Could Wells Fargo claim New Mexico renewable energy production credits for 2011 when facilities produced energy that year but eligibility certificates issued in 2012?

Plain-English summary

Wells Fargo Equipment Finance could not claim renewable energy production tax credits for 2011 because the required certificates of eligibility were not issued until 2012. Preliminary application approval protected priority but did not make the credit claimable.

Wells Fargo acquired five renewable-energy facilities during September and December 2011. The facilities' application packages had received preliminary Energy Division approval in March 2011, before Wells Fargo acquired them.

All five facilities began producing qualified renewable energy and selling it to unrelated parties during 2011. But the certification process occurred later:

• the three facilities acquired in September received certificates in January 2012; and
• the two acquired in December received certificates in April 2012.

Wells Fargo amended its 2011 corporate income tax return in April 2013 to claim the credits. The Department issued a refund in January 2015, continued reviewing the claim, and later concluded the refund had been erroneous.

It assessed $249,314.32 corporate income tax and $3,688.48 interest, totaling $253,002.80. No penalty was assessed.

Application approval was only preliminary

The Energy Division could approve an application package before facility construction even began. Approval required construction within 12 months and qualified production within 24 months, but certification came only after the facility actually produced qualified energy.

The AHO found that preliminary approval was too aspirational to authorize a tax credit. Its effect was to establish the facility's priority relative to other applicants.

The certificate was a condition to claiming the credit

Section 7-2A-19(J) stated that a taxpayer could claim the credit by submitting the certificate issued by the Energy Division and other required documents to the Taxation and Revenue Department.

Tax credits were legislative graces construed narrowly. The certification requirement was therefore a substantive precondition, not a formality that related back to application approval or first production.

Because the certificates issued in 2012, Wells Fargo could claim the credits for 2012 and qualifying later years, not 2011.

The ten-year limit did not create a 2011 credit

Wells Fargo argued that the statute allowed the credit for ten consecutive years beginning when qualified energy production started. Denying 2011 could prevent it from receiving the full intended benefit.

The AHO rejected relation back. The statute did not guarantee every taxpayer ten full tax years regardless of certification timing; it imposed limits, priorities, and conditions.

The Department interpreted the production-based ten-year window to allow Wells Fargo's credit through the 2021 tax year, even though 2011 was unavailable. The decision accepted that the timing rule did not justify ignoring the certificate requirement.

Interest remained

The Department's earlier refund did not remove the underlying 2011 liability. Once the credit was disallowed, interest was mandatory to compensate New Mexico for the time value of unpaid tax.

Result: protest DENIED. The return adjustment and $253,002.80 assessment remained in place.

What this means for you

Renewable energy facility owners

Track application approval, start of qualified production, and certificate issuance as separate milestones. The credit is not claimable merely because the project has priority and is already producing energy.

Buyers acquiring approved projects

Confirm which entity will receive the certificate and when. Acquisition after preliminary approval does not eliminate the need for final certification before claiming the credit.

Taxpayers receiving a large refund

An issued refund may still be reviewed and reversed. Preserve the statutory and agency documentation supporting every credit claimed on an amended return.

Common questions

Q: What did preliminary application approval accomplish?
A: It preserved the facilities' priority to claim the credit after later conditions were met.

Q: Did qualified energy production begin in 2011?
A: Yes, but production alone did not make the credit claimable.

Q: When did the certificates issue?
A: January 2012 for three facilities and April 2012 for two.

Q: Could the certificates relate back to 2011?
A: No. The statute did not authorize relation back to the application-approval or production date.

Q: Did Wells Fargo lose the final year of the ten-year window?
A: The Department stated that its interpretation allowed a claim for the 2021 tax year, preserving ten consecutive qualifying returns after certification.

Q: What amount was upheld?
A: $249,314.32 tax plus $3,688.48 interest, totaling $253,002.80.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-2A-19(G), (J), and (K) — certificate request, credit claim, and use against corporate income tax
• NMSA 1978, §§ 7-1-3 and 7-1-17 — tax definition and assessment presumption
• NMSA 1978, § 7-1-67(A) — interest
• Regulations 3.13.19.8, 3.13.19.10, 3.13.19.12, and 3.13.19.13 NMAC — application approval, production timing, certification, and claiming the credit

Cases cited:

• Team Specialty Products v. New Mexico Taxation & Revenue Department, 2005-NMCA-020 — tax-credit conditions and strict construction
• Murphy v. Taxation & Revenue Department, 1979-NMCA-065 — credits as legislative grace
• Elane Photography, LLC v. Willock, 2013-NMSC-040 — summary judgment where no material fact is disputed
• Marbob Energy Corp. v. New Mexico Oil Conservation Commission, 2009-NMSC-013 — mandatory interest

