El Castillo Ret. Residences v. Martinez

I attest to the accuracy and
integrity of this document
New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 11:44:55 2017.09.20

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number: 2017-NMSC-026

Filing Date: August 17, 2017

Docket No. S-1-SC-35148

EL CASTILLO RETIREMENT
RESIDENCES,

Petitioner-Respondent,

v.

DOMINGO MARTINEZ, ASSESSOR,
SANTA FE COUNTY,

Respondent-Petitioner.

ORIGINAL PROCEEDING ON CERTIORARI
Barbara J. Vigil, District Judge

Bridget Jacober
Santa Fe, NM

for Petitioner

Jones, Snead, Wertheim & Clifford, P.A.
Carol A. Clifford
Jerry Todd Wertheim
Santa Fe, NM

for Respondent

Betzer, Roybal & Eisenberg, P.C.
Gary D. Eisenberg
Albuquerque, NM

for Amicus Curiae
New Mexico Health Care Association

OPINION

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DANIELS, Justice.

{1} Article VIII, Section 1(A) of the New Mexico Constitution sets forth a general
mandate that all property of the same class must be taxed in an “equal and uniform” manner,
while Section 3 exempts from taxation property that is, among other exempt categories,
“used for . . . charitable purposes.” In 2008, the New Mexico Legislature created a new tax
exemption for a continuing care community defined under the Continuing Care Act, NMSA
1978, §§ 24-17-1 to -18 (1985, as amended through 2010), that “donates or renders
gratuitously a portion of its services or facilities” and “uses all funds remaining after
payment of its . . . expenses of operation . . . to further its charitable purpose, including the
maintenance, improvement or expansion of its facilities,” among other qualifications. NMSA
1978, § 7-36-7(B)(1)(d) (2008); see § 24-17-3(B)-(C) (defining “community” and
“continuing care”).

{2} Respondent El Castillo Retirement Residences is a self-sustaining retirement and
continuing care community, funded entirely by admission and monthly fees paid by residents
who have met El Castillo’s requirements for sufficient financial resources, including a
minimum net worth, and have satisfied specific health criteria. It does not accept residents
who are Medicare-dependent, Medicaid-dependent, or charity-dependent or any residents
who cannot afford to buy their way into the community. It neither donates any significant
services or property to charitable causes nor uses its property primarily and substantially for
a charitable purpose. While we agree with the Court of Appeals that El Castillo does not use
its property for charitable purposes and is therefore not exempt from the constitutional
requirement of equal taxation, we write to clarify that Section 7-36-7(B)(1)(d) must be read
in harmony with controlling constitutional requirements. Accordingly, we hold that El
Castillo is not entitled to property-tax exemptions under either Section 7-36-7(B)(1)(d) or
Article VIII, Section 3 of the New Mexico Constitution because El Castillo does not use its
property primarily for substantial public benefit furthering charitable purposes.

I. BACKGROUND

{3} El Castillo Retirement Residences, located in Santa Fe County, provides graduated
levels of care to its accepted residents, all of whom must pay an entry fee upon admission
and monthly fees thereafter in return for living quarters, the use of shared facilities, access
to coordinated social and recreational activities, and the assurance that El Castillo will
provide any level of care that accepted residents may need as they age.

{4} El Castillo is funded primarily by resident fees calculated at the time of admission
and based on each resident’s life expectancy and projected level of required care. Fees are
calculated to cover all of the operating costs of the facility and to provide additional reserves
that can be drawn on to make up deficits. It is possible that particular residents will outlive
their predicted life spans or require more expensive medical care than anticipated so that the
fees they pay would not be enough to cover the entire cost of their lifetime care. Other
residents may live fewer years than expected, and the entry fee and monthly fees they pay

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to El Castillo will exceed the total cost of their lifetime care.

{5} To minimize the facility’s exposure to financial risk from this flat-fee arrangement,
prospective residents must meet physical, mental, and financial requirements to be accepted
for admission. El Castillo does not accept applicants who depend solely on Medicare or
Medicaid, individuals whose net worth is less than $300,000 independent of social security
benefits, or those whose health issues likely will require a high level of care.

