Could Meridian Oil administratively protest the Department's planned release of its oil-and-gas audit report after the Department decided the report was not confidential under Section 7-1-8?

Plain-English summary

Meridian Oil had a statutory right to administratively protest the Department's planned disclosure of its audit report. By deciding that Section 7-1-8 did not keep the report confidential, the Department had “applied” a Tax Administration Act provision to Meridian within the meaning of Section 7-1-24(A).

The ruling resolved only whether Meridian's protest was valid. It did not decide whether the audit report was confidential or whether Cinco General Partnership had a legal interest in the audited property that entitled it to the report.

The disclosure dispute followed a completed audit

Beginning in April 1992, the Department and State Land Office jointly audited Meridian's New Mexico oil-and-gas taxes and state royalties. The Department's audit manager signed a confidentiality agreement referencing Sections 7-1-8 and 19-1-2.1, and Meridian supplied information it considered proprietary or confidential.

The Department issued its audit report on September 30, 1993. Meridian and the Department then entered a closing agreement resolving the audit's tax issues.

On January 6, 1994, Cinco requested the report and represented that it held a working interest in certain San Juan Basin natural-gas properties. The Department told Meridian it considered Cinco entitled to the report and planned to release it on February 1.

Meridian obtained a temporary restraining order and filed a February 8 administrative protest. The Department rejected that filing, reasoning that the Tax Administration Act did not authorize a protest of anticipated action and that disclosure under the Inspection of Public Records Act was not an application of tax law to Meridian.

After related district-court proceedings, Meridian filed the protest decided in D&O 94-01, challenging the Department's refusal to accept the February 8 protest.

Interpreting the confidentiality statute was an application of it

Section 7-1-24(A) allowed a taxpayer to dispute “the application to the taxpayer of any provision of the Tax Administration Act.”

Section 7-1-8 generally prohibited Department employees from revealing taxpayer information, subject to numerous exceptions. Subsection U addressed taxes administered under Section 7-1-2(B), while Subsection U(3) restricted release of audit workpapers and proprietary information except to a person having a legal interest in the audited property.

The Department had to analyze those provisions and apply them to Meridian's audit information before deciding the report could be disclosed. Using the ordinary meaning of “application”—bringing a general rule to bear on specific circumstances—the hearing officer held that the Department had applied Section 7-1-8 to Meridian even though its conclusion was that the statute did not bar disclosure.

The administrative remedy protected an ongoing right

The decision also reasoned that the confidentiality statute created a substantive right, while the Inspection of Public Records Act did not provide a direct enforcement mechanism for a third party claiming that requested records were privileged or confidential. Its express enforcement rights addressed the requester, attorney general, or district attorney.

Section 7-1-22 supported resolving questions about application of the Tax Administration Act through administrative remedies. The audit's tax issues having been settled did not end confidentiality: the hearing officer described confidentiality as ongoing and found no statutory sunset allowing protected information to be released later.

Section 7-1-23's exclusive remedies for disputing taxes did not bar jurisdiction because this dispute concerned interpretation of confidentiality provisions rather than the amount of tax.

Result: protest GRANTED. The Department was ordered to accept Meridian's February 8, 1994 confidentiality protest as valid.

What this means for you

Businesses supplying confidential audit material

The decision recognized a procedural route to contest an agency determination that tax-confidentiality law permits disclosure, even after the underlying tax dispute has been resolved.

Taxpayers evaluating a planned disclosure

Focus on whether the Department interpreted and applied a Tax Administration Act provision to your information. The fact that the agency concluded the provision offered no protection did not mean it had never applied the law.

Public-record requesters and affected taxpayers

This ruling addressed the affected taxpayer's right to a hearing. It did not decide the requester's ultimate access rights or the report's confidentiality.

Taxpayers preserving procedural rights

Meridian pursued both judicial relief and the administrative protest process. The order ultimately required the Department to accept the earlier protest, not to rule immediately in Meridian's favor on confidentiality.

Common questions

Q: Did D&O 94-01 hold that Meridian's audit report was confidential?
A: No. It held only that Meridian could administratively protest the Department's contrary determination.

Q: Did the ruling decide whether Cinco had a legal interest in the audited property?
A: No. The decision expressly called that issue immaterial to the procedural question before it.

Q: Why did Section 7-1-24 apply?
A: The Department brought Section 7-1-8's confidentiality rule and exceptions to bear on Meridian's facts, which was an application of the statute.

