Lario Enterprises, Inc. v. State Bd. of Tax Appeals
| Decision Date | 27 September 1996 |
| Docket Number | No. 74327,74327 |
| Citation | 925 P.2d 440,22 Kan.App.2d 857 |
| Parties | LARIO ENTERPRISES, INC. and City of Topeka, Kansas, Appellees, v. STATE BOARD OF TAX APPEALS and Timothy L. Kennedy, Shawnee County Appraiser, Defendants, and U.S.D. 450, Appellant. U.S.D. 450 SHAWNEE HEIGHTS, SHAWNEE COUNTY, Kansas, Appellant, v. CITY OF TOPEKA, SHAWNEE COUNTY, Kansas, Appellee. |
| Court | Kansas Court of Appeals |
Syllabus by the Court
1. The rules of construction applicable in determining a claim for an exemption from ad valorem taxation are stated and applied.
2. In an appeal by U.S.D. 450 from the district court's order reviewing the Board of Tax Appeals' order granting an exemption from ad valorem taxation for Heartland Park Topeka, it is held: The district court did not err in holding that the Board of Tax Appeals properly (1) concluded the City of Topeka owned the property for purposes of K.S.A. 79-201 Second; (2) concluded the City of Topeka operated the property for purposes of 79-201a Second; (3) concluded the property was used for a governmental function under 79-201a Second; and (4) decided Heartland Park Topeka qualifies for a tax exemption under the three-part test of the second sentence of 79-201a Second. The district court did err in modifying the exemption effective dates that the Board of Tax Appeals established for the Heartland Park Topeka property which was not transferred to the City of Topeka until 1991.
James S. Willard and Jack A. Quinlan of Scott, Quinlan & Hecht, Topeka, for appellant U.S.D. 450.
Robert J. O'Connor of Morrison & Hecker L.L.P., Wichita, for appellees Lario Enterprises, Inc., and City of Topeka.
Before GERNON, P.J., ROYSE, J., and WILLIAM F. LYLE, Jr., District Judge, Assigned.
This appeal arises out of an application filed by the City of Topeka (City), seeking a property tax exemption for Heartland Park Topeka (HPT). The Board of Tax Appeals (BOTA) determined that HPT qualifies for a tax exemption. BOTA concluded part of the property was exempt as of January 12, 1988, and the balance was entitled to an exemption effective in 1991. The parties sought judicial review of BOTA's decision. The district court affirmed BOTA's determination that HPT was entitled to a property tax exemption, but the court concluded all property became tax exempt as of January 12, 1988. U.S.D. 450, Shawnee Heights, an intervenor in the BOTA proceeding, appeals from the decision of the district court.
Highly summarized, the pertinent facts are as follows: HPT is a race track and motor sports facility. The principal players in HPT are the City and Lario Enterprises (Lario). Under the terms of a Development and Management Agreement, Lario contracted to acquire title to the real estate for the planned race track and to deed that land to the City. The title transferred to the City was an estate for 23 years. Title reverts to Lario or a related company at the end of the 23-year term. The parties' arrangements for the operation of HPT after the City's 23-year term expires are not pertinent to this appeal.
In consideration of its interest in the real estate, the City agreed to issue and did issue $7.5 million in general obligation bonds. The bond proceeds were used to improve land transferred by Lario to the City in 1988.
The Development and Management Agreement also designated Heartland Park Corporation (HPC) as the corporate entity responsible for operation and management of the racing facility. HPC is a subsidiary of Lario. HPC operates HPT on behalf of the City. HPC has established a fee schedule for use of the property. HPC receives as compensation for its services any revenue from operations which exceeds expenses.
The City filed an application for property tax exemption for HPT in 1991. The City sought an exemption for property owned by the City during the City's period of ownership. After reviewing voluminous documents and testimony from a number of witnesses, BOTA found the property was exempt from the date it was transferred to the City. BOTA entered a detailed order and an order on rehearing. The findings and conclusions of BOTA most important to this appeal are as follows:
1. HPT property is owned by the City.
2. HPT is used as a race track and motor sports facility. Its single purpose and use is as a recreational facility, which is a recognized governmental or proprietary function.
3. The City issued bonds to finance a portion of the property, and taxes were levied to repay those bonds. Additional taxes may be levied to operate HPT.
