. As of 2024 there are several hundred of them across the state.

If MDWCAs are exempt, why have they been paying property tax?

Because a 1968 AG opinion (No. 68-38) said they were not exempt, a 2001 Taxation and Revenue Department regulation codified that view, and the question never went up to the courts. The 2006 amendments to the SPA changed the underlying legal landscape but did not generate any litigation that flipped the regulation. This 2024 opinion is the AG's current reading of the law.

What changed in 2006 that matters?

The Legislature rewrote large parts of the Sanitary Projects Act, expressly designating MDWCAs as "political subdivisions of the state" and as "public bodies corporate." 2006 N.M. Laws ch. 60, §§ 2, 6. The amendments also gave MDWCAs the power of eminent domain, the power to impose fees and assessments, and the authority to sue and be sued, sell bonds, and acquire and dispose of property. Those powers are the legal markers of a municipal corporation under Einer v. Rivera and Moongate Water Co.

Is this binding on county assessors?

No. AG opinions are persuasive authority but not binding precedent. A county assessor could continue to follow the 2001 NMAC regulation, but doing so would be hard to defend if challenged in court given that the AG and the controlling statute now disagree with the regulation.

What about the statute at NMSA § 7-36-28(G)?

That statute purports to exempt "commercial water property" owned by a nonprofit mutual domestic water association. Under El Castillo Retirement Residences (2017), Article VIII, Section 3 of the constitution limits the Legislature's power to redefine real-property exemptions. The 2009 enactment of § 7-36-28(G) passed with the supermajority required for personal-property exemptions, so it is constitutional as applied to personal property (pipelines, tanks, meters, etc.). The statute cannot, however, exempt real property beyond what the constitution itself permits. The good news is that the constitutional municipal-corporation exemption already covers real property, so MDWCAs do not need § 7-36-28(G) to win on real property.

Do other states treat their water associations the same way?

Treatment varies. Some states extend property-tax exemption to community water systems through their own constitutional or statutory schemes. Others treat them as private nonprofits subject to tax. New Mexico's structure is distinctive because the SPA expressly designates MDWCAs as political subdivisions, which is what supports the municipal-corporation analysis here.

Background and statutory framework

Article VIII, Section 3 of the New Mexico Constitution sets out the property-tax exemption. The relevant categories include "the property of the United States, the state and all counties, towns, cities and school districts and other municipal corporations." The Supreme Court in Sims v. Vosburg (1939) read this constitutional structure as the controlling limit on what is exempt: all tangible property is taxable unless the constitution or its authority exempts it.

The Sanitary Projects Act, NMSA §§ 3-29-1 to -21, creates the framework for MDWCAs. Section 3-29-3 defines the purpose: to provide water-supply and wastewater facilities to rural communities through state-authorized political subdivisions. Section 3-29-6 lists the powers, including imposing fees, prescribing rules, and exercising eminent domain. Section 3-29-15 provides that MDWCAs "constitute a public body corporate" and may sue, contract, hold property, and incur indebtedness.

The 2006 amendments (2006 N.M. Laws ch. 60) expanded these powers and explicitly designated MDWCAs as political subdivisions. That language is what the AG relied on to distinguish the 1968 opinion, which had concluded that pre-2006 MDWCAs were not "bodies politic" or "instrumentalities of the state government" within the meaning of State v. Board of Trustees of Las Vegas (1922).

Einer v. Rivera (2015) lays out the general definition of a municipal corporation: "the autonomous authority to administer the state's local affairs . . . endowed with political powers to be exercised for the public good in the administration of local civil government." The AG argues MDWCAs satisfy that definition under current law.

NMSA § 7-36-28(G) provides a statutory exemption for "commercial water property owned or sold by a nonprofit mutual domestic water association," with "commercial water property" defined narrowly to cover pipelines, tanks, meters, and similar utility infrastructure. The constitutional analysis from El Castillo Retirement Residences (2017) limits that statute to personal property, since the supermajority vote (here, the unanimous passage of HB 297 in 2009) is the constitutional path for personal-property exemptions but not for real-property exemptions.

The administrative regulation 3.6.5.15(I) NMAC, last revised in 2001, contradicts this analysis. The AG resolves the conflict by applying Jones v. Employment Services Division (1980): when statutes and agency regulations conflict, the statute prevails.

Citations

The constitutional anchor is Article VIII, Section 3 of the New Mexico Constitution as construed in El Castillo Retirement Residences v. Martinez, 2017-NMSC-026. The municipal-corporation analysis rests on Einer v. Rivera, 2015-NMCA-045, and Moongate Water Co. v. Doña Ana Mut. Domestic Water Consumers Ass'n, 2008-NMCA-143. The 2006 amendments to the Sanitary Projects Act are at 2006 N.M. Laws ch. 60. The earlier AG opinion that reached the opposite conclusion is N.M. Att'y Gen., No. 68-38 (Apr. 9, 1968). A 2002 letter from Assistant AG Patrick T. Simpson to Senator Mary K. Papen, 2002 WL 32082312, exempted analogous water and sanitation districts on similar reasoning.

