Federal Land Bank of Wichita v. Board of County Com'rs of Kiowa County

Citation354 P.2d 679,187 Kan. 148
Decision Date04 August 1960
Docket NumberNo. 41842,41842
PartiesFEDERAL LAND BANK OF WICHITA, a Corporation of Wichita, Kansas, Appellant, v. BOARD OF COUNTY COMMISSIONERS OF the COUNTY OF KIOWA, State of Kansas; Ben H. Paxton, Sheriff; Alice Cronic, County Treasurer; and Eunice Rich, Clerk of the District Court; The State of Kansas, Intervener, Appellees.
CourtUnited States State Supreme Court of Kansas

Syllabus by the Court

1. As between the state and federal governments the doctrine of implied immunity from taxation has its inherent limitations. The doctrine is aimed at the protection of operations of government and does not extend to those matters which are beyond functions essentially governmental in character. A government may not depart from functions essentially governmental in character and enter into fields of business inherently private in their nature and yet demand protection from taxation behind a shield of implied immunity.

2. It is universally held that taxation is the rule and exeption is the exception, and that language relied upon as creating an exemption from taxation must be strictly construed. Where one claims immunity from the common burdens of taxation which rest equally upon all, the burden is upon him to establish clearly that he is entitled to the exemption.

3. The Federal Land Bank of Wichita (a federal instrumentality) made a loan on real estate. The loan became in default and the bank foreclosed its mortgage and in due time became the owner of the property by virtue of a sheriff's deed. Later, it sold the property, and, in so doing, reserved a mineral interest. At the time of sale the bank had fully recouped its financial loss arising out of the loan and foreclosure of the mortgage. The bank gave oil and gas leases covering the mineral interest retained by it and, upon production being had, received rents, bonuses and royalties therefrom. The county, through its taxing officials, levied and assessed a personal property tax against the bank's interest in the leases. The bank brought an action to enjoin the levy and collection of the tax, claiming that it was exempt. The record is examined and considered and, all as fully set forth in the opinion, it is held that under the facts of record the bank has no valid claim for exemption from the tax in question and injunctive relief was properly denied.

Edw. H. Jamison, Wichita, argued the cause, and Steve W. Church, Greensburg, and Wm. G. Plested Jr., Wichita, were with him on the brief for appellant.

Robert C. Londerholm, Asst. Atty. Gen., argued the cause, and John Anderson, Jr., Atty. Gen., A. K. Stavely, Asst. Atty. Gen. and Martin A. Aelmore, County Atty., Greensburg, were with him on the brief for appellees.

PRICE, Justice.

The question in this case is whether, under the facts of record, certain personal property consisting of a royalty interest derived from an oil and gas lease owned by the Federal Land Bank of Wichita, a federal instrumentality (hereafter referred to as the bank), is subject to taxation by the state or a political subdivision thereof.

The trial court held that it is subject to personal property tax, and the bank has appealed.

The background of the matter is this:

In 1922 the bank made a loan of $3,000 and as security therefor took a mortgage on the quarter section of land in Kiowa county here involved. In 1941 the loan became in default and the bank brought a foreclosure action. On October 10, 1941, udgment was rendered in favor of the bank against the owners in the amount of $3,306.79, with interest at six per cent, and a decree of foreclosure was entered foreclosing the mortgage and awarding costs of suit to the bank. In due time an order of sale was issued, and on November 24, 1941, the bank bid in the land at sheriff's sale for the sum of $3,234.37, such sum being the amount of the judgment, interest and costs, less a credit of $150 arising from a cancellation of the stock issued in connection with the loan. The sale was duly confirmed, and on May 25, 1943, the bank received a sheriff's deed to the premises. During the running of the period of redemption the bank paid no taxes or insurance on the property.

In September, 1942, Richard P. Janson, the present owner of the land, contracted to buy it for $3,500, and under this contract he paid the interest on the unpaid principal balance. On August 8, 1946, the bank conveyed the property to him by a warranty deed for a total consideration of $3,500. In the deed of conveyance to Janson the bank reserved an undivided one-half interest in the mineral estate for a period of twenty years from and after May, 1943, and for so long thereafter as minerals are produced on the premises or are being developed or operated. As of the date of conveyance there was no mineral production or prospect thereof from the premises or from land in that vicinity.

