In re Protests of Hutchinson/Dillon Stores

• Decision Date: 21 August 2009
• Docket Number: No. 100,499.,100,499.
• Citation: 221 P.3d 598
• Parties: In the Matter of the PROTESTS OF CITY OF HUTCHINSON/DILLON STORES FOR TAXES PAID FOR 2001 AND 2002 in Reno County, Kansas, and In the Matter of the Protests of Dillon Real Estate Co., Inc. for Taxes Paid for 2001 and 2002 in Reno County, Kansas.
• Court: Kansas Court of Appeals

221 P.3d 598

In the Matter of the PROTESTS OF CITY OF HUTCHINSON/DILLON STORES FOR TAXES PAID FOR 2001 AND 2002 in Reno County, Kansas, and

In the Matter of the Protests of Dillon Real Estate Co., Inc. for Taxes Paid for 2001 and 2002 in Reno County, Kansas.

No. 100,499.

Court of Appeals of Kansas.

August 21, 2009.

Robert O'Connor and Jarrod C. Kieffer, of Stinson Morrison Hecker L.L.P., of Wichita, for appellants.

S. Lucky DeFries and Jeffrey A. Wietharm, of Coffman, DeFries and Nothern, A Professional Association of Topeka, for appellee.

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

GREENE, J.

Dillon Real Estate Company, Inc. and City of Hutchinson/Dillon Stores (Dillon) appeal the district court's order setting aside the Kansas Board of Tax Appeals' (BOTA) property tax valuation of $5,500,000 for a Dillon Distribution Center (DDC) in Reno County for tax years 2001 and 2002, and adopting in its place a valuation of $7,900,000. Concluding BOTA's valuation was adequately supported, we reverse the district court and affirm BOTA's valuation order.

Factual and Procedural Background

The subject property, or DDC, is held under a single ownership and used for a common purpose, which is as a storage and distribution center to support Dillon's network of retail grocery stores. The property is located on approximately 84 acres, consists of 10 separate but contiguous buildings that collectively total more than 700,000 square feet, and includes: (1) the perishables warehouse, (2) the main building, (3) the bakery, (4) the dispatch office, (5) the salvage building, (6) the truck wash, (7) the truck garage, (8) the maintenance building, (9) the quonset building, and (10) the dairy.

The Reno County Appraiser valued the DDC for tax year 2001 based on an appraisal from Wayne Kubert that concluded a value of $7,900,000. Dillon protested this valuation, suggesting a value instead in the range of $4,400,000 to $4,900,000, although the formal protest forms appear to be incomplete in this regard. No relief was granted at the local level, and Dillon perfected a protest to BOTA. Before a hearing could be conducted, the parties repeated their valuation positions and protests for the 2002 tax year. Thereafter, and for purposes of this appeal, the parties have agreed that the valuation determined herein shall be applicable to both tax years 2001 and 2002.

In the hearing before BOTA, Dillon contended that the County's valuations did not reflect the fair market value of the subject property for each of the years at issue, as required by K.S.A. 79-501 et seq., and specifically violated appraisal standards prohibiting a summation approach to value. The County argued that its valuation represented the fair market value, and specifically, that the existence of valuable refrigerated space had not been adequately considered by Dillon's appraiser. Dillon's expert appraisal witnesses, Grant Gardner (Gardner) and Daniel Craig (Craig), valued the DDC at $4,400,000 and $4,910,000 respectively. The County's appraisal expert, Wayne Kubert (Kubert), valued the DDC at $7,900,000.

After hearing the evidence, BOTA concluded the Kubert valuation violated a uniform appraisal practice standard by valuing buildings separately and summing their values. BOTA found Dillon's appraiser Craig's valuation to be reasonable but found that he did not adequately account for the more valuable freezer/cooler space. Due to this failing, BOTA determined the valuation of the property to be $5,500,000, adding $590,000 to Craig's valuation conclusion. On reconsideration, BOTA explained that, "[b]ased upon the comparable properties with freezer/cooler space," this adjustment "more accurately estimates the additional value contributed by the freezer/cooler space."

The County appealed BOTA's value determination to the district court, arguing that BOTA failed to adequately explain its decision and that BOTA's valuation was not adequately supported by the record. The district court set aside BOTA's order, adopted the Kubert appraisal, and valued the property at $7,900,000. Dillon timely appeals.

