912 N.W.2d 796 (Neb. 2018), S-17-814, Upper Republican Natural Resources District v. Dundy County Board of Equalization

Docket NºS-17-814
Citation912 N.W.2d 796, 300 Neb. 256
Opinion JudgeO’Gorman, District Judge.
Party NameUPPER REPUBLICAN NATURAL RESOURCES DISTRICT and Steve Yost, appellees, v. DUNDY COUNTY BOARD OF EQUALIZATION, appellant and cross-appellee. and FEM, Inc., and M & L Cattle Company, appellees and cross-appellants,
AttorneyJeanelle R. Lust, Richard C. Reier, and Carly L. Bahramzad, of Knudsen, Berkheimer, Richardson & Endacott, L.L.P., Lincoln, for appellant. Todd R. McWha, of Waite, McWha & Heng, and Lindsay E. Pedersen, North Platte, for appellees FEM, Inc., and M & L Cattle Company. Joel E. Burke, of Burke & Pri...
Judge PanelHeavican, C.J., Miller-Lerman, Cassel, and Stacy, JJ., and Luther and O’Gorman, District Judges. Funke, J., participating on briefs. Wright, J., not participating. Cassel, J., concurring.
Case DateJune 15, 2018
CourtSupreme Court of Nebraska

Page 796

912 N.W.2d 796 (Neb. 2018)

300 Neb. 256

UPPER REPUBLICAN NATURAL RESOURCES DISTRICT and Steve Yost, appellees,

and

FEM, Inc., and M & L Cattle Company, appellees and cross-appellants,

v.

DUNDY COUNTY BOARD OF EQUALIZATION, appellant and cross-appellee.

No. S-17-814

Supreme Court of Nebraska

June 15, 2018

Page 797

[Copyrighted Material Omitted]

Page 798

Syllabus by the Court

1. Taxation: Judgments: Appeal and Error. An appellate court reviews Nebraska Tax Equalization and Review Commission decisions for error appearing on the record of the commission.

2. Taxation: Judgments: Appeal and Error. When reviewing a Nebraska Tax Equalization and Review Commission judgment for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

3. Administrative Law. An administrative agency’s decision is arbitrary when it is made in disregard of the facts or circumstances without some basis which would lead a reasonable person to the same conclusion; administrative agency action taken in disregard of the agency’s own substantive rules is also arbitrary and capricious.

4. Taxation: Appeal and Error. Questions of law arising during appellate review of Nebraska Tax Equalization and Review Commission decisions are reviewed de novo.

5. Constitutional Law: Due Process. The determination of whether the procedures afforded to an individual comport with constitutional requirements for procedural due process presents a question of law.

6. Taxation. Neb. Rev. Stat. § 77-5016(8) (Cum. Supp. 2018) provides that for questions other than taxable value, the Nebraska Tax Equalization and Review Commission’s power is limited to questions that are both (1) raised in the proceeding before the commission and (2) a basis for the order, decision, determination, or action appealed from.

7. Appeal and Error. An appellate court ordinarily considers only those errors assigned and discussed in the briefs, but may notice plain error.

[300 Neb. 257] 8. Appeal and Error: Words and Phrases. Plain error is error plainly evident from the record and of such a nature that to leave it uncorrected would result in damage to the integrity, reputation, or fairness of the judicial process.

9. Taxation: Property: Public Purpose. Property can be used by a public entity in more than one way and for more than one public purpose, and all public purpose uses should be considered together in evaluating whether any private use of the property is merely incidental in the analysis under Neb. Rev. Stat. § 77-202(1)(a) (Cum. Supp. 2012) of the extent to which the property is used or being developed for use for a public purpose.

Appeal from the Tax Equalization and Review Commission. Affirmed in part, vacated in part, and in part reversed and remanded with directions.

Jeanelle R. Lust, Richard C. Reier, and Carly L. Bahramzad, of Knudsen, Berkheimer, Richardson & Endacott, L.L.P., Lincoln, for appellant.

Todd R. McWha, of Waite, McWha & Heng, and Lindsay E. Pedersen, North Platte, for appellees FEM, Inc., and M & L Cattle Company.

Joel E. Burke, of Burke & Pribbeno, L.L.P., Imperial, for appellee Upper Republican Natural Resources District.

Heavican, C.J., Miller-Lerman, Cassel, and Stacy, JJ., and Luther and O’Gorman, District Judges.

O’Gorman, District Judge.

