Could a building owner transfer part of a sustainable building tax credit after she had already claimed portions of the credit herself?

Plain-English summary

A sustainable-building credit owner could not transfer part of the remaining credit after she had already claimed portions herself. The AHO upheld the Department's denial of Kristin Ericksen's requested 2015 transfer to her fiancé, despite the Department having approved a similar partial transfer the year before.

Ericksen completed qualifying sustainable construction in 2009 and 2010 and received the required eligibility certificate and Department document granting the credit. Because the credit exceeded her income-tax liability, she claimed portions over several years and carried the balance forward.

For 2014, a Department supervisor told Ericksen that a partial assignment was allowed. The Department approved a transfer to her fiancé, and each claimed part of the available credit. When Ericksen requested another partial transfer for 2015, a different reviewer examined the statute, consulted Tax Policy and Chief Legal Counsel, and denied it.

The statute required a choice between use and transfer

Section 7-2-18.19 said the Department's document granting the credit “may be submitted” by the building owner with that owner's return “or may be sold, exchanged, or otherwise transferred” to another taxpayer.

The AHO gave “or” its ordinary disjunctive meaning. The owner could use the credit document or transfer it, but the statute did not authorize using the credit for some years and then transferring part of the remaining balance later.

The seven-year carryforward provision allowed unused excess to remain available to the same taxpayer. It did not create a separate right to divide and transfer a carryforward after the credit had already been claimed.

Prior Department approval did not change the statute

The Department acknowledged that it had regularly allowed partial transfers and had not warned taxpayers before changing its interpretation. Ericksen said she would have transferred the entire remaining credit in 2014 had she known later partial transfers would be denied.

Even so, tax credits were legislative graces construed narrowly. The statute limited annual certificates and also restricted credits for subsequent building purchasers when a credit had already been claimed. Reading the provisions together, the AHO found the Department's corrected interpretation reasonable and its 2015 denial justified.

Result: protest DENIED. Ericksen could continue using her carryforward herself, but could not transfer part of it after prior personal use.

What this means for you

Sustainable-building owners

Decide at issuance whether you will use the credit or transfer it. Do not assume you can claim part now and assign the remaining carryforward later.

Buyers and recipients of tax credits

Verify that the original owner has not already claimed the credit. A prior Department approval of a similar transfer does not establish that a later transfer is authorized by statute.

Accountants and tax professionals

Distinguish carryforward from transfer. Carryforward preserves unused credit for the taxpayer who claimed it; it does not necessarily make the unused balance freely assignable.

Common questions

Q: Could Ericksen carry the unused credit forward?
A: Yes. The statute allowed excess credit to be carried forward for up to seven years.

Q: Why could she not transfer the remaining balance?
A: The AHO read the statute as allowing the credit document to be used by the owner or transferred, not partially used and later partially transferred.

Q: Had the Department approved this before?
A: Yes. It approved Ericksen's 2014 partial transfer and stipulated that it had allowed similar transfers, but later concluded that practice was erroneous.

Q: Did lack of advance warning change the result?
A: No. The decision acknowledged the unfair practical effect but held that prior agency practice could not expand the credit beyond the statute.

Q: Was the underlying building credit invalid?
A: No. Ericksen remained eligible for the credit and carryforward; only the requested later transfer was denied.

Citations and references

Statutes:

• NMSA 1978, § 7-2-18.19 — sustainable building tax credit, transfer, and carryforward
• NMSA 1978, § 7-1B-6 — hearing witnesses and subpoenas
• NMSA 1978, § 7-1-8 — confidential tax information

Cases cited:

• Team Specialty Products v. New Mexico Taxation and Revenue Department, 2005-NMCA-020 — tax credits as narrowly construed legislative grace
• Murphy v. Taxation and Revenue Department, 1979-NMCA-065 — narrow construction of tax credits
• State v. Davis, 2003-NMSC-022 — legislative intent and statutory interpretation
• State v. Ramos-Arenas, 2012-NMCA-117 — ordinary disjunctive meaning of “or”
• Public Services Co. v. New Mexico Taxation and Revenue Department, 2007-NMCA-050 — taxpayer's burden to prove tax relief

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Kristin Ericksen
• Decision PDF: D&O 16-37

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
KRISTIN ERICKSEN, No. 16-37
TO THE DENIAL OF CREDIT TRANSFER
ISSUED UNDER LETTER ID NO. L0796089392

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on June 16, 2016 before

Hearing Officer Dee Dee Hoxie. The Taxation and Revenue Department (Department) was

represented by Mr. Peter Breen, Staff Attorney. Ms. Milagros Bernardo, Auditor, and Ms. Bobbie

Marquez also appeared on behalf of the Department. Ms. Kristin Ericksen (Taxpayer) appeared

for the hearing and represented herself. The Hearing Officer took notice of all documents in the

administrative file.

The Taxpayer objected to the hearing because various employees from the Department

were not present. The Taxpayer requested to continue the hearing so she could call those

Department employees as witnesses. The request was denied and the objection was overruled.

The Taxpayer did not file a witness list and did not request that any witnesses be subpoenaed.

