American Restaurant Operations, Application of

• Decision Date: 17 April 1998
• Docket Number: No. 77212,77212
• Citation: 264 Kan. 518,957 P.2d 473
• Parties: In the Matter of the Application of AMERICAN RESTAURANT OPERATIONS, et al., for Relief From a Grievance and Protests of Taxes Paid in Sedgwick County, Kansas.
• Court: Kansas Supreme Court

Page 473

957 P.2d 473

264 Kan. 518

In the Matter of the Application of AMERICAN RESTAURANT OPERATIONS, et al., for Relief From a Grievance and Protests of Taxes Paid in Sedgwick County, Kansas.

No. 77212.

Supreme Court of Kansas.

April 17, 1998.

Syllabus by the Court

1. Both K.S.A. 79-1422(c) and K.S.A. 79-1427a(b) authorize the Board of Tax Appeals to abate penalties whenever excusable neglect on the part of the person required to make and file the statement listing property for assessment and taxation purposes is shown.

2. What constitutes excusable neglect under K.S.A. 79-1422 and K.S.A. 79-1427a(b) must be determined by the trial court on a case-by-case basis. Such things as evidence of good faith and the circumstances under which the error occurred, as well as the taxpayer's good faith in attempting to correct the error, go to show excusable neglect.

3. Interpretation of a statute is a question of law, and our review is unlimited. It is the function of a court to interpret a statute to give it the effect intended by the legislature.

4. The party challenging the validity of an agency's action bears the burden of proving the invalidity of the action.

5. The Board of Tax Appeals' interpretations of tax statutes are to be given deference. The Board of Tax Appeals defines "excusable neglect," as contained in K.S.A. 79-1422 and K.S.A. 79-1427a(b), as a justifiable failure to properly file taxes or as a legitimate attempt to correct tax problems once they are discovered. This court approves that definition.

6. The award of sanctions, including attorney fees, for discovery violations is within the discretion of the trial court.

7. In a Board of Tax Appeals case, the record is examined and it is held: The 1995 amendments to K.S.A.1994 Supp. 79-1427a, setting a 2-year statute of limitations for escaped taxes, apply retroactively to the taxpayer's pending tax assessments.

Clarence D. Holeman, Assistant County Counselor, argued the cause and was on the brief for appellant Board of Sedgwick County Commissioners.

Eric F. Melgren, of Foulston & Seifkin, L.L.P., Wichita, argued the cause, and James D. Oliver, of the same firm, was with him on the brief for appellees American Restaurant Operations, et al.

ABBOTT, Justice:

This is an appeal by the Board of Sedgwick County Commissioners (County) from a Sedgwick County District Court decision concerning a Kansas Board of Tax Appeals (BOTA) order. There are three issues in the appeal. The County claims that (1) it was error to give retrospective effect to an amendment to K.S.A. 79-1427a, which was enacted while the case was pending in the district court; (2) it was error for BOTA to reduce the taxpayer's penalties from 100% to 10% on the 1986, 1987, 1988, and 1989 assessments, and from 50% to 10% on the 1990 and 1991 assessments; and (3) it was error for the trial court to impose sanctions of $1,500 in attorney fees against the County for its failure to allow discovery.

The appellees/taxpayers will be referred to as taxpayer, although the relationship is complex. Appellee American Restaurant Operations merged with appellee Brazos Valley Restaurant in 1988 and owns several separate Grandy's franchise locations in Sedgwick County. Appellee Restaurant Management Company is a management company which manages the restaurants and charges a management fee. Restaurant Management Company does not own an interest in the restaurants.

The taxpayer had little, if any, expertise in-house to maintain personal property tax records or make personal property tax filings. The taxpayer hired the independent consulting firm of Savage, Savage & Brown (SSB) to do its personal property tax filings. Each year, the taxpayer sent its entire depreciation schedule to SSB so that its personal property renditions (listings) could be prepared from it. A personal property tax rendition is a listing the taxpayer has to file every year to determine taxable personal property. The taxpayer did not maintain personal property tax records. SSB was responsible for maintaining those records for the taxpayer. For tax years 1986-1991, SSB signed and filed a rendition for each restaurant location, which was supposed to include every item of personal property located at each restaurant. The county appraiser's office valued the personal property listed on the rendition and sent SSB a tax bill based on these values. SSB forwarded this tax bill to the taxpayer, who paid it, no questions asked. Prior to April 1990, the taxpayer had no reason to believe or suspect that SSB's handling of these matters might not be correct.

