Northern Natural Gas Co. v. Williams

• Decision Date: 11 January 1972
• Docket Number: No. 46332,46332
• Parties: NORTHERN NATURAL GAS COMPANY, a Corporation, Appellant, v. Jean WILLIAMS, County Treasurer of Rice County, Kansas, et all, Appellees.
• Court: Kansas Supreme Court

Page 568

493 P.2d 568

208 Kan. 407

NORTHERN NATURAL GAS COMPANY, a Corporation, Appellant, v. Jean WILLIAMS, County Treasurer of Rice County, Kansas, et all, Appellees.

No. 46332.

Supreme Court of Kansas.

Jan. 11, 1972.

Syllabus by the Court

1. Where the property of an interstate public utility is assessed by the State Director of Property Valuation, as authorized by K.S.A. 79-1404 Fifteenth, the procedure and method of judicial review provided in K.S.A. 1969 Supp. 74-2426 (now L.1971, ch. 249, § 1) is exclusive and the assessment may not be challenged in an action to recover protested taxes under K.S.A. 79-2005 (now L.1971, ch. 303, § 1). (Following Northern Natural Gas Co. v. Bender, 208 Kan. 135, 490 P.2d 399.)

2. Grossly excessive valuation of property for ad valorem tax purposes contravenes the due process clause of the Fourteenth Amendment to the United States Constitution and requires no showing of discrimination.

3. The right to equal treatment in matters of taxation is a federally protected right under the equal protection clause of the Fourteenth Amendment to the United States Constitution and also a right protected by Article 11, Section 1 of the Constitution of the State of Kansas. The equal protection clause of the Federal Constitution and the state constitutional provisions pertaining to eqality and uniformity of taxation are substantially smilar, and in general what violates one will contravene the other.

4. The 1968 Kansas Real Estate Assessment Ratio Study compiled pursuant to K.S.A. 79-1435 to 79-1444, inclusive, reflects the relationship of assessed value to sales price of real estate. It does not reflect the relationship of assessed value to the 'justifiable value' of real property which is the statutory criterion under K.S.A. 79-501 and K.S.A. 1968 Supp. 79-503 upon which the assessment rate is to be applied for ad valorem tax purposes.

5. The assessment and valuation of property for ad valorem tax purposes are administrative functions, not judicial ones, and courts will not substitute their judgment for that of the assessing authority in the absence of fraud, corruption or conduct so oppressive, arbitrary or capricious as to amount to fraud.

6. There are too many speculative elements involved and too few properties are subject to sale for the 1968 Kansas Real Estate Assessment Ratio Study to be relied on for appraisal purposes as applied to the facts more particularly related in the opinion.

7. In determining the validity of assessments of real property for taxation, the essential question is whether the standards prescribed by K.S.A. 1968 Supp. 79-503 have been considered and applied by taxing officials, or intentionally and grossly disregarded. Compliance with the provisions of the statute is mandatory upon assessing officials in assessing real property, but the factors or combinations thereof to be considered in determining justifiable value may not all be pertinent to a specific property. What factors apply depends upon the invididual type of property, after consideration has been given to all of the factors.

8. It is apparent the legislature by enacting K.S.A. 1968 Supp. 79-503(i) intended to avoid the effect of abnormal and inflationary factors which influenced the values of real property subject to ad valorem taxation.

9. By the concluding paragraph in K.S.A. 1968 Supp. 79-503 the legislature requires assessing officials to specifically consider class, location, productivity, rental values and capitalization. These factors all apply to rural property used and operated as units with a source of economic life from the production of agricultural products that originate from land productivity, and the legislature intended to command assessing officials to use the income approach, as well as other approaches, in determining the justifiable value of real property.

10. In an add valorem tax case brought to recover taxes paid under protest pursuant to K.S.A. 79-2005 proof by the taxpayer, that the sale price of real property disclosed by the Kansas Real Estate Assessment Ratio Study for the year 1968 in Rice County shows an imbalance of assessment and a lack of equalization, is reviewed on appeal; and it is held: That sales price alone does not establish 'justifiable value' as defined by K.S.A. 1968 Supp. 79-503 for ad valorem tax assessment purposes; that nowhere in the record does the Kansas Real Estate Assessment Ratio Study for the year 1968 purport to embrace consideration of the mandatory factors enumerated in K.S.A. 1968 Supp. 79-503 to reflect the level of assessment in relation to the justifiable value of real estate; and the taxpayer has failed to sustain the burden of proof cast upon it to show discrimination.