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Wells Fargo Equipment Finance
• Decision PDF: D&O 17-09

Original ruling text

STATE OF NEW MEXICO
ADMINISTRATIVE HEARINGS OFFICE
TAX ADMINISTRATION ACT

IN THE MATTER OF THE PROTEST OF
WELLS FARGO EQUIPMENT FINANCE, No. 17-09
TO ASSESSMENT ISSUED UNDER
LETTER ID NO. L1644621872
AND TO THE RETURN ADJUSTMENT NOTICE
ISSUED UNDER LETTER ID NO. L0852652080

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on January 27, 2017 before

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

represented by Mr. Marek Grabowski, Staff Attorney. Ms. Suzanne Bruckner and Mr. Andrew

Simons, attorneys for Wells Fargo Equipment Finance (Taxpayer), appeared for the hearing. The

Hearing Officer took notice of all documents in the administrative file. Based on the evidence

and arguments presented, IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. On September 1, 2015, the Department issued a Return Adjustment Notice to the

Taxpayer for the tax year ending December 31, 2011.

2. On September 8, 2015, the Department formally assessed the Taxpayer for corporate

income tax and interest for the tax year ending December 31, 2011. The assessment was

for $249,314.32 tax and $3,688.48 interest. No penalty was assessed.

3. On December 14, 2015, the Taxpayer filed a formal protest letter.

4. On February 18, 2016, the Department filed a Request for Hearing asking that the

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

5. On February 22, 2016, the Hearings Office issued a notice of hearing. The hearing date

was set within ninety days of the protest.

6. On March 11, 2016, a telephonic scheduling hearing was conducted. Another scheduling

hearing was set for October 28, 2016 at the request of the parties.

7. On October 14, 2016, the Taxpayer filed a motion for summary judgment.

8. The second telephonic scheduling hearing was conducted on October 28, 2016. The

parties requested that an in-person hearing be set to argue the motion for summary

judgment.

9. On November 15, 2016, the Department filed its response to the motion for summary

judgment.

10. On January 27, 2017, the hearing on the motion for summary judgment was conducted.

The parties agreed that there were no issues of material fact. The parties agreed that the

outcome of the motion for summary judgment was dispositive and that a final order either

granting or denying the protest could be issued.

11. Throughout September and December 2011, the Taxpayer acquired five energy-

producing facilities (the facilities).

12. Prior to the Taxpayer’s acquisition, the facilities submitted application packages for the

renewable energy production tax credit (the energy credit).

13. The application packages were submitted to the Energy, Minerals and Natural Resources

Department (the Energy Division).

14. All five of the facilities’ application packages were approved in March 2011.

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15. The approval of the application packages is a preliminary approval that will not become

final until the facilities show that they have generated qualified energy and sold it to an

unrelated party.

16. The Taxpayer acquired title to three of the facilities in September 2011, and to the

remaining two facilities in December 2011.

17. The facilities began producing qualified renewable energy and selling it to unrelated

parties in 2011.

18. The Taxpayer filed an application for a certificate of eligibility with the Energy Division

in December 2011 for the three facilities that it acquired in September 2011.

19. The certificate of eligibility for these three facilities was issued to the Taxpayer by the

Energy Division in January 2012.

20. The Taxpayer filed an application for a certificate of eligibility with the Energy Division

in April 2012 for the two facilities that it acquired in December 2011.

21. The certificate of eligibility for these two facilities was issued to the Taxpayer in April

2012.

22. The Taxpayer’s corporate tax return for the 2011 tax year was due on March 15, 2012.

The Taxpayer’s deadline was extended by six months to Monday, September 17, 2012.

23. The Taxpayer filed a timely corporate income tax return for the 2011 tax year.

24. In April 2013, the Taxpayer filed an amended corporate income tax return for the 2011

tax year and claimed a refund. The refund request resulted from the Taxpayer claiming

the energy credit for all five of the facilities.

25. On January 26, 2015, the Department issued a refund check to the Taxpayer for the 2011

tax year.

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26. There was no explanation presented for how or why the Department took action on the

claim for refund more than 210 days after the claim for refund was made in April 2013.

27. In September 2015, the Department continued to review the Taxpayer’s claims and

determined that it had issued the refund for the tax year 2011 in error. Therefore, the

Department issued the assessment and return adjustment.