Source

• Landing page: https://nmdoj.gov/publication/opinion/2024-06-opinion-property-taxation-of-mutual-domestic-water-consumers-associations/
• Original PDF: https://nmdoj.gov/wp-content/uploads/AG-Opinion-2024-06-Property-Taxation-of-Mutual-Domestic-Water-Consumers-Association.pdf

Original opinion text

April 12, 2024
OPINION
OF
RAÚL TORREZ
Attorney General

Opinion No. 2024-06

By:

Ellen Venegas
Assistant Solicitor General

To:

Senator Jeff Steinborn
New Mexico Senate

Re:

Opinion Request – Property Taxation of Mutual Domestic Water Consumers Associations

Question: Is a mutual domestic water consumers association (MDWCA) organized pursuant to the Sanitary Projects Act (SPA), NMSA 1978, §§ 3-29-1 to -21 (1965, as amended through 2013), exempt from valuation for property taxation purposes, either pursuant to NMSA 1978, Section 7-36-28(G) (2009), or a constitutionally authorized exemption from property taxation?

Answer: MDWCAs are exempt from property taxes.

Analysis

In answering a question about the application of property taxes, we are guided by the general principle that "[a]ll tangible property in New Mexico is subject to taxation . . . and should be taxed, unless specifically exempted by the constitution or by its authority." Sims v. Vosburg, 1939-NMSC-026, ¶ 4, 43 N.M. 255, 91 P.2d 434. The New Mexico Constitution exempts the following from property taxation:

[t]he property of the United States, the state and all counties, towns, cities and school districts and other municipal corporations, public libraries, community ditches and all laterals thereof, all church property not used for commercial purposes, all property used for educational or charitable purposes, all cemeteries not used or held for private or corporate profit and all bonds of the state of New Mexico, and of the counties, municipalities and districts thereof[.]

N.M. Const. art. VIII, § 3.

Our analysis depends on whether MDWCAs fall within the category of "other municipal corporations" the property of which is exempt under Article VIII, Section 3. Several decades ago, this office analyzed the law in existence at the time and concluded that MDWCAs were not exempt from property taxation. See N.M. Att'y Gen., No. 68-38 (Apr. 9, 1968). However, subsequent changes in the law, including significant amendments to the SPA, mandate a different result today. Under current law, MDWCAs are municipal corporations, and the property of MDWCAs is therefore constitutionally exempt from property taxation.

MDWCAs, widespread throughout New Mexico, are community water systems that predominantly serve rural communities. "The purpose, membership, and activities of an [MDWCA] are carefully circumscribed by state law." Moongate Water Co. v. Doña Ana Mut. Domestic Water Consumers Ass'n, 2008-NMCA-143, ¶ 12, 145 N.M. 140, 194 P.3d 755. MDWCAs are created under the SPA, an Act located within the State's Municipal Code. The express purpose of the SPA

is to improve the public health of rural communities in New Mexico by providing for the establishment and maintenance of a political subdivision of the state that is empowered by the state to receive public funds for acquisition, construction and improvement of water supply, reuse, storm drainage and wastewater facilities in communities, and to operate and maintain such facilities for the public good.

Section 3-29-3; see also Moongate Water Co., 2008-NMCA-143, ¶ 15.

"By enacting the SPA, . . . the [L]egislature has provided a governmental solution for a particular problem: water supply in the rural communities in New Mexico." Id. ¶ 12. The SPA enumerates a litany of powers possessed by MDWCAs that clearly give them self-governing authority for the specific purposes for which such MDWCAs exist. See, e.g., §§ 3-29-6 (outlining various powers of MDWCAs, including the ability to impose fees, prescribe and enforce rules, and exercise the power of eminent domain), -15 (providing that MDWCAs "constitute a public body corporate" and "may sue and be sued, have capacity to make contracts, acquire, hold, enjoy, dispose of and convey property real and personal, accept grants and donations, borrow money, incur indebtedness, impose fees and assessments and do any other act or thing necessary or proper for carrying out the purposes of their organization").

As local political entities created pursuant to statute and authorized to manage community water systems, MDWCAs have "the autonomous authority to administer the state's local affairs . . . and [are] endowed with political powers to be exercised for the public good in the administration of local civil government." Einer v. Rivera, 2015-NMCA-045, ¶ 24, 346 P.3d 1197 (internal quotation marks and citation omitted). In total, MDWCAs possess the attributes municipal corporations are commonly understood to have. See id. ¶ 26; Moongate Water Co., 2008-NMCA-143, ¶ 12; Eugene McQuillin, The Law of Municipal Corporations § 2:9 (3d ed.) ("a test as to whether an organization is a municipal corporation, using the term in its strict sense, is whether it has the power of local government").

