Farmers Banshares of Abilene, Inc. v. Graves

• Decision Date: 28 February 1992
• Docket Number: No. 66701,66701
• Citation: 826 P.2d 1363,250 Kan. 520
• Parties: FARMERS BANSHARES OF ABILENE, INC., Appellant, v. Hon. Bill GRAVES, State of Kansas, Appellee.
• Court: Kansas Supreme Court

Page 1363

826 P.2d 1363

250 Kan. 520

FARMERS BANSHARES OF ABILENE, INC., Appellant, v. Hon. Bill GRAVES, State of Kansas, Appellee.

No. 66701.

Supreme Court of Kansas.

Feb. 28, 1992.

Syllabus by the Court

1. Interpretation of a statute is a necessary and inherent function of an agency in its administration or application of that statute.

2. The Secretary of State is not subject to litigation in the courts under the facts of this case, until the taxpayer has exhausted administrative remedies.

H. Boone Porter, III, of Lewis, Rice & Fingersh, Overland Park, argued the cause, and James E. Kelley, Jr., of the same firm, was with him on the briefs, for appellant.

Daniel P. Kolditz, Deputy Atty. Gen., argued the cause, and Robert T. Stephan, Atty. Gen., and Martha M. Snyder, Asst. Atty. Gen., were with him on the brief, for appellee.

ABBOTT, Justice:

Farmers Banshares of Abilene, Inc., (Farmers) filed this action on behalf of itself and a class of corporations similarly situated, seeking mandamus and injunctive relief to compel the Kansas Secretary of State (the Secretary) to refund corporate franchise taxes that had been collected from the proposed class. The trial court granted the defendant's motion to dismiss and denied Farmers' motions to certify the class and to impound incoming corporate franchise tax collections.

The facts are not in dispute. Farmers is a for-profit corporation organized and existing under the laws of Kansas. It is classified as a "shell holding company."

Each domestic for-profit corporation must file an annual report with the Secretary upon forms prescribed by the Secretary. K.S.A.1991 Supp. 17-7503(a). This form is referred to as "Form AR." Payment of the corporation's franchise tax should accompany Form AR. K.S.A.1991 Supp. 17-7503(c). The formula for calculating franchise taxes is statutory. Each corporation required to pay a franchise tax is subject to a $20 minimum or a $2,500 maximum tax. K.S.A. 17-7501(e); K.S.A.1991 Supp. 17-7503(c).

Prior to January 1991, Form AR incorrectly instructed corporations how to calculate the corporate franchise tax. As a result, Farmers had been overpaying its corporate franchise taxes. For the 1989 tax year, Farmers' accountants recommended that Farmers pay only the $20 minimum tax. If Farmers had followed the instructions included with Form AR, Farmers would have overpaid its corporate franchise tax by $1,622.

Farmers filed its 1989 tax year Form AR with a check for the $20 minimum tax attached. The Secretary sent written notice to Farmers that its Form AR was unacceptable and its franchise tax payment was insufficient. Farmers was instructed to submit a corrected tax return. Farmers sent the Secretary written notice that Farmers' franchise tax was correctly calculated according to the statutory formula. The Secretary advised that unless Farmers complied with the Secretary's directive, Farmers could face forfeiture of the corporation and financial penalties. In September 1990, a meeting was held at the Secretary's offices. At that meeting, Farmers presented the Secretary with a detailed memorandum, explaining Farmers' claim that Form AR contained instructions contrary to the statute. Another meeting was held in December 1990. On January 22, 1991, the Secretary sent Farmers a letter acknowledging that Farmers' interpretation of the formula was correct. The Secretary declined to honor Farmers' request for a refund of the franchise taxes Farmers had overpaid for the years 1985 through 1988 on the grounds that Farmers' request was not timely. Farmers' return for the 1989 tax year was accepted.

The letter also notified Farmers that as of January 22, 1991, a new Form AR had been promulgated to comply with the statutory formula. This form bears the legend, "Rev. 1/91 cs." Farmers points out that in December 1990, the Secretary had promulgated a revised form, bearing the legend "Rev. 12/90 cs," which also contained the erroneous instructions. In early January 1991, the Secretary sent out forms containing the erroneous instructions to corporations whose tax year ended December 31, 1990. At the time the Secretary promulgated the revised form in December, 1990, he was aware of the potential problem with the instructions because of his meetings and correspondence with Farmers, but had not concluded that Farmers' position was correct. The Secretary...