Miller v. Bureau of Revenue

OPINION HERNANDEZ, Judge. This is an appeal from the decision of the Commissioner of the Bureau of Revenue assessing gross receipts tax, penalty and interest on part of the income earned by appellant for the period from January 1, 1971, through December 31, 1976. Most pertinent facts are set out m findings 6, 7, and 10, of the Commissioner’s decision and order: “6. Certain prime contractors entered into construction contracts with the New Mexico Highway Department to build highways in New Mexico. Those prime contractors contacted, and entered into oral agreements with, the taxpayer, as a result of which the taxpayer, and drivers it designated, using trucks owned by the taxpayer, hauled a variety of construction materials. The prime contractors’ paid the taxpayer for these services. 7. The material hauled included hot asphalt, seal coat, and several kinds of base course material all of which are ultimately incorporated into the highways being constructed by the prime contractor. These materials generally are prepared and mixed at asphalt plants or mills where the material is loaded into the taxpayer’s trucks. Sometimes, the material is loaded at pits or crushers. The plants, mills or crushers are operated by third parties, presumably, the prime contractors. The plants and mills generally are located as close to the highway construction as feasible. The taxpayer then hauls the material to the highway being constructed where the taxpayer dumps the load into lay-down machines (spreaders) or boxes. In the case of hot mix asphalt the truck is backed up to and locked into the spreader. The load of asphalt is emptied into the spreader as the spreader moves forward, spreading and compacting the mix on the highway being constructed. During this time, the truck is being pushed by the spreader while the truck driver steers the truck. In the case of base course, the trucks dump the load into boxes — -apparently containers utilized by contractors when contractors spread the course material by bulldozers or scrapers on the highway. The trucks are also used in hauling rip-rap (rocks) and back-fill material. 10. All materials hauled are owned by third parties, generally the prime contractor; the taxpayer does not buy or sell the materials.” It is the gross receipts tax on this income that is in question. The appellant claims that this income is exempt from the gross receipts tax by reason of Section 72-16A-14.7A, N.M.S.A.1953 (Repl. Vol. 10, pt. 2, Supp.1975): “Receipts from selling a construction service may be deducted from gross receipts if the sale is made to a person engaged in the construction business who delivers a nontaxable transaction certificate to the person performing the construction service.” The key words are “construction service”, which are defined in the Gross Receipts and Compensating Tax Act §§ 72-16A-1 to 72-16A-19, N.M.S.A.1953 (Repl. Vol. 10, pt. 2, Supp.1975) as follows: “C. ‘construction’ means building, altering, repairing or demolishing in the ordinary course of business any: (1) road, highway, bridge, parking area or related project; . . . ” § 72-16A-3C, N.M.S.A.1953 (Repl. Vol. 10, pt. 2, Supp.1975). “K. ‘service’ means all activities engaged in for other persons for a consideration, which activities involve primarily the performance of a service as distinguished from selling property. . ‘Service’ includes construction activities and all tangible personal property that will become an ingredient or component part of construction project. . . ” § 72-16A-3K, N.M.S.A.1953 (Repl. Vol. 10, pt. 2, Interim Supp.1976-77). The Bureau of Revenue has issued several interpretive regulations of §§ 72-16A-14.7 and 72-16A-3C, supra. The first was issued in 1969 and provides in part: G.R. REGULATION 3(C)-1— CONSTRUCTION SERVICES AS DISTINGUISHED FROM OTHER SERVICES “The term ‘construction’ is limited to the activities which are listed in § 72-16A-3(C) [sic]. ‘Construction’ does not include services that are only incidentally related to a construction project such as: hauling to the construction site, maintenance work, landscape upkeep, or the repair of equipment or appliances. Example 1: T, a trucking company, contracts with R, a road construction company, to haul the necessary sand and gravel from an excavation site to the roadbed. T asks if it can deduct the receipts of its contract with R under § 72-16A-14.7, p. 77. Hauling sand and gravel from an excavation site to the construction site is not construction within the meaning of § 72-16A-3(C) [sic]. Therefore, T cannot deduct its receipts from the contract.” The 1969 G.R. Regulations under § 72-16A-14.7 provide in part: G.R. REGULATION 14.7-1— SERVICES MUST BE PERFORMED DIRECTLY ON THE PROJECT OR IMMEDIATELY ADJACENT THERETO “To be deductible under this section, the services must be performed directly on the project or immediately adjacent thereto. Indirect services, such as accounting costs, architectural plans, engineering services, drafting services, bid depositories, and plan rooms are not construction services coming within the definition of construction under § 72-16A— 3(C) [sic], p. 2. Example 1: K is a surveying company that contracts with C, a contractor, to survey the site, set the stakes for the building, and give C the elevation reading. K incorrectly maintains that it is selling a construction service to C and that therefore the receipts are deductible. Surveying and related services are not included as construction under the definition of construction under § 72-16A-3(C) [sic], p. 2. Therefore, they are not construction services as defined under § 72-16A-14.7.” The appellant alleges five points of error, the fourth of which is dispositive of this appeal, to-wit: “The decision of the Commissioner denying the exemption is contrary to the law of this state providing an exemption for construction services.” The law applicable to the decision of this matter is the following: “A regulation adopted by an administrative agency creating an exemption not contemplated by the act or included within the exemption specified therein is void.” State v. Ashby, 73 N.M. 267, 271, 387 P.2d 588, 590 (1963). The converse is also true. Rainbo Baking Co. of El Paso v. Commissioner of Rev., 84 N.M. 303, 502 P.2d 406 (Ct.App.1972). “Statutes are to be given effect as written and, where free from ambiguity, there is no room for construction.” State v. Elliot, 89 N.M. 756, 767, 557 P.2d 1105, 1106 (1977). “It is undoubtedly a rule of statutory interpretation that the construction given a statute by the administrative agency charged with the enforcement of it is a significant factor to be considered by the courts in ascertaining the meaning of such statute. [Citation omitted.] But where there is no ambiguity and the interpretation is clearly erroneous, such administrative interpretation does not give legal sanction to a long continued incorrect construction.” California Drive-In Restaurant Ass’n v. Clark, 22 Cal.2d 287, 294, 140 P.2d 657, 661 (1943). Applying these rules to the instant matter, it is our opinion that the language of § 72-16A-14.7A, supra, and § 72-16A-3C(1) and § 72-16A-3K is definite and unambiguous. It is also our opinion that this language does not support the interpretive regulations of the Bureau of Revenue, insofar as they relate to the type of activities conducted by the appellant. The Commissioner acknowledges in finding No. 6 that the prime contractors were engaged in building highways. He also acknowledges in that finding that appellant was performing a service. In finding No. 7, he acknowledges that the materials which the appellant hauled were “ultimately incorporated into the highways.” Finding No. 10, points out the materials being hauled were not owned by the appellant or bought or sold by him. This fact pattern fits squarely within the conditions of § 72-16A-14.7A, supra. The decision and order of the Commissioner is reversed and the Bureau’s interpretive regulations G.R. Regulation 3(C)-1 and G.R. Regulation 14.7-1 are declared void, insofar as they apply to these facts. IT IS SO ORDERED. LOPEZ, J., concurs. SUTIN, J., concurs in the result.