{6} El Castillo’s property was valued at $9,860,000 for 2009 property-tax purposes by
the petitioner, the Santa Fe County Assessor. After receiving the notice of valuation, El
Castillo filed a claim for exemption of property used for charitable purposes under Article
VIII, Section 3 of the New Mexico Constitution and Section 7-36-7(B)(1)(d) of the New
Mexico Property Tax Code. The Assessor denied the claim because “El Castillo’s donation
of services or facilities is minimal.” The Assessor acknowledged that the Legislature did not
textually set forth a minimum level of charitable donation in Section 7-36-7(B)(1)(d) but
concluded that “because the constitutional grant of exemption requires primary and
substantial charitable use of the property, so must the statute.”

{7} El Castillo protested the Assessor’s denial to the Santa Fe County Valuation Protests
Board. The Board upheld the Assessor’s denial of the property-tax exemption after finding
that El Castillo had not “donate[d] or render[ed] gratuitously a portion of its services or
facilities” as the terms of Section 7-36-7(B)(1)(d) require. The Board did not purport to
address the constitutional issue separately because El Castillo did not argue for an exemption
under Article VIII, Section 3 separate from the statutory grounds, and the parties agreed that
the Board did not have jurisdiction to address the “constitutional issue with regard to the
statute itself.”

{8} El Castillo appealed the Board’s decision to the district court pursuant to the district
court’s appellate jurisdiction. El Castillo asked the district court to review the Board’s
decision which denied the exemption on statutory grounds. El Castillo argued that the
Board’s decision “was not supported by substantial evidence and was reached in an arbitrary
and capricious manner.” Additionally, El Castillo asked the district court to exercise its
original jurisdiction and decide whether El Castillo was exempt from property valuation
under Article VIII, Section 3 of the New Mexico Constitution.

{9} El Castillo argued that by enacting Section 7-36-7(B)(1)(d) the Legislature had made
a policy decision within its purview, giving “new depth and meaning to Article VIII, Section
3” in “acknowledg[ing] the great public benefit provided by nonprofit continuing care
retirement communities” and by “helping assure [their] financial viability,” noting that the
exemption is available to such communities that meet the other requirements of Section 7-
36-7(B)(1)(d) “so long as a portion of services and facilities are donated or rendered
gratuitously.” In addition, El Castillo argued that satisfaction of the statutory claim
necessarily satisfied the constitutional claim in “alleviating a burden on the government by
sustaining its members to a significant degree, certainly far more than the tax burden that it

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is seeking to relieve itself of.”

{10} The district court did not exercise its appellate jurisdiction over the Board’s decision
interpreting Section 7-36-7(B)(1)(d) but instead exercised its original jurisdiction over both
El Castillo’s statutory and constitutional claims. Without addressing any of the Board’s
findings of fact, the district court issued new findings of fact which contradicted the findings
of the Board. The district court concluded that Article VIII, Section 3 was not self-executing
and that by enacting Section 7-36-7(B)(1)(d), the Legislature had “spelled out how the
constitutional provision ‘used for charitable purposes’ is to be interpreted.” Consequently
the district court declined to “read into the statute a requirement that El Castillo render a
‘primary or substantial’ public benefit” and held that, by meeting the plain language
requirements of Section 7-36-7(B)(1)(d), El Castillo had also fulfilled the charitable use
requirements for tax exemption under Article VIII, Section 3 of the New Mexico
Constitution.

{11} The Santa Fe County Assessor appealed the district court’s decision to the Court of
Appeals as an appeal of right pursuant to Rule 12-201 NMRA and Rule 12-202 NMRA. El
Castillo Ret. Residences v. Martinez, 2015-NMCA-041, ¶ 7, 346 P.3d 1164. The Assessor
argued that an appeal of right was the proper procedure because the district court utilized
only its original jurisdiction and not its appellate jurisdiction when making its determination.

{12} The Court of Appeals determined it only had jurisdiction to review whether El
Castillo met the constitutional requirements for the tax exemption, not whether El Castillo
was entitled to a tax exemption under the statute. It held that the notice of appeal and
docketing statement “were sufficient to perfect the appeal of the constitutional issue . . . [but
that] the Assessor failed to file a petition for writ of certiorari to perfect his appeal as to the
statutory issue first decided by the Protest Board and reviewed by the district court in its
appellate jurisdiction.” Id. ¶ 8.