Page 799

I. NATURE OF CASE

This is an appeal by the Dundy County Board of Equalization (Board) from the decision of the Tax Equalization and Review Commission (TERC). The central issue in this appeal is the tax exempt status of land purchased by the Upper Republican Natural Resources District (NRD) as part of a ground water integrated management plan. The NRD retired irrigated acres and converted them to grassland to achieve soil conservation [300 Neb. 258] and range management objectives. The NRD leased much of that grassland for grazing. The parties dispute the extent to which the lease was at fair market value for a public purpose, as described by Neb. Rev. Stat. § 77-202(1)(a) (Cum. Supp. 2012). The parties also dispute the scope, under Neb. Rev. Stat. § 77-5016(8) (Cum. Supp. 2016), of the questions properly before the TERC; whether due process allowed for any tax assessment to the lessees if they lacked notice of the proceedings before the Board; and whether it is legally permissible, under Neb. Rev. Stat. § 77-202.11 (Reissue 2009), to assess property tax to a public entity that has leased land for a nonpublic purpose.

II. BACKGROUND

1. PURCHASE AND LEASE AGREEMENTS

In order to comply with the Republican River Compact and to meet other water management objectives, in 2011, the NRD paid approximately $10 million to purchase from FEM, Inc., approximately 4,080 acres of agricultural land, 3,262 of which were certified irrigated acres. Under the terms of the purchase agreement, FEM retained the right to lease back the property, but once the NRD had decertified the irrigated acres, FEM’s use of the land was limited to grazing and use of certain fixtures. During the years pertinent to this appeal, the land had been converted from irrigated land to native grassland. FEM exercised its right to lease back the entirety of the FEM property and, as allowed by the terms of the lease, subleased the land to M & L Cattle Company (M & L), the company through which FEM conducts its cattle operations (M & L and FEM together are referred to herein as "lessees").

The lease agreement between the NRD and FEM provides that the NRD "shall pay all real estate taxes and personal property attributable to fixtures located on the property."

In 2013, the NRD purchased an additional 3,200 certified irrigated acres from Maurice Wilder, for $8,050,000. The land [300 Neb. 259] was contiguous to the FEM parcels and was also acquired in order to carry out the objectives of the management plan.

Both properties were located in Dundy County, Nebraska.

Page 800

2. ASSESSOR NOTICE OF TAXABLE STATUS

In 2013, the Dundy County assessor sent the NRD notices of taxable status for 12 FEM parcels and 6 Wilder parcels. The notices stated that the reason the assessor determined the parcels to be taxable was because they were not being used for a public purpose.1 The notices did not state that the assessor had determined that any of the parcels were being leased at less than fair market value.

The notices advised the NRD that if the property was leased to another entity and the NRD "d[id] not intend to pay the taxes as allowed under subsection (4) of section 77-202.11, [the NRD] must immediately forward this notice to the lessee." The NRD did not forward the notices to the lessees, and the lessees did not have actual notice of the assessment.

The assessor similarly determined the parcels nonexempt in 2014 and 2015. The NRD similarly failed to forward notices of the 2014 and 2015 assessments to the lessees, who lacked actual knowledge thereof.

3. PROTESTS TO BOARD

The NRD protested the 2013 through 2015 assessments to the Board. The NRD had apparently paid assessments by the assessor for 2012, when the land was still being utilized by the lessees as irrigated farmland. The NRD did not object to the 2013 through 2015 assessments against it on the ground that it was legally impermissible to assess property tax against a public entity leasing public land. The NRD argued simply that the property was exempt from taxation, because it was being used for a public purpose. The lessees did not have notice of [300 Neb. 260] the NRD’s protests and were not parties to the proceedings before the Board.

Following a hearing, the Board determined that all 18 parcels were nonexempt, taxable property for the years 2013 through 2015. The Board stated as the basis for its decision that the surface and buildings were not being used for a public purpose. The Board was not presented with and did not pass upon the issue of whether the lease was at fair market value.

4. APPEAL TO TERC

The NRD timely appealed to the TERC. The NRD stated in its appeal form that it was appealing the Board’s determination that the property was not used for a public purpose. Again, the NRD did not raise any issue of whether the lessees, rather than the NRD, should be assessed tax liability in the event the TERC rejected its contention that the parcels were for a public use. The lessees received notice of the appeal, but they were not originally made parties.

(a) Necessary Parties

The TERC issued an order to show cause whether it had jurisdiction to determine the tax-exempt status of any leased parcel without all lessees as parties. The NRD argued at the show cause hearing that the lessees were not necessary parties, because the question presented to the TERC was limited to the NRD’s tax liability. But the TERC ultimately concluded that any determination of whether the property was used for a public purpose would have implications for lessee tax obligations. Therefore, the TERC decided that it lacked some necessary parties to the appeal.

Though the informal hearing on the merits had already been held, the TERC vacated the hearing. The NRD, upon an order to disclose, stated that M & L was the missing necessary party to the proceedings. The TERC scheduled a new

Page 801

hearing and, pursuant to its authority under Neb. Rev. Stat. § 77-5015.01 (Cum. Supp. 2016), served notice to M & L. Upon a joint stipulation of the Board, the NRD, FEM, and M & L, the TERC [300 Neb. 261] determined the issues based on the exhibits and transcript of the prior hearing.

(b) Evidence and Arguments Presented

At the informal hearing, the NRD and the Board were given the opportunity to present evidence and argument.[2] The...

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