Bicknell v. Kan. Dep't of Revenue

• Decision Date: 12 March 2021
• Docket Number: No. 120,935,120,935
• Parties: O. Gene BICKNELL and O. Gene Bicknell as Administrator of the Estate of Rita J. Bicknell, Appellees, v. KANSAS DEPARTMENT OF REVENUE, Appellant.
• Court: Kansas Court of Appeals

59 Kan.App.2d 500

485 P.3d 679

O. Gene BICKNELL and O. Gene Bicknell as Administrator of the Estate of Rita J. Bicknell, Appellees,

v.KANSAS DEPARTMENT OF REVENUE, Appellant.

No. 120,935

Court of Appeals of Kansas.

Opinion filed March 12, 2021

James D. Oliver, of Foulston Siefkin LLP, of Overland Park, Jeffery A. Jordan, of the same firm, of Wichita, and Jeremy L. Graber, of the same firm, of Topeka, for appellant.

Jay E. Heidrick and Miriam E. C. Bailey, of Polsinelli P.C., of Kansas City, Missouri, and R. Dan Boulware, pro hac vice, of the same firm, of St. Joseph, Missouri, for appellees.

Before Arnold-Burger, C.J., Green and Powell, JJ.

Green, J.:

This is an appeal from a Board of Tax Appeals (BOTA) decision. The primary dispute in this appeal is whether Gene Bicknell was domiciled in Kansas for the tax years of 2005 and 2006. Gene contends that he was domiciled in Florida during this time. On the other hand, the Kansas Department of Revenue (KDOR) maintains that Gene was domiciled in Kansas for the tax years of 2005 and 2006. The district court, however, ruled that Gene was domiciled in Florida during these tax assessment periods of 2005 and 2006.

On appeal, KDOR presses three basic contentions that we need to address based on our holding in this appeal. First, KDOR argues that the district court improperly shifted the burden of proof onto it to prove Gene was not domiciled in Florida for the tax assessment periods of 2005 and 2006. We agree. Second, KDOR argues that the district court erred when it conducted a true trial de novo. We disagree. Third, KDOR argues that Crawford County was not a proper venue for this action. We agree. Thus, we affirm in part, reverse in part, and remand for a new trial with directions that the trial be conducted in Shawnee County, Kansas. And because we are reversing, we need not consider KDOR's remaining arguments.

In September 2007, KDOR initiated a desk review of Gene Bicknell's 2005 and 2006 income tax returns, which he had filed as nonresident returns. As part of its investigation, KDOR sent Gene a nonresident questionnaire and requested documents from Gene and his wife, Rita Bicknell. When KDOR concluded its review in January 2009, it concluded that Gene should have filed as a Kansas resident. The consequence was a tax bill, including interest and penalties, of $41,069,305.00.

The Bicknells appealed the assessment and argued that Gene was a resident of Florida during the assessment period. KDOR denied this appeal in a written final determination in October 2010. Then the Bicknells appealed to the Court of Tax Appeals (COTA) where they were again unsuccessful in challenging the residency decision.

Two Kansas regulations defining domicile were effective during the assessment periods of 2005 and 2006. K.A.R. 92-12-4 (2006) provided a simple, three-part explanation of domicile. This regulation was revoked on March 24, 2006, and replaced by K.A.R. 92-12-4a. The new regulation was far more detailed and lists many factors that courts can consider in determining a person's domicile.

The Bicknells challenged the constitutionality of K.A.R. 92-12-4a and its application to their case before COTA and in another case docketed in the Shawnee County District Court. See Bicknell v. Jordan , No. 109,720, 321 P.3d 37, 2014 WL 1302634 (Kan. App. 2014) (unpublished opinion) ( Bicknell I ). Nevertheless, the Bicknells' argument failed before both COTA and the district court. 2014 WL 1302634, at *1-2, 321 P.3d 37. The Bicknells appealed the district court's dismissal to this court. This court affirmed the district court, holding that the Bicknells had failed to exhaust their administrative remedies in the COTA proceedings before bringing their constitutional challenge to this court. 2014 WL 1302634, at *9, 321 P.3d 37.

While the case was pending in this court, COTA held a six-day trial. On December 3, 2013, COTA issued its decision and affirmed KDOR's tax assessment. In its decision, COTA discussed the two domicile regulations, K.A.R. 92-12-4 and K.A.R. 92-12-4a, which were effective during the assessment periods of 2005 and 2006. COTA stated that both the previous and current "regulations set out, with differing degrees of specificity, administrative guidance regarding domicile determinations in Kansas income tax controversies." COTA determined that the newer regulation was "merely a detailed reflection of existing statutory and case law." Then, COTA stated:

"Therefore, we place no particular reliance for our decision herein on the former regulation or (except as expressly noted immediately hereafter) on the current regulation. We rely instead on Kansas statutory law and case law, including the recapitulation of the common law contained in the Restatement (Second) of Conflict of Laws as approved in [ In re Estate of Phillips , 4 Kan. App. 2d 256, 604 P.2d 747 (1980) ]. The only provision of the current regulation that we expressly implement and apply in this decision is K.A.R. 92-12-4a(b)(8). It excludes from consideration ‘the location of any organization to which the person makes charitable contributions [or] the location of any charitable organization for which the person serves as a board member, committee member, or other volunteer.’ Id. Based on that provision, we do not consider, and have not considered, in our determination any evidence relating to the location of Taxpayers' charitable contributions or charitable service (as a board member, committee member, or other volunteer)."

