In re Mental Health Ass'n of Heartland, No. 98,956.

• Citation: 194 P.3d 580
• Decision Date: 10 October 2008
• Docket Number: No. 98,956.
• Parties: In the Matter of the Appeal of the MENTAL HEALTH ASSOCIATION OF the HEARTLAND for Exemption from Ad Valorem Taxation in Leavenworth County, Kansas.
• Court: Court of Appeals of Kansas

194 P.3d 580

In the Matter of the Appeal of the MENTAL HEALTH ASSOCIATION OF the HEARTLAND for Exemption from Ad Valorem Taxation in Leavenworth County, Kansas.

No. 98,956.

Court of Appeals of Kansas.

October 10, 2008.

Matthew P. Clune, of Spradley & Riesmeyer, a Professional Corporation, of Kansas City, Missouri, for appellant.

No appearance by appellee.

Before MALONE, P.J., ELLIOTT and GREEN, JJ.

GREEN, J.

Mental Health Association of the Heartland (MHAH) appeals from an order of the Board of Tax Appeals (BOTA) denying its application for exemption from ad valorem taxes on a parcel of real estate used to furnish low-income housing for the chronically homeless and severely mentally ill individuals. MHAH argues that BOTA erroneously interpreted and applied the law pertaining to its application when BOTA determined that K.S.A. 79-201 Second and K.S.A. 79-201 Ninth did not apply to allow an exemption for the property. Moreover, MHAH contends that K.S.A. 79-201b Fourth denies it due process and equal protection of the law. We disagree.

We determine that because the subject property in this case was primarily used as a low-income housing facility, K.S.A. 79-201b Fourth is the applicable exemption statute here. Moreover, based on the plain meaning of K.S.A. 79-201b Fourth and the strict construction that must be given to exemption statutes, we determine that MHAH is not entitled to a statutory tax exemption because of its failure to meet the requirements of K.S.A. 79-201b Fourth. Further, because K.S.A. 79-201b Fourth is the specific statute that controls low-income housing and because K.S.A. 79-201 Second is only a general statute, K.S.A. 79-201b Fourth is the applicable statute to determine whether MHAH is entitled to a statutory tax exemption. Because we have previously determined that MHAH was not entitled to a tax exemption under K.S.A. 79-201b Fourth, we affirm.

MHAH is a nonprofit corporation organized under the laws of Missouri and admitted to engage in business in Kansas as a foreign not-for-profit corporation. MHAH is exempt from federal income tax. Moreover, contributions to the corporation are tax deductible. MHAH was formed in part "to advocate public and private sector policies, services, facilities, and financing which provide adequate and appropriate detection, treatment, rehabilitation and prevention programs" and "to promote and/or provide services and programs to meet the needs of individuals suffering from mental illnesses, to improve mental health, and to reduce conditions which impede the attainment of mental health."

The "Marion Home," the subject property, was built by MHAH to provide housing to low-income, chronically homeless, and mentally ill individuals. To live in the Marion Home, these individuals must provide information proving they are homeless and have a severe and persistent mental illness. All residents of the Marion Home receive for their mental illness one or more of the following: Social Security and Medicare disability payments.

To receive funding for the home, MHAH must comply with federal restrictions on use of the property. MHAH has a cap on the amount of rent it can charge residents. The rent cannot exceed 30% of the resident's adjusted gross income. The average rent MHAH currently charges residents is $234 per month-below the fair market value and below the expenses necessary to operate the home. MHAH also receives money through the McKinney-Vento Homeless Assistance Act. MHAH is required by U.S. Department of Housing and Urban Development (HUD) to raise funds for a matching donation of money. MHAH is dependent on grants from the federal government and tax-exempt donations from other charities and individuals.

In October 2006, MHAH applied for a tax exemption requesting that BOTA consider the Marion Home exempt from ad valorem taxation beginning in the year 2002. MHAH stated that the exclusive use of the property was an apartment building for chronically homeless, low-income individuals suffering from severe mental handicaps and other physical disabilities. MHAH stated that K.S.A. 79-201b Fourth authorized the exemption and the Marion Home met all the requirements set forth in that statute (i.e., it was used exclusively for housing elderly and handicapped persons having a limited or low income, it was run by a nonprofit corporation, and it received federal funding under 12 U.S.C. § 1701 [2006] et seq. or 42 U.S.C. § 1437 [2000] et seq.). In addition to its exemption application, MHAH listed all sources of funding for the Marion Home.

