Board of County Com'rs v. Cashatt

Decision Date28 February 1997
Docket NumberNo. 74962,74962
Citation23 Kan.App.2d 532,933 P.2d 167
PartiesBOARD OF COUNTY COMMISSIONERS, Douglas County, Kansas, Appellee, v. Donald E. CASHATT, Appellant.
CourtKansas Court of Appeals

Syllabus by the Court

1. In an appeal from the district court's review of a Board of Tax Appeals decision, the scope of appellate review is to determine if the district court reviewed the agency's action in accordance with the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq., and particularly K.S.A. 77-621(c).

2. The party asserting the invalidity of an agency action has the burden of proving the invalidity.

3. In Kansas, agricultural property is the only classification of property that is given a property tax value based on the "use value." Kan. Const. art. 11, § 12.

4. Article 11, § 1 of the Kansas Constitution provides that the legislature shall provide for a uniform and equal basis of valuation and rate of taxation of all property subject to taxation.

5. In order to facilitate uniformity and equal taxation of real property, K.S.A.1995 Supp. 79-501 provides that real property is to be valued at its fair market value.

6. The Board of Tax Appeals exists to decide matters concerning tax appeals. Its decisions should be given great credence when acting within its area of expertise.

7. Usually, interpretation of a statute by an administrative agency charged with the responsibility of enforcing that statute is entitled to great judicial deference. An agency's interpretation of a challenged statute may be entitled to controlling significance in judicial proceedings. If there is a rational basis for the agency's interpretation, it should be upheld on judicial review.

8. Under the doctrine of operative construction, a court should give deference to an agency's interpretation of the law. If, however, the ruling court finds that the administrative body's interpretation is erroneous as a matter of law, the court should take corrective steps; the determination of an administrative body of questions of law is not conclusive, and, while persuasive, is not binding on the courts.

9. Neither a district court nor an appellate court should weigh conflicts in the evidence and substitute its judgment for that of the Board of Tax Appeals, unless the board's decision was unreasonable, arbitrary, and capricious.

10. An agency's actions are arbitrary and capricious when they are overtly and patently in violation of the law or are unreasonable and without foundation in fact.

11. The legislature has defined fair market value to mean the amount of money that a well-informed buyer is justified in paying and a well-informed seller is justified in accepting for property in an open and competitive market, assuming that the parties are acting without undue compulsion. K.S.A.1995 Supp. 79-503a.

12. The legislature has considered and rejected proposed changes to our constitution and statutes which would extend the use value method of valuation of agricultural land to include residential land.

13. Valuing residential land at its fair market value may well lead to some residential land being valued at a higher value than other residential land due to its suitability for commercial use. This does not constitute unequal or nonuniform taxation under our laws.

14. Ad valorem taxes are to be imposed based on the value of the property, not on the owner's ability to pay.

15. On appeal from an assessment of ad valorem tax on residential property, the Board of Tax Appeals ruled the assessment to be in error because it found that particular errors were made in the way the county computed costs to prepare the land for commercial use; this finding is plausible on its face and should be accorded deference. However, the Board of Tax Appeals findings that using fair-market value would result in severe inequality among other similar homes; the possibility existed that the assessment was so high that the taxpayers might be forced to sell their homestead; and the property should be appraised at its highest and best possible use, as a residential home, are contrary to Kansas law and, therefore, are clearly erroneous.

16. Taxation of property does not constitute a public taking as contemplated by the Fifth Amendment to the United States Constitution.

James M. Jesse, Lawrence, for appellant.

Robert W. Fairchild and John Knox of Riling, Burkhead, Fairchild & Nitcher, Chartered, Lawrence, for appellee.

Before PIERRON, P.J., ROGG, Special Judge, and DAVID PRAGER, Chief Justice Retired, Assigned.

PIERRON, Presiding Judge:

This appeal involves the valuation of property for tax purposes. The facts of this case illustrate the difficulties in creating equitable tax policies where commercial zones expand into residential areas.

