Farmers Co-op. v. Kansas Bd. of Tax Appeals, CO-OPERATIVE

Decision Date26 January 1985
Docket NumberCO-OPERATIVE,No. 56706,56706
Citation236 Kan. 632,694 P.2d 462
PartiesFARMERS, et al.; Merl Yakel, et al.; Robin and Laurie Wright, et al., Robert and Doris Wright, et al., Appellants, v. KANSAS BOARD OF TAX APPEALS, et al., Appellees.
CourtKansas Supreme Court

Syllabus by the Court

1. Rules of statutory construction are stated.

2. Under the factual circumstances stated in the opinion, property owned by a non-tax-exempt entity and leased for profit to a qualifying tax-exempt entity was not being used exclusively for tax exempt purposes and is subject to ad valorem and property taxes.

3. Property owned by a non-tax-exempt entity which is used in providing a service for profit to a qualifying tax-exempt entity is not being used exclusively for tax exempt purposes and is subject to ad valorem and property taxes.

Robert F. Bennett, of Bennett, Lytle, Wetzler, Winn & Martin, Prairie Village, argued the cause, and Janice S. Clothier, Prairie Village, was with him on briefs for appellants.

Carol B. Bonebrake, Kansas Department of Revenue, Topeka, argued the cause and was on brief for appellees.

LOCKETT, Justice:

This is an appeal from the judgment of the Shawnee County District Court affirming the order of the Kansas Board of Tax Appeals denying the owners of certain farm machinery and equipment a tax exemption which they claim is authorized by K.S.A.1983 Supp. 79-201i and 79-201j. Kansas Farm Bureau, Inc., intervened in support of the application of the taxpayers for exemption before the Board of Tax Appeals and joined with the taxpayers as a plaintiff in the appeal to the district court and in this appeal.

Merl Yakel, Bob and Doris Wright, and Robin and Laurie Wright (custom cutters) are owners of certain farm machinery and equipment. They are engaged in the business of providing custom combining services to farmers in Kansas and other states. They charge a standard rate for their services, based on acreage, bushels cut, and the market price that year. While Yakel owns farm land and uses his equipment occasionally on that land, the other taxpayers do not own farmland and use their farm machinery to harvest grain only on land possessed by others.

The Farmers Co-operative (Co-op), owned by individuals in Kearney and Hamilton counties, also sought an exemption for the fertilizer equipment which they own. An individual automatically becomes a member of the Co-op if he or she uses the equipment and/or purchases enough goods from the Co-op. The Co-op rents its fertilizing equipment to farmers based on a per acre charge or the amount of product used. In addition to leasing equipment, the Co-op also handles grain, and sells fuel, fertilizer, feed and chemicals.

The Co-op filed a claim for exemption from ad valorem taxes for its fertilizer equipment. The Board of Tax Appeals (BOTA) denied the application for exemption. Co-op filed a motion for rehearing which BOTA granted. BOTA then allowed the Co-op to intervene in a separate action involving the custom cutters. BOTA conducted the hearing and again denied the exemption request. On appeal, the Shawnee County District Court affirmed BOTA's order. After the parties had perfected their appeal, the matter was transferred to this court.

The issue on appeal relates to the construction of 79-201i and 79-201j. The taxpayers contend that, under the clear wording of these statutes and in harmony with the legislative intent, the farm machinery and equipment involved is entitled to an exemption from the property tax because it was actually, regularly and exclusively used in farming and ranching operations. BOTA contends that use, in and of itself, does not entitle the property to exemption and that the exemption will be withheld unless the personal property is actually and regularly used exclusively in farming or ranching operations by the owner of the machinery and equipment on land where he is the owner, tenant or sharecropper. BOTA determined the legislature intended that the owner of the machinery and equipment "have a significant tie to the land," and that the machinery must be owned by those who actively engage in farming and ranching operations, not those who provide a service to individuals engaged in farming and ranching operations.