DISCUSSION

The issue to be decided is when the Taxpayer is eligible to claim the energy credit. The

Department argued that the Taxpayer is eligible to claim the energy credit only after the

certificate of eligibility is issued by the Energy Division. The Department argued that the

Taxpayer was eligible to claim the energy credit in 2012 and subsequent years since the

Taxpayer received the certificate of eligibility in 2012. The Department argued that the initial

application package approval merely secures the Taxpayer’s priority in line to claim the energy

credit, especially since the application package can be approved before construction of a facility

has begun. The Taxpayer argued that it could claim the energy credit at any time after the

facilities began producing qualified energy after the initial application package was approved.

The Taxpayer argued that the facilities received approval of the application packages in 2011 and

began producing qualified energy in 2011. For those reasons, the Taxpayer argued that it should

be able to claim the energy credit for the 2011 tax year. The Taxpayer argued that the energy

credit is effective from the date of the application package.

Burden of Proof.

Assessments by the Department are presumed to be correct. See NMSA 1978, § 7-1-17.

Tax includes, by definition, the amount of tax principal imposed and, unless the context

otherwise requires, “the amount of any interest or civil penalty relating thereto.” NMSA 1978, §

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7-1-3. See also El Centro Villa Nursing Ctr. v. Taxation and Revenue Department, 1989-NMCA-

070, 108 N.M. 795. Therefore, the assessment issued to the Taxpayer is presumed to be correct,

and it is the Taxpayer’s burden to present evidence and legal argument to show that it is entitled

to an abatement. 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 it was entitled

to claim the credit.

Motions for summary judgment are appropriate when there is no genuine issue of

material fact and the judgment is a matter of law. See Elane Photography, LLC v. Willock, 2013-

NMSC-040, ¶ 12. See also Roth v. Thompson, 1992-NMSC-011, 113 N.M. 331. See also Ute

Park Summer Homes Ass’n v. Maxwell Land Grant Co., 1967-NMSC-086, 77 N.M. 730. The

parties agreed that there were no disputes as to the material facts. The parties also agreed that

the outcome of the summary judgment motion would be dispositive to the issues of the hearing

and that a final decision and order either granting or denying the protest could be issued. The

Department indicated that it was willing to go forward with a hearing on the merits and

explained that its witnesses could give a more detailed description of how the credit is

administered by the Department. A hearing on the merits was determined not to be necessary as

the proffer did not involve any material facts in dispute. Again, if the facts are not in dispute and

only their legal effect remains to be determined, summary judgment is appropriate. See Roth,

1992-NMSC-011 at ¶ 17.

Claiming the energy credit.

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“A taxpayer may claim the renewable energy production tax credit by submitting to the

taxation and revenue department the certificate issued by the energy, minerals and natural

resources department” and other required documents. NMSA 1978, § 7-2A-19 (J) (2007). If the

requirements of the statute have been met, the credit may be deducted from the “corporate

income tax liability for the taxable year for which the credit is claimed.” NMSA 1978, § 7-2A-

19 (K). A taxpayer may request a certificate of eligibility from the Energy Division, and the

Energy Division has the authority to govern the procedure for granting a certificate. See NMSA

1978, § 7-2A-19 (G). The Energy Division requires taxpayers to submit application packages

and will approve the application packages if the criteria are met. See 3.13.19.10 NMAC (2006).

An application may be approved prior to the facility even beginning construction, but

construction is required within 12 months of the approval and qualified energy production is

required within 24 months of the approval. See 3.13.19.8 NMAC (2006). After a facility’s

application package has been approved and the facility has produced qualified energy, the

facility “may request certification”. 3.13.19.12 (A) NMAC (2006). To claim the credit, a

taxpayer must submit the certificate of eligibility and other documents to the Department. See

NMSA 1978, § 7-2A-19 (J). See also 3.13.19.13 NMAC (2006).

Again, credits are strictly matters of legislative grace and are to be construed against a

taxpayer. See Murphy, 1979-NMCA-065 at ¶ 20. All provisions of the statute granting a credit

should be read together to ascertain the legislative intent. See Team Specialty, 2005-NMCA-020

at ¶ 9. When the language of the statute allows for the approval of a credit only after certain

qualified expenditures are met, the qualifications should be understood to be necessary pre-

conditions for claiming a credit even when the language of the statute uses the permissive “may”.

See id. at ¶ 12. Requiring certain qualifications demonstrates a legislative intent to limit a credit;

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therefore, the credit is not open-ended, unrestricted, or unconditional. See id. The credit in this

case is similar to the credit in Team Specialty in that the credit in both cases required that certain

qualifications be met before the credit may be claimed. See id. See also NMSA 1978, § 7-2A-

19. Therefore, a taxpayer may claim the energy credit only after the statutory conditions have

been satisfied. The statutory condition in this case is the certification from the Energy Division.

