Board of County Com'rs of Leavenworth County v. McGraw Fertilizer Service, Inc.

• Decision Date: 07 March 1997
• Docket Number: READY-MIX,No. 76097,76097
• Citation: 261 Kan. 901,933 P.2d 698
• Parties: BOARD OF COUNTY COMMISSIONERS OF LEAVENWORTH COUNTY, KANSAS, et al., Appellants, v. McGRAW FERTILIZER SERVICE, INC., Appellee. BOARD OF COUNTY COMMISSIONERS OF LEAVENWORTH COUNTY, KANSAS, et al., Appellants, v. GEIGERCO., INC., Appellee.
• Court: Kansas Supreme Court

Page 698

933 P.2d 698

261 Kan. 901

BOARD OF COUNTY COMMISSIONERS OF LEAVENWORTH COUNTY, KANSAS,

et al., Appellants,

v.

McGRAW FERTILIZER SERVICE, INC., Appellee.

BOARD OF COUNTY COMMISSIONERS OF LEAVENWORTH COUNTY, KANSAS,

et al., Appellants,

v.

GEIGER READY-MIX CO., INC., Appellee.

No. 76097.

Supreme Court of Kansas.

March 7, 1997.

Syllabus by the Court

1. In ascertaining the meaning of a constitutional provision, the primary duty of the courts is to look to the intention of the makers (the legislature) and the adopters (the voters) of that provision.

2. A constitutional provision is not to be narrowly or technically construed, but its language should be interpreted to mean what the words imply to persons of common understanding. Words in common usage are to be given their natural and ordinary meaning in arriving at a proper construction.

3. The power to levy taxes is inherent in the power to govern, but the exercise of that power is dependent upon the existence of legislation designating the kinds of property to be taxed. Nothing is taxable unless clearly within the grant of the power to tax.

4. Taxing statutes will not be extended by implication beyond the clear import of the language employed therein; their operation will not be enlarged so as to include matters not specifically embraced.

5. Uniformity in taxation implies equality in the burden of taxation, and this equality cannot exist without uniformity in the basis of valuation. Uniformity in taxation does not permit a systematic, arbitrary, or 6. In Kansas, the sales tax is a "debt" from the consumer to the retailer. Because the Kansas sales tax is, by statute, not a cost to the retailer, it cannot be considered as simply another cost of doing business.

intentional higher valuation than that placed on other similar property within the same taxing district.

7. All costs normally passed on to the consumer in setting the retail sales price are to be included in the valuation of personal property.

8. Although costs contributing to the retail price are part of the value of an item, add-on costs incurred by the consumer after the retail price has been set have less to do with the value of the item and more to do with how and where the consumer is going to use the item. As long as these add-on costs are charged separately and readily discernible from the actual sales price of the item, these add-on costs are based on a separate contract for services and are not included in the "retail cost when new" in determining ad valorem tax values.

9. Applying the well-established principle of common understanding to the valuation standard "retail cost when new" contained in art. 11, § 1(b) of the Kansas Constitution, we find that for purposes of ad valorem taxation, the phrase never includes sales tax and does not always include the addition of freight and installation charges to the purchase price of an item.

William E. Waters, Topeka, of Division of Property Valuation, Kansas Department of Revenue, argued the cause, and was on the briefs, for appellant Director of Property Valuation.

Keyta D. Kelly, Leavenworth County Counselor, argued the cause, and was on the briefs, for appellant Board of County Commissioners of Leavenworth County.

Carol B. Bonebrake, of Cosgrove, Webb & Oman, Topeka, argued the cause, and was on the brief, for appellee McGraw Fertilizer Service, Inc.

Linda Terrill, of Neill, Scott, Terrill & Embree, L.L.C., Lenexa, argued the cause, and was on the brief, for appellee Geiger Ready Mix Co., Inc.

Clarence D. Holeman, Assistant County Counselor of Sedgwick County, was on the brief, for amicus curiae, Board of Sedgwick County Commissioners.

Robert J. O'Connor and Dwight D. Dumler, of Morrison & Hecker L.L.P.,Wichita, were on the brief, for amici curiae, certain Sedgwick County taxpayers.

LOCKETT, Justice:

The Board of Leavenworth County Commissioners (County) and the Director of the Division of Property Valuation (Director) seek review of the Board of Tax Appeals' (BOTA) and the Leavenworth County District Court's construction of the valuation standard "retail cost when new" of art. 11, § 1(b), class 2(E), of the Kansas Constitution implemented in K.S.A. 79-1439(b)(2)(E). BOTA and the district court held that the phrase "retail cost when new," as applied to the ad valorem taxation of commercial and industrial machinery and equipment, does not include charges for installation, freight, and sales tax. In addition, the County and Director claim that the appeal of Geiger Ready-Mix Co., Inc., (Geiger) to BOTA should have been dismissed for lack of jurisdiction.

