City of Wichita, Application of

• Decision Date: 15 July 1994
• Docket Number: No. 70358,70358
• Parties: In the Matter of the Application of the CITY OF WICHITA, Kansas, for Exemption from Ad Valorem Taxation in Sedgwick County, Kansas.
• Court: Kansas Supreme Court

Page 437

877 P.2d 437

255 Kan. 838

In the Matter of the Application of the CITY OF WICHITA Kansas, for Exemption from Ad Valorem Taxation in Sedgwick County, Kansas.

No. 70358.

Supreme Court of Kansas.

July 15, 1994.

Syllabus by the Court

1. K.S.A. 77-621(c) of the Act for Judicial Review and Civil Enforcement of Agency Actions sets forth the circumstances under which a district court may grant relief from an agency decision.

2. The arbitrary and capricious test relates to whether a particular administrative agency action should have been taken or is justified, such as the reasonableness of the agency's exercise of discretion in reaching the determination or whether the agency's action was without foundation in fact.

3. An administrative agency's action may be arbitrary and capricious when it is not supported by substantial evidence. Substantial evidence is evidence that possesses both relevance and substance and which furnishes a substantial basis of fact from which the issues can be reasonably resolved.

4. An administrative agency's decision is presumed valid. An appellate court may not try an agency case de novo or substitute its judgment for that of the agency. A rebuttable presumption of validity attaches to all actions of an administrative agency and the burden of proving arbitrary and capricious conduct lies with the party challenging the agency's actions.

5. Whether particular property is exempt from ad valorem taxation is a question of law if the facts are agreed upon. Taxation is the rule and exemption from taxation the exception under the Kansas Constitution and statutes. 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. 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, and the party must bring itself clearly within the exemption. Strict construction, however, does not warrant unreasonable construction.

6. It is the function of a court to interpret a statute to give it the effect intended by the legislature. Although courts will give consideration and weight to an administrative agency's interpretation of a statute, they will not adhere to that interpretation when the statute is clear and the agency's ruling is incorrect. The final construction of a statute rests within the courts.

7. Exclusive use of property as defined by K.S.A. 79-201a Second requires actual use of the property for a public purpose. Acquisition and resale of property pursuant to K.S.A. 65-4135 and K.S.A. 65-4172(b) do not amount to actual use of the property for purposes of K.S.A. 79-201a Second. The term "use" contemplates some active, actual utilization of the property.

Joe Allen Lang, First Asst. City Atty., argued the cause, and Gary E. Rebenstorf, City Atty., was with him on the briefs for appellant City of Wichita.

Patricia J. Parker, Asst. County Counselor, argued the cause and was on the brief for appellee Board of Sedgwick County Comm'rs.

DAVIS, Justice:

The question raised by this appeal is whether real estate owned by the City of Wichita (City), acquired through civil forfeiture by law enforcement for drug law violations, is exempt from ad valorem taxation during the period of time the City holds the property prior to sale under law. The Board of Tax Appeals (BOTA) denied the exemption, and the district court affirmed. For the reasons set forth below, we affirm the district court.

The facts are not in dispute. The City acquired a one-story single family dwelling with garage by forfeiture for violations of Kansas drug laws pursuant to K.S.A. 65-4135. The City owned the property from May 27, 1988, to September 13, 1989, for which period it requested an exemption from ad valorem taxation.

The property remained vacant during the time the City held it. City narcotics officers maintained and repaired the property in anticipation of its sale. On September 13, 1989, the property was sold to a private party; pursuant to K.S.A. 65-4173, the proceeds went to fund police narcotics enforcement activities.

The BOTA Decision

BOTA considered the pertinent provisions of K.S.A. 79-201a, which provides in part:

"The following described property, to the extent herein specified, shall be exempt from all property or ad valorem taxes levied under the laws of the state of Kansas:

....

"Second. All property used exclusively by the state or any municipality or political subdivision of the state. All property owned ... by ... any municipality ... which is used or is to be used for any governmental or proprietary function and for which bonds may be issued or taxes levied to finance the same, shall be considered to be 'used exclusively' by the ... municipality ... for the purpose of this section."