The county appraiser challenged the renditions for 1985 through 1989. Sedgwick County employed a certified public accounting firm, Allen, Gibbs & Houlik (AGH), to assist the county appraiser in evaluating the taxpayer's personal property tax renditions. The county appraiser's office prepared a final figure of "escaped" assessment, and that figure was placed on the tax roll.

A considerable procedural history followed, none of which is of value in deciding this appeal until the point where the taxpayer filed an injunction action in the Sedgwick County District Court and an appeal with BOTA. Eventually, the parties agreed on the amount of escaped assessments that the taxpayer owed, and the tax rolls were corrected to reflect the correct amount. No dispute regarding the listing or valuation of the taxpayer's property remains.

However, the case continued in front of BOTA for it to decide issues regarding penalties, statute of limitations, and discovery sanctions. BOTA found that the taxpayer had established excusable neglect, which justified a substantial abatement of the mandatory statutory penalties for delinquent and escaped assessments. BOTA also found that the taxpayer's motion for costs in filing a motion to compel discovery should be granted in the amount of $1,500 and that the County's escaped assessment tax bill for 1986 was time barred under K.S.A. 79-1427a. The County disagreed with BOTA's ruling on the first two issues, and it filed a petition for judicial review in Sedgwick County District Court. The taxpayer filed a cross-petition in the same court. While the case was pending in district court, the legislature enacted amendments to 79-1427a, which shortened the statute of limitations on the number of years a county can go back and collect escaped assessments from 4 years to 2 years. In its ruling, the trial court gave retrospective effect to these amendments, so that they barred the County's collection of escaped assessments for all years prior to 1990. The trial court also found that neither BOTA's abatement of the taxpayer's penalties nor BOTA's award of discovery sanctions to the taxpayer was an abuse of discretion.

The County appealed the trial court's ruling to the Court of Appeals. The case was transferred to this court pursuant to K.S.A. 20-3018(c).

I. 1995 AMENDMENTS TO K.S.A.1994 SUPP. 79-1427a

At the time the appraiser first challenged the taxpayer's renditions in 1990, a 4-year statute of limitations applied to "escaped" assessments (K.S.A.1990 Supp. 79-1427a). K.S.A.1990 Supp. 79-1427a(c) provided that the statute of limitations applied to "any tangible personal property discovered during the calendar years 1982, 1983, and 1984, and any year thereafter to have escaped appraisal and taxation during any such year or any year within four years next preceding any such year." The 4-year statute of limitations replaced a 5-year statute of limitations. This statute was considered retroactive at the time it was enacted in 1985 because it included the "1982, 1983, and 1984" clause in subsection (c). Att'y Gen. Op. No. 95-90, pp. 3, 4 (citing Minutes of Senate Committee on Assessment and Taxation, January 23, 1985, and Attachment; Supplemental Note on S.B. 31, as amended by Senate Committee on Assessment and Taxation).

BOTA heard this case while the 4-year statute of limitations was in place, and BOTA held the County could recover escaped taxes for the tax years 1987, 1988, 1989, and 1990. BOTA only barred the County's collection of escaped taxes for the tax year 1986.

Both parties appealed BOTA's decision on this and other issues to the district court. The district court heard the case on July 19, 1993. The case was reargued in front of the district court on February 21, 1996, 3 1/2 years later. In between these two argument dates, the legislature amended 79-1427a effective July 1, 1995. This statute, as amended, provided in pertinent part:

"(a) If, the county appraiser discovers, after the tax roll has been certified to the county clerk, that any tangible personal property subject to taxation has been omitted from the tax rolls, the county clerk shall place such property on the tax roll as an added tax, or if, after one year from the date prescribed by K.S.A. 79-306, and amendments thereto, for the listing of tangible personal property, the county appraiser discovers that any tangible personal property which was subject to taxation in any year or years within two years next preceding January 1 of the calendar year it was discovered has not been listed or has been underreported for whatever reason, such property shall be deemed to have escaped taxation. In the case of property which has not been listed, it shall be the duty of the county appraiser to list and appraise such property and, for an added tax, add penalties as prescribed in K.S.A. 79-1422, and amendments thereto, and which shall be designated on the appraisal roll as an added appraisal for that year. In the case of property which has escaped taxation, it shall be the duty of the county appraiser to list and appraise such property and add 50% thereto as a penalty for escaping taxation for each such year during which such property was not listed, and it shall be designated on the appraisal roll as 'escaped appraisal' for each such preceding year or years. In the case of property which has been listed...