11. K.S.A. 79-1439 (L.1963, ch. 460, § 1) requires that all real and tangible personal property, which is subject to general property taxes, shall be assessed uniformly and equally at 30% of justifiable value. On facts more particularly related in the opinion, to grant the taxpayer relief by assessing its property at less than 30% of justifiable value would discriminate against all taxpayers in Rice County who are assessed at 30% of justifiable value.

Mark H. Adams, II, of Adams, Jones, Robinson & Manka, Wichita, argued the cause, and William S. Richardson, Wichita, and F. Vinson Roach and Frank J. Duffy, Omaha, Neb., were with him on the brief for appellant.

Clarence J. Malone, Chief Atty., Dept. of Property Valuation, and Matthew J Dowd, Asst. Atty. Gen., argued the cause, and Vern Miller, Atty. Gen., Everett L. Baker, County Atty., and John Bingham, Atty., Dept. of Property Valuation, were with them on the brief for appellees.

SCHROEDER, Justice.

This is an appeal in an ad valorem tax action wherein Northern Natural Gas Company (plaintiff-appellant) sought to recover a portion of its 1969 taxes paid under protest in Rice County, Kansas, pursuant to the provisions of K.S.A. 79-2005. The district court of Rice County, Kansas, denied relief.

This case is a sequel to the one filed by Northern in the district court of Pawnee County wherein it challenged the order of the State Board of Tax Appeals determining the state-wide 1969 ad valorem tax assessment of Northern's interstate natural gas pipeline operating property located in Kansas.

Here Northern seeks to assert the same issues concerning the validity of the statewide assessment determined in the Pawnee County case. (Northern Natural Gas Co. v. Dwyer, 208 Kan. 337, 492 P.2d 147.)

Northern in this action also challenges the valuation and assessment of its property in Rice County at the local level, which it claims results in discrimination against it.

All issues were determined adversely to Northern by the trial court.

In Northern Natural Gas Co. v. Bender, 208 Kan. 135 490 P.2d 399, the court decreed that the validity of an assessment of property of an interstate public utility on a state-wide basis cannot be challenged in a protest action. The court held:

'Where the property of an interstate public utility is assessed by the State Director of Property Valuation, as authorized by K.S.A. 79-1404 Fifteenth, the procedure and method of judicial review provided in K.S.A.1969 Supp. 74-2426 (now L.1971, ch. 249, § 1) is exclusive and the assessment may not be challenged in an action to recover protested taxes under K.S.A. 79-2005 (now L.1971, ch. 303, § 1.)' (Syl. 1.)

As a result of Bender Northern is bound by our decision in Northern Natural Gas Co. v. Dwyer, supra, upholding the order of the State Board of Tax Appeals assessing Northern's public utility property on a state-wide basis at 30% of justifiable value.

The trial court's erroneous consideration of the issues asserted by Northern as to the state-wide assessment is a nullity. The trial court had no jurisdiction to consider it. Failure to cross-appeal the trial court's denial of the Director's motion to dismiss does not precluded the appellate court from raising the issue on its own motion. (Bammes v. Viking Manufacturing Co., 192 Kan. 616, 389 P.2d 828.)

The issue presented on his appeal, therefore, is limited to matters concerning the assessment of Northern's property at the local level in Rice County.

In the pretrial order filed May 28, 1970, in Rice County Northern contended the advalorem taxes were assessed to Northern on a state-wide level of 30% of justifiable value, whereas all other property in Rice County was assessed at a level of 21% resulting in an imbalance of assessment and a lack of equalization.

It is to be noted no challenge was made concerning the parties defendant in this action. They include, among others, Jean Williams, County Treasurern of Rice County; Arthur Harvey, County Clerk, ex officio County Assessor; the Board of County Commissioners of Rice County, Dale Evans, Carl Frederick and John Burge, members of the Board of County Commissioners of Rice County; and Ronald F. Dwyer, Director of the Properlty Valuation Department of the state of Kansas.

On the issue material to this appeal the trial court made what it denominated 'Findings of Fact and Discussion of Testimony' (filed June 12, 1970) where it said in part:

'Dr. Francis O. Woodard is the economist who, along with Mrs. Bonnie Hickle, prepared the real estate assessment ratio study for the State of Kansas. The data which is deemed pertinent for this study is evaluated by county clerks in accordance with directives for valuation as advanced by Mr. Dwyer. It would seem that any final determination of what data would be used for the study would be made by Mr. Dwyer or his employees. Under date of April 9, 1968, Mr. Dwyer advised all county commissioners that his department was attempting to improve the study.

'Against this background, it is difficult to understand the attempt made by witnesses for defendants to discredit the validity of this study. The mechanics of the study was fully explained by Dr. Woodard. His testimony in support of the...