Appeal of Topeka SMSA Ltd. Partnership, 74860

• Decision Date: 31 May 1996
• Docket Number: No. 74860,74860
• Citation: 917 P.2d 827,260 Kan. 154
• Parties: In the Matter of the Appeal of TOPEKA SMSA LIMITED PARTNERSHIP. In the Matter of the Appeal of SOUTHWESTERN BELL MOBILE SYSTEMS, INC. In the Matter of the Appeal of KANSAS CITY SMSA LIMITED PARTNERSHIP. In the Matter of the Appeal of WICHITA SMSA LIMITED PARTNERSHIP.
• Court: Kansas Supreme Court

Page 827

917 P.2d 827

260 Kan. 154

In the Matter of the Appeal of TOPEKA SMSA LIMITED PARTNERSHIP In the Matter of the Appeal of SOUTHWESTERN BELL MOBILE SYSTEMS, INC In the Matter of the Appeal of KANSAS CITY SMSA LIMITED PARTNERSHIP In the Matter of the Appeal of WICHITA SMSA LIMITED PARTNERSHIP.

No. 74860.

Supreme Court of Kansas.

May 31, 1996.

Syllabus by the Court

1. Orders from the Board of Tax Appeals (BOTA) are subject to judicial review under the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. The party challenging BOTA's action has the burden to prove that the action taken by BOTA was erroneous.

2. The interpretation of a statute by an administrative agency charged with the responsibility of enforcing a statute is entitled to judicial deference, called the doctrine of operative construction. Deference to an agency's interpretation is particularly appropriate when the agency is one of special competence and experience. However, although an appellate court gives some deference to the agency's interpretation of a statute, the final construction of a statute lies with the appellate court, and the agency's interpretation, while persuasive, is not binding on the court. Interpretation of a statute is a question of law over which an appellate court's review is unlimited.

3. Tax statutes will not be extended by implication beyond the clear import of the language employed therein and will not be enlarged so as to include matters not specifically embraced.

4. A tax statute will be construed most favorably to the taxpayer where there is a reasonable doubt as to the meaning of it.

5. A radiocommon carrier, as defined in K.S.A. 66-1,143, operating a public "for hire" radio service engaged in the business of providing a service of radio communication, including cellular radio, which is one-way, two-way, or multiple, but not engaged in the business of providing a public landline telephone or telegraphic service within this state, is not transmitting to, from, through, or in this state telephonic messages within the meaning of K.S.A. 79-5a01.

6. In an action challenging the State Director of Property Valuation's authority pursuant to K.S.A. 79-5a01 to tax as public utilities radio common carriers engaged in the business of providing one-way, two-way, or multiple services, including cellular radio, transmitted by radio frequency, the record is examined and it is held: The Board of Tax Appeals erred in holding that the radio common carrier is a "public utility" within the meaning of K.S.A. 79-5a01 and therefore subject to state assessment for property tax purposes.

John W. Simpson, of Shook, Hardy & Bacon P.C., Kansas City, Missouri, argued the cause, and Ron Bodinson, of the same firm, Overland Park, was on the briefs, for appellants.

William E. Waters, of Kansas Department of Revenue, Topeka, argued the cause and was on the brief, for appellee.

LOCKETT, Justice:

Providers of cellular radio service appealed to the Court of Appeals the Board of Tax Appeals' (BOTA) determination that they were "public utilities" under K.S.A 79-5a01 and the tax assessment based on that determination. The appeal was transferred to this court on the joint motion of the parties. See K.S.A. 20-3017.

K.S.A. 79-5a01 states:

"(a) As used in this act, the terms "public utility" or "public utilities" shall mean every individual, company, corporation, association of persons, lessees or receivers that now or hereafter are in control, manage or operate a business of:

"(1) A railroad or railroad corporation if such railroad or railroad corporation owns or holds, by deed or other instrument, an interest in right-of-way, track, franchise, roadbed or trackage in this state;

"(2) transmitting to, from, through or in this state telegraphic messages;

"(3) transmitting to, from, through or in this state telephonic messages;

"(4) transporting or distributing to, from, through or in this state natural gas, oil or other commodities in pipes or pipelines, or engaging primarily in the business of storing natural gas in an underground formation;

"(5) generating, conducting or distributing to, from, through or in this state electric power;

"(6) transmitting to, from, through or in this state water if for profit or subject to regulation of the state corporation commission;

"(7) transporting to, from, through or in this state cargo or passengers by means of any vessel or boat used in navigating any of the navigable watercourses within or bordering upon this state.

