CAVU Co. v. Martinez

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Petitioner-taxpayer CAVU Company was the owner of a twenty-six-acre school campus in Santa Fe that was developed and improved beginning in 1997 solely for operation as a school. Since opening its doors over fifteen years ago, the Property has been used for educational purposes by several schools and has never been used for any other purpose. The following time line indicates the changes in occupancy of the Property since its development for use as a school. Taxpayer purchased the Property in 2004, when the New Mexico Academy for Science and Mathematics (NMASM) was experiencing financial difficulties. Taxpayer leased the Property to NMASM for $1.00 per year for several academic years and supported the school with donations in an effort to help NMASM succeed. In August 2007, Taxpayer raised the rent to $10,000 per month, although by November 2007 it was clear that NMASM could not afford that rate. At this point, Taxpayer allowed the school to occupy the building rent free until June 2008, when it closed. Throughout the remainder of 2008 and all of 2009, Taxpayer actively sought to lease the Property to various other educational tenants, negotiating in particular with Desert Academy. Taxpayer listed the Property for sale on the residential or commercial market but refused to lease the building to anyone other than an educational tenant. In March 2010, shortly after Taxpayer began temporarily leasing the Property to a training school for dogs and their owners, the Santa Fe County Assessor discovered the Property’s sale listing. Although the Assessor was apparently aware that the Property had been vacant, it was the sale listing that motivated the Assessor to put the Property on the tax rolls and issue Taxpayer a notice of valuation for $6,689,750 for the 2010 tax year. Taxpayer filed an application for an educational use exemption for 2010, which the Assessor denied because “on January 1st of 2009 and 2010” the property “was not used directly and immediately for educational purposes.” Following a March 2011 hearing before the Santa Fe County Valuation Protests Board, the Board reinstated Taxpayer’s exemption for 2010. On Assessor’s appeal, the District Court reversed the Board’s decision and denied the exemption pursuant to NMSA 1978, Section 7-38-7 (1997) because the Property was not “currently and actively used as an educational facility” specifically on January 1, 2010, the Property had been listed for sale to residential or commercial buyers, and no showing of fraud or intentional discrimination entitled the Property to an exemption under Article VIII, Section 1(A). Soon after the district court’s ruling, Taxpayer sold the Property to Desert Academy. The New Mexico Supreme Court held that the appropriate inquiry into the validity of a property’s educational exemption from taxation under the exemption provision of Article VIII, Section 3 of the New Mexico Constitution was whether use during the tax year furthered the exempt purpose. Because the taxpayer in this case had only used the property for educational purposes, had declined to use it for noneducational purposes, and was actively negotiating with schools capable of relocating to his campus property during the relevant tax year when the property was temporarily vacant, the Court reversed the conclusions of the lower courts that the property could not qualify for an educational use exemption. The case was remanded to the Santa Fe County Valuation Protests Board for further consideration. View "CAVU Co. v. Martinez" on Justia Law