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El Castillo Ret. Residences v. Martinez
Citation: Not availableDocket: 35,148
Court: New Mexico Supreme Court; August 17, 2017; New Mexico; State Supreme Court
Original Court Document: View Document
Article VIII, Section 1(A) of the New Mexico Constitution mandates equal taxation of properties within the same class, while Section 3 provides exemptions for properties used for charitable purposes. In 2008, a tax exemption was established for continuing care communities that offer free services or use remaining funds for charitable purposes. El Castillo Retirement Residences, a self-sustaining care community in Santa Fe, operates entirely on resident fees and does not accept individuals reliant on Medicare, Medicaid, or charity. The court found that El Castillo does not provide significant charitable services or use its property for charitable purposes, concluding that it is not eligible for tax exemptions under Section 7-36-7(B)(1)(d) or Article VIII, Section 3. The court clarified that the tax exemption statute must align with constitutional requirements. El Castillo’s funding model is based on entry and monthly fees calculated to cover operating costs and potential deficits, with strict admissions criteria based on financial and health assessments. El Castillo's property was assessed at $9,860,000 for 2009, prompting a claim for tax exemption based on charitable use under the New Mexico Constitution and Property Tax Code. The Santa Fe County Assessor denied the claim, citing insufficient charitable donations. El Castillo protested, but the Valuation Protests Board upheld the denial, stating that the required charitable contributions were not met and did not separately address the constitutional claim due to jurisdictional limitations. El Castillo then appealed to the district court, arguing the Board's decision lacked substantial evidence and was arbitrary. The court was asked to determine the constitutional exemption as well. El Castillo contended that the legislation provided clarity to the constitutional provision regarding charitable use, emphasizing the public benefit of continuing care retirement communities and claiming that fulfilling statutory requirements inherently satisfied constitutional obligations. The district court opted for original jurisdiction over both claims rather than appellate jurisdiction, issuing new findings that contradicted the Board's. It concluded that the constitutional provision was not self-executing and that the legislative enactment provided necessary interpretation. The court determined that El Castillo did not need to demonstrate a "primary or substantial" public benefit to qualify for tax exemption, ruling that compliance with the statutory requirements sufficed to meet the constitutional criteria for charitable use. The Santa Fe County Assessor appealed a district court decision to the Court of Appeals, asserting that the district court acted within its original jurisdiction rather than its appellate jurisdiction. The Court of Appeals concluded its jurisdiction was limited to assessing whether El Castillo met constitutional criteria for a tax exemption, not its entitlement under statutory law. The court found that while the Assessor's notice of appeal adequately raised the constitutional issue, he failed to file a necessary petition for writ of certiorari regarding the statutory issue previously determined by the Protest Board and reviewed by the district court. The Court of Appeals reversed the district court's finding that El Castillo was constitutionally exempt from property taxation, ruling that El Castillo did not substantially use its property for a charitable purpose under Article VIII, Section 3 of the New Mexico Constitution, as it did not provide significant benefits to the general public. The court did not address the statutory eligibility for tax exemption or clarify the relationship between Article VIII, Section 3 and Section 7-36-7(B)(1)(d). Certiorari was granted to examine the constitutional and statutory guidelines governing property tax exemptions in New Mexico and to clarify the scope of appellate review in such cases. Article VIII, Section 3 of the New Mexico Constitution exempts "all property used for charitable purposes" from taxation, but lacks specific criteria. The New Mexico Legislature, acknowledging that certain properties may be exempt under federal or state law, amended Section 7-36-7(B)(1) in 2008 to include additional criteria for charitable organizations operating specific types of facilities. This amendment outlines conditions under which property owned by such organizations can be exempt from property taxes, yet it does not provide clear standards for the level of charitable contributions needed to meet the exemption criteria. El Castillo claims entitlement to a tax exemption based on statutory terms but does not contest the Court of Appeals' ruling that it does not qualify under Article VIII, Section 3 of the New Mexico Constitution. The Assessor contends that El Castillo's failure to meet these constitutional requirements precludes application of Section 7-36-7(B)(1)(d) for exemption purposes. The court agrees with the Assessor's position. El Castillo challenges the Assessor’s standing to contest the constitutionality of Section 7-36-7(B)(1)(d), referencing a precedent (State ex rel. Overton v. N.M. State Tax Comm’n) where a county assessor lacked standing due to the absence of a justiciable controversy. However, this case differs as a legitimate controversy exists regarding El Castillo's tax exemption claim, thus granting the Assessor the necessary interest to proceed. The Assessor holds responsibility for property valuation and must enforce tax laws, including the prevention of improper tax exemption claims. The court concludes that the Assessor has standing to raise statutory and constitutional issues regarding El Castillo’s claim to a tax exemption. Additionally, it identifies errors in the appellate jurisdiction exercised by both the district court and the Court of Appeals, noting that jurisdictional defects can be raised at any point during proceedings. The District Court failed to exercise its appellate jurisdiction over the Board's decision, which is mandated by the Legislature under NMSA 1978, 7-38-28(A) (2015) and NMSA 1978, 39-3-1.1 (1999). The court can reverse agency decisions if they are found to be fraudulent, arbitrary, capricious, unsupported by substantial evidence, or contrary to law (Section 39-3-1.1(D)). While the district court must defer to the agency's factual determinations when supported by substantial evidence (as established in N.M. Bd. of Psychologist Exam’rs v. Land), it also holds