{13} The Court of Appeals reversed the district court’s conclusion that El Castillo was
constitutionally exempt from property taxation and held that “El Castillo did not directly and
immediately use its property primarily and substantially for a charitable purpose recognized
under Article VIII, Section 3 of the New Mexico Constitution because it does not confer a
substantial benefit of real worth and importance to an indefinite class of persons who are
members of the general public.” El Castillo, 2015-NMCA-041, ¶¶ 44-45. Because the Court
of Appeals refused jurisdiction to review whether El Castillo was eligible for tax exemption
under the statute, it did not discuss the relationship between Article VIII, Section 3 and
Section 7-36-7(B)(1)(d) or specify whether its reversal of the district court on constitutional
grounds left intact the district court’s ruling that El Castillo was entitled to exemption under
the statute. See El Castillo, 2015-NMCA-041 ¶ 12.

{14} We granted certiorari to consider the constitutional and statutory provisions that
govern permissible exemptions from equal taxation of real property in New Mexico and to
clarify the subject matter appropriate for appellate review in circumstances such as these.

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II. DISCUSSION

{15} Article VIII, Section 3 of the New Mexico Constitution provides no specifics in its
exemption of “all property used for . . . charitable purposes” from property taxation. The
Legislature, which previously had recognized in Section 7-36-7(B)(1) that taxes may not be
imposed on “property exempt from property taxation under the federal or state constitution,
federal law, the Property Tax Code or other laws,” added Subsection (B)(1)(d) in a 2008
amendment, providing that

this includes property that is operated either as a community to which the
Continuing Care Act . . . applies or as a facility licensed by the department
of health to operate as a nursing facility, a skilled nursing facility, an adult
residential care facility, an intermediate care facility or an intermediate care
facility for the developmentally disabled; and is owned by a charitable
nursing, retirement or long-term care organization that: 1) has been granted
exemption from the federal income tax by the United States commissioner
of internal revenue as an organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended or renumbered; 2) donates or
renders gratuitously a portion of its services or facilities; and 3) uses all funds
remaining after payment of its usual and necessary expenses of operation,
including the payment of liens and encumbrances upon its property, to
further its charitable purpose, including the maintenance, improvement or
expansion of its facilities.

The statute provides no guidelines for determining what level of charitable donations will
satisfy the requirement of donating or rendering gratuitously “a portion of its services or
facilities.” Id.

{16} El Castillo asserts that it is entitled to be exempt from taxation because it has met the
terms of the statute but does not challenge the Court of Appeals holding that it is not exempt
under Article VIII, Section 3 of the New Mexico Constitution. The Assessor argues that El
Castillo’s failure to meet the requirements of Article VIII, Section 3 necessarily means that
Section 7-36-7(B)(1)(d) cannot be constitutionally applied to grant El Castillo an exemption.
For the reasons that follow, we agree with the Assessor.

A. The Assessor Has Standing to Challenge the Constitutionality of Section 7-36-
7(B)(1)(d) as It Applies to El Castillo

{17} As a preliminary matter, El Castillo challenges the Assessor’s standing to raise the
constitutionality of Section 7-36-7(B)(1)(d), relying on State ex rel. Overton v. N.M. State
Tax Comm’n, 1969-NMSC-140, ¶¶ 8, 19-20, 81 N.M. 28, 462 P.2d 613. Although El Castillo
raises the issue for the first time in this Court, “the lack of [standing] is a potential
jurisdictional defect, which may not be waived and may be raised at any stage of the
proceedings.” Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M. 734, 31 P.3d 1008

5
(internal quotation marks and citations omitted). “[S]tanding in our courts is not derived
from the state constitution, and is not jurisdictional” unless the cause of action is created by
statute. Deutsche Bank Nat’l Trust Co. v. Johnston, 2016-NMSC-013, ¶ 11, 369 P.3d 1046
(internal quotation marks and citation omitted). Nevertheless, “as a matter of judicial policy
if not of jurisdictional necessity, our courts have generally required that a litigant
demonstrate injury in fact, causation, and redressability to invoke the court’s authority to
decide the merits of a case.” Id. ¶ 13 (internal quotation marks and citation omitted).

