Colorado Interstate Gas Co. v. Beshears

Citation24 P.3d 113,271 Kan. 596
Decision Date01 June 2001
Docket NumberNo. 85,052.,85,052.
PartiesCOLORADO INTERSTATE GAS COMPANY and ANR PIPELINE COMPANY, Appellants, v. MARK BESHEARS, Secretary of Revenue, et al., Appellees.
CourtUnited States State Supreme Court of Kansas

Richard D. Greene, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, argued the cause, and Karen L. Pauley, of Colorado Interstate Gas Company, of Colorado Springs, Colorado, was with him on the briefs for appellant.

William E. Waters, of the Kansas Department of Revenue, argued the cause and was on the briefs for appellee. The opinion of the court was delivered by

DAVIS, J.:

Colorado Interstate Gas Company and ANR Pipeline Company (the Pipelines) appeal from a decision of the district court granting summary judgment in favor of defendants Mark Beshears, Secretary of Revenue; David C. Cunningham, Director of the Division of Property Valuation (DPV); and the Department of Revenue of the State of Kansas (Department) in an action where the Pipelines alleged that the preferential tax treatment afforded railroads in Kansas but denied to the Pipelines violated Article 11, § 1 of the Kansas Constitution, K.S.A. 79-1439, the Equal Protection Clauses of the United States and Kansas Constitutions, and the Commerce Clause of the United States Constitution.

The procedural history of this case is lengthy and complex. The factual scenario underlying the issue to be resolved has been twice before this court and twice before the Kansas Court of Appeals. See In re Tax Appeal of Colorado Interstate Gas Co., 258 Kan. 310, 903 P.2d 154 (1995); In re Tax Appeal of ANR Pipeline Co., 254 Kan. 534, 866 P.2d 1060, cert. denied 513 U.S. 917 (1994); Colorado Interstate Gas Co. v. Beshears, No. 77,225, unpublished opinion filed February 13, 1998; Colorado Interstate Gas Co. v. Beshears, 18 Kan. App.2d 814, 860 P.2d 56 (1993), rev. denied 256 Kan. 994 (1994). Collateral issues have also been addressed in federal court. See ANR Pipeline Co. v. LaFaver, 150 F.3d 1178 (10th Cir. 1998).

The case we now consider initially involved tax years 1989, 1990, and 1991. For the years in question, the Pipelines and railroads together with railroad corporations were classified as "public utilities" for purposes of ad valorem taxation in Kansas. During this time, public utility property was assessed at 30% of value. Kan. Const., art. 11, § 1(b) (1992 amendment not applicable).

In 1976, Congress enacted the Railroad Revitalization & Regulatory Reform Act of 1976, codified at 49 U.S.C. § 11503 (1988). This Act is commonly referred to as the 4-R Act. The purpose of the 4-R Act was to prohibit discriminatory taxation of railroad real and personal property by state and local property tax laws. In re Tax Appeal of ANR Pipeline Co., 254 Kan. at 537-38. After years of federal litigation in which certain railroads attempted to use the 4-R Act to reduce their real and personal property taxes in Kansas, the Department entered into a series of consent decrees in federal court with those railroads. Under the terms of the consent decrees, the Department acknowledged that it assessed 100% of the railroad's personal property while exempting 80% of commercial and industrial personal property which resulted in disparate treatment and, according to the Department's interpretation, violated the provisions of the 4-R Act. Therefore, under the terms of the consent decrees, the complaining railroads were granted an 80% personal property tax exemption—the same exemption allowed for commercial and industrial personal property. The Pipelines were not permitted the same 80% tax exemption, which, according to the Pipelines, discriminated against them as "public utilities."

The Pipelines filed the case we now consider in Shawnee County District Court in 1992, asking that their property be equalized with that of the railroads for the 1989, 1990, and 1991 tax years. The Pipelines contended that the preferential treatment afforded the railroads through the consent decrees violated the Kansas Constitution and state law, the Equal Protection Clauses of the United States and Kansas Constitutions, and the Commerce Clause of the United States Constitution. The Pipelines also took steps to appeal their 1990 and 1991 valuations through the Board of Tax Appeals (BOTA).

On January 25, 1993, the district court dismissed this case, finding that the Pipelines had failed to exhaust their administrative remedies. The Pipelines appealed the dismissal to the Court of Appeals which reversed the district court. Colorado Interstate Gas Co. v. Beshears, 18 Kan. App.2d at 822. The Court of Appeals determined that no administrative procedure existed for the Pipelines' claim for the 1989 tax year because the consent decree which was the cause of the alleged discrimination was not effective until after the expiration of the Pipelines' administrative rights to appeal their valuation. The Court of Appeals ruled that the district court, therefore, erred in dismissing for failure to exhaust administrative remedies. 18 Kan. App.2d at 821-22. The Court of Appeals further reversed the dismissal of the claims for the 1990 and 1991 tax years and ordered them stayed pending a determination by the Supreme Court for the 1990 and 1991 tax years. 18 Kan. App.2d at 822.

