Kaul v. State Dept. of Revenue

• Decision Date: 18 December 1998
• Docket Number: No. 79647,79647
• Parties: Kathy KAUL, CEO Indian Country General Store, Inc.; Roger Kaul d/b/a Roger's Service, Appellants, v. STATE of Kansas DEPARTMENT OF REVENUE, and John Lafaver, in his Official Capacity as Secretary of the Department of Revenue, and Individually, Appellees.
• Court: Kansas Supreme Court

Page 60

970 P.2d 60

266 Kan. 464

Kathy KAUL, CEO Indian Country General Store, Inc.; Roger Kaul d/b/a Roger's Service, Appellants, v. STATE of Kansas DEPARTMENT OF REVENUE, and John Lafaver, in his Official Capacity as Secretary of the Department of Revenue, and Individually Appellees.

No. 79647.

Supreme Court of Kansas.

Dec. 18, 1998.

Syllabus by the Court

1. Interpretation of a statute is a question of law, and our review is unlimited.

2. It is a fundamental rule of statutory construction, to which all other rules are subordinate, that the intent of the legislature governs if that intent can be ascertained.

3. When the legislature revises an existing law, it is presumed that the legislature intended to change the law as it existed prior to the amendment.

4. Where the parties claim the construction of a statute is uncertain, the court may look to the historical background of the enactment, the circumstances attending its passage, the purpose to be accomplished, and the effect the statute may have under the various constructions suggested.

5. K.S.A. 79-3408(d)(1) and K.S.A. 79-3408g(d)(1) exclude the imposition of the tax on any sale or delivery of motor fuel exported from Kansas to any other state or territory or to any foreign country.

6. K.S.A. 79-3408g(d)(2) specifically excludes from tax exemption the sale or delivery of motor fuel to a retail dealer located on an Indian reservation in this state where the motor fuel is sold or delivered to a nonmember of such reservation.

7. When enacting K.S.A. 79-3409, the legislature intended that distributors pay the tax and include the fuel tax in the sales price when delivering fuel to retailers or collect the fuel tax from the retailers at the time the distributors deliver motor fuel to the retailers.

8. An injunction is an order to do or refrain from doing a particular act. K.S.A. 60-901. While an injunction may be used to restrain certain conduct, there must be some indication that there is a protected threatened injury.

9. If the incidence of state tax imposed on an Indian reservation does not fall on the Indians and the balance of federal, state, and tribal interests favors the State, and if federal law is not to the contrary, the State may impose its levy and may place on the tribe or tribal members minimal burdens in collecting the tax.

10. Where the legal incidence of the state tax on motor fuel rests on nontribal members and does not affect an Indian reservation within this state or the members of that tribe, the nontribal members have no protected interest threatened by the State and are not entitled to an injunction or an order to restrain the State from collecting the tax.

Pantaleon Florez, Jr., of Florez & Frost, P.A., of Topeka, argued the cause, and Kurt L. James, of the same firm, was with him on the briefs for appellants.

John Michael Hale, of Kansas Department of Revenue, argued the cause, and Jason L. Reed and Christopher J. Tymeson, legal interns, were with him on the briefs for appellees.

LOCKETT, J.:

Kansas retailers in the business of selling motor fuel are wholly owned by Native Americans, but not members of an Indian reservation within the borders of this state where their retail establishments are located. Neither the Prairie Band of Kansas Potawatomi nor any member of the tribal reservation upon which the Retailers are located is a party to this suit. The district court found the Native American retailers were not exempt from payment of the state motor fuel tax collected by distributors that supplied gasoline and diesel fuel for sale. The Native American retailers appealed, claiming: (1) that K.S.A. 79-3408 exempts them from the payment of retail sales tax because the Potawatomi Indian reservation is a "territory" or other "state"; (2) the State's refusal to grant the tax exemption violated the Equal Protection Clause of the Fourteenth Amendment; (3) the legal incidence of tax under the Kansas motor fuel tax statutes is on the retailer; and (4) the district court erred in failing to grant a temporary restraining order and preliminary injunction.

Plaintiffs are two Native American members of the Citizen Band Potawatomi Tribe of Oklahoma (Retailers) who own or owned retail gasoline convenience stores located on the Prairie Band of Kansas Potawatomi Reservation approximately 5 miles south of Holton, Kansas. Retailers were billed by their distributors for payment of the motor fuel tax.