{18} In Overton, this Court held that a county assessor did not have standing to bring a
declaratory judgment action challenging the constitutionality of a tax-exemption statute
because no justiciable controversy was present. See 1969-NMSC-140, ¶¶ 1, 9, 19. Overton
is not applicable to the standing analysis in this case because asking this Court to decide the
constitutionality of Section 7-36-7(B)(1)(d) as it applies to El Castillo is not a request for a
declaratory judgment. Here, a justiciable controversy exists with regard to El Castillo’s claim
of entitlement to a tax exemption. This is not a theoretical question, and the Assessor does
have an interest in the outcome. See NMSA 1978, § 7-36-2(A) (1995) (“The county assessor
is responsible and has the authority for the valuation of all property subject to valuation for
property taxation purposes.”); NMSA 1978, § 7-38-17(G) (2011) (“A county assessor or the
assessor’s employee who knowingly permits a claimant for an exemption to receive the
benefit of an exemption to which the claimant is not entitled is guilty of a misdemeanor and
shall be punished by a fine of not more than one thousand dollars ($1,000) and shall also be
automatically removed from office or dismissed from employment upon conviction under
this subsection.”). When El Castillo filed the appeal from the Board’s decision, the district
court properly joined the Assessor as an appellee. There is no party more appropriate than
the Assessor to appeal the decision of the district court.

{19} We conclude that the Assessor has standing to bring before the appellate courts the
statutory and constitutional issues relating to whether El Castillo is entitled to an exemption
from real property taxation.

B. Both the District Court and the Court of Appeals Erred in Their Exercise of
Appellate Jurisdiction

{20} It is incumbent on this Court to address the jurisdictional errors which occurred in
the exercise of appellate jurisdiction in both the district court and the Court of Appeals.
Jurisdictional questions are questions of law which this Court reviews de novo. Smith v. City
of Santa Fe, 2007-NMSC-055, ¶ 10, 142 N.M. 786, 171 P.3d 300. “A jurisdictional defect
may not be waived and may be raised at any stage of the proceedings, even sua sponte by
the appellate court.” Armijo v. Save ‘N Gain, 1989-NMCA-014, ¶ 4, 108 N.M. 281, 771 P.2d
989; see Rule 12-216(B) NMRA.

1. The District Court Erred When It Did Not Exercise Its Appellate Jurisdiction
over the Board’s Determination

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{21} The Legislature conferred power in the district court to review, as a court of first
appeal, a final decision of the Board. See NMSA 1978, § 7-38-28(A) (2015); NMSA 1978,
§ 39-3-1.1 (1999). When acting in its appellate role, the district court may reverse an agency
decision if it determines that “(1) the agency acted fraudulently, arbitrarily, or capriciously;
(2) the final decision was not supported by substantial evidence; or (3) the agency did not
act in accordance with law.” Section 39-3-1.1(D). The district court, in its appellate capacity,
“is limited in the same manner as any other appellate body . . . and must defer to the
agency’s factual determinations if supported by substantial evidence.” N.M. Bd. of
Psychologist Exam’rs v. Land, 2003-NMCA-034, ¶ 5, 133 N.M. 362, 62 P.3d 1244.

{22} In addition to its appellate jurisdiction, the district court has “original jurisdiction in
all matters and causes not excepted in this constitution.” N.M. Const. art. VI, § 13. The
district court is a court of general jurisdiction and has the authority to consider all matters
not exclusive to other courts, including constitutional claims in the first instance. Maso v.
N.M. Tax’n & Revenue Dep’t, 2004-NMCA-025, ¶ 14, 135 N.M. 152, 85 P.3d 276 (“[T]he
district court has the authority to consider constitutional claims in the first instance.”).

{23} A “district court can simultaneously exercise its appellate and original jurisdiction.”
Id. ¶ 17. On appeal to a district court of claims first considered by an agency, where the
appeal also asserts constitutional and other claims in the district court that were beyond the
scope of the agency’s adjudicative authority, “the district court should consider each claim
according to its appropriate standard of review and maintain the distinction between the
court’s appellate and original jurisdiction in rendering its decision.” Id.