Upon completion of the administrative proceedings for the 1990 and 1991 tax years, BOTA upheld the decision of the DPV, which the Pipelines appealed. On appeal, the Pipelines argued that the BOTA order violated the uniform and equal requirement of Article. 11, § 1 of the Kansas Constitution, the Equal Protection Clauses of the Kansas and United States Constitutions, and the Commerce Clause of the United States Constitution. In re Tax Appeal of ANR Pipeline Co., 254 Kan. at 535.

On January 21, 1994, this court filed its opinion in In re Tax Appeal of ANR Pipeline Co., which affirmed the BOTA order for the 1990 and 1991 tax years. 254 Kan. at 548. We held that the 4-R Act preempted Kansas' classification for public utility property and that the preferential treatment given railroads was mandated by the 4-R Act and did not violate Article. 11, § 1 of the Kansas Constitution, equal protection under either the United States or Kansas Constitutions or the Commerce Clause. 254 Kan. at 539-48.

Three days after our decision in In re Tax Appeal of ANR Pipeline Co., the United States Supreme Court filed its decision concerning state property tax exemptions for railroads under the 4-R Act. See Department of Revenue of Ore. v. ACF, 510 U.S. 332, 127 L. Ed.2d 165, 114 S. Ct. 843 (1994). In ACF Industries, the Court found that the 4-R Act did not prevent states from granting exemptions to nonrailroad property but not to railroad property. 510 U.S. at 340. The Court stated:

"Because property `subject to a property tax levy' means property that is taxed, the definition of commercial and industrial property' excludes property that is exempt. Exempt property, then, is not part of the comparison class against which discrimination is measured under subsections [Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act) Pub. L. 94-210, 90 Stat. 31, 49 U.S.C. § 11503] (b)(1)-(3), and it follows that railroads may not challenge property tax exemptions under those provisions." 510 U. S. at 342.

Based on this decision, the Pipelines filed a motion for rehearing in In re Tax Appeal of ANR Pipeline Co., which this court denied. The Pipelines then filed a petition for writ of certiorari with the United States Supreme Court, which was also denied. ANR Pipeline Co. v. Director of Property Valuation, 513 U.S. 917, 130 L. Ed.2d 209, 115 S. Ct. 296 (1994).

At the same time in the above litigation, the Pipelines pursued virtually identical claims of discrimination before BOTA for tax years 1992 and 1993. BOTA dismissed their claims, ruling that it was bound by the decision in In re Tax Appeal of ANR Pipeline Co. The Pipelines appealed to this court. See In re Tax Appeal of Colorado Interstate Gas Co., 258 Kan. 310. The issues raised by the Pipelines were identical to the issues raised for the years 1989, 1990, and 1991:

"[The Pipelines] contend [for the years 1992 and 1993] that the failure of the Director of Property Valuation (DPV) to tax them in the same manner as other utilities, certain named railroads, violated the uniform and equal requirement of Art. 11, § 1 of the Kansas Constitution, the Equal Protection Clauses of the Kansas and United States Constitutions, and the Commerce Clause of the United States Constitution, and that Board of Tax Appeals erred in dismissing their claims without a hearing." 258 Kan. at 311.

Upon our consideration of the Pipelines' claims, we held that even though the United States Supreme Court in ACF Industries undermined our decision in In re Tax Appeal of ANR Pipeline Co., the granting of the 80% exemption to the railroads and not to the Pipelines was not discriminatory. 258 Kan. at 316-317. In reaching this determination we stated:

"The contention that the consent decrees are without any basis in federal law and, therefore, result in discriminatory treatment of [the Pipelines] fails to take into consideration the nature of the consent decrees. In the consent decrees for the years in question, the railroads and the DPV agreed that the named railroads would be granted an 80% exemption for their personal property taxes. This provision was incorporated at the insistence of the named railroads because 80% of the total aggregate commercial and industrial personal property in the state was tax exempt and the named railroads felt that this was discriminatory and contrary to the 4-R Act, which mandates that railroads be taxed at a rate no greater than that which applies to commercial and industrial property. As pointed out by the DPV in its brief, at the time the 1992 and 1993 consent decrees were entered into, every court that had addressed the issue had held that state property tax exemptions given
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