See NMSA 1978, § 7-1B-6 (2015). Moreover, the Department conceded that their employees’

testimonies would substantially comport with the Taxpayer’s representations and did not object

to hearsay. Based on the evidence and arguments presented, IT IS DECIDED AND ORDERED

AS FOLLOWS:

FINDINGS OF FACT

1. On November 18, 2015, the Department denied the Taxpayer’s request to transfer a

portion of her sustainable building tax credit to another person.

2. On January 6, 2016, the Taxpayer filed a formal protest letter.

3. On February 8, 2016, the Department filed a Request for Hearing asking that the

Taxpayer’s protest be scheduled for a formal administrative hearing.

4. On February 9, 2016, the Hearings Office issued a notice of hearing. The hearing date

was set within ninety days of the protest.

5. On March 23, 2016, the Taxpayer filed a request to continue the hearing.

6. On March 25, 2016, the Taxpayer’s request was granted, and the delay of hearing was

attributable to her.

7. On March 25, 2016, the Hearings Office sent amended notices of hearing.

8. In 2009 and 2010, the Taxpayer engaged in construction that qualified for the sustainable

building tax credit.

9. The Taxpayer was issued the appropriate certificate and subsequent Department

documentation for claiming the credit.

10. The Taxpayer’s credit was in excess of the Taxpayer’s income tax liability, and the

remainder of the credit was eligible to be carried forward for up to seven years.

11. The Taxpayer claimed the sustainable building tax credit for the next few years, but there

was still a substantial amount that could be carried forward.

12. For the 2014 tax year, the Taxpayer requested that a portion of her available sustainable

building tax credit be transferred to her fiance.

13. The Taxpayer spoke to an employee of the Department. The employee was a supervisor

in the office that reviewed credit transfers. The employee told the Taxpayer that the

partial assignment of her credit was permissible.

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Letter ID No. L0796089392
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14. The Department granted the transfer of a portion of the Taxpayer’s sustainable building

tax credit for 2014 to the Taxpayer’s fiance.

15. Both the Taxpayer and her fiance claimed a portion of the credit available for 2014.

16. For the 2015 tax year, the Taxpayer again requested that a portion of her available

sustainable building tax credit be transferred to her fiance.

17. The request was reviewed by Ms. Marquez. Ms. Marquez was familiar with the credit

transfer process, but had never before seen a request for a partial transfer of a credit. Ms.

Marquez had only seen the transfer of the whole credit.

18. Ms. Marquez read the statute and regulations, consulted with the Tax Policy Director, and

spoke to the Department’s Chief Legal Counsel.

19. The Taxpayer’s request to transfer a portion of her sustainable building tax credit to her

fiance in 2015 was denied.

DISCUSSION

The issue to be decided is whether the Department properly denied the transfer of the

sustainable building tax credit. The Taxpayer argues that the statute allows for the transfer of the

credit and that her request should have been granted as it was in 2014. The Taxpayer argues that

the statute is ambiguous at best and should be interpreted to the benefit of taxpayers and to the

encouragement of construction of sustainable buildings. The Department argues that its previous

position was erroneous and that a more careful reading of the statute revealed that the document

granting the credit is what may be transferred. The Department argues that the statute allows for

the building owner to either use the document his/herself or to transfer it to someone else. The

Department argues that the statute does not allow the Taxpayer to make use of the document in

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Letter ID No. L0796089392
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some years and then to transfer a portion of the remaining credit granted by the document in

other years.

Burden of Proof.

The burden is on the taxpayer to prove that he/she is entitled to an exemption or

deduction. See Public Services Co. v. N.M. Taxation and Revenue Dep’t., 2007-NMCA-050, ¶

32, 141 N.M. 520. See also Till v. Jones, 1972-NMCA-046, 83 N.M. 743. “Where 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.” Sec. Escrow

Corp. v. State Taxation and Revenue Dep’t., 1988-NMCA-068, ¶ 8, 107 N.M. 540. See also

Wing Pawn Shop v. Taxation and Revenue Dep’t., 1991-NMCA-024, ¶ 16, 111 N.M. 735. See

also Chavez v. Commissioner of Revenue, 1970-NMCA-116, ¶ 7, 82 N.M. 97. Credits are

similar to deductions and are considered legislative graces that should be construed narrowly.

See Team Specialty Prods. v. N.M. Taxation and Revenue Dep’t, 2005-NMCA-020, 137 N.M.

50. See also Murphy v. Taxation and Revenue Dep’t, 1979-NMCA-065, 94 N.M. 90. Therefore,

the burden is on the Taxpayer to show that the sustainable building tax credit should have been

transferred as she requested.

Sustainable building tax credit.

The sustainable building tax credit is available for the construction of a sustainable

building or for the renovation of an existing building into a sustainable building. See NMSA

1978, § 7-2-18.19. The credit was created in 2007, and has been revised twice; once in 2009 and

once in 2014. See id. The pertinent parts of the statute have remained virtually the same from

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Letter ID No. L0796089392
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2009, although their subsection designations have changed. See id. For ease of reference, the

current statute will be cited.