{24} The district court should have exercised its appellate jurisdiction over the Board’s
determination regarding the applicability of Section 7-36-7(B)(1)(d) to El Castillo and
reviewed whether the Board’s decision was arbitrary and capricious, unsupported by
substantial evidence, or otherwise contrary to law as required under Section 39-3-1.1(D).
Exercising its original jurisdiction over the statutory claim and issuing new findings of fact
which contradicted the findings of the Board was error. In issuing new findings of fact, the
district court acted outside its proper appellate jurisdiction. See, e.g., Cadena v. Bernalillo
Cty. Bd. of Cty. Comm’rs, 2006-NMCA-036, ¶ 3, 139 N.M. 300, 131 P.3d 687 (concluding
that “the district court acted outside of its capacity as an appellate court by engaging in fact-
finding”); VanderVossen v. City of Espanola, 2001-NMCA-016, ¶ 26, 130 N.M. 287, 24
P.3d 319 (“[T]he district court exercising appellate jurisdiction under Section 39-1-1.1[] is
not a fact-determining body.”); Hahn v. Cty. Assessor for Bernalillo Cty. (In re Miller),
1975-NMCA-116, ¶ 52, 88 N.M. 492, 542 P.2d 1182 (“If there is substantial evidence in the
record to support a decision of a county valuation protests board, [an appellate court is]
bound thereby.”), rev’d on other grounds, 1976-NMSC-039, 89 N.M. 547, 555 P.2d 142.
Had the district court reviewed the Board’s determination under the proper standard of
review, it is likely the district court’s determination would have been different.

2. The Court of Appeals Erred When It Refused Jurisdiction to Review the
Constitutionality of the Section 7-36-7(B)(1)(d) Exemption as Applied to El

7
 Castillo

{25} In addition to the district court’s jurisdictional error, the Court of Appeals erred when
it reviewed the constitutional question apart from the statutory question. The Court of
Appeals took the position that it did “not have jurisdiction to review the question of whether
El Castillo is entitled to a charitable property-tax exemption under Section 7-36-7(B).” El
Castillo, 2015-NMCA-041, ¶ 12. This determination by the Court of Appeals improperly
disregards the relationship between the New Mexico Constitution and the statutes enacted
by the Legislature. A statute must be interpreted and applied in harmony with
constitutionally imposed limitations. See NMSA 1978, § 12-2A-18(A)(3) (1997) (“A statute
or rule is construed . . . [to] avoid an unconstitutional . . . result.”); Wells v. Cty. of Valencia,
1982-NMSC-048, ¶ 11, 98 N.M. 3, 644 P.2d 517 (“[T]he Legislature is presumed to have
enacted the statute within the bounds of the constitution, and, to that end, we must so
construe the statute.”). The constitutional and statutory claims as argued by the parties,
considered and decided by the district court, and raised on appeal to the Court of Appeals
were intertwined and inseparable. The Court of Appeals erred when it did not decide whether
El Castillo could be exempt from property taxation under Section 7-36-7(B)(1)(d) despite
its constitutional ineligibility for exemption. Accordingly, we granted certiorari to address
this issue.

C. Legislation Granting Tax Exemptions Must Be Interpreted in Light of
Restrictions Set Forth in Article VIII of the New Mexico Constitution

{26} Whether Section 7-36-7(B)(1)(d) can grant a tax exemption to El Castillo raises
issues of constitutional interpretation that we review de novo. Pinghua Zhao v. Montoya,
2014-NMSC-025, ¶ 11, 329 P.3d 676. “The Legislature’s inherent authority and discretion
to exercise the State’s power of taxation is plenary ‘except in so far as limited by the
Constitution.’” Id. ¶ 14 (citation omitted).

“[S]tate constitutions are not grants of power to the legislative, to the
executive and to the judiciary, but are limitations on the powers of each. No
branch of the state may add to, nor detract from its clear mandate. It is a
function of the judiciary when its jurisdiction is properly invoked to measure
the acts of the executive and the legislative branch solely by the yardstick of
the constitution.”