Q: Did settlement of the audit end confidentiality rights?
A: No. The decision described taxpayer confidentiality as ongoing and found no sunset clause.

Q: What exactly did the hearing officer order?
A: The Department had to accept Meridian's February 8, 1994 protest as a valid administrative protest.

Citations and references

Statutes:

• NMSA 1978, § 7-1-8 and § 7-1-8(U)(3) — taxpayer confidentiality and oil-and-gas audit workpapers
• NMSA 1978, § 7-1-24(A) — right to protest application of a Tax Administration Act provision
• NMSA 1978, § 7-1-22 — administrative-exhaustion and district-court jurisdiction rule
• NMSA 1978, § 7-1-23 — exclusive remedies for disputes over taxes
• NMSA 1978, § 7-1-26 — refund actions
• NMSA 1978, § 14-2-1(F) — public-record inspection exception where otherwise provided by law
• NMSA 1978, § 14-2-12(A), (C) — public-record enforcement and exhaustion provisions
• NMSA 1978, § 19-1-2.1 — confidentiality referenced in the audit agreement

Case cited:

• Hammonds v. Freymiller Trucking, Inc., 115 N.M. 364, 851 P.2d 486 (Ct. App. 1993)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Meridian Oil, Inc.
• Decision PDF: D&O 94-01

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
MERIDIAN OIL, INC. No. 94-01

DECISION AND ORDER

This matter comes on for decision before Gerald B. Richardson, Hearing Officer, based

upon briefs submitted by the parties. Meridian Oil, Inc. (hereinafter "Meridian") was represented

by Michael B. Campbell, Esq. and Mark F. Sheridan, Esq. of Campbell, Carr, Berge & Sheridan,

P.A. The Taxation and Revenue Department (hereinafter "Department") was represented by

Margaret B. Alcock, Special Assistant Attorney General.

Based upon the arguments and the undisputed facts presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Commencing in April of 1992, the Department and the State Land Office,

conducted a concurrent audit of Meridian to determine whether Meridian had properly paid New

Mexico oil and gas taxes and state royalties.

2. The Department's audit manager signed a "Confidentiality Agreement" for Meridian

which acknowledges that pursuant to Section 7-1-8 NMSA 1978 it is unlawful to reveal

information about Meridian acquired as a result of the audit "except as permitted in 7-1-8." The

Confidentiality Agreement further provided that documents would be kept confidential pursuant to

Section 19-1-2.1 NMSA 1978.

3. During the course of the concurrent audit, Meridian provided the auditors access to

documents and information which it considered to be proprietary or confidential information.

4. On September 30, 1993, the Department issued the Meridian Audit Report.

5. The Meridian audit report concluded that Meridian was responsible for the payment
   of additional oil and gas taxes. A closing agreement was entered into between the Department and

Meridian as a result of the audit report or the assessment issued as a result of the audit report in

October, 1993. The closing agreement settled and resolved any and all issues between the

Department and Meridian resulting from the Meridian audit report.

6. On January 6, 1994, the Department received a written request for a copy of the

Meridian audit report from Cinco General Partnership, hereinafter, "Cinco," which represented that

it is a working interest owner in certain natural gas producing properties in the San Juan Basin,

New Mexico.

7. On January 14, 1994, the Department, by letter to Meridian's counsel, notified it of

Cinco's request for the Meridian audit report. The letter further informed Meridian of the

Department's position that Cinco, as a working interest owner, would be entitled to the audit report

and that it had informed Cinco's representatives that the Department would make a copy of the

audit report available to Cinco on February 1, 1994. The Department's letter stated that notice was

being given to Meridian in order to give it the opportunity to seek judicial construction of the

statutes involved.

8. On February 1, 1994, Meridian filed suit against the Department and the Attorney

General seeking a declaratory judgment and a temporary restraining order and preliminary and

permanent injunction prohibiting the Department from honoring Cinco's request.

9. On February 1, 1994, the Santa Fe County District Court entered a temporary

restraining order prohibiting the Department from disclosing the audit report.

10. On February 6, 1994, Cinco filed an unopposed motion to intervene in the

declaratory judgment action.

11. On February 8, 1994, Meridian filed a protest with the Department, alleging that the

Department's decision to release the audit report was an application to Meridian of Section 7-1-8 of

the Tax Administration Act, "TAA", Sections 7-1-1 et seq. NMSA 1978 and that the action pending

2
in district court should be decided in the context of an administrative hearing.

