In re Fleet for Relief From a Tax Grievance in Shawnee Cnty.

• Decision Date: 27 January 2012
• Docket Number: No. 102,645.,102,645.
• Citation: 293 Kan. 768,272 P.3d 583
• Parties: In the Matter of the APPLICATION OF FLEET FOR RELIEF FROM A TAX GRIEVANCE IN SHAWNEE COUNTY, Kansas,andIn the Matter of the Application of Connell Finance Company For Relief from a Tax Grievance in Shawnee County, Kansas.
• Court: Kansas Supreme Court

272 P.3d 583

293 Kan. 768

In the Matter of the APPLICATION OF FLEET FOR RELIEF FROM A TAX GRIEVANCE IN SHAWNEE COUNTY, Kansas,andIn the Matter of the Application of Connell Finance Company For Relief from a Tax Grievance in Shawnee County, Kansas.

No. 102,645.

Supreme Court of Kansas.

Jan. 27, 2012.

Syllabus by the Court

1. The right to appeal is entirely statutory. An appellee must file a cross-appeal to preserve an issue on appeal not raised by an appellant.

2. Claim preclusion is a common-law doctrine, designed to prevent relitigation of a final judgment. Four elements are required for claim preclusion to apply: (a) the same claim; (b) the same parties; (c) claims that were or could have been raised; and (d) a final judgment on the merits.

3. Issue preclusion prevents a second litigation of the same issue between the same parties, even when raised in a different claim or cause of action. Three elements are required for issue preclusion: (a) a prior judgment on the merits that determined the parties' rights and liabilities on the issue based upon ultimate facts as disclosed by the pleadings and judgment; (b) the same parties or parties in privity; and (c) the issue litigated must have been determined and necessary to support the judgment.

4. If the requisite elements are established, the doctrines of claim or issue preclusion will bar a second administrative proceeding when the first administrative proceeding provided the procedural protections similar to court proceedings when an agency is acting in a judicial capacity.

James M. Crowl, assistant county counselor, argued the cause, and Richard V. Eckert, county counselor, was with him on the briefs for appellant Board of Shawnee County Commissioners.

S. Lucky DeFries, of Coffman, DeFries, and Nothern, of Topeka, argued the cause, and Jeffrey A. Wietharn, of the same office, was with him on the briefs for appellees Fleet and Connell Finance Company.

The opinion of the court was delivered by BILES, J.:

This is an administrative appeal by the Shawnee County Board of County Commissioners from a decision by the Board of Tax Appeals (BOTA) (now the Court of Tax Appeals) setting aside tax assessments the County claims on three executive-style business aircraft for tax years 2000, 2001, and 2002. The dispute arises after the County had agreed in earlier proceedings that the aircraft were not subject to taxation and BOTA ordered them exempted. But the County had a change of heart a few years later and attempted to reassess the aircraft for back taxes, interest, and penalties. The aircrafts' owners objected and commenced this action to avert the taxation. BOTA and the district court agreed with the owners, but each had different reasons for its rulings.

We find the controlling question is whether claim or issue preclusion bars the County from initiating new taxation efforts for the same tax years after the initial BOTA exemption orders became final. As more fully explained below, we hold that both preclusion doctrines apply—preventing the County from relitigating the aircrafts' exemption status for the tax years in controversy. We affirm the district court's judgment and remand this matter to BOTA for it to set aside the County's correction orders and assessment notices for the aircraft and tax years at issue.

Factual and Procedural Background

For a number of years, Fleet National Bank and Connell Finance Company (the owners) leased business aircraft to Westar Energy, Inc. As was the industry practice at that time, the owners applied with BOTA for an ad valorem tax exemption. Shawnee County officials received notice of these applications because the aircraft were located in that county. The exemptions were sought under K.S.A. 79–201k(b) First (Ensley 1989) because the owners claimed the aircrafts' exclusive use was to earn them income through their leasing agreements with Westar. At the time these exemptions were sought, the statute provided a tax exemption for “all aircraft actually and regularly used exclusively to earn income for the owner in the conduct of the owner's business or industry.” K.S.A. 79–201k First (Ensley 1989). This version of K.S.A. 79–201k was enacted by the legislature in 1988.