State ex rel. Clark v. Johnson, 1995-NMSC-048, ¶ 20, 120 N.M. 562, 904 P.2d 11 (citation
omitted).

{27} We presume that enactments of the Legislature are within constitutional boundaries,
and we “give effect to the legislative intent unless it clearly appears to be in conflict with the
Constitution.” Bounds v. State ex rel. D’Antonio, 2013-NMSC-037, ¶ 11, 306 P.3d 457
(internal quotation marks and citation omitted). “[I]t is the particular domain of the
legislature, as the voice of the people, to make public policy.” Hartford Ins. Co. v. Cline,

8
2006-NMSC-033, ¶ 8, 140 N.M. 16, 139 P.3d 176 (alteration in original) (internal quotation
marks and citation omitted).

{28} El Castillo relies heavily on La Vida Llena v. Montoya, 2013-NMCA-048, ¶¶ 5-6,
20, 299 P.3d 456, for the proposition that constitutional standards have no bearing on the
application of Section 7-36-7(B)(1)(d). In La Vida Llena the Court of Appeals looked only
at the facial text of Section 7-36-7(B)(1)(d) to reach its holding that the statutory requirement
that the facility “donates or renders gratuitously a portion of its facilities or services”
imposed no threshold on the amount of the donation. Id. ¶ 1. The Court of Appeals did not
consider whether Section 7-36-7(B)(1)(d) was limited by Article VIII or whether the facility
in question would have qualified for exemption under that constitutional limitation. Because
we hold that Section 7-36-7(B)(1)(d) must be read in light of Article VIII, Section 3 of the
New Mexico Constitution, we overrule La Vida Llena to the extent that it may be read to
indicate otherwise.

{29} New Mexico law is clear in concluding that Article VIII, Section 3 is self-executing
and does not require statutory enactment. See CAVU Co. v. Martinez, 2014-NMSC-029, ¶
15, 332 P.3d 287 (“‘Unlike most constitutional exemptions, [Article VIII, Section 3] does
not merely define a field of exemption, within which the legislative power may operate from
time to time at its discretion. It is affirmative and self-executing. It creates exemptions. It
invests citizens with constitutional rights, which administrative officers or Legislature may
not impair, and which courts must protect.’” (quoting Temple Lodge No. 6, A.F. & A.M. v.
Tierney, 1933-NMSC-013, ¶ 29, 37 N.M. 178, 20 P.2d 280)). Article VIII, Section 3
operates as a limit on the Legislature’s power to redefine categories of property which will
be exempt from taxation. See Clark, 1995-NMSC-048, ¶ 20; see also Dillard v. N.M. Tax
Comm’n, 1948-NMSC-069, ¶¶ 5-9, 53 N.M. 12, 201 P.2d 345 (interpreting Article VIII,
Sections 1, 3, and 5 and concluding that “[t]he property of the wife of a soldier or sailor is
not exempt from taxation, nor can the legislature enact a statute that will have that effect
without [a constitutional] amendment authorizing it”); Sims v. Vosburg, 1939-NMSC-026,
¶ 4, 43 N.M. 255, 91 P.2d 434 (relying on Article VIII, Sections 1, 3, and 5 in stating that
“[a]ll tangible property in New Mexico is subject to taxation in proportion to value, and
should be taxed, unless specifically exempted by the constitution or by its authority”); State
ex rel. Att’y Gen. v. State Tax Comm’n, 1936-NMSC-029, ¶ 8, 40 N.M. 299, 58 P.2d 1204
(“By the terms of section 3 of article 8, certain specific property is exempt from taxation, and
by section 5 thereof the Legislature is authorized to exempt from taxation certain other
specific property; and no other property is or can be exempted. The Constitution, in effect,
classes tangible property into that exempt from taxation, that which may be exempted, and
that which must be taxed.”); Albuquerque Alumnae Ass’n of Kappa Kappa Gamma
Fraternity v. Tierney, 1933-NMSC-011, ¶¶ 3, 9-10, 26, 37 N.M. 156, 20 P.2d 267 (rejecting
a statute-based claim of tax exemption for a college sorority property and holding that “the
Constitution makers intended to cover the whole field of exemption,” that “[Article VIII,]
Section 3 is affirmative and self-executing,” that “[i]t creates exemptions,” and that “[t]here
is a strong presumption against an intent to permit the Legislature to create others”).