12. On February 9, 1994, the Department, by letter, informed Meridian that it rejected

Meridian's February 8, 1994 correspondence with the Department as a valid protest under Section

7-1-24 NMSA 1978 (1993 Repl. Pamp.) on the grounds that there is no provision in the Tax

Administration Act to protest anticipated actions of the Department and that it did not believe that

disclosure of information under the Inspection of Public Records Act is an application to Meridian

of a provision of the Tax Administration Act which can be protested pursuant to Section 7-1-24.

13. On February 14, 1994, acting on a verified petition filed by Cinco, the district court

issued an alternative writ of mandamus ordering the Department to allow Cinco to inspect the

Meridian audit report of to appear at a hearing on February 18, 1994 to show cause why the report

should not be released.

14. Subsequently, the district court quashed the writ of mandamus, determining that it

does not have subject matter jurisdiction to proceed with Cinco's claims under the Inspection of

Public Records Act because that Act is superseded by the Tax Administration Act, specifically

Section 7-1-22 NMSA 1978. The court directed the Department to either hear Meridian's protest

or make a determination that it cannot hear the protest. Finally, the court granted a preliminary

injunction restraining the Department from disclosing the Meridian audit report pending resolution

of this controversy.

15. On March 10, 1994, Meridian filed the instant protest with the Department,

protesting the Department's determination which rejected as a valid protest Meridian's protest filed

on February 8, 1994.

DISCUSSION
This case presents a question of first impression concerning the interaction between the Tax

Administration Act (hereinafter TAA) 1 and the Inspection of Public Records Act (hereinafter

1
Chapter 7, Article 1 NMSA 1978, being Sections 7-1-1 through 7-1-82 NMSA 1978.

3
IPRA)2. The context for this dispute is that Cinco3 made a request of the Department under the

IPRA for the Meridian audit report. The Department made a determination that the information

requested by Meridian was not confidential under the confidentiality provision of the TAA, Section

7-1-8. Section 7-1-8 is implicated because Section 14-2-1(F) of the IPRA sets forth an exception

"as otherwise provided by law" to the public's right to inspect any public records of the state. The

Department informed Meridian of Cinco's request and of its intent to honor the request "in order to

give Meridian an opportunity to seek judicial construction of the pertinent statutes". (Department's

Exhibit 3). Meridian filed a complaint for declaratory judgment in the district court for Santa Fe

County and sought to enjoin the disclosure, but it also filed a protest, pursuant to Section 7-1-24

NMSA 1978 (1993 Repl. Pamp.) to the Department's decision to honor Cinco's request. The

Department rejected Meridian's protest as not being authorized under Section 7-1-24 (Meridian's

Exhibit I). It is that determination which Meridian has protested by a subsequent protest and which

is at issue herein.4 Thus, the sole issue to be determined is whether Meridian's letter of February 8,

1994 constituted a valid protest under Section 7-1-24.

In pertinent part, Section 7-1-24(A) provides:
Any taxpayer may dispute the assessment to the taxpayer of any amount of tax, the
application to the taxpayer of any provision of the Tax Administration Act or the
denial of or failure to either allow or deny a claim for refund made in accordance
with Section 7-1-26 NMSA 1978 by filing with the secretary a written protest
against the assessment or against the application to the taxpayer of the provision or
against the denial of or the failure to allow or deny the amount claimed to have been
erroneously paid as tax. . . . (emphasis added).

2
Chapter 14, Article 2 NMSA 1978, being Sections 14-2-1, 14-2-4 through 14-2-12 NMSA 1978 (1994 Cum.
Supp.).
3
There appears to be a dispute between the Department and Meridian about whether Cinco is an interest
holder in certain oil and gas properties who would be entitled to see audit workpapers under Section 7-1-8(U)(3)
NMSA 1978 or a competitor of Meridian's. It is immaterial to the resolution of the instant matter to determine
this issue.
4
Since the Department has not contested the Hearing Officer's jurisdiction to proceed in deciding the instant
matter, the Department apparently agrees that in rejecting Meridian's protest of February 8, 1994 as a valid
protest under Section 7-1-24, that it has "applied" a provision of the TAA which Meridian may contest by filing a
second protest pursuant to the same provision.

