In re Equal. Appeal of Mission Hills Country Club for the Year 2012 in Johnson Cnty., 110946.

• Decision Date: 23 January 2015
• Docket Number: No. 110946.,110946.
• Citation: 342 P.3d 2 (Table)
• Parties: In the Matter of the Equalization Appeal of MISSION HILLS COUNTRY CLUB for the Year 2012 in Johnson County, Kansas.
• Court: Kansas Court of Appeals

342 P.3d 2 (Table)

In the Matter of the Equalization Appeal of MISSION HILLS COUNTRY CLUB for the Year 2012 in Johnson County, Kansas.

No. 110946.

Court of Appeals of Kansas.

Jan. 23, 2015.

Benjamin J. Neill, of Property Tax Law Group, LLC, of Leawood, for appellant.

Kathryn D. Myers, assistant county counselor, for appellee Board of County Commissioners of Johnson County, Kansas.

Before BUSER, P.J., HILL and BRUNS, JJ.

MEMORANDUM OPINION

PER CURIAM.

The Mission Hills Country Club (Club) sits on 10 parcels of land in Mission Hills, Kansas. The Club offers a championship golf course, a clubhouse with dining and shopping amenities, and a swimming pool.

This is an equalization appeal by the Club regarding the Kansas Court of Tax Appeals' (COTA) decision to uphold the manner in which Johnson County (County) classified one of the Club's 10 parcels (subject parcel) for property tax purposes. This subject parcel contains a portion of the golf course, a course restroom, the clubhouse, swimming pool, and ancillary improvements.

On appeal, the Club contends COTA erred in upholding the County's ad valorem tax assessment because K.S.A. 79–1439a, the statute upon which the County based its classification of the subject parcel, violates Article 11, § 1(a) of the Kansas Constitution (2012 Supp.). Having carefully considered the record, the constitutional and statutory provisions in question, the parties' briefs, and oral arguments, we conclude K.S.A. 79–1439a is not unconstitutional and, therefore, COTA did not err in applying the statute's provisions when making its tax assessment for the 2012 tax year. We affirm.

Introduction and Background

All property within Kansas is subject to taxation unless the legislature has expressly provided otherwise. K.S.A. 79–101. Article 11, § 1 of the Kansas Constitution (2012 Supp.) and K.S.A.2012 Supp. 79–1439 govern the appraisal and assessment of property subject to general ad valorem taxation. For assessment purposes, the taxing authority must classify the subject property into one of two principal classes—real property and tangible personal property. Kan. Const. art. 11, § 1 (a) (2012 Supp.); K.S.A.2012 Supp. 79–1439(b). The authority must then determine the property's subclass because both of the principal classes contain several subclasses, each with a respective assessment rate. Kan. Const. art. 11, § 1 (a) (2012 Supp.); K.S.A.2012 Supp. 79–1439(b). Under K.S.A.2012 Supp. 79–1439(b)(1) —which essentially mirrors the language of Article 11, § 1 (a) (2012 Supp.)—real property shall be assessed as to subclass at the following rates:

“(A) Real property used for residential purposes including multi-family residential real property, real property necessary to accommodate a residential community of mobile or manufactured homes including the real property upon which such homes are located, residential real property used partially for day care home purposes if such home has been registered or licensed pursuant to K.S.A. 65–501 et seq., and amendments thereto, and residential real property used partially for bed and breakfast home purposes at 11.5% ....;

“(B) land devoted to agricultural use valued pursuant to K.S.A. 79–1476, and amendments thereto, at 30%;

“(C) vacant lots at 12%;

“(D) real property which is owned and operated by a not-for-profit organization not subject to federal income taxation pursuant to section 501 of the federal internal revenue code and included herein pursuant to K.S.A. 79–1439a, and amendments thereto, at 12%;

“(E) public utility real property, except railroad property which shall be assessed at the average rate all other commercial and industrial property is assessed, at 33% ....;

“(F) real property used for commercial and industrial purposes and buildings and other improvements located upon land devoted to agricultural use at 25%; and

“(G) all other urban and rural real property not otherwise specifically subclassed at 30%.” (Emphasis added.)

When classifying property for tax purposes, the property owner's status is not an appropriate consideration. In re Tax Appeal of Coffeyville Res. Nitro. Fertilizers, L.L.C., No. 107,705, 2013 WL 4046403, at *4 (Kan.App.2013) (unpublished opinion), rev. denied 299 Kan. –––– (2014); see Krueger v. Board of Woodson County Comm'rs, 31 Kan.App.2d 698, Syl. ¶ 8, 71 P.3d 1167 (2003), aff'd 277 Kan. 486, 85 P.3d 686 (2004) (“[T]he method of valuation should be tied to factors associated with each parcel of property, not the status of the owner of the property.”).