4. The City contracted for HPC to operate and manage HPT on behalf of the City.
K.S.A. 74-2426(c) provides that orders from BOTA are subject to review in accordance with the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. The burden of proving invalidity of agency action is on the party asserting invalidity. K.S.A. 77-621(a)(1). K.S.A. 77-621(c) provides that the court may grant relief only when it has made certain determinations, including a determination that the agency erroneously interpreted or applied the law. In re Tax Appeal of Morton Thiokol, Inc., 254 Kan. 23, 26, 864 P.2d 1175 (1993).
The legal principles applicable to questions of taxation and exemption are well settled. Whether particular property is exempt from ad valorem taxation is a question of law if the facts are agreed upon. T-Bone Feeders, Inc. v. Martin, 236 Kan. 641, 645, 693 P.2d 1187 (1985). Taxation is the rule, and exemption from taxation is the exception under the Kansas Constitution and statutes. 236 Kan. at 645, 693 P.2d 1187. Constitutional and statutory provisions exempting property from taxation are to be strictly construed against the one claiming exemption, and all doubts are to be resolved against the exemption. In re Application of Int'l Bhd. of Boilermakers, 242 Kan. 302, 305, 747 P.2d 781 (1987). Strict construction, however, does not mean unreasonable construction. Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847, Syl. p 2, 473 P.2d 1 (1970).
In addition to the constitutional exemption, the legislature may provide statutory exemptions from property taxation. Tri-County Public Airport Auth. v. Board of Morris County Comm'rs, 245 Kan. 301, 305, 777 P.2d 843 (1989). The statutory exemptions may be broader than the constitutional ones. The legislature is the judge of what exemptions are in the public interest and will be conducive to the public welfare. State ex rel. Tomasic v. City of Kansas City, 237 Kan. 572, 579, 701 P.2d 1314 (1985).
BOTA is a specialized agency that exists to decide issues concerning taxation. Its decisions should be given great credence and deference when it is acting in its area of expertise. Hixon v. Lario Enterprises, Inc., 257 Kan. 377, 378-79, 892 P.2d 507 (1995). The final construction of a statute, however, rests with the courts. Although the courts will give consideration and weight to an administrative agency's interpretation of a statute, they will not adhere to that interpretation when the statute is clear and the agency's ruling is incorrect. In re Tax Exemption Application of City of Wichita, 255 Kan. 838, 842, 877 P.2d 437 (1994). See In re Appeal of Topeka SMSA Ltd. Partnership, 260 Kan. 154, 162, 917 P.2d 827 (1996).
On appeal, U.S.D. 450 argues BOTA and the district court erred in determining HPT is entitled to a tax exemption. In addition, U.S.D. 450 argues the district court erred in determining the exemption applied to all property in question as of January 12, 1988. These arguments ask this court to determine that BOTA and the district court erroneously interpreted or applied the law.
Article 11, § l(b)(2) of the Kansas Constitution provides: "All property used exclusively for state, county, [and] municipal ... purposes ... shall be exempted from property taxation." A slightly different exemption is set forth in K.S.A. 79-201a Second, which exempts from property taxes "[a]ll property used exclusively by the state or any municipality or political subdivision of the state." The second sentence of 79-201a Second provides a three-part test which may be used to prove property satisfies the "used exclusively" requirement for the statutory exemption:
"All property owned ... or operated by the state or any municipality ... which is used or is to be used for any governmental or proprietary function and for which bonds may be issued or taxes levied to finance the same, shall be considered to be 'used exclusively' by the state, municipality or political subdivision for purpose of this section."
BOTA analyzed the exemption under 79-201a Second by applying this three-part test. BOTA concluded: (1) HPT is owned by the City; (2) the City has opted to operate HPT through an agreement with Lario; (3) HPT is used as a recreational facility, a recognized governmental or proprietary function; and (4) the City issued bonds to finance a portion of the property, taxes were levied to repay those bonds, and additional taxes may be levied.
U.S.D. 450 argues BOTA erred by concluding the City satisfied the second sentence of K.S.A. 79-201a Second. U.S.D. 450 contends HPT is not owned or operated by the City and the property is not used for a governmental or proprietary purpose. U.S.D. 450 has not argued that HPT fails the bonds/taxes part of the test.
U.S.D. 450 first claims HPT is not owned by the City, because the City holds only "bare legal title" and lacks sufficient incidents of ownership. U.S.D. 450 further claims that a limited interest in the property, a term of 23 years, is insufficient ownership. U.S.D. 450 cites no direct authority for its assertions that "bare legal title" or a term of years do not amount to ownership under 79-201a Second. Instead, U.S.D. 450 cites Salina Airport Authority v. Board of Tax Appeals, 13 Kan.App.2d 80, 761 P.2d 1261, rev denied 244 Kan. 738 (1988), a case which...
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