Board of Sedgwick County Com'rs v. Action Rent To Own, Inc., 79422

Decision Date11 December 1998
Docket NumberNo. 79422,79422
Citation266 Kan. 293,969 P.2d 844
PartiesBOARD OF SEDGWICK COUNTY COMMISSIONERS, Appellant, v. ACTION RENT TO OWN, INC., Appellee.
CourtKansas Supreme Court

Syllabus by the Court

1. Constitutional and statutory provisions exempting property from taxation are to be strictly construed against the one claiming exemption, and all doubts are to be resolved against exemption.

2. Where the language of a statute, in particular, is relied upon as creating an exemption from taxation, it must be strictly construed against the party claiming the exemption. Strict construction, however, does not warrant unreasonable construction.

3. In construing a statute, an appellate court may look to the historical background of the statutory enactment, the circumstances attending its passage, the purpose to be accomplished, and the effect the statute may have under the various constructions suggested.

4. Under K.S.A.1994 Supp. 79-213, property owners requesting an exemption from the payment of ad valorem property taxes assessed, or to be assessed, against their property shall be required to file an initial request for exemption, on forms approved by the Board of Tax Appeals and provided by the county appraiser. The provisions of this statute shall not apply to merchants' and manufacturers' inventories exempted from ad valorem taxation by K.S.A. 79-201m and amendments thereto. K.S.A.1994 Supp. 79-213(l) merely obviates the requirement of filing for an initial exemption determination regarding property exempt under article 11, section 1(b) of the Kansas Constitution.

5. Rules or regulations of an administrative agency, to be valid, must be within the statutory authority conferred upon the agency. Those rules or regulations that go beyond the authority authorized, which violate the statute, or are inconsistent with the statutory powers of the agency have been found void.

6. K.S.A. 79-201m states that inventory includes tangible personal property primarily held for sale in the ordinary course of business. Under the statute, a capital asset subject to depreciation or cost recovery accounting for federal income tax purposes that is retired from regular use by its owner and held for sale or as standby or surplus equipment by such owner shall not be classified as inventory.

7. A capital asset subject to depreciation or cost recovery accounting for federal income taxes that is held primarily for sale to customers in the ordinary course of business may be classified as inventory.

Clarence D. Holeman, assistant county counselor, argued the cause and was on the brief for appellant.

Robert J. O'Connor, of Morrison & Hecker L.L.P., of Wichita, argued the cause, and Matthew D. Flesher, of the same firm, was with him on the briefs for appellee.

Keyta D. Kelly, Leavenworth county counselor at large, was on the brief for amicus curiae Board of Leavenworth County Commissioners.

Thomas R. Docking and James D. Young, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of Wichita, were on the brief for amicus curiae Board of County Commissioners of Harvey County.

LOCKETT, J.:

A county appeals the district court's affirmance of an administrative board's order granting an ad valorem tax exemption to a rent-to-own store's inventory of rental furniture under K.S.A. 79-201m. The county claims (1) the administrative board and the district court had no jurisdiction to consider the constitutional tax exemption request under K.S.A. 79-213, and (2) K.S.A. 79-201m does not exempt merchandise under rent-to-own contracts from ad valorem tax.

On April 10, 1995, Action Rent to Own, Inc. (Action), filed an application for the merchants' inventory tax exemption, pursuant to K.S.A.1994 Supp. 79-213. The Sedgwick County Appraiser (Sedgwick County) opposed the exemption. Pursuant to the statute, the case was docketed with the State Board of Tax Appeals (BOTA) for an exemption determination. BOTA heard the exemption request on March 13, 1996. On March 28, 1996, BOTA filed an order granting the merchants' inventory exemption to Action.

BOTA denied reconsideration of the matter on April 25, 1996.

Sedgwick County petitioned the district court for judicial review. The district court affirmed the BOTA decision on May 23, 1997. Sedgwick County appealed to the Kansas Court of Appeals on June 18, 1997. The Board of County Commissioners of Harvey County and the Board of Leavenworth County Commissioners filed amici curiae briefs. The matter was transferred from the Court of Appeals to the Supreme Court pursuant to K.S.A. 20-3018(c).

JURISDICTION

Action, which claimed its rent-to-own inventory was exempt under article 11, section 1(b) of the Kansas Constitution, filed for a merchants' inventory tax exemption pursuant to K.S.A.1994 Supp. 79-213. The statute provides:

"(a) Any property owner requesting an exemption from the payment of ad valorem property taxes assessed, or to be assessed, against their property shall be required to file an initial request for exemption, on forms approved by the board of tax appeals and provided by the county appraiser.