Donald E. Cashatt appeals the decision of the district court in favor of the Board of County Commissioners of Douglas County (County) which found that the Board of Tax Appeals (BOTA) erroneously interpreted and applied the law in the valuation placed on Cashatt's home for purposes of computing the ad valorem tax. Cashatt argues the district court's ruling, which reinstated the County's valuation of the property, is unconstitutional since the valuation is not uniform and equal with other residential properties in the area; does not comport with the statutory requirements for valuing property; and is a taking of property without just compensation. Cashatt further argues that the district court's ruling violates the standards of review placed upon the district court in reviewing BOTA decisions.

The essential facts are uncontroverted. Cashatt and his wife have lived in a house located at 2714 Iowa Street in Lawrence for 29 years. The house, built in 1954, is a brick ranch-style, two bedroom home located on 40,627 square feet of land. The property has always been zoned "residential" by the City and classified as "residential urban" by the County. The uniqueness of the property has resulted from the transformation of Iowa Street into a commercial corridor. Cashatt's property is now surrounded, at least on Iowa Street, by commercial properties.

The County's valuation of Cashatt's property drastically jumped from 1993 to 1994. In 1993, the County valued the land at $16,240 and the improvement/house at $56,260 for a total value of $72,500. In 1994, the County valued the land at $149,910 and the improvement/house at $51,220 for a total value of $201,130. Not surprisingly, after receiving notice of the increased valuation, Cashatt filed an equalization appeal with the county appraiser's office. After failing to obtain a reduction from the County, Cashatt appealed to BOTA.

At the BOTA hearing, Cashatt presented no evidence other than his own statements. He told BOTA he could not understand how the value of his property could increase so dramatically over a 1-year period. He informed BOTA that he and his wife lived in the house and had no plans to move or use the property for commercial purposes.

The dramatic increase in the valuation of Cashatt's property seemed to be precipitated by his listing of the property for $365,000 on a 90-day listing. Cashatt explained the only reason he had listed the property was to get a certain real estate person to stop bothering him. He also explained he had listed the property with a high enough price so no one would buy it. When Cashatt called the appraiser's office to find out why the value of his property had gone up, he was informed that the 90-day listing and high asking price had triggered a red flag on the appraiser's computers, which led to a reappraisal.

At the BOTA hearing, the County called Marion Johnson, the County Appraiser, to illustrate how the property was appraised. Johnson stated the County was after the "fair market value" of the property, i.e., what the property would sell for on the open market. He examined a cost approach and a market approach in valuing the property and decided the cost approach was more reflective of the fair market value of the property.

Because of the unique qualities of the property, Johnson testified the land value had to be determined manually. The value used was $3.69 per square foot. He arrived at this value by taking the $6 per square foot value placed on the commercial properties on both sides of Cashatt's property and the $1.20 per square foot value placed on the residential properties located to the east of Cashatt's property and arrived at a point somewhere in the middle. Apparently, due to the uniqueness of the property, there were no good comparable sales available for comparison.

Johnson testified further that the assessed value of Cashatt's property was not figured using the 30% commercial assessed value, but was assessed at 11.5%, which is the residential assessment value. Johnson opined that the value the County placed on the property represented its fair market value.

BOTA ruled the value of the property should be $102,000, appraising the land at $50,780 or $1.25 per square foot and the dwelling at $51,220. Essentially, BOTA valued the land at residential use value, and the dwelling value remained the same. BOTA recognized the County based its appraisal on a determination that the highest and best use of the property was for commercial development. In reversing the County's appraisal, BOTA relied primarily on a BOTA decision, In the Matter of Kenney, Doc. No. 89-6903-EQ (March 7, 1990); and Board of Johnson County Comm'rs v. Greenhaw, 241 Kan. 119, 734 P.2d 1125 (1987). Kenney is a BOTA decision and a copy of it was not included in the record on appeal.

BOTA based its decision on four main considerations. First, it found the subject property was not currently developed for commercial use and any developer would be required to raze the subject improvements, level the land for commercial use, and rezone the property with the city. Even though obtaining the rezoning would be no problem, BOTA found a...

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