original jurisdiction over all non-exempt matters, including constitutional claims (N.M. Const. art. VI, 13; Maso v. N.M. Tax’n Revenue Dep’t). The court has the ability to exercise both appellate and original jurisdiction simultaneously. In cases where an appeal includes claims outside the agency’s authority, the district court must apply the appropriate standards for each type of claim. The district court erred by not reviewing the Board's decision on Section 7-36-7(B)(1)(d) for arbitrariness, lack of substantial evidence, or legal compliance, and by issuing contradictory findings rather than adhering to its appellate role. This misstep is illustrated in case law, which emphasizes that district courts do not engage in fact-finding when acting as appellate bodies (Cadena v. Bernalillo Cty. Bd. of Cty. Comm’rs; VanderVossen v. City of Espanola). The court's deviation from the proper appellate standard likely influenced its outcome. The Court of Appeals erroneously declined jurisdiction to review the constitutionality of the Section 7-36-7(B)(1)(d) exemption as it pertains to El Castillo, improperly separating constitutional and statutory questions. It ruled that it lacked jurisdiction to determine El Castillo's eligibility for a charitable property-tax exemption under this statute, overlooking the necessary interplay between the New Mexico Constitution and legislative statutes, which must be interpreted to avoid unconstitutional outcomes. The statute is presumed to be enacted within constitutional limits, and both constitutional and statutory claims are fundamentally interconnected. The review of whether Section 7-36-7(B)(1)(d) can grant a tax exemption involves constitutional interpretation, which is conducted de novo. While the Legislature's power in taxation is comprehensive, it is bounded by the Constitution, which functions as a limitation on all branches of government. Judicial review is essential to ensure legislative and executive actions comply with constitutional mandates. Legislative enactments are presumed constitutional unless clearly conflicting with the Constitution. El Castillo's reliance on La Vida Llena v. Montoya is contested; this prior case failed to consider the constitutional limits set by Article VIII when interpreting Section 7-36-7(B)(1)(d). The Court held that this statute must be understood in light of the constitutional parameters, leading to the overruling of La Vida Llena in this regard. New Mexico law establishes that Article VIII, Section 3 of the state constitution is self-executing and does not require legislative enactment, as affirmed in CAVU Co. v. Martinez. This section creates specific exemptions and grants citizens constitutional rights that cannot be infringed upon by administrative officers or the Legislature, and these rights must be upheld by the courts. It serves as a limitation on the Legislature’s ability to alter property tax exemptions. Previous cases, including Dillard v. N.M. Tax Comm’n and Sims v. Vosburg, emphasize that all tangible property is subject to taxation unless explicitly exempted by the constitution, classifying property into exempt and taxable categories. The Albuquerque Alumnae Ass’n case supports the notion that legislative attempts to create additional exemptions are strongly presumed to be outside the intended scope of Article VIII, Section 3. While citizens have the power to amend constitutional provisions, as demonstrated by the 1972 amendment allowing a supermajority in the Legislature to exempt personal property, no such authority exists for real property exemptions. As a result, Section 7-36-7(B)(1)(d) cannot be interpreted to permit exemptions not authorized by Article VIII, Section 3. El Castillo fails to qualify for tax exemption under Article VIII, Section 3 or Section 7-36-7(B)(1)(d) because its property does not provide substantial public benefit through its primary use that aligns with constitutionally authorized exempt purposes. New Mexico precedent requires that property must create substantial public benefit through direct, immediate, and primary use for exemption eligibility. This is not a rigid test but a flexible inquiry informed by historical and policy considerations. For instance, exemptions have been granted for undeveloped land that serves a public benefit and for educational institutions if their activities significantly benefit the public. The rationale for tax exemptions is based on the benefits these organizations provide, implying a quid pro quo with the state, where exempt properties must offer substantial public benefits in exchange for their tax-exempt status. A substantial public benefit is defined as one that is significant and valuable to a broad segment of the public. The Court of Appeals concluded that El Castillo does not provide substantial public benefit, as it operates as a self-sustaining community for financially and medically screened residents who pay for services. While a charitable exemption may apply to facilities caring for indigent populations, El Castillo's model relies on residents who collectively finance their care, with the organization retaining the discretion to terminate agreements for non-payment. Thus, El Castillo's operations do not constitute a substantial benefit to the public. A self-sustaining community like El Castillo does not qualify as a charity solely due to its lack of profit from operations. The case of Mountain View Homes, Inc. v. State Tax Comm’n establishes that a nonprofit housing development was not deemed charitable because tenants paid fixed rents intended to cover project costs. Similarly, El Castillo's potential subsidies for some residents do not classify it as charitable since these are funded by fees from other residents. It functions as a nonprofit long-term care insurance provider, akin to an insurance company, which cannot be considered charitable merely because it may provide more benefits to some individuals than they contribute. Other cases, such as Cape Retirement Community Inc. v. Kuehle, Presbyterian Homes of Synod of N.J. v. Div. of Tax Appeals, and Christian Home for the Aged, Inc. v. Tenn. Assessment Appeals Comm’n, further illustrate that continuing care retirement facilities with specific financial admission criteria do not qualify for charitable tax exemptions. These cases emphasize that such facilities do not serve an indefinite class of the public and do not meet the requirements for a charitable purpose tax exemption under New Mexico law. In conclusion, El Castillo is not entitled to property tax exemptions under the relevant New Mexico statutes and constitutional provisions. The district court's decision is reversed, and the case is remanded for appropriate judgment.