....

"(l ) The provisions of this section shall not apply to ... (6) merchants' and manufacturers' inventories exempted from ad valorem taxation by K.S.A. 79-201m and amendments thereto."

BOTA and the district court determined the rent-to-own company's inventory was exempt under K.S.A.1994 Supp. 79-201m. Sedgwick County appealed, claiming BOTA was without subject matter jurisdiction to consider Action's request for the merchants' inventory exemption because Action filed its initial tax exemption request pursuant to K.S.A.1994 Supp. 79-213, which is expressly inapplicable to the merchants' inventory exemption. Sedgwick County asserts that K.S.A.1994 Supp. 79-2005 states the procedure for a merchant to claim its inventory is exempt. Therefore, Sedgwick County contends, because Action failed to properly exhaust the administrative remedy by paying the tax under protest and filing for a refund, BOTA and the district court lacked jurisdiction to determine if the property was exempt.

Action asserts that its application for tax exemption pursuant to K.S.A.1994 Supp. 79-213 was appropriate. Action contends that where the taxpayer anticipates a challenge to the exemption by the county, the exemption application procedure set out in 79-213 is available to any taxpayer to obtain an initial exemption determination from BOTA. Action argues subsection (l ) of the statute obviates the requirement of filing for an initial request for exemption where the taxpayer holds constitutionally exempt property.

A party challenging an administrative order must exhaust all administrative remedies before seeking judicial review of the agency action. Whether a party is required to or has failed to exhaust its administrative remedies is a question of law over which our review is plenary or unlimited. See Nora H. Ringler Revocable Family Trust v. Meyer Land and Cattle Co., 25 Kan.App.2d 122, Syl. p 6, 958 P.2d 1162 (1998). Where the district court lacks jurisdiction to enter an order, an appellate court does not acquire jurisdiction over the subject matter on appeal. Dinkel v. Graves Truck Line, Inc., 10 Kan.App.2d 604, 604, 706 P.2d 470 (1985).

The tax exemption for merchants' inventory is a constitutional exemption provided in article 11, section 1(b) of the Kansas Constitution:

"All property used exclusively for state, county, municipal, literary, educational, scientific, religious, benevolent and charitable purposes, farm machinery and equipment, merchants' and manufacturers' inventories, other than public utility inventories included in subclass (3) of class 2, livestock, and all household goods and personal effects not used for the production of income, shall be exempted from property taxation." (Emphasis added.)

Did Action select an appropriate administrative procedure, i.e., K.S.A.1994 Supp. 79-213, to claim a constitutional exemption for merchants' inventory before BOTA. The question requires an interpretation To date, the tax exemption cases in Kansas concerning administrative remedies largely focus on the requirement of exhaustion of administrative remedies prior to filing a case in district court. See e.g., Dillon Stores v. Board of Sedgwick County Comm'rs, 259 Kan. 295, 912 P.2d 170 (1996); Boeing Co. v. Oaklawn Improvement Dist., 255 Kan. 848, 877 P.2d 967 (1994); J. Enterprises, Inc. v. Board of Harvey County Comm'rs, 253 Kan. 552, 857 P.2d 666 (1993); Tri-County Public Airport Authority v. Board of Morris County Comm'rs, 233 Kan. 960, 666 P.2d 698 (1983). The administrative procedure utilized by Action, applying for exemption pursuant to K.S.A.1994 Supp. 79-213, included a hearing before BOTA, a determination of the issue, and an exhaustion of administrative remedies; therefore, there is no contention that the district court lacked jurisdiction because BOTA had not considered the issue.

of K.S.A.1994 Supp. 79-213 and K.S.A.1994 Supp. 79-2005. Interpretation of a statute is a question of law, and this court's review is unlimited. Hamilton v. State Farm Fire & Cas. Co., 263 Kan. 875, 879, 953 P.2d 1027 (1998).

In J. Enterprises, this court discussed the administrative procedures available to a rent-to-own taxpayer. We held that the district court lacked jurisdiction over the case because the taxpayer failed to bring the issue before BOTA prior to filing a case in district court. 253 Kan. at 566, 857 P.2d 666. In the analysis, the court quoted at length from Tri-County, an earlier Kansas tax exemption case where the taxpayer brought a mandamus action against the county to determine the tax-exempt status of certain real property owned by the taxpayer. The Tri-County court traced the historical development of the statutory remedies available to a taxpayer seeking an exemption from ad valorem taxes, K.S.A.1982 Supp. 79-2005, K.S.A. 74-2426 (Ensley 1980), and K.S.A.1982 Supp. 79-213.

Relying on Tri-County, ...

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