It also is to be noted that at the time the bank conveyed the land in question to Janson, reserving the mineral estate, it had fully recouped its financial loss suffered by reason of foreclosure of its mortgage.

In 1955 a pool of gas was discovered and production of oil and gas was begun, and the land in question is now unitized for oil and gas production purposes with an adjoining quarter section wherein is located a gas well, the source of the oil and gas from which the bank's royalty interest, here sought to be taxed, is derived.

On November 9, 1944, the bank gave a ten-year oil and gas lease to the property, and again on June 3, 1955, the bank granted another oil and gas lease covering it. As of the date of trial of this action, in the spring of 1959, the bank had derived $960 in rents and bonuses from the two leases, and $2,017.20 in royalties under the second lease. During the period from 1947 through 1958 the bank paid a total of $33.15 in real property taxes upon its interest in the mineral estate.

In 1957 Kiowa county, by and through its taxing officials, levied and assessed a personal property tax in the amount of $46.81 against the interest of the bank in the oil and gas lease and upon the royalty interest derived therefrom for that year. This tax was levied pursuant to the provisions of G.S.1949, 79-329 to 79-334, which, among other things, provide that for the purpose of valuation and taxation oil and gas leases are declared to be personal property and shall be assessed and taxed as such to the owner thereof.

On August 29, 1958, the bank, under the provisions of G.S.1949, 60-1121, brought this action to enjoin the levy and collection of the tax, alleging that it is wholly exempt by law from payment of any and all taxes, federal, state, municipal and local, except such taxes as may lawfully be levied and assessed against it upon real estate held, purchased or lawfully acquired by it, as provided by Title 12 U.S.C.A. § 931.

The attorney general, on behalf of the state, was permitted to intervene as a party defendant, and, among other things, the answers of defendants alleged that the bank's authority is strictly circumscribed by the federal statutes under which it was created and exists; that the primary function of the bank is to provide a rural credit system by which credit should be extended to persons engaged in agriculture; that in enacting Title 12, U.S.C.A. § 931, congress did not intend to and did not exempt from taxation personal property acquired or held by a federal land bank in excess of its statutory powers, nor is such personal property impliedly exempted from taxation by the federal constitution; that the bank has no power or authority, either express or implied, to enter upon and continue original speculative enterprises and to hold real property interests over protracted periods of time for the purpose of speculating in future profits, rents or royalties that might be obtained from mineral production thereon, and that the written regulation of the Farm Credit Administration, upon which the bank relies for its authority to hold the property in question beyond a period of five years, is wholly void and of no effect.

Upon the issues thus joined the parties proceeded to trial. In denying the injunction sought by the bank and in rendering judgment for defendants and holding the property to be subject to personal property tax, the trial court made findings of fact. Although repetitious in some respects of what already has been related of the factual background, we nevertheless quote them in full:

'1. The Federal Land Bank of Wichita, plaintiff herein, is a corporation duly authorized and organized under an Act of Congress.

'2. In 1922 plaintiff made a mortgage loan of $3000 upon the land involved in this case, being the Northeast quarter of Section 21, Township 29, Range 18 in Kiowa County, Kansas. Said loan being in default in 1941 plaintiff commenced an action to foreclose said mortgage in the District Court of said County, being Case No. 4444 in said Court.

'3. Thereafter on October 10, 1941, judgment was rendered in said action in favor of said bank and against the defendant owners of the sum of $3,306.79 with interest at six percent, and for foreclosure of said mortgage and costs of suit. In due time an order of sale was issued and on November 24, 1941, plaintiff bid in said land at Sheriff's sale for the sum of $3,234.37, being the amount of the judgment, interest and costs, less a credit of $150.00 by cancellation of the stock issued in connection with said loan. Said sale was duly confirmed, and on May 25, 1943, plaintiff received a Sheriff's deed for said premises. During the running of the period of redemption, plaintiff paid no taxes or insurance on said property.

'4. On January 1, 1943, the Farm Credit Administration promulgated the following regulation:

"Holding mineral rights for more than 5 years. In cases where, in connection with a sale of bank-owned real estate,

"the bank has retained royalty or other rights in or to minerals, and desires to hold such...

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