J. Enterprises, Inc. v. Board of County Com'rs of Harvey County

• Decision Date: 30 July 1993
• Docket Number: No. 68617,68617
• Citation: 253 Kan. 552,857 P.2d 666
• Parties: J. ENTERPRISES, INC., d/b/a Colortyme, Appellee, v. BOARD OF COUNTY COMMISSIONERS OF HARVEY COUNTY, Kansas, et al., Appellants.
• Court: Kansas Supreme Court

Page 666

857 P.2d 666

253 Kan. 552

J. ENTERPRISES, INC., d/b/a Colortyme, Appellee, v. BOARD OF COUNTY COMMISSIONERS OF HARVEY COUNTY, Kansas, et al., Appellants.

No. 68617.

Supreme Court of Kansas.

July 30, 1993.

Syllabus by the Court

1. An appellate court is duty-bound to raise the question of jurisdiction on its own motion. If it is determined that a district court had no jurisdiction, an appellate court does not acquire jurisdiction over the subject matter upon appeal.

2. In the realm of taxes, matters of assessment, exemption, equalization, and valuation are administrative in character. Under Kansas law, it would be unwarranted for a court to entertain a tax suit on any of these matters of administrative expertise where administrative remedies had not been pursued. Following Dean v. State, 250 Kan. 417, 421, 826 P.2d 1372 (1992).

3. Cases throughout the history of Kansas disclose that the expression "the illegal levy of any tax, charge or assessment" contained in K.S.A. 60-907 and its predecessors refers to action of an administrative official or board taken without authority, or action of an administrative official or board that is permeated with fraud, corruption, or conduct so oppressive, arbitrary, or capricious as to amount to fraud in connection with the levy of any tax, charge, or assessment.

4. The interpretation of a statute is not a uniquely judicial function, particularly in the area of taxation. In many instances, the question of whether a tax exemption applies requires statutory interpretation. The Board of Tax Appeals is suited for resolving tax exemption claims, which in turn involve statutory interpretation.

5. Where a full and adequate administrative remedy is provided in tax matters, such remedy must ordinarily be exhausted before a litigant may resort to the courts.

6. The legislative history of administrative remedies provided to a litigant seeking tax exemption under K.S.A.1992 Supp. 79-2005, K.S.A. 74-2426, and K.S.A.1992 Supp. 79-213 is discussed and applied.

7. K.S.A.1992 Supp. 79-2005, K.S.A. 74-2426, and K.S.A.1992 Supp. 79-213 provide an exclusive administrative remedy before the Board of Tax Appeals in all cases involving a taxpayer's claim of tax exemption, and exhaustion of the administrative remedy is a prerequisite for jurisdiction in the district court.

Thomas R. Docking, of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, argued the cause, and Gerald N. Capps, of the same firm, was with him on the brief, for appellants.

Robert J. O'Connor, of Morrison & Hecker, Wichita, argued the cause, and Pamela Clancy, of the same firm, was with him on the brief, for appellee.

DAVIS, Justice:

Harvey County appeals the trial court's summary judgment ruling that "rent-to-own" personal property of J. Enterprises, Inc., d/b/a Colortyme (Colortyme), is exempt from Kansas ad valorem tax as inventory under K.S.A.1992 Supp. 79-201m.

In 1991 the Harvey County appraiser performed a compliance review on Colortyme's 1990 and 1991 ad valorem personal property tax renditions. The review revealed that Colortyme did not include its "rent-to-own" property on its 1990 and 1991 renditions. Colortyme excluded its "rent-to-own" property as exempt inventory under K.S.A.1992 Supp. 79-201m.

In January 1992 the Board of County Commissioners (the County) assessed additional 1990 and 1991 property taxes against Colortyme's rent-to-own property. The additional taxes totaled $24,441.86. The County also assessed a 100% penalty pursuant to K.S.A.1992 Supp. 79-1427a.

Colortyme filed an action for declaratory and injunctive relief pursuant to K.S.A. 60-907(a). Colortyme alleged that its rent-to-own property was exempt "merchant's inventory" and sought a determination that the tax assessments and penalties were illegal, void, and unenforceable. Colortyme asked the court to enjoin the county from collecting the taxes and penalty. Colortyme also sought a declaratory judgment The County claimed that (1) Colortyme did not purchase its rent-to-own property "primarily for resale in the ordinary course of business" (as required by K.S.A.1992 Supp. 79-201m); (2) Colortyme purchased the property primarily for rental, which constitutes an intervening, not incidental, use under K.S.A.1992 Supp. 79-201m(a)(1); and (3) Colortyme depreciates its rent-to-own property on its federal income tax return, which precludes its claim that the property is exempt as inventory. The district court rejected the County's claim, found that the property was exempt as inventory, and issued a permanent injunction enjoining the County from collecting ad valorem taxes and penalties on Colortyme's rent-to-own property. The County originally appealed to the Court of Appeals, but the matter was transferred to this court pursuant to K.S.A. 20-3018(c).

that the contract under which the tax compliance audits were conducted was illegal, void, and unenforceable, but that issue is not before us.