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{30} The people always have the power to amend constitutional restrictions by expressly
and lawfully doing so. For example, New Mexico voters have amended Article VIII, Section
3 to give a supermajority of the Legislature the limited authority to exempt personal property
from taxation. See, e.g., 1972 N.M. Laws, Constitutional Amendment 2, at 703-04
(proposing the 1972 constitutional amendment to Article VIII, Section 3 that granted the
Legislature authority to exempt personal property by statute upon passage by a three-fourths
majority vote of all members). But no constitutional authority has been granted for the
Legislature to exempt real property by statute. Consequently, Section 7-36-7(B)(1)(d) may
not be interpreted or applied to grant exemptions that are not authorized by Article VIII,
Section 3.

D. El Castillo Does Not Qualify for Tax Exemption Under Article VIII, Section 3
or Section 7-36-7(B)(1)(d) Because Its Property Does Not Create Substantial
Public Benefit Through Primary Use That Furthers a Constitutionally
Authorized Exempt Purpose

{31} Controlling New Mexico precedent has consistently interpreted Article VIII, Section
3 to exempt only property that creates substantial public benefit through use that directly,
immediately, primarily, and substantially furthers its exempt purpose. See, e.g., CAVU,
2014-NMSC-029, ¶¶ 21-23, 29-30 (applying this framework in analyzing whether use of a
property furthers exempt purposes). This is not a mechanical test of eligibility for exemption
but instead requires a flexible inquiry allowing fact-specific determinations informed by
history and policy considerations. Id. ¶¶ 13, 20. Accordingly, the interpretation of these
limits may vary depending upon the particular property and use at issue. See, e.g., Pecos
River Open Spaces, Inc. v. Cty. of San Miguel, 2013-NMCA-029, ¶¶ 22-25, ___ P.3d ___
(allowing an exemption for vacant, undeveloped, and unimproved land when it provided
substantial public benefit in its idle state and where such use furthered its charitable purpose
of conservation); Georgia O’Keeffe Museum v. Cty. of Santa Fe, 2003-NMCA-003, ¶ 56,
133 N.M. 297, 62 P.3d 754 (interpreting the requirement of direct and immediate use for
educational purposes broadly to permit consideration of the intrinsic educational value of a
museum and of off-site educational programs and activities closely related to the museum
collection).

{32} Despite the flexible nature of our analysis, “[t]he exemption granted [to] educational
and charitable institutions proceeds upon the theory of the public good accomplished by
them and the peculiar benefits derived by the public in general from their conduct.” Pecos
River Open Spaces, 2013-NMCA-029, ¶ 9 (internal quotation marks and citation omitted).
The rationale for exemption depends upon an “implicit quid pro quo between the State and
an exempt organization.” CAVU, 2014-NMSC-029, ¶ 30. “‘Property which is exempt from
taxation does not share in the burden [of paying for the cost of government]. Therefore, in
exchange for its exempt status, [the use of] such property must confer a substitute substantial
benefit on the public.’” Id. (quoting NRA Special Contribution Fund v. Bd. of Cty. Comm’rs,
1978-NMCA-096, ¶ 38, 92 N.M. 541, 591 P.2d 672). A substantial public benefit is “[a]
benefit of real worth and importance to an indefinite class of persons who are a part of the

10
public.” NRA, 1978-NMCA-096, ¶ 45.

{33} Applying these standards, the Court of Appeals correctly determined that El
Castillo’s use of its property did not create any substantial public benefit. See El Castillo,
2015-NMCA-041, ¶¶ 30-32, 44. A facility that cares for the elderly might be entitled to a
charitable use exemption if, in doing so, it benefits the general public. See Ret. Ranch, Inc.
v. Curry Cty. Valuation Protest Bd., 1976-NMCA-010, ¶¶ 6, 9-10, 89 N.M. 42, 546 P.2d
1199 (allowing exemption based on charitable use where a facility cared for an aged “sick
and largely indigent” population dependent on Medicare and Medicaid). But El Castillo is
a self-sustaining community that accepts and benefits only financially and medically
screened residents based on requirements calculated in the interests of financial security for
El Castillo. These residents collectively pay for all the services El Castillo provides, and if
the care they need eventually exhausts the resources provided by particular residents’
admission and monthly fees, any additional care they receive is paid for by the surplus fees
collected from other residents. While El Castillo claims it has not yet forced relocation of
a resident for inability to pay monthly fees, the express contractual language gives El
Castillo the sole discretion to terminate the resident agreement for that reason.