The Leavenworth County appraiser recommended that the property be granted exemption under K.S.A. 79-201b Fourth. In its trial brief to BOTA, MHAH maintained that the Marion Home was exempt from taxation under K.S.A. 79-201b Fourth and K.S.A. 79-201 Ninth. At a hearing on the matter, MHAH additionally requested exemption under K.S.A. 79-201 Second and the Kansas Constitution. See Kan. Const. art. 11, § 1(b)(2).

BOTA denied MHAH's request. BOTA first denied the request for exemption under the Kansas Constitution and K.S.A. 79-201 Second. BOTA held that these exemptions require that the property be used "exclusively" for charitable purposes. BOTA determined that the Marion Home was not used exclusively for a charitable exempt purpose because it was actually and regularly used for housing for which MHAH received compensation from the tenants or federal government in the form of subsidized rents or grants.

BOTA noted the provision within K.S.A. 79-201 Second that permits exemption although the applicant is reimbursed for services based on the recipient's ability to pay was inapplicable. BOTA determined the actual and regular use of the property was for residential purposes, which was not an exempt use under K.S.A. 79-201 Second. Furthermore, BOTA cited In re Tax Exemption Application of Johnson County Housing Coalition, Inc., 29 Kan.App.2d 322, 26 P.3d 1279, rev. denied 272 Kan. 1418 (2001), noting that K.S.A. 79-201b Fourth is the provision that specifically governs housing facilities.

BOTA next denied MHAH's request for exemption under K.S.A. 79-201 Ninth. BOTA reasoned that Johnson County held that the statute dealing with low-income housing, presumably referring to K.S.A. 79-201b Fourth, is the applicable exemption statute.

BOTA finally denied MHAH's request for exemption under K.S.A. 79-201b Fourth. BOTA determined that MHAH received funding under the McKinney-Vento Homeless Assistance Act, a program not listed as an acceptable source of funding under the statute. BOTA rejected MHAH's argument that the McKinney-Vento Homeless Assistance Act should be considered part of the National Housing Act, reasoning that BOTA only had the authority given to it by the legislature. BOTA explained that the Kansas Legislature had not amended K.S.A. 79-201b Fourth to provide an exemption for new programs.

MHAH filed a petition for reconsideration of BOTA's decision, and that petition was denied.

DID BOTA ERR IN DENYING MHAH'S REQUEST FOR EXEMPTION UNDER K.S.A. 79-201 SECOND AND K.S.A. 79-201 NINTH?

Standard of Review

MHAH appeals from the decision of BOTA denying its application for exemption from ad valorem taxation. The standard of review of an order of BOTA is governed by K.S.A. 77-621(c), which states that the court shall grant relief only if it determines:

"`(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 re Tax Exemption Application of Inter-Faith Villa, 39 Kan.App.2d 810, ___, 185 P.3d 295 (2008).

Taxation is the rule and exemption is the exception under Kansas law. Inter-Faith, slip op. at 11, 39 Kan.App.2d at ___, 185 P.3d 295. The burden of establishing an exemption is on the party requesting it and all doubts are to be resolved against exemption. Constitutional and statutory provisions exempting property from taxation are strictly construed against the party claiming the exemption. Strict construction, however, does not warrant unreasonable construction.

The interpretation of a statute by an administrative agency such as BOTA is entitled to judicial deference on review. Johnson County, 29 Kan.App.2d at 324, 26 P.3d 1279. Such deference is appropriate when the agency is one of special competence and experience. BOTA is a specialized agency that decides taxation issues and is considered to be the paramount taxing authority in Kansas. Inter-Faith, slip op. at 13, 39 Kan. App. 2d at ___, 185 P.3d 295. Thus, its decisions are given great weight and deference.

An agency's interpretation of a statute is not binding, and the final construction lies with the appellate court. Johnson County, 29 Kan.App.2d at 324, 26 P.3d 1279. Statutory interpretation is a question of law over which this court's review is unlimited.

"[T]he 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...