Neither the district court nor the parties questioned the jurisdiction of the district court. In light of our recent decision in Dean v. State, 250 Kan. 417, 826 P.2d 1372 (1992), and the following statement from that case, we raised the question of our jurisdiction during oral argument:

"In the realm of taxes, matters of assessment, exemption, equalization, and valuation are administrative in character. See Symns v. Graves, 65 Kan. 628, 636, 70 Pac. 591 (1902). Under Kansas law, it would be unwarranted for a court to entertain a tax suit on any of these matters of administrative expertise where administrative remedies had not been pursued." (Emphasis added.) 250 Kan. at 421, 70 P. 591.

We are duty-bound to raise the question of jurisdiction on our own motion as we have done in this case. If it is determined that the district court had no jurisdiction, we do not acquire jurisdiction over the subject matter upon appeal. In re Lakeview Gardens, Inc., 227 Kan. 161, Syl. p 8, 605 P.2d 576 (1980). See Tri-County Public Airport Authority v. Board of Morris County Comm'rs, 233 Kan. 960, 967, 666 P.2d 698 (1983).

We granted the parties additional time after oral argument to address the question of jurisdiction. Both parties responded by letter briefs. We have considered the additional authorities submitted by the parties and conclude that the district court did not have jurisdiction to consider the merits of the appeal because Colortyme did not exhaust its administrative remedies before applying to the court for relief. We therefore remand to the district court with directions to set aside the judgment and to dismiss the case.

JURISDICTION

The argument that the district court had no jurisdiction is as follows. The question of whether property is exempt as inventory is primarily a tax question which, according to the present Kansas statutory and regulatory scheme, ought to be decided in the first instance by the paramount taxing authority in this state, the Board of Tax Appeals (BOTA). Once administrative remedies are exhausted, an aggrieved party may have resort to the courts.

The question of whether Colortyme's rent-to-own property is exempt is, according to Dean, "administrative in character." As such, the doctrine of exhaustion of administrative remedies applies. In Jenkins v. Newman Memorial County Hospital, 212 Kan. 92, 95, 510 P.2d 132 (1973), we said:

"The doctrine of exhaustion of administrative remedies is directed toward promoting proper relationships between the courts and administrative agencies charged with particular administrative and regulatory duties. It promotes orderly procedure and requires a party to exhaust the administrative sifting process with respect to matters peculiarly within the competence of the agency."

It is important, we believe, that the question on appeal involves the interpretation of a tax exemption statute, K.S.A.1992 Supp. Colortyme contends that the district court had jurisdiction because Colortyme sought to enjoin the County from illegally levying and collecting ad valorem taxes and penalties on its rent-to-own inventory. Based upon its allegations of illegality, Colortyme claimed that the trial court had jurisdiction to hear and determine this case under the provisions of K.S.A. 60-907(a), which provides as follows:

79-201m. Neither the district court nor the parties question the validity of the statute. All parties accept that this is the law in Kansas. The question is whether the County erroneously interpreted the statute and has little to do with the legality of the County's actions.

"Injunctive relief may be granted to enjoin the illegal levy of any tax, charge or assessment, the collection thereof, or any proceeding to enforce the same."

The answer to the jurisdiction question depends not so much upon what a party claims as relief before the district court as it does on the nature of the actual relief sought. Colortyme contends that it does not seek "tax relief" but only injunctive relief because the tax assessments are illegal. While it claims the assessments are illegal, its ultimate success in the district court was directly dependent upon convincing the court that the County's application of the statute under the facts was erroneous, not that the acts of the County were illegal. Colortyme sought to be free of the assessments.

If a party may confer jurisdiction upon the courts under 60-907(a) by claiming that the actions of a taxing authority are illegal, concurrent jurisdiction would exist in nearly every case with the district court and with BOTA. In all cases where a taxpayer claimed an exemption, the taxpayer would only need to claim that the tax assessed was illegal in order to confer jurisdiction upon the district court and bypass BOTA completely. The present remedy for a taxpayer claiming exemption from ad valorem taxes is exclusive, conferring no original jurisdiction on the district court, but requiring the taxpayer to exhaust remedies before BOTA prior to applying to...