In re Goddard

• Decision Date: 04 April 2008
• Docket Number: No. 97,332.,97,332.
• Parties: In the Matter of the Appeal of GODDARD, Jerry D. & Pat, from an Order of the Director of Taxation Denying Application for Exemption from Ad Valorem Taxation in Cloud County, Kansas.
• Court: Kansas Court of Appeals

180 P.3d 604

In the Matter of the Appeal of GODDARD, Jerry D. & Pat, from an Order of the Director of Taxation Denying Application for Exemption from Ad Valorem Taxation in Cloud County, Kansas.

No. 97,332.

Court of Appeals of Kansas.

April 4, 2008.

Glenn H. Griffeth, of Topeka, for appellant.

Robert A. Walsh, county attorney, for appellee.

Before RULON, C.J., MARQUARDT and GREENE, JJ.

GREENE, J.

Jerry and Pat Goddard (taxpayers) appeal an order of the State Board of Tax Appeals (BOTA) denying in large part their claim for an exemption from ad valorem tax on equipment utilized in their tree harvesting and sawmill operation pursuant to K.S.A.2007 Supp. 79-201j(a), arguing that BOTA misconstrued and applied the operative statute and that its order was otherwise arbitrary and capricious. Concluding that taxpayers' sawmill operation is not "farming" for purposes of the exemption statute, we affirm BOTA.

Factual and Procedural Background

Taxpayers harvest cottonwood trees and operate a sawmill in Cloud County for the sole purpose of cutting the harvested cottonwood logs into rough boards for shipment to a manufacturer of shipping pallets and wooden crates. When the Cloud County Appraiser sought to assess ad valorem taxes on their machinery and equipment, taxpayers filed their application for an exemption on their sawmill equipment and yarding tractor pursuant to 79-201j(a), the statutory exemption for farm machinery and equipment.

In response to the application, the Cloud County Appraiser recommended no relief, stating:

"The applicant manufactures shipping pallets and crates for use primarily by farm equipment manufacturers. It would seem to the county that the applicant produces a product which can be used by a number of different businesses and is not in itself an agricultural product as defined in Kansas."

Upon request of BOTA for additional information to support the application, the taxpayers explained their operation as follows:

"The farming equipment in question is used exclusively in farming operations. Applicant's harvest trees growing on farms from farmers. The trees are exclusively cottonwood trees which are considered a hindrance to farmers as they draw excessive amounts of moisture from the soil and are harmful to crops growing near by. They also have a tendancy [sic] to fall into fields during storms. Cottonwood is not considered an acceptable wood for what would be considered normal construction purposes. They are transported to the sawmill where the trees are sawed into rough lumber. The lumber is then made into component parts for pallets and crates. It should be noted that Applicants do not assemble the pallets and crates which are exempt under K.S.A. 79-3606(m) . . . . The pallets and crates when assembled by third parties who purchase the raw lumber, are used for the shipment of farming equipment. They are not reused, and are consumed in the process.

"Applicants are not certain as to what `product' the county is referring to. Cottonwood lumber has very limited applications as discussed above. The `product' that Applicant's `produce' is used purely for farming and ranching related uses. Applicant's further disagree with any inference that the product, i.e. rough lumber is not an agricultural product."

Following a hearing on the matter, BOTA held that the yarding tractor qualified for exemption, but that all other equipment associated with the sawmill did not. In so holding, BOTA stated:

"When examining what constitutes `farming or ranching,' the Kansas Supreme Court has looked to other Kansas statutes as well as the dictionary definition of `farming.' See In re Tax Appeal of Lietz Construction Co., 273 Kan. 890, 905 (2002). Based on the Court's conclusions and definitions of `farming or ranching', the Board finds that the portion of the subject property (the 4x4 yarding tractor) which is used to harvest trees qualifies for exemption under K.S.A. 79-201j(a). The taxpayer indicates that Cottonwood trees are a nuisance to farmers as they draw excessive amounts of water from the soil and are harmful to crops growing nearby. By removing these trees, the taxpayer is improving the condition of land and therefore increasing the productivity of the land. With respect to the remaining property, the Board finds that the sawing of trees into raw boards, based on client specifications is not farming under the definition used by the Kansas Supreme Court. Id. Therefore, the Board concludes that the request for exemption from ad valorem taxation be granted for the yarding tractor and is denied under K.S.A. 79-201j(a) for the remainder of the subject property."

The Goddards' motion for reconsideration was subsequently denied. The Goddards timely appeal. Standards of Review

The applicable standard for our review of an order of BOTA is governed by K.S.A. 77-621(c), which provides that we may grant relief if we determine:

"(1) The agency action, or the statute or rule and regulation on which the agency action is based, is unconstitutional on its face or as applied;

"(2) the agency has acted beyond the jurisdiction conferred by any provision of law;

"(3) the agency has not decided an issue requiring resolution;

"(4) the agency has erroneously interpreted or applied the law;

"(5) the agency has engaged in an unlawful procedure or has failed to follow prescribed procedure;

"(6) the persons taking the agency action were improperly constituted as a decision-making body or subject to disqualification;

"(7) the agency action is based on a determination of fact, made or implied by the agency, that is not supported by evidence that is substantial when viewed in light of the record as a whole, which includes the agency record for judicial review, supplemented by any additional evidence received by the court under this act; or

"(8) the agency action is otherwise unreasonable, arbitrary or capricious."

In an exemption case, we are mindful that, in general, taxation is the rule, and exemption the exception. Constitutional and statutory provisions exempting property from taxation are to be strictly construed against the party claiming exemption, and all doubts are to be resolved against exemption. In re Tax Appeal of Lietz Constr. Co., 273 Kan. 890, 904-05, 47 P.3d 1275 (2002); Tri-County Public Airport Auth. v. Board of Morris County Comm'rs, 245 Kan. 301, 304-05, 777 P.2d 843 (1989).

This appeal requires that we construe and apply a tax exemption statute, and the general rules for statutory construction are also applicable. The fundamental rule of statutory construction is that the intent of the legislature governs if that intent can be ascertained. The legislature is presumed to have expressed its intent through the language of the statutory scheme. Ordinary words are given their ordinary meanings. When a statute is plain and unambiguous, the court must give effect to the intention of the legislature as expressed, rather than determine what the law should or should not be. Winnebago Tribe of Nebraska v. Kline, 283 Kan. 64, 77, 150 P.3d 892 (2007).

Did BOTA Misconstrue K.S.A.2007 Supp. 79-201j(a) in Denying an Exemption to Taxpayers?

Taxpayers argue that BOTA construed the applicable exemption statute too restrictively in contravention of legislative intent. K.S.A. 2007 Supp. 79-201j(a) provides:

"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:

"(a) All farm machinery and equipment. The term `farm machinery and equipment' means that personal property actually and regularly used in any farming or ranching operation. . . . The term `farming or ranching operation' shall include the operation of a feedlot, the performing of farm or ranch work for hire and the planting, cultivating and harvesting of nursery or greenhouse products, or both, for sale or resale. The term `farm machinery or 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 legislature has expressed its purpose for this exemption at K.S.A. 79-201i, which states:

"It is the purpose of K.S.A. 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."

Although taxpayers urge us to focus on the...