(dissenting).
{34} I respectfully dissent. I concur with the majority that TPL’s services, sold to IOC, an out-of-state buyer, resulted in a product. I also concur with the majority that IOC did not make initial use or take delivery of the product by transferring title to TPL. I am not persuaded, however, by the majority’s conclusion that the product of the service was “wholly intangible,” or that initial use or delivery of that product did not occur within New Mexico. See Majority Op. ¶¶ 16, 26. I would affirm the Court of Appeals and the hearing examiner by holding that TPL did not meet its burden of overcoming the statutory presumption that the receipts were subject to gross receipts tax.
{35} As the majority recognizes, our legislature has imposed upon us a presumption that “all receipts of a person engaging in business are subject to the gross receipts tax.” NMSA 1978, § 7-9-5(A) (2002). This presumption must not be taken lightly. The majority further recognizes that if a taxpayer claims a tax deduction, we must construe the statute giving rise to such deduction “strictly in favor of the taxing authority, the right to the ... deduction must be dearly and unambiguously expressed in the statute, and the right must be clearly established by the taxpayer.” Sec. Escrow Corp. v. State Taxation & Revenue Dep’t, 107 N.M. 540, 543, 760 P.2d 1306, 1309 (Ct.App.1988) (emphasis added); accord ITT Educ. Servs., Inc. v. Taxation & Revenue Dep’t, 1998-NMCA-078, ¶ 4, 125 N.M. 244, 959 P.2d 969 (“We presume that the Department’s assessment [of gross receipts tax] was correct. This Court may reverse the hearing officer’s decision and order only if it is: (1) arbitrary, capricious or an abuse of discretion; (2) not supported by substantial evidence in the record; or (3) otherwise not in accordance with the law.” (internal quotation and citation omitted)). It is not sufficient for the taxpayer to have an arguable basis for being entitled to the deduction, with which this Court could choose to agree or disagree. See NMSA 1978, § 7-1-17(C) (1992) (“Any assessment of taxes or demand for payment made by the department is presumed to be correct.”). The taxpayer must show that it is clearly entitled to the deduction under the statutory scheme. Cf. ITT, 1998-NMCA-078, ¶¶ 4, 14-16, 125 N.M. 244, 959 P.2d 969 (applying Section 7-1-17(C) and affirming the Department’s interpretation of the word “service” in the gross receipts tax statute).
{36} The transaction between the parties in this case was unique, and therein lies the difficulty this Court experiences in applying the statutory deduction scheme to it. The seller of the service, TPL, took possession of the munitions, which were the objects of the contract. The buyer, IOC, paid TPL to do this and to make those munitions inert. IOC retained its ownership of the munitions throughout the contract period until the time when TPL had completed the process of demilitarizing the munitions. This is the reverse of the typical case, where the seller of a service produces something that never belonged to the buyer, then provides it to the buyer. As a result, identifying the “product of the service” is perhaps more difficult in this case than in most.
{37} The majority takes the position that the product of the service was “wholly intangible,” perhaps because it cannot point to any object that IOC physically received as a result of TPL’s service. The majority, therefore, identifies the product of the service as “ ‘freedom from responsibility for dangerous munitions.’ ” Majority Op. ¶ 16. The logic of this conclusion is somewhat appealing, because this freedom from responsibility is a clear end result of the contract between IOC and TPL. In my view, however, it would be more appropriate to identify a tangible product, both because such a product does exist in this case, and because once we do this, the determination of where the buyer initially used that product becomes possible. To do this, we must cross over the mental hurdle of accepting the possibility that the product of the service never has to be put into the buyer’s hands. It then becomes easier to identify the product of TPL’s service as the inert munitions themselves. Those munitions are “what the buyer paid for.” The majority implicitly recognizes that this is the case by hypothesizing that “[i]f TPL received the energetics, demilitarized them, then shipped them back to IOC in Illinois, we think it would be clear that IOC both made initial use and took delivery in Illinois.” Majority Op. ¶ 25.
{38} Once we have identified the product of the service as the inert munitions themselves, we still must decide whether IOC made initial use or took delivery of the product within New Mexico. Under the statutory scheme, “ ‘use’ ” includes “use, consumption or storage other than storage for subsequent sale in the ordinary course of business or for use solely outside this state.” NMSA 1978, § 7-9-3(L) (2002). Initial use “means the first employment for the intended purpose.” Section 7-9-3(0). Under the majority’s formulation, it becomes impossible to determine where IOC “used” the “freedom from responsibility” for the munitions. The product of the service identified by the majority is never really “used” at all.
{39} It is important to first recognize that one can “use” the product of a service without ever gaining physical control over it. Phillips Mercantile Co. v. N.M. Taxation & Revenue Dep’t, 109 N.M. 487, 488, 786 P.2d 1221, 1222 (Ct.App.1990). In this ease, IOC never regained physical control of the munitions once TPL had performed its service by rendering them inert. This does not change the fact that IOC’s intended use of the inert munitions was to recycle them. This is evidenced by the fact that TPL reduced the contract price substantially because IOC allowed it to do just that. The Hearing Examiner noted that in its contract proposal, TPL stated that “the ‘primary goal’ of its demilitarization work was ‘to reutilize the materials from our demilitarization activities, preserving as much as possible of the high quality energetic materials used in military munitions and retaining the maximum economic value of those materials.’ ” Protest of TPL, Inc., No. 99-17, at 11 (N.M. Taxation & Revenue Dep’t, Apr. 5, 1999). IOC used the inert munitions by having them recycled by TPL. IOC could have chosen to recycle the materials itself, back in Illinois. This would have constituted initial use outside of the State of New Mexico, and TPL would then have been entitled to the deduction. The parties to the contract instead decided that they would rather have TPL reduce the price it charged for demilitarization services substantially, however, and recoup the difference through the profits it received by selling the munitions to third parties. TPL took this action within the State of New Mexico. I cannot say, therefore, that NMSA 1978, § 7-9-57 (1989, prior to 1998 & 2000 amendments) clearly and unambiguously provides that TPL should be exempted from payment of gross receipts tax for the services that it provided to IOC.
{40} I am not unmindful of the majority’s position that the policies behind the deduction allowed for in Section 7-9-57 are furthered if TPL is allowed to receive the deduction. I agree that TPL may be placed in a competitive disadvantage with other companies seeking the same work who do not have to pay gross receipts tax in their respective states. The Department conceded at oral argument that a gross receipts tax deduction for TPL would be good policy, but that the statute simply does not allow for such a deduction as it is currently written. I agree. It is not this Court’s place to allow for the exemption when the statute does not, even if the policies behind the statute may be furthered by doing so. See Rauscher, Pierce, Refsnes, Inc. v. Taxation & Revenue Deft, 2002-NMSC-018, ¶ 11, 132 N.M. 226, 46 P.3d 687 (“[T]axation is the rule and the claimant must show that his [or her] demand is within the letter as well as the spirit of the law.” (internal quotations and citations omitted)).
{41} I conclude that TPL did not meet its burden of demonstrating that it should clearly receive the gross receipts tax exemption found in Section 7-9-57. The evidence demonstrates that the demilitarized munitions themselves, as well as the freedom from responsibility for those munitions as they existed prior to TPL’s services, could be characterized as products of the service. I would therefore affirm the Court of Appeals. A majority of the Court concluding otherwise, I respectfully dissent.
SERNA, C.J., concurs.