Callaway v. City of Overland Park

• Decision Date: 07 April 1973
• Docket Number: No. 46344,46344
• Citation: 211 Kan. 646,508 P.2d 902
• Parties: E. Conita CALLAWAY, an Individual, et al., Appellants, v. CITY OF OVERLAND PARK, Kansas, a municipal corporation, Appellee.
• Court: Kansas Supreme Court

Page 902

508 P.2d 902

211 Kan. 646

E. Conita CALLAWAY, an Individual, et al., Appellants, v. CITY OF OVERLAND PARK, Kansas, a municipal corporation, Appellee.

No. 46344.

Supreme Court of Kansas.

April 7, 1973.

Syllabus by the Court

1. The Constitution of the State of Kansas empowers a city to impose or levy a business or occupation tax by revenue ordinance for the purpose of raising revenue except where such tax has been limited or prohibited by enactment of the legislature applicable uniformly to all cities of the same class. (Article 12, Section 5(b).)

2. The provisions of K.S.A.1971 Supp. 79-4424(a) do not prohibit a city from imposing an occupational tax for revenue purposes on those who rent or lease certain residential properties.

3. The renting and management of residential property is a business and as such may be subjected by revenue ordinance to an occupation tax absent restricting legislation.

4. An annual city tax of .0035 dollars per square foot of living area leased or subject to being leased imposed on those in the business of renting or leasing residential property is not a tax upon a sale or transfer of real property or the use thereof, or the rendering of a service as restricted by K.S.A.1971 Supp. 79-4424(a).

5. In determining the amount of a business or occupation tax, the city may use square footage of property as a measure without imposing a tax on the property itself for when the tax is one that may be legally imposed the measurement of the tax and method of imposing the same are left to the discretion and good judgment of the body exercising the power to tax.

6. The provisions of a revenue ordinance of the City of Overland Park imposing a business or occupation tax upon those engaged in renting or leasing certain residential property are examined and it is held, the ordinance was within the power of the city to adopt and the criminal sanctions provided for therein are not unconstitutionally vague.

Kenton C. Granger, Granger & Nagels, Chartered, Overland Park, argued the cause and was on the brief for appellants.

John L. Vratil, Bennett, Lytle, Wetzler & Winn, Prairie Village, argued the cause, and Robert F. Bennett, Prairie Village, was with him on the brief for appellee.

FROMME, Justice:

This is a declaratory judgment action attacking the validity of a city ordinance which imposes a tax or charge upon numerous business pursuits including the business of leasing rental properties in Overland Park, Kansas. The rental properties affected are apartments, duplexes and similar properties having a city zoning classification of R-2 and above.

The plaintiffs are individuals and firms who either own and lease or who lease rental properties for others of the nature described in the ordinance. They join in an effort to invalidate Section 34 of the ordinance on the basis of a statutory prohibition against the imposition of certain excise taxes by cities. In the alternative they seek to have Section 44 of the ordinance, which imposes criminal sanctions, declared void as being unconstitutionally vague and indefinite.

The city adopted Ordinance OT-601 on July 20, 1970. This date becomes important because the limiting statute then in effect determines the power of the city to enact such an ordinance. The appellants do not question the procedural steps by which the ordinance was adopted. Section 1 of the ordinance provides:

'That no person, firm, or corporation, either as principal officer, agent, servant or employee, shall conduct, pursue, carry on, or operate in the City of Overland Park, Kansas, any business, trade, occupation, or profession, or render or furnish any service hereinafter specified, without first making application to the City Clerk for a license therefor and paying to the City Clerk the license tax hereinafter prescribed, and presenting the receipt of the City Clerk for the same to the City Clerk at the time said license is issued.'

Sections 4 through 34 of the ordinance impose an annual tax on practically all retail, wholesale, manufacturing, sales, professional, banking, loan and service firms which operate in a large municipality. Section 34 refers to those in the business of leasing rental properties and reads as follows:

'Persons, firms, partnerships or corporations engaged in the business of owning and leasing or of leasing apartments, duplexes and all other rental properties with a zoning classification of R-2 and above, shall pay an Occupational Tax of .0035 dollars per square foot of each square foot of living space leased or subject to being leased, excepting the square footage occupied by either the apartment owner or resident manager, and the tax so determined shall be rounded to the nearest half dollar. For the purposes of this section, living space is defined as all the living area within individual apartment units.