4
In denying the validity of Meridian's protest, the Department informed Meridian that:
"[T]here is no provision in the Tax Administration Act for protesting anticipated
actions of the Department. In addition, the Department does not agree that a
disclosure of information required by the Inspection of Public Records Act is an
application to Meridian of a provision of the Tax Administration Act."

(Meridian Exhibit I). The Department's position is further clarified by the letter from Department's

counsel to Meridian's counsel after the Department's counsel had reviewed Meridian's protest. In

essence, the Department takes the position that there has been no application of the Tax

Administration Act to Meridian because the Department has determined that the provisions of

Section 7-1-8 of the TAA do not apply to prohibit the disclosure of the Meridian audit report.

(Meridian Exhibit J).

Section 7-1-8 is written as a general prohibition against the Department revealing any

information about taxpayers with numerous (over 20) exceptions to the general prohibition. In the

context of this case, the Department determined that Section 7-1-8(U)(3) operates as an exception

to taxpayer confidentiality which permits the disclosure of the Meridian audit report to Cinco.

(Meridian Exhibit F). Section 7-1-8 (1993 Repl. Pamp.) provides in pertinent part as follows:
It is unlawful for any employee of the Department or any former employee of the
department to reveal to any individual other than another employee of the
department any information contained in the return of any taxpayer made pursuant
to any law subject to administration and enforcement under the provisions of the
Tax Administration Act or any other information about any taxpayer acquired as a
result of his employment by the department, except:

• • • • • • • • • • *

U. information with respect to the taxes or tax acts administered pursuant to Subsection
B of Section 7-1-2 NMSA, except that:

• • • • • • • • • • *

(3) audit workpapers and the proprietary information contained in such
workpapers shall not be released except to a person having a legal interest in the
property that is subject to the audit, . . . .

5
Apparently, the Department's analysis of Section 7-1-8 went something like this5:

1. the Meridian audit report contains information about a taxpayer acquired as a result

of employment by the Department by the Department's auditors, which would be confidential under

the general confidentiality provision;

2. the exception to confidentiality found in Subsection U, which refers to the oil and

gas tax programs under which Meridian was audited, would operate to except information acquired

by the Department pursuant to the oil and gas tax programs specified from the general

confidentiality provision;

3. the exception for audit workpapers under subpart (3) operates to except oil and gas

tax program audit workpapers from the exception to confidentiality provided by Subsection U of

7-1-8, making them confidential; and

4. the exception to subpart (3) which allows oil and gas audit workpapers to persons

having a legal interest in the property audited operates to remove any confidentiality.

It is obvious from this exercise, that the Department engaged in a fairly rigorous exercise of

statutory construction to determine whether the Meridian audit report could be disclosed to Cinco

under Section 7-1-8. The issue presented is whether the Department's determination that Section

7-1-8 does not operate to provide confidentiality to the information sought by Cinco is an

application of Section 7-1-8 of the TAA to Meridian which could be protested under Section

7-1-24(A).

When interpreting a statute the primary concern is to determine the legislature's intent,

which is determined primarily from the language of the statute and those words chosen will be

given their ordinary and usual meaning unless a different intent is clearly indicated. Hammonds v.

5
As noted in footnote 3, the correctness of the Department's interpretation of Section 7-1-8 is not at issue
herein. It is only discussed to provide a context for the determination of the issue herein, whether a provision of
the TAA has been applied to Meridian.

6
Freymiller Trucking, Inc., 115 N.M. 364, 851 P.2d 486 (Ct.App. 1993). Webster's Third New

International Dictionary defines application as the act of applying, as in "the bringing to bear (as of

one general statement upon another) by means of elucidation." Regardless of the outcome of the

Department's determination as to whether the audit report was confidential, I have little doubt that

in arriving at its ultimate determination, the Department, was required to "bring to bear" the

provisions of Section 7-1-8 to the circumstances surrounding the Meridian audit and the

information Meridian provided the Department in that audit. The Department's determination that

the audit report was not confidential required a four step analysis where the language of three

different provisions of Section 7-1-8 was brought to bear upon the facts presented to arrive at the

determination. Thus, under the plain and ordinary meaning of "application", there was an

application of the provisions of Section 7-1-8 to Meridian when the Department applied its

interpretation of that statute to the information it acquired from Meridian and which Meridian

claims to be confidential.

This interpretation is further supported by the law's abhorrence of a right without a remedy.