Until September 6, 1995, Retailers were not taxed by the State for motor fuel delivered for retail sale to consumers. On that date, John LaFaver, Secretary of the Kansas Department of Revenue (KDR), issued Notice 95-11 which announced that KDR was going to begin "enforcement of a 1995 law requiring the department to collect motor fuel taxes from distributors when fuel is subsequently sold on Native American reservations in Kansas." The Secretary set out a procedure through which Native Americans whose claims exceeded $25 could request and receive a refund for tax they paid for motor fuel purchased on a Kansas Indian reservation. Nontribal members who purchased motor fuel on the reservation were not eligible for a refund of the motor fuel tax paid.

After September 6, 1995, the distributors billed Retailers for the cost of the gasoline purchased, plus $0.18 per gallon for Kansas motor fuel tax. Retailers filed an action in the district court of Kansas to enjoin KDR from collecting tax on gasoline purchased by them for resale. First, Retailers claimed an exemption under K.SA. 79-3408(d)(1) which specifically exempts the imposition of tax on fuels delivered "for export from the state of Kansas to any other state or territory or to any foreign country." (Emphasis added.) Second, Retailers claimed that treating Indian territory differently than other territories for tax purposes violated the Equal Protection Clause of the Constitution of the United States. Retailers also asserted that a tax compact between the Potawatomi and the State of Kansas precluded taxation of fuels delivered to businesses on the reservation. This issue was not preserved for appeal. Finally, Retailers claimed that the incidence of taxation on them was not permissible under well-settled law governing taxation of Indians on reservations.

In the district court the State argued against the injunction, claiming that under the statutory scheme the incidence of taxation falls on the distributor, not the retailer; therefore, Indian retailers are not taxed. The State also argued that the exemption from taxation under K.S.A 79-3408 did not apply because Indian reservations are not separate territories. Consequently, the State contends, Retailers were not being treated dissimilar under Kansas law to any other seller of fuels in Kansas; therefore, no constitutional right was violated by the tax.

Both parties filed motions for summary judgment. In granting the State's motion for summary judgment, the district court noted that there was no factual dispute: The plaintiffs are Indians, but they are not members of the tribe of the reservation. Both retail businesses are situated on a state highway, within the state of Kansas. Their retail sales are to tribal members from the reservations and the traveling public on the major highway which connects Topeka to the nearest city to the north.

The district judge considered K.S.A. 79-3408, which provides, in part:

"(a) A tax per gallon or fraction thereof, at the rate computed as prescribed in K.S.A. 79-34,141, and amendments thereto, is hereby imposed on the use, sale or delivery of all motor vehicle fuels or special fuels which are used, sold or delivered in this state for any purpose whatsoever.

...

"(d) No tax is hereby imposed upon or with respect to the following transactions:

(1) The sale or delivery of motor-vehicle fuel or special fuel for export from the state of Kansas to any other state or territory or to any foreign country."

The district judge found that the intent of the legislature in enacting K.S.A. 79-3408 was to impose a tax on wholesale gasoline sold within the boundaries of the state to raise revenue for the maintenance, construction, and upkeep of highways within the state of Kansas. The judge noted that the legal incidence for collecting this tax falls on the distributor of the fuel, and the statute excepted the sales of fuel from the tax where the fuel is exported to other states, territories, or foreign countries. The judge concluded that the exception provided in K.S.A. 79-3408(d)(1) refers to other states, territories, or foreign countries located outside the boundaries of the state of Kansas, and those sales are exempt from Kansas tax because the sellers of motor fuel under the jurisdiction of foreign governments are taxed by their respective governments to maintain the roads within that jurisdiction.

The judge determined that as a matter of law the Indian reservations are not included in the statutory term "territory." The judge found the State's motor fuel taxation method did not treat individual retailers on a reservation adjacent to a major highway any differently than any other retailer within the state of Kansas, and there is no discrimination because the plaintiffs are treated the same as any other retail gasoline outlet situated on a state highway in Kansas. In granting the State's motion for summary judgment, the judge incorporated and included the authorities cited by the State in support of its motion.

This court assumed jurisdiction of Retailers' appeal pursuant to K.S.A. 20-3018(c).

Exempt Territory

Retailers first argue that the district court erred in determining that the Potawatomi Indian reservation is not a territory exempt from taxation by K.S.A. 79-3408(d)(1). Interpretation of a statute is a question of law, and our review is unlimited. In re Tax Appeal of Boeing Co., 261 Kan. 508, Syl. p 1, 930 P.2d 1366 (1997).

In support of their argument, Retailers point out that Kansas...