In re Graceland College Center

• Decision Date: 31 October 2008
• Docket Number: No. 98,409.,98,409.
• Parties: In the Matter of the Appeal of GRACELAND COLLEGE CENTER FOR PROFESSIONAL DEVELOPMENT AND LIFELONG LEARNING, INC., from Orders of the Board of Tax Appeals for the State of Kansas.
• Court: Kansas Court of Appeals

195 P.3d 245

In the Matter of the Appeal of GRACELAND COLLEGE CENTER FOR PROFESSIONAL DEVELOPMENT AND LIFELONG LEARNING, INC., from Orders of the Board of Tax Appeals for the State of Kansas.

No. 98,409.

Court of Appeals of Kansas.

October 31, 2008.

David L. Rein Jr. and Jason A. Reschly, of Blackwell Sanders, LLP, of Kansas City, Missouri, for appellant Graceland College Center for Professional Development and Lifelong Learning, Inc., d/b/a SkillPath.

Michael D. Burrichter, of Kansas Department of Revenue Legal Services Bureau, for appellee.

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

GREENE, J.

Graceland College Center for Professional Development and Lifelong Learning, Inc., d/b/a SkillPath (hereafter referred to as SkillPath), appeals the decision of the Board of Tax Appeals (BOTA) that SkillPath does not qualify as an "educational institution" under K.S.A.2007 Supp. 79-3602(l) and, therefore, is not entitled to an exemption from Kansas sales tax pursuant to K.S.A. 2007 Supp. 79-3606(c). Concluding that BOTA erred in its interpretation and application of the statutes, we reverse.

Factual and Procedural Background

SkillPath is a not-for-profit corporation located in Mission, Kansas, and is wholly owned by Graceland University, a liberal arts college located in Iowa. Graceland University is a member of the North Central Association of Colleges and Schools (NCA), a nongovernmental, voluntary, educational organization that accredits more than 9000 public and private schools located primarily in the Midwest. SkillPath is not a member of the NCA.

SkillPath offers 1- to 2-day seminars throughout the United States and abroad— including Kansas—which focus on various subjects, including business management, computer technology, human resources, education, accounting, and others. SkillPath does not grant degrees, but all of the seminars are above 12th—grade level, and none of them are considered remedial in nature. The seminars are held in rented conference centers, hotels, and meeting rooms, and they are scheduled from time to time based on a projection of demand at the location, from every 4 months to every 2 years. Some of SkillPath's seminars qualify for college credit through Graceland University.

In 1999, SkillPath requested and was granted an exemption from the Kansas Retailers' Sales Tax pursuant to K.S.A. 79-3606(c) because it was an education institution. In 2004, the Kansas Department of Revenue (KDOR) conducted a review of sales tax exemptions it had previously granted in order to ensure that those exemptions had been granted in accordance with state law. During this review, KDOR concluded that SkillPath did not qualify as an educational institution because SkillPath was not accredited by, or a member of, the NCA, a requirement that KDOR believed was prescribed by the statute. Accordingly, KDOR sent a letter to SkillPath informing it that its sale tax exemption would be revoked.

SkillPath timely appealed KDOR's decision to revoke its tax exemption, and KDOR issued a final determination upholding its initial decision. SkillPath then filed a timely notice of appeal to BOTA. After an evidentiary hearing, BOTA interpreted K.S.A.2007 Supp. 79-3602(l) as requiring an entity to conduct regular classes at uniform intervals and provide courses of study leading to a degree in order to qualify as an educational institution. BOTA concluded that SkillPath did not conduct its classes in a regular manner; and because SkillPath was not a degree-granting institution, BOTA concluded that it did not offer courses of study. Therefore, based on these findings, BOTA concluded that SkillPath did not qualify as an educational institution under K.S.A.2007 Supp. 79-3602(l) and, as a result, was not exempt from paying sales tax under K.S.A.2007 Supp. 79-3606(c).

After SkillPath's petition to BOTA for reconsideration was denied, SkillPath filed a timely notice of appeal with this court.

Standards of Review

BOTA orders are subject to review under 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).

K.S.A. 77-621(c)(4) mandates this court to grant relief to SkillPath if the court determines that BOTA and KDOR erroneously interpreted or applied the law. "Whether an agency has erroneously interpreted or applied the law ... is a question of law over which an appellate court's review is unlimited." In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 536, 920 P.2d 947 (1996).