K.S.A.1983 Supp. 79-201i states:

"Purpose for farm machinery and equipment property tax exemption. It is the purpose of K.S.A.1982 Supp. 79-201j of this act to promote, stimulate and develop the general welfare, economic development and prosperity of the state of Kansas by fostering the growth and development of agricultural endeavors within the state. Agriculture, as conducted in farming and ranching operations throughout the state, is the primary basis of the Kansas economy. Communities, regions, and the state as a whole are materially dependent upon agricultural endeavors and derive substantial financial benefit from the success of Kansas agriculture. Farming and ranching operations require the investment of large sums of capital for the purpose of providing the land on which the operations are conducted, and the farm machinery and equipment necessary to satisfactorily carry out such endeavors. Because of agriculture's unique requirements of substantial capital investment, the property tax burden becomes a deterrent to such investment and, in some instances, an encouragement to farm and ranch abandonment. Kansas, and all its citizens, will benefit from any improvement in the economic environment of Kansas agriculture. The exemption from the ad valorem property tax of farm machinery and equipment actually and regularly used in farming and ranching operations will constitute an incentive to agriculture and will improve the general economy of the state. Considering this state's heavy reliance on agriculture, the enhancement of agricultural endeavors is deemed to be a public purpose which will promote the general welfare of the state and be for the benefit of the people of the state." (Emphasis supplied.)

K.S.A. 79-201j states:

"Property exempt from taxation; farm machinery and equipment. The following described property, to the extent specified by this section, shall be exempt from all property or ad valorem taxes levied under the laws of the state of Kansas:

"All farm machinery and equipment The term 'farm machinery and equipment' means that personal property actually and regularly used exclusively in farming or ranching operations. The term 'farm machinery and equipment' shall not include any passenger vehicle, truck, truck tractor, trailer, semitrailer or pole trailer, other than a farm trailer, as the terms are defined by K.S.A. 8-126 and amendments thereto.

"The provisions of this section shall apply to all taxable years commencing after December 31, 1982." (Emphasis supplied.)

The facts in this case are essentially uncontroverted. The taxpayers are the owners of farm machinery and equipment. The taxpayers' farm machinery and equipment is actually and regularly used exclusively in farming and ranching operations. Whether the statute requires that the one requesting the exemption be the owner of the equipment and also be the owner, tenant or sharecropper of the land on which it is used, thereby having a significant tie to the land, is a question of law.

Where the interpretation of a statute is a question of law, it is the function of the court to interpret the statute to give it the effect intended by the legislature. State ex rel. v. Unified School District, 218 Kan. 47, 542 P.2d 664 (1975). The purpose and intent of the legislature governs when that intent can be ascertained from the statute. Szoboszlay v. Glessner, 233 Kan. 475, 664 P.2d 1327 (1983). Words in common usage are to be given their natural and ordinary meaning in arriving at a proper construction of the statute. Stephens v. Van Arsdale, 227 Kan. 676, 608 P.2d 972 (1980). When a statute is susceptible of more than one construction, it must be construed to give expression to its intent and purpose, though such construction is not within the strict literal interpretation of the statute. In re Birdsong, 216 Kan. 297, 532 P.2d 1301 (1975).

When construing requests for exemptions from ad valorem and property taxation, the following rules of construction apply: Constitutional and statutory provisions exempting property from taxation are to be strictly construed against the one requesting exemption. In re Board of Johnson County Comm'rs, 225 Kan. 517, 519, 592 P.2d 875 (1979). All doubts concerning exemption are to be resolved against the exemption in favor of taxation. Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847, 851, 473 P.2d 1 (1970). The burden of establishing exemption from taxation is on the one claiming it. Lutheran Home, Inc., v. Board of County Commissioners, 211 Kan. 270, 505 P.2d 1118 (1973). Simply stated: Taxation is the rule, exemption is the exception.

BOTA first determined that 79-201i asserted the purpose of the exemption to be the broad principle of promoting economic development and prosperity of the state by fostering growth and development of agricultural endeavors within the state. It concluded that agricultural endeavors not only included preparation of the soil, planting, raising and harvesting the seed, but in addition, they include processing the products for consumption, sale of the products to the consumer, the science of understanding the nature and preparation of the soil, design and production of farm equipment and machinery, sale of machinery and equipment to the user and other related services. BOTA noted that after the statute stated the broad principle of promoting prosperity for agricultural endeavors, the statute then focused on farm and ranching operations in Kansas. The statute acknowledged that farm and ranching operations require large sums of capital to purchase and use farm and ranch land. Because of agriculture's unique requirement of substantial capital, the burden of paying taxes...

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