Standards of Review

Judicial review of orders of BOTA is governed by K.S.A. 77-621. For purposes of this appeal, application of this statute requires the appellate court to grant relief if: (i) The agency has erroneously interpreted or applied the law, K.S.A. 77-621(c)(4); (ii) the agency has engaged in an unlawful procedure or has failed to follow prescribed procedure, K.S.A. 77-621(c)(5); (iii) 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, K.S.A. 77-621(c)(7); or (iv) the agency action is otherwise unreasonable, arbitrary, or capricious, K.S.A. 77-621(c)(8).

The legislature recently clarified our standard of review of an agency factfinding by the enactment of L.2009, ch. 109, sec. 28, with the following language:

"For purposes of this section, `in light of the record as a whole' means that the adequacy of the evidence in the record before the court to support a particular finding of a fact shall be judged in light of all the relevant evidence in the record cited by any party that detracts from such finding as well as all of the relevant evidence in the record, compiled pursuant to K.S.A. 77-620, and amendments thereto, cited by any party that supports such finding, including any determinations of veracity by the presiding officer who personally observed the demeanor of the witness and the agency's explanation of why the relevant evidence in the record supports its material findings of fact. In reviewing the evidence in light of the record as a whole, the court shall not reweigh the evidence or engage in de novo review."

This clarification became effective on July 1, 2009, and we apply it here.

The County generally bears the burden of proof at BOTA in matters of residential and commercial property valuations.

"With regard to any matter properly submitted to the board relating to the determination of valuation of residential property or real property used for commercial and industrial purposes for taxation purposes, it shall be the duty of the county appraiser to initiate the production of evidence to demonstrate, by a preponderance of the evidence, the validity and correctness of such determination except that no such duty shall accrue to the county or district appraiser with regard to leased commercial and industrial property unless the property owner has furnished to the county or district appraiser a complete income and expense statement for the property for the three years next preceding the year of appeal. No presumption shall exist in favor of the county appraiser with respect to the validity and correctness of such determination." K.S.A.2003 Supp. 79-2005(i).

Moreover, on appeal of BOTA's decision, the party complaining bears the burden of demonstrating that the agency erred. K.S.A. 77-621(a)(1). When the district court has reviewed an agency decision prior to this court's review, we focus on the agency action and apply the same standards of judicial review. Connelly v. Kansas Highway Patrol, 271 Kan. 944, 964, 26 P.3d 1246 (2001), cert. denied 534 U.S. 1081, 122 S.Ct. 813, 151 L.Ed.2d 698 (2002). This court, however, has exclusive jurisdiction of all BOTA (now "COTA," the Court of Tax Appeals) orders issued after June 30, 2008. K.S.A.2008 Supp. 74-2426(c)(2).

Were BOTA's Findings of Fact Supported by Evidence that Is Substantial When Considered in Light of the Record as a Whole?

Dillon argues on appeal that BOTA's valuation was adequately supported and should not have been set aside by the district court. Dillon argues BOTA's adjustment and final value was "well within the range and limits of the evidence," as the valuations offered by all the parties' experts were between $4.4 million and $7.9 million.

In contrast, the County argues that BOTA's valuation could not be affirmed by the district court because its $590,000 adjustment was not supported or explained and that BOTA therefore adjusted Craig's appraisal by an arbitrary amount. The County argues BOTA erred in relying on Craig's appraisal because he failed to recognize (1) the value and importance of the freezer space, and (2) the divisible nature of the property. For these reasons, the County argues that the district court was correct to set aside BOTA's valuation.

Was BOTA's adjustment to value in order to adequately account for freezer space adequately supported or was the adjustment arbitrary?

After finding Craig's appraisal to be reasonable, BOTA found that Craig did not adequately account for the value of the freezer/cooler space. In order to adjust for this deficiency, BOTA added $590,000 to Craig's valuation to arrive at a value of $5,500,000, citing "comparable properties with freezer/cooler space."

In rejecting BOTA's $5,500,000 valuation of the subject property and assigning a value of $7,900,000, the district court found in part that (1) BOTA's order was not supported by fact or law, and (2) BOTA's conclusion regarding value was unreasonable, capricious, and arbitrary. See K.S.A. 77-621(c)(7) and (8).

The testimony from the appraisers presented differing views on the value contribution of the freezer/cooler space to the subject property. Kubert credited the freezer/cooler building as the primary value on campus. Kubert testified that additions to the freezer/cooler building were not burdened by the obsolescence associated with the other buildings. In contrast, Gardner and Craig concluded the value of freezer/cooler space was not significant. Craig concluded that it did not significantly contribute to the value of the subject property. Craig testified that the broker of one of the comparables with freezer/cooler space advised him that only one of the prospective buyers had been interested in the freezer/cooler space. Gardner testified that to the...