Appellees McGraw Fertilizer, Inc., (McGraw) and Geiger are taxpayers in Leavenworth County who own commercial and industrial personal property required to be valued by the county appraiser pursuant to class 2(E) as set forth in subsection (b) of art. 11, § 1 of the Kansas Constitution and as implemented by K.S.A. 79-1439(b)(2)(E). Under the applicable constitutional and statutory provisions, the county appraiser is required to determine the "retail cost when new" of commercial and industrial personal property. Guidelines prescribed by the Director require county appraisers to include sales tax and freight and installation costs in the "retail cost when new" of commercial and industrial personal property when valuing such property for property tax purposes.

In 1993, the County contracted with an outside auditor to review and audit the commercial and industrial personal property renditions of various taxpayers, including McGraw and Geiger, on a contingent fee basis. As a result of that audit, the County determined that "retail cost when new" included sales tax as well as expenses associated with freight and installation of various items of commercial and industrial property owned by both taxpayers. The County assessed additional tax and penalties.

McGraw disputed the amount of additional tax assessed and filed an Equalization Appeal of Property Value pursuant to K.S.A. 79-1448 with BOTA. BOTA converted the equalization of tax appeal to a protest of payment of tax action pursuant to K.S.A. 79-2005. Following an evidentiary hearing, BOTA issued an order concluding that "add-on costs incurred by the consumer after the retail price is paid (such as sales tax, installation, and freight charges to the ultimate destination), are not included in the 'retail cost when new.' " The County filed a petition for reconsideration, which BOTA denied. The County appealed to the district court pursuant to K.S.A. 74-2426(c)(4).

In a separate action, Geiger also disputed the additional amount of tax assessed. The auditor claimed Geiger owed taxes of $50,000. Although not completely clear from the record, it appears Geiger filed both a tax protest and a tax grievance with BOTA. Geiger raised numerous issues, but not the issue of the interpretation of the phrase "retail cost when new." During the grievance proceeding, the County was granted permission to brief other legal issues, including the interpretation of the phrase "retail cost when new." On April, 5, 1995, BOTA, as in the McGraw action, again concluded that "add-on costs incurred by the consumer after the retail price is paid (such as sales tax, installation, and freight charges to the ultimate destination), are not included in the 'retail cost when new.' " In addition, BOTA determined that Geiger did not owe the County $50,000; instead, Geiger was entitled to a $4,000 refund.

The County appealed both BOTA orders to the district court. The district court consolidated the appeals and allowed intervention of the Director. The district court then affirmed BOTA's interpretation that the phrase "retail cost when new" did not include add-on costs for sales tax, freight, and installation. The County and the Director appealed, and the appeal was transferred to this court. This court granted certain Sedgwick County taxpayers and the Board of Sedgwick County Commissioners permission to file amicus curiae briefs. The Sedgwick County taxpayers presently have appeals pending in the Court of Appeals raising the issue of the interpretation of the "retail cost when new" standard.

STANDARD OF REVIEW

The County and the Director argue that BOTA "erroneously interpreted or applied the law." See K.S.A. 77-621(c)(4). BOTA is the highest administrative agency on property tax matters. BOTA has the power and authority to exercise its judgment anew and independent of the Director in determining the assessment of state assessed property. See Mobil Pipeline Co. v. Rohmiller, 214 Kan. 905, 920, 522 P.2d 923 (1974). BOTA orders are subject to judicial review under the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. K.S.A. 74-2426(c). Here, we are not asked to interpret a statute. We are required to interpret the Kansas Constitution.

In ascertaining the meaning of a constitutional provision, the primary duty of the courts is to look to the intention of the makers (the legislature) and the adopters (the voters) of that provision. State ex rel. Stephan v. Finney, 254 Kan. 632, 654, 867 P.2d 1034 (1994). A constitutional provision is not to be narrowly or technically construed, but its language should be interpreted to mean what the words imply to persons of common understanding. 254 Kan. at 654, 867 P.2d 1034; Colorado Interstate Gas Co. v. Board of Morton County Commr's, 247 Kan. 654, 660, 802 P.2d 584 (1990). Words in common usage are to be given their natural and ordinary meaning in arriving at a proper construction. Farmers Co-op. v. Kansas Bd.

of Tax Appeals, 236 Kan. 632, 635, 694 P.2d 462 (1985).

There are well-established rules of construction applicable to tax matters. The power to levy taxes is inherent in the power to govern, but the exercise of that power is dependent upon the existence of legislation designating the kinds of property to be taxed. Nothing is taxable unless clearly within the grant of the...