K.S.A. 79–1439a(a) limits the 12% assessment rate for real property owned and operated by a not-for-profit organization to 6 of the 27 subsections granted tax-exempt status under Section 501(c) of the Internal Revenue Code. Main Line, Inc. v. Board of Reno County Comm'rs, 33 Kan.App.2d 875, 878, 112 P.3d 951 (2004), rev. denied 279 Kan. 1006 (2005). While the record does not definitively establish that the Club qualifies as a not-for-profit organization under Section 501(c), during this litigation both COTA and the parties treated the Club as a qualifying Section 501(c)(7) organization. See 26 U.S.C. § 501(c)(7) (2012) (“[c]lubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder”).

Regarding Section 501(c)(7) organizations, K.S.A. 79–1439a(a) provides:

“With respect to real property owned and operated by a not-for-profit organization not subject to federal income taxation pursuant to paragraph (7) of subsection (c) of section 501 of such code, this section shall only apply to land which is actually and regularly used for recreational purposes, other than land accommodating buildings or other improvements associated with such recreational land. ” (Emphasis added.)

For the 2012 tax year, the County originally appraised the subject parcel at $4,329,200. However, the County later recommended a lower value of $4,242,600, based upon changes it made to its income approach to account for personal property.

In accordance with Article 11, § 1 (a) (2012 Supp.) and K.S.A.2012 Supp. 79–1439(b)(1), the County divided the subject parcel into three assessment subclassifications: commercial, property owned and operated by a not-for-profit organization, and the catchall category, ‘ “other.” ‘ The County determined that the predominate purpose of the land attributable to the clubhouse, swimming pool, and ancillary improvements was to generate income. As a result, the County classified the 2 acres upon which these improvements are situated as commercial property, with an assessment rate of 25%. See Kan. Const. art. 11, § 1 (a)(6) (2012 Supp.); K.S.A.2012 Supp. 79–1439(b)(l)(F).

Similar to the Club's other nine parcels that contain the golf course fairways and greens with no improvements, the County classified the remainder of the subject parcel as not-for-profit property owned and operated by a Section 501(c)(7) organization, which is subject to a 12% assessment rate. See Kan. Const. art. 11, § 1 (a)(4) (2012 Supp.); K.S.A.2012 Supp. 79–1439(b)(1)(D) ; see also 26 U.S.C. § 501(c)(7) (2012). The County determined, however, that a restroom located on the golf course qualified as' “other” ‘ property, which carries an assessment rate of 30%. See Kan. Const. art. 11, § 1 (a)(7) (2012 Supp.); K.S.A.2012 Supp. 79–1439(b)(1)(G).

Of note, the County's classification determinations differed from the 2011 tax year. In 2012, the percentage of the subject parcel assessed as commercial property jumped from 21.5% to 73.7%, and the percentage classified as not-for-profit dropped from 78.5% to 24.5%.

The Club filed an equalization appeal with COTA, asserting that all of the subject parcel should be classified as not-for-profit property. Alternatively, the Club argued that only those portions of the subject parcel that were actually generating income should be classified as commercial, i.e., the clubhouse's closets, hallways, and locker rooms should be designated as not-for-profit property.

On October 14, 2013, COTA issued an order upholding the County's assessment classifications. In particular, COTA held the subject parcel was not entitled, in its entirety, to the not-for-profit tax classification because this classification only applies to the ‘ “land” ‘ that is actually and regularly used for recreational purposes by a not-for-profit entity organized pursuant to Section 501(c)(7).

COTA also explained that in addressing the not-for-profit classification, K.S.A.2012 Supp. 79–1439(b)(1)(D) references K.S.A. 79–1439a(a), which exempts “any ‘land accommodating buildings or other improvements associated with such recreational land’ “ from receiving this classification. COTA noted that although K.S.A. 79–102 provides ‘ “the terms ‘real property,’ ‘real estate,’ and ‘land’ “ include not only land itself, but all buildings, fixtures, and improvements, K.S.A. 79–102 also includes the phrase, ‘ “except as otherwise specifically provided.’ “ According to COTA, this exception applies to K.S.A. 79–1439a(a) because this latter subsection addresses land, buildings, and improvements with specificity rather than in general terms.

The Club petitioned for reconsideration, now arguing that K.S.A. 79–1439a(a) could not be utilized to justify the County's assessment classifications because the legislature's attempt to restrict the not-for-profit tax classification to specific types of property owned and operated by a Section 501(c)(7) organization violated Article 11, § 1 (a)(4) (2012 Supp.). According to the Club, Article 11, § 1 (a)(4) (2012 Supp.) was a self-executing provision and, thus, because its plain language provided that a taxpayer need only operate as a Section 501(c) organization for its property to qualify for the not-for-profit classification, “[t]he legislature [could not] constitutionally restrict the application of [this] self-executing classification provision.”

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