In re Genstler Eye Center & Clinic
| Decision Date | 26 September 2008 |
| Docket Number | No. 98,163.,98,163. |
| Citation | 192 P.3d 666 |
| Parties | In the Matter of the Appeal of GENSTLER EYE CENTER & CLINIC/GENSTLER MEDICAL CARE FACILITY from an Order of the Division of Taxation on Assessment of Sales Tax. |
| Court | Kansas Court of Appeals |
Mark A. Burghart, of Alderson, Alderson, Weiler, Conklin, Burghart & Crow, LLC, of Topeka, for appellant.
Michael D. Burrichter, of Kansas Department of Revenue, for appellee.
Before RULON, C.J., GREENE, J., and KNUDSON, S.J.
Genstler Eye Center and Clinic/Genstler Medical Care Facility appeals a final determination by the Board of Tax Appeals (BOTA) denying it an enterprise zone sales tax exemption under K.S.A. 79-3606(cc) on tangible personal property and services purchased in conjunction with the construction of a new facility for its business in Topeka. The appeal requires that we construe and apply the rather complex statutory enterprise zone tax exemption scheme to undisputed facts. Concluding that eligibility for the exemption has not been shown, we affirm BOTA and deny the exemption.
On August 1, 2002, Genstler filed a Request for Project Exemption in connection with the original construction of a new $2.2 million facility in Topeka for its business, which was identified as: "Medical business, ophthalmology and optometry; there would also be included eye exams, screening, cataract surgery, laser surgery, etc." The application designated the type of business as "commercial enterprise other than a manufacturing business or a retail business" but did not designate the facility as a "business headquarters." The project was under contract dated May 7, 2002, with an expected completion date of July 31, 2003.
Later in August 2002, the Department of Revenue, Office of Policy & Research, issued a letter opinion denying the requested exemption due to the Department's determination that the business was a retail business that was not expanding in a city with a population of 2,500 or less, or to a location outside a city in a county having a population of 10,000 or less. Genstler petitioned for administrative review of the decision, and after an informal conference procedure, the Secretary of Revenue issued a final determination that Genstler "is a `retailer' as defined under the KEZA [Kansas Enterprise Zone Act] and not entitled to a sales tax exemption."
Genstler then appealed to BOTA, which heard oral arguments after the parties filed a joint stipulation of facts. BOTA concluded that Genstler failed to demonstrate eligibility for the exemption based upon the same rationale cited by the Department. One member of BOTA dissented, however, concluding that Genstler's facility qualified as a "business headquarters" that created at least 20 new full-time positions and, thus, was eligible for the exemption. Genstler timely appeals BOTA's order.
We review orders of BOTA pursuant to the Kansas Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. In re Tax Appeal of Sprint Communications Co., 278 Kan. 690, 694, 101 P.3d 1239 (2004). Where there has been no challenge to jurisdiction of the agency and the parties have stipulated to the material facts, we are authorized to grant relief if we determine that the agency has erroneously interpreted or applied the law (K.S.A.77-621[c][4]), or otherwise acted in a manner that was unreasonable, arbitrary, or capricious. K.S.A. 77-621(c)(8).
Although we accord deference to BOTA in the construction of tax statutes within its expertise, the ultimate questions of statutory construction are legal issues over which we possess unlimited review. In re Tax Appeal of HCA Health Services, Inc., 30 Kan.App.2d 910, 51 P.3d 1119 (2002). The party challenging BOTA's interpretation of applicable law has the burden to prove error, but if BOTA's construction or application of that law is erroneous, we must take corrective steps. In re Tax Appeal of Western Resources, Inc., 281 Kan. 572, 575, 132 P.3d 950 (2006).
In Kansas, taxation is the rule and exemption is the exception. The burden of establishing an exemption from taxation is on the party claiming eligibility. Statutory exemption provisions are strictly construed against the party requesting exemption, and all doubts concerning exemption are to be resolved against the exemption and in favor of taxation. In re Tax Exemption Application of Goddard, 39 Kan.App.2d 325, 180 P.3d 604 (2008).
Genstler seeks a sales tax exemption for tangible personal property and services purchased in connection with the construction of its new facility, claiming eligibility under K.S.A. 79-3606(cc), which provides a tax exemption for:
K.S.A. 79-3606(cc).
K.S.A. 74-50,115 establishes the criteria for exemption for each of three types of businesses: manufacturing, nonmanufacturing, and retail. Depending on the type of business, the statute then establishes new employment and/or geographical criteria for exemption eligibility. For example, if the business is categorized as manufacturing, the business may be eligible for exemption if it has relocated to a new city or county within Kansas and has employed at least two additional full-time employees. K.S.A. 74-50,115(a)(1) and (2).
In order to determine how a given taxpayer should be categorized within the three types of businesses, K.S.A. 74-50,114 provides definitional guidance. Of interest here are the following definitional subsections of that statute:
....
"(i) `Retail business' means: (1) Any commercial enterprise primarily engaged in the sale at retail of goods or services taxable under the Kansas retailers' sales tax act; (2) any service provider set forth in K.S.A. 17-2707, and amendments thereto; (3) any bank, savings and loan or other lending institution; (4) any commercial enterprise whose primary business activity includes the sale of insurance; and (5) any commercial enterprise deriving its revenues directly from noncommercial customers in exchange for personal services such as, but not limited to, barber shops, beauty shops, photographic studios and funeral services." (Emphasis added.)
For purposes of applying subsection (i)(2), K.S.A. 17-2707 lists a host of professional service providers, including for our purposes here, optometrists, physicians, surgeons or doctors of medicine, and licensed physician assistants. K.S.A. 17-2707(b)(7), (9), and (24).
If a business is classified as nonmanufacturing in nature, K.S.A. 74-50,115(b)(1) makes that business eligible for the exemption if it provides documented evidence of five additional full-time employees. If a business is classified as retail in nature, K.S.A. 74-50,115(c)(1) and (2) make that business eligible for the exemption as follows:
We must examine the undisputed facts against this statutory framework and determine whether BOTA erred in categorizing Genstler as a retail business whose new facility was not a business headquarters of an enterprise creating at least 20 new full-time positions.
Should Genstler's Business be Classified as Nonmanufacturing in Nature and Eligible for Exemption Based on the Employment of at least Five New Employees?
Genstler initially argues that BOTA erred in classifying it as a retail business because (1) it provides services not specifically enumerated by K.S.A. 17-2707; and (2) the Department has inconsistently interpreted and applied the statutory scheme, exempting purchases of property and services of businesses nearly identical to Genstler's. We reject both arguments.
To the extent a business provides professional services listed in K.S.A. 17-2707, it must be classified as a "retail business" pursuant to K.S.A. 74-50,115. Genstler argues that although K.S.A. 17-2707 lists optometrists,...
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