To be eligible for the credit, the taxpayer must be the building owner, must provide a

certificate of eligibility from the energy, mineral, and natural resources department, and must

provide any other information requested by the Department. See NMSA 1978, § 7-2-18.19 (I)

(2014). If all of those requirements are met, then the Department must “issue to the building

owner a document granting a sustainable building tax credit.” NMSA 1978, § 7-2-18.19 (J). A

taxpayer may claim the credit by submitting “a document issued pursuant to Subsection J of this

section with the taxpayer’s income tax return.” NMSA 1978, § 7-2-18.19 (C). If the amount of

the credit “exceeds the taxpayer’s income tax liability for that taxable year, the excess may be

carried forward for a period of up to seven years.” NMSA 1978, § 7-2-18.19 (L).

The following facts were undisputed. The Taxpayer became eligible to claim a

sustainable building tax credit in 2010. The Department issued a document granting the

sustainable building tax credit to the Taxpayer at that time. The Taxpayer’s credit was in excess

of her tax liability and could be carried forward for seven years. The Taxpayer claimed the

credit for the first few years, until she transferred a portion of her remaining credit to her fiance

in 2014. The Department was regularly allowing the partial transfer of sustainable building tax

credits.1 The Department did not warn taxpayers that it would be changing its position on partial

transfers. The Taxpayer would have transferred all of her remaining credit to her fiance in 2014

if she had known that future requests for transfer would be denied.

1
The Taxpayer submitted Exhibit #1 as proof of the Department’s approval of the transfers of the carryforward
credit after the original taxpayer claimed the credit in the first tax year. Exhibit #1 was another taxpayer’s return.
The Department objected to Exhibit #1’s admission, but stipulated that the Department was approving such transfers
at the time. Exhibit #1 was admitted to the administrative record, but it is sealed and sequestered from the public
record due to confidentiality requirements. See NMSA 1978, § 7-1-8.
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Letter ID No. L0796089392
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The primary goal in interpreting a statute is to give it the effect that the Legislature

intended. See State v. Davis, 2003-NMSC-022, 134 N.M. 172. Statutory construction begins by

looking at the plain meaning of the language. See id. See also Wood v. State Educ. Ret. Bd., 2011-

NMCA-020, ¶ 12, 149 N.M. 455. See also State v. Maestas, 2007-NMSC-001, 149 P.3d 933. See

also Johnson v. NM Oil Conservation Com’n, 1999-NMSC-021, 127 NM 120. The word “or” is

given its ordinary disjunctive meaning unless the context of the statute demands otherwise. See

State v. Ramos-Arenas, 2012-NMCA-117, ¶ 10. See also State v. Block, 2011-NMCA-101, ¶ 21,

150 N.M. 598. Tax credits are strictly matters of legislative grace and are to be construed against

the taxpayer. See Team Specialty Prods., 2005-NMCA-020, ¶ 9. See also Murphy, 1979-NMCA-

065, ¶ 20.

The document granting the sustainable building tax credit that is issued by the Department

to the building owner “may be submitted by the building owner with that taxpayer’s income tax

return, if applicable, or may be sold, exchanged, or otherwise transferred to another taxpayer.”

NMSA 1978, § 7-2-18.19 (J) (emphasis added). The parties must also notify the Department of the

transfer within 10 days. See id. If the credit for the taxable year “exceeds the taxpayer’s income

tax liability for that taxable year, the excess may be carried forward for a period of up to seven

years.” NMSA 1978, § 7-2-18.19 (L). However, the statute only allows certificates of eligibility

to claim the credit to be issued if the aggregate amount of the certificates issued is not in excess of

an annual cap. See NMSA 1978, § 7-2-18.19 (G). The statute also limits eligibility for the

certificate to the owner of the building at the time of certification is awarded or to the subsequent

purchaser of the building “with respect to which no tax credit has been previously claimed.”

NMSA 1978, § 7-2-18.19 (F) (emphasis added). Therefore, it is clear from the statute that the

legislature did not mean for the credit to be an unlimited advantage to taxpayers. It appears that the

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Letter ID No. L0796089392
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legislature did not intend to extend the credit to others when the credit had been previously

claimed. The Department’s interpretation of the statute as requiring a taxpayer to choose to either

use the credit or to transfer the credit is reasonable given the context of the statute as a whole and

the statute’s use of the disjunctive or. Consequently, the Department’s denial of the credit transfer

was justified.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the denial of credit transfer issued

under Letter ID number L0796089392, and jurisdiction lies over the parties and the subject matter

of this protest.

B. The Taxpayer was entitled to use her sustainable building tax credit or to transfer it

to another taxpayer when the document granting the credit was issued to her. See NMSA 1978, § 7-

2-18.19.

C. The Taxpayer was entitled to carry forward the excess credit for up to seven

years. See id.

D. The Taxpayer was not entitled to transfer her credit to another taxpayer after she

had previously claimed the credit herself, and the Department’s denial of the credit transfer was

appropriate. See id.

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

DATED: July 15, 2016.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Kristin Ericksen
Letter ID No. L0796089392
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Post Office Box 6400
Santa Fe, NM 87502

Kristin Ericksen
Letter ID No. L0796089392
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