'If the rental property is offered for lease by a leasing agent of the owner, then the declaration hereinafter required shall be made and the tax paid by the leasing agent. If the rental property is offered for lease by the owner, then the declaration hereinafter required shall be made and the tax paid by the owner.

'The owner-lessor or the leasing agent of rental property shall make a declaration of square footage which must accompany the tax payment to the City Clerk's office each tax year. If square footage is not declared or is declared incorrectly, a fee of $10.00 per building will be charged the owner-lessor or the leasing agent to cover the additional administrative costs necessary to compute the correct tax. The tax on correct square footage will date back to the time of the initial declaration.

'In the event rental property is offered for lease for the first time after commencement of any tax year, the owner-lessor or the leasing agent shall, within 30 days thereafter, file the declaration and pay the tax hereinbefore described.'

This case was first presented to the trial court on stipulated facts and the ordinance was held to be valid. The plaintiffs appeal.

The parties to this appeal agree with the trial court's holding that the ordinance was enacted by the city for revenue purposes and that any regulations imposed are those incidental to enforcing the revenue ordinance. They further agree that the ordinance was not enacted to limit, regulate or prohibit any business covered by the act.

The appellants challenge the power of the city to enact the ordinance. They rely primarily on the prohibition against city excise taxes contained in K.S.A.1971 Supp. 79-4424(a), which will be examined in some detail later. Appellants preface their contentions upon the statement that a city's power to levy taxes is limited. We agree with that general statement.

Prior to 1961 the source of a city's power to license or tax was based upon its police power and was limited to purposes of regulation. (See Duff v. Garden City, 122 Kan. 390, 251 P. 1091.) In other instances the power of a city to impose a tax was based upon specific legislative grant. (See Chapter 96, Laws of 1957 (G.S.1957 Supp. 12-125 and 12-126), and State ex rel. v. City of Wichita, 184 Kan. 196, 335 P.2d 786.)

However, Article 12, Section 5 of the Constitution of the State of Kansas (home rule amendment) was adopted by vote of the people and became effective July 1, 1961. This changed our prior conception of the power of a city to levy taxes, excises, fees or other exactions. Subsection (b) of the home rule amendment provides:

'Cities are hereby empowered to determine their local affairs and government including the levying of taxes, excises, fees, charges and other exactions except when and as the levying of any tax, excise, fee, charge or other exaction is limited or prohibited by enactment of the legislature applicable uniformly to all cities of the same class: . . .'

This section of our constitution contains other provisions not pertinent here except subsection (d) which reads:

'Powers and authority granted cities pursuant to this section shall be liberally construed for the purpose of giving to cities the largest measure of self-government.'

Referring again to the quoted portion of subsection (b) it becomes apparent the Constitution of the State of Kansas empowers a city to impose or levy a business or occupation tax by revenue ordinance for the purpose of raising revenue except where such tax has been limited or prohibited by enactment of the legislature applicable uniformly to all cities of the same class. Absent limiting legislative enactments Ordinance OT-601 of the City of Overland Park appears to be within the general constitutional power granted to cities. However, there were various limiting legislative enactments adopted in 1961 which specifically referred to the 'home rule amendment'.

K.S.A. 12-137 and 12-138 provided for procedures for the exercise of constitutional home rule powers of taxation.

K.S.A. 12-139 provided:

'No city shall impose an excise tax, or tax in the nature of an excise, upon a sale or transfer of personal or real property, or the use thereof, or the rendering or furnishing of a service.'

K.S.A. 12-140 provided:

'No city shall have power to levy and collect taxes on incomes from whatever source derived.'

K.S.A. 12-141 provided:

'Nothing contained in this act shall prohibit or be construed as prohibiting any city (a) (not pertinent) (b) nor from imposing license fees for the privilege of engaging in any business, trade, occupation or profession or rendering or furnishing any service, but the determination of any such license fee shall not be based on any amount the licensee has received from the sale or transfer of personal or real property, or for the rendering or furnishing of a service, or on the income of the licensee: . . .'

K.S.A. 12-142 prohibited cities from imposing sales or excise taxes on certain named products, including cigarettes, cereal malt beverages and malt products.

In April, 1970, before the present ordinance...