The confidentiality provision clearly sets up a general right to confidentiality which covers

information the Department obtains from taxpayers. There is a dispute which remains unresolved

at this time, between Meridian and the Department as to whether Cinco is an interest owner in the

property which was subject to the Department's audit, which would entitle it to the information

sought under 7-1-8(U)(3). There is no provision of the IPRA which would grant Meridian or any

person wishing to assert that some other provision of law prevents the release of public records

standing to challenge a public agency's determination that the information was subject to release

under that act. While the IPRA specifically provides that administrative remedies need not be

exhausted prior to proceeding to district court to enforce a IPRA request, that provision, Section

14-2-12(C) must be read in conjunction with Section 14-2-12(A), which grants the right to enforce

an IPRA request only to the requestor or the attorney general or the district attorney. That

7
provision has no bearing on the issue of whether there may be an administrative remedy provided

for a party claiming privilege or confidentiality for the information requested. The IPRA simply

fails to address or provide for a determination of the rights of such a party. Yet, in the context of

the dispute between Meridian and the Department, there can be no doubt that when considering the

TAA's general assertion of confidentiality over taxpayer information, a substantive right is at issue.

Given that situation, it makes some sense that the legislature would have contemplated an

opportunity to adjudicate that right in an administrative forum within the agency charged with the

interpretation and administration of the laws implicated. Section 7-1-22 lends some support to that

interpretation, since it would deny jurisdiction to any district court to entertain any proceeding by a

taxpayer in which he calls into question "the application to him or any provision of the Tax

Administration Act" where he failed to exhaust his administrative remedies unless the action was

an authorized refund action under Section 7-1-26. Of course, the Department would argue that

since the same language about "application" of a provision of the TAA is used in Section 7-1-22,

and since it did not apply 7-1-8 to Meridian, that this proves nothing. Regardless of whether one

agrees that there was an application of Section 7-1-8 in this instance, Section 7-1-22 can be read as

a statement of legislative preference to have issues concerning the interpretation of the Tax

Administration Act addressed by the Department administratively, since Section 7-1-26 only

applies in the context of a dispute about allegedly overpaid taxes, a much smaller subset of tax

litigation than cases where unpaid taxes or the application of provisions of the TAA are involved.

The Department argues that this case is not about the application of the TAA to Meridian

because any application of the TAA applied to Meridian during the audit and Meridian should have

disputed the confidentiality of the disputed information during the context of that audit and not

elsewhere. Additionally, it argues that since all issues about disputed taxes are now resolved

between Meridian and the Department, that there is no jurisdiction in the administrative forum over

this dispute. Although it is clear that Meridian could have disputed the issue of confidentiality at

8
the time of the audit by requiring the Department to issue a subpoena for the information and

resisting the subpoena, I find nothing in the TAA which provides that this is an exclusive remedy.

This view takes too narrow a view of taxpayer confidentiality under Section 7-1-8. Confidentiality

is an ongoing concept. Section 7-1-8 contains no limitation period or sunset clause which would

allow confidential information to be released at some future date. If information is confidential, it

remains so even though the Department may have resolved any taxes implicated by the information

a taxpayer provided to the Department. Furthermore, Section 7-1-23 which does provide for

exclusive remedies for taxpayers to dispute taxes does not apply to this dispute, which involves the

interpretation of the confidentiality provisions. Given the ongoing nature of taxpayer

confidentiality, there is nothing in the applicable statutes which prohibits administrative jurisdiction

over this dispute.

9
CONCLUSIONS OF LAW

1. Meridian filed a timely, written protest, pursuant to Section 7-1-24 NMSA 1978, to

the Department's application of Section 7-1-24 to determine that Meridian's letter of February 8,

1994 letter of protest was not a valid protest. Accordingly, jurisdiction lies over the parties and the

subject matter of this protest.

2. The Department's determination that the Meridian audit report was not confidential

pursuant to Section 7-1-8 NMSA 1978, was an application of Section 7-1-8, a provision of the Tax

Administration Act, to Meridian.

3. Section 7-1-24(A) grants Meridian the right to administratively protest the

Department's determination that Meridian's audit report was not confidential pursuant to Section

7-1-8 NMSA 1978.

For the foregoing reasons, Meridian's protest is hereby granted. The Department is hereby

ordered to accept as a valid protest Meridian's protest of February 8, 1994.

Done, this 31st day of October, 1994.

10