The previous version of the statute exempted “all aircraft actually and regularly used exclusively in the conduct of a business or industry.” L.1982, ch. 390, sec. 4. The legislature amended that language shortly after the Court of Appeals interpreted it as requiring that both the owner and the lessee use the aircraft exclusively for a business purpose in order to qualify for the tax exemption. See Kenneth Godfrey Aviation v. Smith, 12 Kan.App.2d 434, 437, 746 P.2d 1068 (1987), rev. denied 242 Kan. 903 (1988).

It is undisputed that BOTA routinely viewed the 1988 statutory amendment as overruling the Godfrey Aviation decision and allowing an owner to receive the tax exemption as long as the owner exclusively used the aircraft for business purposes. Under that belief, the lessee's use was not considered relevant. And the County admits in its briefing that “the consensus of most counties, taxpayers, and BOTA was that the Kansas Legislature had overturned the holding in [ Godfrey Aviation ], making lessee use of business aircraft largely irrelevant when considering whether an aircraft was used exclusively for business purposes and entitled to an exemption.”

In the case now on appeal, the behavior of the aircrafts' owners and the County suggests that they also believed the 1988 amendment provided the requested tax exemption if the owners' use was exclusively for business purposes, such as leasing to a third party. For example, the owners' documentation when applying for the exemptions was silent regarding how Westar (as lessee) would use the aircraft. And, at the BOTA proceedings, the County did not request information about Westar's use, even though it could have done so. In fact, the County concedes that it agreed to the exemptions when the owners first applied and does not claim the owners withheld relevant details or acted in a misleading or deceptive manner with either BOTA or the County.

Consistent with the parties' apparent expectations, BOTA granted the exemptions effective for the initial tax year when the applications were made, as well as all subsequent years. The exemptions were not conditioned on Westar's future use of the aircraft. Most importantly, the County did not appeal BOTA's orders—as was its right—and the orders became final.

The County's change in position occurred in 2003 following media reports about an internal Westar investigation into alleged inappropriate personal and recreational use of company aircraft by corporate executives. As publicized, the investigation concluded that the jets had been misused for personal travel, not only by officers and employees of the company, but also their families and friends. The investigation accused the responsible officers of falsely representing in company flight logs that personal travel was undertaken for business purposes. This publicity prompted the County to issue correction orders indicating the aircraft were added to the tax roll and announcing new assessments for taxes and penalties for tax years dating back to 1997.

The County's initial correction orders were unsigned and did not include any reference or statement of legal or factual support as to why they were issued. And a section on the forms entitled “Reason for Change” was left blank. In addition, the forms purported to make the assessments directly against Westar, even though that company was not the owner of the leased aircraft.

Coincidentally, on the day after the County mailed the initial correction orders, this court released In re Tax Application of Central Kansas E.N.T. Associates, P.A., 275 Kan. 893, 69 P.3d 595 (2003), which addressed the same business aircraft exemption under K.S.A. 79–201k(b) First in a case not involving Westar or the owners. In that opinion, this court held that the 1988 legislative amendment did not change the statutory exclusive use requirements found in the Godfrey Aviation decision. 275 Kan. 893, Syl. ¶ 4, 69 P.3d 595. Our court held that the amended statute, like its predecessor, required that BOTA consider an aircraft lessee's usage, as well as the owner's, before granting a tax exemption. And when an aircraft lessee's use included personal activities, the court determined there were two simultaneous uses—one which fit the purpose of the statute and the other that failed to meet its business exclusivity requirement. We then held that an aircraft would not qualify for the exemption if either the owner or lessee did not operate the aircraft “exclusively” for the business purpose required by the statute. 275 Kan. at 901, 69 P.3d 595.

Notably, the E.N.T. Associates decision did not indicate whether its holding should be applied retroactively to undo the exemptions already granted, such as those ordered for the owners' aircraft at issue here. And based on this silence, the County points to E.N.T. Associates as authority for its attempt now to relitigate the property exemptions granted for the business aircraft used by Westar.

BOTA Tax Grievance Proceedings

After receiving the County's notice to collect back taxes, interest, and penalties, Fleet and Connell submitted tax grievances with BOTA, which were consolidated into a single proceeding. The County argued it had authority to order the assessments under three statutory mechanisms: (1) K.S.A. 79–214, which requires taxpayers to file a statement informing the county appraiser when exempt property is no longer being used for exempt purposes; (2) K.S.A. 79–1422, which provides for assessing penalties when K.S.A. 79–214 is violated; and (3) K.S.A. 79–1427a, which pertains to personal property discovered to have been omitted from the tax rolls and is commonly referred to as escaped property. The owners disputed the County's arguments, but also...