"(b) The terms "public utility" or "public utilities" shall not include: (1) Rural water districts established under the laws of the state of Kansas; or (2) any individual, company, corporation, association of persons, lessee or receiver owning or operating an oil or natural gas production gathering line which is situated within one county in this state and does not cross any state boundary line; or (3) any individual, company, corporation, association of persons, lessee or receiver owning any vessel or boat operated upon the surface of any manmade waterway located entirely within one county in the state."

At issue here is the definition of public utility in K.S.A. 79-5a01(a)(3), operating a business of "transmitting to, from, through, or in this state telephonic messages."

Appellants Topeka SMSA Limited Partnership, Southwestern Bell Mobile Systems, Inc., Kansas City SMSA Limited Partnership, and Wichita SMSA Limited Partnership (collectively, Taxpayer) are providers of cellular radio service. The Director of Property Valuation (Director) determined that the Taxpayer is a "public utility" under K.S.A 79-5a01 and centrally assessed tax based on that determination. The Director issued to Taxpayer a "1994 Notice of Value Indicators, Correlated Value, Allocation Factor & Assessed Value in Kansas" (1994 Notice). The 1994 Notice assessed value at 33% based on the Taxpayer's status as a "public utility." If the Taxpayer's property had been assessed locally by counties, rather than as public utility property by the Director, the property would have been assessed at 25% of the fair market value, except machinery and equipment would have been assessed at 25% of the depreciated value as determined under K.S.A.1995 Supp. 79-1439.

The Taxpayer filed a notice of appeal to BOTA pursuant to K.S.A. 74-2438 on June 27, 1994, claiming that it was not a "public utility" because it did not operate a business of transmitting telephonic messages and that it should have been taxed pursuant to K.S.A.1995 Supp. 79-1439. The Taxpayer also sought a refund of taxes paid for the tax years 1984-1993. The parties entered into a stipulation which covers the relevant facts and will be discussed later. Following argument by the parties, BOTA dismissed the Taxpayer's appeals as to the years 1984-1993. In a 3-2 decision, BOTA sustained the Director's 1994 Notice and held that the Taxpayer is a public utility. The Taxpayer filed a petition for reconsideration. See K.S.A. 74-2426(b). BOTA denied reconsideration of the issues decided but granted limited reconsideration as to issues raised by the Taxpayer but not decided by BOTA in its initial order. Prior to BOTA's decision on reconsideration, the Taxpayer appealed the original order to the Court of Appeals. That appeal was dismissed as interlocutory. Subsequently, the Taxpayer voluntarily dismissed some of the other issues raised, and in a final order on reconsideration, BOTA decided the remaining issues adversely to the Taxpayer's position. The Taxpayer appealed to the Court of Appeals. The appeal was transferred to this court on the joint motion of the parties. Prior to oral argument before this court, the Taxpayer dismissed the appeals relating to the tax years 1984-1993.

At the time the stipulation was filed (October 1994), approximately 8% of the United States population subscribed to cellular service. The parties stipulated that the Taxpayer operates a domestic public cellular radio telecommunications service within Kansas on specific radio frequencies. The cellular service system divides a large area or city into many smaller areas called "cells." Near the center of each cell is an antenna coupled to a transmitter and transceiver, called a "cell site." The equipment at each cell site is capable of receiving and transmitting signals to the radio handsets/cellular telephones operated by the Taxpayer's customers. The parties do not agree as to whether the equipment should be referred to as a "radio handset" or a "cellular telephone."

When a cellular customer originates a communication from his or her radio handset/cellular telephone, the customer's handset/telephone sends a signal by radio waves to the nearest cell site. The equipment at the cell site receives the signal generated by the customer and transmits the signal by microwave, or over dedicated local exchange telephone company facilities, to a central cellular switching office in Kansas City, Missouri. Any landlines used to transmit the signal from the cell site to the switching office are owned by local exchange or interexchange telephone companies, not the Taxpayer, and are purchased by the Taxpayer out of the local exchange telephone company tariff.

When a cellular customer communicates with another cellular customer in the same service area (a mobile-to-mobile call), the switching office receives the originating customer's signal from the cell site and transmits the signal by microwave, or over local exchange telephone company facilities purchased by the Taxpayer, to the cell site nearest the recipient of the communication. This cell site then relays the signal by radio waves to the radio handset/cellular telephone of the recipient of the communication. When a cellular customer communicates with a telephone customer of a local exchange telephone company (a mobile-to-telephone call), the switching office receives the cellular customer's signal...