Navajo Refining Company

05-08

In May 2004, the Taxpayer protested the 2004 Notice of Valuation issued by the Department’s Property Tax Division (PTD), asserting that PTD’s disallowance of the Taxpayer’s deduction for functional and economic obsolescence was arbitrary and capricious.  The Taxpayer’s protest raised the following issues:  (1) whether the Hearing Officer’s decision should be based on a record review of PTD’s initial reasons for disallowing the Taxpayer’s deduction or a de novo review of the evidence and argument presented at the administrative hearing; (2) whether PTD acted arbitrarily and capriciously in rejecting the Taxpayer’s 2004 claim to an obsolescence deduction based on the same methodology accepted by PTD in prior tax years; and (3) whether Navajo met its statutory burden of establishing its claim to a deduction for functional obsolescence based on the split location of its Artesia/Lovington refinery and a deduction for economic obsolescence based on the expenditures it incurred to comply with government regulations.  The Hearing Officer denied the protest, holding that:  (1) the standard of review was de novo; (2) the Taxpayer was not entitled to rely on the compromise methodology the Taxpayer and PTD had agreed to in settlement of a prior tax year; and (3) the methodology used by the Taxpayer did not meet accepted appraisal standards and did not meet the Taxpayer’s burden of establishing its right to a deduction.