Our conclusion that MDWCAs are exempt from property tax is further supported by our previous determination that water and sanitation districts, entities that share many similarities with MDWCAs, are constitutionally exempt from property tax. See Letter from Patrick T. Simpson, Assistant Att'y Gen., to Sen. Mary K. Papen, N.M. State Senate, 2002 WL 32082312 (Apr. 15, 2002); Moongate Water Co., 2008-NMCA-143, ¶¶ 14-20.

The powers of MDWCAs under current law distinguish them from the ones at issue in the previous Attorney General opinion on this subject. In 1968, our opinion concluded that MDWCAs "are neither 'bodies politic' nor 'instrumentalities, nor agencies of the state government' as used in State v. Board of Trustees of Town of Las Vegas," 1922-NMSC-029, 28 N.M. 237, 210 P. 101. N.M. Att'y Gen., No. 68-38 (Apr. 9, 1968). However, in 2006, the Legislature substantially revised the SPA, unequivocally establishing MDWCAs as public bodies and political subdivisions of the State. See 2006 N.M. Laws ch. 60, §§ 2, 6 (designating MDWCAs as political subdivisions of the state and expanding their powers). These amendments expressly recognized that MDWCAs possess the precise characteristics of a municipal corporation our previous opinion found lacking.

You additionally asked about the Legislature's power to exempt property from valuation for property tax purposes, in particular the exemption in Section 7-36-28(G). "The Legislature's inherent authority and discretion to exercise the State's power of taxation is plenary except in so far as limited by the Constitution." El Castillo Ret. Residences v. Martinez, 2017-NMSC-026, ¶ 26, 401 P.3d 751 (internal quotation marks and citation omitted).

Pursuant to NMSA 1978, Section 7-36-28(G) (2009), "[c]ommercial water property owned or sold by a nonprofit mutual domestic water association is exempt from valuation for property taxation purposes." Commercial water property is defined as "privately owned pipelines, tanks, meters, plants, hydrants, materials and supplies, whether in service, in stock or under construction, owned and operated as a utility for the purpose of transmitting, storing, measuring or distributing water for sale to the consuming public, excluding general buildings and improvements[.]" Section 7-36-28(B)(1).

"Article VIII, Section 3 operates as a limit on the Legislature's power to redefine categories of property which will be exempt from taxation." El Castillo Ret. Residences, 2017-NMSC-026, ¶ 29. Accordingly, Section 7-36-28(G) "may not be interpreted or applied to grant exemptions that are not authorized by Article VIII, Section 3." Id. ¶ 30.

Beyond the constitutional property tax exemptions addressed above, Article VIII, Section 3 additionally provides that "[e]xemptions of personal property from ad valorem taxation may be provided by law if approved by a three-fourths majority vote of all the members elected to each house of the legislature." N.M. Const. art. VIII, § 3; cf. El Castillo Ret. Residences, 2017-NMSC-026, ¶ 30. Section 7-36-28(G), enacted by HB 297 (2009), passed the Legislature with unanimous consent, thereby adhering to the supermajority requirement in the Constitution. Accordingly, insofar as the statutory exemption is understood to exempt personal property from taxation, the exemption complies with the Constitution. See El Castillo Ret. Residences, 2017-NMSC-026, ¶ 30.

Lastly, we observe that a Taxation and Revenue Department regulation opines that the property of MDWCAs is not exempt from property taxes. 3.6.5.15(I) NMAC. Because 3.6.5.15 NMAC was last revised in 2001, we do not understand it to consider subsequent, significant amendments to the SPA or Section 7-36-28(G). Cf. Jones v. Emp. Servs. Div. of Hum. Servs. Dep't, 1980-NMSC-120, ¶ 3, 95 N.M. 97, 619 P.2d 542 ("If there is a conflict or inconsistency between statutes and regulations promulgated by an agency, the language of the statutes shall prevail.").

Conclusion

It is the opinion of the New Mexico Department of Justice that the property of Mutual Domestic Water Consumers Associations is exempt from property taxation, pursuant to Article VIII, Section 3 of the New Mexico Constitution and Section 7-36-28(G).

You have requested an opinion on this question presented to our office. The request and the opinion provided herein will be published on our website and made available to the general public. If you have any questions regarding this matter, or if our office may be of further assistance, please let us know.

RAÚL TORREZ
ATTORNEY GENERAL

Ellen Venegas
Assistant Solicitor General