See NMSA 1978, § 7-2A-19. In order to claim the energy credit, a taxpayer must have a

certification of eligibility from the Energy Division. See id.

The Department’s argument is persuasive. The approval of the application package does

not entitle a taxpayer to claim the energy credit at that time. The approval of the application

package can occur months or years before the facility actually begins to produce qualified

energy. This approval is too aspirational to entitle a taxpayer to claim the energy credit at that

time. The Taxpayer’s argument that the final certification should revert back to the application

approval is not persuasive. The energy credit may be deducted “for the taxable year for which

the credit is claimed.” See NMSA 1978, § 7-2A-19 (K). Since the energy credit cannot be

claimed until the certification is issued, this section necessarily means the taxable year of the

certification, and subsequent years, if the qualifications continue to be met. See NMSA 1978, §

7-2A-19. The statute does not explicitly allow for a taxpayer to reach back to the initial approval

date to claim the energy credit; rather, the statute merely guarantees that a taxpayer’s initial

approval date will be used to determine a taxpayer’s priority over others in claiming the energy

credit. See id.

The Ten-Year Limit.

The Taxpayer argues that by limiting the availability of the energy credit to the ten year

after the facility initially produces qualified energy, the legislature must have intended that a

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taxpayer be eligible to claim the energy credit in the first year that the qualified energy was

produced. The Taxpayer argues that its case is a special circumstance since it applied initially in

the same year that it began producing qualified energy. Otherwise, the Taxpayer may not

receive the full benefit of the energy credit for the full ten years. The Department argues that the

statute does not guarantee that all taxpayers will be able to claim the energy credit for a full ten

years since there are limits on the total cumulative credit, there are priorities granted, and there is

a limit on how long the energy credit may be claimed after production began. See id. Again, this

credit is not open-ended, unrestricted, or unconditional. See id. A taxpayer may claim the

energy credit for ten consecutive years, beginning on the date that the facility begins producing

the qualified energy. See id.

The Department pointed out that since the ten years begins on the date of initial

production, the credit could potentially span eleven tax years. This would be the case if the

Taxpayer were allowed to claim the credit beginning in 2011, since the ten years would be up in

2021. Therefore, the Department advised that it interpreted the ten-year limitation to be on

consecutive tax returns for the ten-year period following initial production. Consequently, since

the Taxpayer cannot claim the credit for 2011, the Taxpayer will still be eligible to claim the

credit for the 2021 tax year.

Assessment of Interest.

Interest “shall be paid” on taxes that are not paid on or before the date on which the tax is

due. NMSA 1978, § 7-1-67 (A). The word “shall” indicates that the assessment of interest is

mandatory, not discretionary. See Marbob Energy Corp. v. N.M. Oil Conservation Comm’n.,

2009-NMSC-013, ¶ 22, 146 N.M. 24. The assessment of interest is not designed to punish

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taxpayers, but to compensate the state for the time value of unpaid revenues. Therefore, interest

was properly assessed.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely written protest to the Notice of Assessment issued

under Letter ID number L1644621872 and to the Return Adjustment Notice issued under Letter ID

number L0852652080, and jurisdiction lies over the parties and the subject matter of this protest.

B. There was no genuine dispute as to material facts, and a judgment based on the

application of the law to the facts is appropriate without a hearing on the merits. See Elane

Photography, LLC v. Willock, 2013-NMSC-040, ¶ 12. See also Roth v. Thompson, 1992-

NMSC-011, 113 N.M. 331. See also Ute Park Summer Homes Ass’n v. Maxwell Land Grant

Co., 1967-NMSC-086, 77 N.M. 730.

C. The Taxpayer could not claim the energy credit until the tax year in which the

certification was issued, and the effect of the application approval was merely to guarantee the

Taxpayer’s priority in claiming the energy credit. See NMSA 1978, § 7-2A-19. 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.

D. Therefore, the Taxpayer failed to overcome the presumption, and the

Department’s assessment and return adjustment were appropriate. See NMSA 1978, § 7-1-17.

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

DATED: February 23, 2017.

Dee Dee Hoxie
DEE DEE HOXIE
Hearing Officer
Administrative Hearings Office
Wells Fargo Equipment Finance
Letter ID Nos. L1644621872 and L0852652080
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Post Office Box 6400
Santa Fe, NM 87502

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