Following this decision, the Bicknells appealed once again to this court. In re Bicknell , No. 111,202, 356 P.3d 437, 2015 WL 5613069 (Kan. App. 2015) (unpublished opinion) ( Bicknell II ). The Bicknells argued that COTA erred by relying on a common-law approach rather than KDOR's published regulations. In agreeing, this court vacated COTA's decision because COTA had "ignored and failed to apply the [KDOR]'s regulations in determining the issue of Gene's domicile," and remanded the case to COTA for readjudication consistent with this court's opinion. 2015 WL 5613069, at *10, 356 P.3d 437. This court directed COTA to "consider K.A.R. 92-12-4 and K.A.R. 92-12-4a along with controlling statutory law and caselaw in determining Gene's tax-residency status for the years 2005 and 2006." 2015 WL 5613069, at *10, 356 P.3d 437. A dissenting opinion was filed, stating the following: that COTA correctly applied the law "if not in form, then in substance." 2015 WL 5613069, at *10, 356 P.3d 437 (Powell, J., dissenting).

In 2014, the Kansas Legislature replaced COTA with BOTA. L. 2014, ch. 141, § 1; K.S.A. 2014 Supp. 74-2426. Thus, BOTA considered this court's mandate on remand. The same 2014 legislation allowed BOTA to issue summary decisions and created an option for aggrieved parties to request that BOTA issue a full and complete opinion explaining its decision. L. 2014, ch. 141, § 1; K.S.A. 2014 Supp. 74-2426(a).

BOTA issued a written summary decision on October 2, 2017. BOTA held: "After application of the applicable KDOR regulations, statutes and caselaw, to the record evidence, pursuant to the instructions of the Kansas Court of Appeals" that the Bicknells failed to satisfy their burden of proving that Gene was domiciled in Florida during the assessment period. The Bicknells did not request a full and complete opinion be issued by BOTA under K.S.A. 74-2426(a).

The 2014 amendment to K.S.A. 74-2426 also established a new method of appeal from BOTA orders. The amended statute provided the following: "Any aggrieved person has the right to appeal any final order of the board issued after June 30, 2014, by filing a petition with the court of appeals or the district court. Any appeal to the district court shall be a trial de novo." L. 2014, ch. 141, § 1; K.S.A. 2014 Supp. 74-2426(c)(4)(A).

In 2016, the statute was amended again by Senate Bill 280 (S.B. 280). L. 2016, ch. 112, § 3; K.S.A. 2016 Supp. 74-2426. The new language stated:

"At the election of a taxpayer, any summary decision or full and complete opinion of the board of tax appeals issued after June 30, 2014, may be appealed by filing a petition for review in the district court. Any appeal to the district court shall be a trial de novo. Notwithstanding K.S.A. 77-619, and amendments thereto, the trial de novo shall include an evidentiary hearing at which issues of law and fact shall be determined anew." L. 2016, ch. 112, § 3; K.S.A. 2016 Supp. 74-2426(c)(4)(B).

S.B. 280 and its interpretation and application would be the subject of considerable dispute by the parties before the district court.

The Bicknells filed a petition for judicial review with the district court of Crawford County in November 2017. The case proceeded to an eight-day trial. The district court issued a 53-page opinion ruling in favor of the Bicknells and ruling that Gene's domicile was Florida during the assessment period.

Did the District Court Erroneously Shift the Burden Onto KDOR to Disprove the Bicknells' Florida Domicile?

"The determination of which party shall bear the burden of proof is a question of law, and, therefore, this court's review is unlimited." In re G.M.A. , 30 Kan. App. 2d 587, 593, 43 P.3d 881 (2002).

The party contending that the agency's action is invalid bears the burden of proving the invalidity. K.S.A. 77-621(a)(1) ; Peck v. University Residence Committee of Kansas State University , 248 Kan. 450, Syl. ¶ 6, 461, 807 P.2d 652 (1991) ("Under K.S.A. 77-621 [a][1], the student bears the burden to show that an agency's action is invalid."); see Leben, Challenging and Defending Agency Actions in Kansas , 64 J.K.B.A. 22, 29 (June/July 1995) (" K.S.A. 77-621 [a][1] provides that the burden of proving the invalidity of agency action is on the party asserting its invalidity. This burden remains with the party opposing the validity of the agency's action for all issues.").

Gene, as the petitioner, has the burden of persuasion to prove by a preponderance of the evidence that Florida was his...