{34} A self-sustaining community does not qualify as a charity merely because it does not
profit from its enterprise. See Mountain View Homes, Inc. v. State Tax Comm’n, 1967-
NMSC-092, ¶ 15, 77 N.M. 649, 427 P.2d 13 (holding that a nonprofit housing development
built for low and moderate income workers was not charitable because the “tenants [were]
required to pay for the premises occupied by them with the rentals being fixed so as to return
the amount estimated as being necessary to pay out the project”). Even the possibility that
El Castillo will subsidize some residents is not charitable when those subsidies are paid for
by the fees collected from residents who did not require subsidization. In a business-
economics sense, El Castillo functions as a nonprofit provider of long-term care insurance,
and like any insurance company it may pay out more to a particular individual than that
person has paid in. But just as with private health or disability or other insurance that avoids
dependence on public assistance for the policyholders or beneficiaries, providing for its own
paying participants cannot be characterized as charitable.

{35} Other jurisdictions have likewise concluded that continuing care retirement facilities
with similar admission requirements and financial structures are ineligible for a charitable
purpose tax exemption. See, e.g., Cape Ret. Cmty., Inc. v. Kuehle, 798 S.W.2d 201, 202-04
(Mo. Ct. App. 1990) (holding that a nonprofit, life care, retirement, housing, and nursing
facility admitting only those with financial resources sufficient to meet the facility costs was
not entitled to exemption from property taxation despite assuming obligations for residents
who became insolvent, reasoning that “[i]t is not enough that Cape Retirement regularly
underwrites some of the costs of qualified residents and agrees to fully support selected
residents if such residents suffer financial reverses because its retirement home is not equally
available to both rich and poor” and therefore “is not operated to benefit society generally”
as required of a charity); Presbyterian Homes of Synod of N.J. v. Div. of Tax Appeals, 261
A.2d 143, 149-50 (N.J. 1970) (holding that a nonprofit continuing care retirement

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community in which residents paid for services received did not qualify for the charitable
purpose tax exemption based on several “persuasive factors” including its contractual right
to terminate a resident agreement for inability to pay); Christian Home for the Aged, Inc. v.
Tenn. Assessment Appeals Comm’n, 790 S.W.2d 288, 292-93 (Tenn. Ct. App. 1990) (holding
that a retirement community admitting only individuals meeting financial and physical
requirements was not eligible for the charitable use tax exemption because, “though the
benefits of the [community] are significant, only those who are financially and physically
well off can receive them [while t]hose less healthy and wealthy are not benefited”).

{36} Under the facts presented in this record, El Castillo does not provide any benefit to
an indefinite class of persons who are members of the general public. We hold that it cannot
be entitled to exemption from taxation under Section 7-36-7(B)(1)(d) simply by being a
continuing care facility without also creating a substantial public benefit that would entitle
it to exemption from equal taxation as authorized by Article VIII, Section 3 of the New
Mexico Constitution.

III. CONCLUSION

{37} We hold that El Castillo is not entitled to property-tax exemptions under either
Section 7-36-7(B)(1)(d) or Article VIII, Section 3 of the New Mexico Constitution. We
reverse the district court and remand for entry of a judgment in conformity with this opinion.

{38} IT IS SO ORDERED.

____________________________________
CHARLES W. DANIELS, Justice

WE CONCUR:

____________________________________
JUDITH K. NAKAMURA, Chief Justice

____________________________________
PETRA JIMENEZ MAES, Justice

____________________________________
EDWARD L. CHÁVEZ, Justice

____________________________________
KAREN L. TOWNSEND, Judge, sitting by designation

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