Acknowledging that the property was acquired by the City under Kansas drug forfeiture laws, BOTA determined that under K.S.A. 79-201a,

"[t]he property must be being used or is to be used for a governmental or proprietary function. The Board finds that the ownership and holding of the property for future disposition is not a governmental function. Therefore, the Board concludes that the subject property fails to meet the statutory requirements for exemption prescribed by K.S.A. 79-201a Second and the applicant's request should be denied."

The District Court Decision

Relying on Tri-County Public Airport Auth. v. Board of Morris County Comm'rs, 245 Kan. 301, 777 P.2d 843 (1989), the district court concluded that "[e]xclusive use as defined by the statute requires actual use of the property for a public purpose"; that "[o]wnership of property solely for the purpose of producing revenue which may ultimately be used to finance a governmental function ... is not exclusive use as defined by K.S.A. 1988 Supp. 79-201a Second."

The court rejected the City's argument that it was "using" the property to deter illegal drug activity even though the property was vacant and the City was holding it for sale. The court reasoned that exclusive use requires actual use and mere acquisition of property for the purpose of deterring crime is not actual use. The district court concluded that "[t]he statute is to be construed strictly against granting exemption. The BOTA Order denying exemption was, therefore, a reasonable interpretation of the law and was supported by the evidence before it."

Discussion, Analysis, and Holding

Standard of Review

K.S.A. 77-621(c) of the Act for Judicial Review and Civil Enforcement of Agency Actions sets forth the circumstances under which a district court may grant relief from an agency decision.

"(1) The agency action, or the statute or rule and regulation on which the agency action is based, is unconstitutional on its face or as applied;

"(2) the agency has acted beyond the jurisdiction conferred by any provision of law;

"(3) the agency has not decided an issue requiring resolution;

"(4) the agency has erroneously interpreted or applied the law;

"(5) the agency has engaged in an unlawful procedure or has failed to follow prescribed procedure;

"(6) the persons taking the agency action were improperly constituted as a decision-making body or subject to disqualification;

"(7) the agency action is based on a determination of fact, made or implied by the agency, that is not supported by evidence that is substantial when viewed in light of the record as a whole, which includes the agency record for judicial review, supplemented by any additional evidence received by the court under this act; or

"(8) the agency action is otherwise unreasonable, arbitrary or capricious."

The City contends it is entitled to relief under K.S.A. 77-621(c)(4), (7), and (8); BOTA erroneously interpreted or applied the law; the BOTA decision was not supported by the evidence; and the BOTA decision was unreasonable, arbitrary, and capricious.

We have described the test to determine when agency conduct is arbitrary and capricious:

"[T]he arbitrary and capricious test relates to whether that particular action should have been taken or is justified, such as the reasonableness of the [agency's] exercise of discretion in reaching the determination, or whether the agency's action was without foundation in fact." Kansas Racing Management, Inc. v. Kansas Racing Comm'n, 244 Kan. 343, 365, 770 P.2d 423 (1989).

We also have held that an agency's action may be arbitrary and capricious when it is "not supported by substantial evidence," and defined substantial evidence as "evidence which possesses both relevance and substance, and which furnishes a substantial basis of fact from which the issues can be reasonably resolved." Kansas Racing Management, Inc., 244 Kan. at 365, 770 P.2d 423. The City's burden is significant, however, because the agency's decision is presumed valid:

"This court may not try the case de novo or substitute its judgment for that of the administrative agency. [Citation omitted.] A rebuttable presumption of validity attaches to all actions of an administrative agency and the burden of proving arbitrary and capricious conduct lies with the party challenging the agency's actions." Kansas Racing Management, Inc., 244 Kan. at 365, 770 P.2d 423.

In Tri-County, 245 Kan. at 304-05, 777 P.2d 843, we summarized some basic principles governing review of BOTA decisions concerning the availability of tax exemptions. Those principles merit repeating here:

"Whether particular property is exempt from ad valorem taxation is a question of law if the facts are agreed upon. [Citations omitted.] Taxation is the rule, and exemption from taxation the exception under the Kansas Constitution and statutes. [Citations omitted.] Constitutional and statutory provisions exempting property from taxation are to be strictly construed against the one claiming exemption, and all doubts are to...