In In re Tax Exemption Application of Central Illinois Public Services Co., 276 Kan. 612, 616, 78 P.3d 419 (2003), the Supreme Court stated:

"When construing tax statutes, statutes that impose the tax are to be construed strictly in favor of the taxpayer. Tax exemption statutes, however, are to be construed strictly in favor of imposing the tax and against allowing the exemption for one who does not clearly qualify. [Citation omitted.]"

Despite the need for strict construction of tax exemption statutes, strict construction does not warrant unreasonable construction. In re Tax Application of Lietz Constr. Co., 273 Kan. 890, 904-05, 47 P.3d 1275 (2002).

In tax appeal matters, our review of statutory interpretation is unlimited, and we apply the same general rules as we do in other contexts. See Winnebago Tribe of Nebraska v. Kline, 283 Kan. 64, 77-78, 150 P.3d 892 (2007).

"The interpretation of a statute is a question of law over which [an appellate] court has unlimited review. 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. [Citation omitted.]" 283 Kan. at 77, 150 P.3d 892.

Appellate courts normally give some deference to BOTA decisions:

"'BOTA is a specialized agency and is considered to be the paramount taxing authority in this state. [Citation omitted.] BOTA is a specialized agency that exists to decide taxation issues. [Citation omitted.] Its decisions are given great weight and deference when it is acting in its area of expertise. [Citation omitted.] The party challenging BOTA's decisions has the burden to prove that the action taken was erroneous.' [Citation omitted.]" In re Tax Appeal of Sprint, 278 Kan. at 694-95, 101 P.3d 1239 (quoting In re Tax Appeal of Colorado Interstate Gas Co., 276 Kan. 672, 682-83, 79 P.3d 770 [2003]).

The determination of an administrative agency as to questions of law is not conclusive and, while persuasive, is not binding on the courts. Winnebago Tribe, 283 Kan. at 70, 150 P.3d 892. Although an appellate court gives deference to an agency's interpretation of a statute, the final construction of a statute lies with the appellate court. Coma Corporation v. Kansas Dept. of Labor, 283 Kan. 625, 629, 154 P.3d 1080 (2007).

Did BOTA Err in Interpreting and Applying K.S.A.2007 Supp. 79-3602(l) for Purposes of K.S.A.2007 Supp. 79-3606(c)?

The operative statutes

SkillPath argues that BOTA erred in its interpretation and application of the applicable statutes, and particularly the statutory definition of "educational institution." From 1999 to 2004, KDOR had exempted SkillPath from payment of sales tax under K.S.A.2007 Supp. 79-3606(c), which provides the following sales shall be exempt from taxation:

"[A]ll sales of tangible personal property or services, including the renting and leasing of tangible personal property, purchased directly by a public or private elementary or secondary school or public or private nonprofit educational institution and used primarily by such school or institution for nonsectarian programs and activities provided or sponsored by such school or institution or in the erection, repair or enlargement of buildings to be used for such purposes. The exemption herein provided shall not apply to erection, construction, repair, enlargement or equipment of buildings used primarily for human habitation."

In determining whether an entity is eligible for this exemption as an "educational institution," the operative statute is K.S.A. 2007 Supp. 79-3602(l), which provides in relevant part:

"`Educational institution' means any nonprofit school, college and university that offers education at a level above the twelfth grade, and conducts regular classes and courses of study required for accreditation by, or membership in, the North Central Association of Colleges and Schools."

This definition has not been amended since it became effective on July 1, 1998, see L. 1998, ch. 130, sec. 29(s), and our appellate courts have not had an opportunity to interpret and apply the provision.

The BOTA Rationale

BOTA concluded that SkillPath did not qualify for exemption, reasoning as follows:

"After examining the evidence provided both in Joint Exhibit 1 and the testimony, the Board finds that the Applicant, SkillPath, does not conduct regular classes. The classes are provided on an as needed basis and do not occur with any degree of regularity. `Regular' as defined in Webster's Ninth New Collegiate Dictionary (1988) is `recurring, attending, or functioning at fixed or uniform intervals.' The testimony of Mr. Braymer indicates that SkillPath does repeat its class offerings, but that the repetition does not occur at fixed or uniform intervals. Instead, the repetition is based on the demand for that particular class.

"Furthermore, the evidence shows that SkillPath does not have a course of study. See also, Graceland College v. Department of Revenue (654 N.W.2d 779, 783 (S.D. 2002). SkillPath is not a degree-granting institution. Some college credit is granted to...