Northern Natural Gas Co. v. Dwyer

• Decision Date: 11 December 1971
• Docket Number: No. 46450,46450
• Parties: NORTHERN NATURAL GAS COMPANY, Appellant, v. Ronald F. DWYER, Director, property Valuation Department, or his successor in office, and the Board of Tax Appeals of the State of Kansas, Appellees.
• Court: Kansas Supreme Court

Page 147

492 P.2d 147

208 Kan. 337

NORTHERN NATURAL GAS COMPANY, Appellant, v. Ronald F. DWYER, Director, property Valuation Department, or his successor in office, and the Board of Tax Appeals of the State of Kansas, Appellees.

No. 46450.

Supreme Court of Kansas.

Dec. 11, 1971.

Syllabus by the Court

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

2. The State Board of Tax Appeals is the highest administrative tribunal established by law to determine controversies relating to assessments of property for ad valorem tax purposes.

3. K.S.A.1970 Supp. 74-2426 authorizing an appeal from an order of the Board of Tax Appeals to the district court, is construed as authorizing an appeal from an order of an administrative tribunal, in accordance with prior decisions of this court, on the limited issue as to whether the order of the Board appealed from is 'unreasonable, arbitrary or capricious.'

4. In construing K.S.A.1970 Supp. 74-2426, and adhering to the court's prior decisions, the rules of evidence (Art. 4) of the new code of civil procedure apply in the trial of an ad valorem tax action brought to the district court by an appeal pursuant to K.S.A.1970 Supp. 74-2426, and the district court may receive and consider any evidence relevant to the limited issues presented upon review of the administrative order or decision.

5. Under certain circumstances when the evidence is written, documentary in character, or in the form of depositions or transcripts the appellate court's duty is to decide for itself what the facts establish, substantially as it would in an original case.

6. K.S.A.1970 Supp. 74-2426 requires the State Board of Tax Appeals to make written findings of the fact forming the basis of its determination and final order, and such finding shall be made a part of such final order.

7. K.S.A. 79-422 requires that public utility property be listed and taxed as provided by law for real estate.

8. K.S.A. 79-501 provides for the valuation of nonexempt real property at its justifiable value in money.

9. K.S.A.1968 Supp. 79-503 provides for the determination of justifiable value in accordance with directions to consider certain enumerated factors or combinations thereof.

10. 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 its justifiable value.

11. 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 discregarded.

12. Compliance with the provisions of K.S.A.1968 Supp. 79-503 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 individual type of property, after consideration has been given to all of the factors.

13. Economic obsolescence is the loss in usefulness of an asset occasioned by the approach to the stage of economic uselessness through progress of the arts; economic inutility arising from external causes. Obsolescence refers to disappearing usefulness resulting from invention, change of style, legislation, or other causes having no physical relation to the object affected.

14. Cases recognize a definite distinction between the valuation of public utility property for rate making purposes, determined pursuant to statutes applicable thereto, and the valuation of the same property pursuant to different statutes for ad valorem tax purposes.

15. The valuation of property on a state-wide basis of a public utility by the Board of Tax Appeals of the state of Kansas pursuant to applicable statutes, and in particular K.S.A.1968 Supp. 79-503, is reviewed on appeal and it is found that the Board of Tax Appeals gave consideration to all factors enumerated in 79-503 and applied the pertinent factors.

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

17. The recognition of a 'bench mark' by the Property Valuation Department of the state of Kansas in the appraisal of public utility property for ad valorem tax purposes, resulting from many years of experience, is not objectionable or unlawful.

18. Whether the State Board of Tax Appeals determines a matter of property valuation before it as an appeal board or as a board of equalization, it functions independently of the Director of Property Valuation in matters of administrative judgment and decision.

19. Ratio studies provided by K.S.A. 79-1436 are proper evidence of justifiable value but such evidence, standing alone, is not conclusive in establishing a basis for comparison in determining uniformity of values for assessment purposes.

20. The record in an ad valorem tax action, wherein the State Board of Tax Appeals valued and assessed public utility property on state-wide basis, appealed to the district court pursuant to K.S.A.1970 Supp. 74-2426 is reviewed on appeal and it is held the order of the State Board of Tax Appeals from which the appeal was taken is not unreasonable, arbitrary or capricious, and the action of the Board in the valuation and assessment of the public utility's Kansas property came within the realm of administrative judgment.

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, Topeka, Chief Atty., argued the cause, John L. Bingham, Atty., Property Valuation Dept., and John E. Royston, Topeka, Atty., State Bd. of Tax Appeals, were with him on the brief for appellees.

SCHROEDER, Justice:

This is an appeal in an valorem tax case from an order of the district court of Pawnee County, Kansas, upholding an order of the State Board of Tax Appeals determining the statewide 1969 ad valorem assessment of the appellant's interstate natural gas pipeline operating property located in Kansas.

The underlying question on appeal is whether the assessment of the appellant's operating property in Kansas should be invalidated on the gound that the order of the Board of Tax Appeals is unreasonable, arbitrary or capricious.

The interstate gas pipeline and distribution property of Northern Natural Gas Company (appellant) located in twenty-six Kansas counties, including Pawnee County, Kansas, was initially assessed by the Director of Property Valuation (hereafter the Director) in the amount of $67,528,850 by his order dated May 15, 1969. The foregoing valuation and assessment was appealed by Northern to the Board of Tax Appeals (hereafter the Board) pursuant to authority granted by K.S.A. 74-2438. On the 31st day of July, 1969, the Board heard Northern's appeal and on the 20th day of August, 1969, affirmed the Director's assessment. In so doing, the Board adopted the same justifiable value and assessment that had been made by the Director.

Thereafter, pursuant to K.S.A.1970 Supp. 74-2426 (effective April 25, 1969), Northern appealed to the district court of Pawnee County from the Board's order approving the valuation and assessment of the Director on the ground that the order was 'unreasonable, arbitary or capricious.'

Before the case could be heard in the district court, Northern's first half of the 1969 ad valorem taxes fell due. Northern paid these taxes under protest and duly and timely commenced refund actions pursuant to K.S.A. 79-2005 in each of the twenty-six counties in which its Kansas properties were located. One of these actions has been tried on the merits and appealed to this court; another has come to the court on a procedural point. They have been considered and determined in connection with this appeal and should be read in conjunction herewith. The Rice County action, determined on the merits, is reported in Northern Natural Gas Co. v. Williams, 208 Kan. --, 493 P.2d 568. The Clay County action, determined on a procedural point, is reported in Northern Natural Gas Co. v. Bender, 208 Kan. 135, 490 P.2d 399.

Two other related cases should be studied in connection with this opinion. They are Panhandle Eastern Pipe Line Co. v. Dwyer, 207 Kan. 417, 485 P.2d 149; and Panhandle Eastern Pipe Line Co. v. Herren, 207 Kan. 400, 485 P.2d 156.

The case at bar was tried in the district court on the 18th day of March, 1970, and the trial court after confining its consideration of the matter to the record made before the Board, and certain other matters of which the Board admittedly had judicial knowledge, on the 30th day of July, 1970, found specifically and generally against Northern and denied Northern's appeal.

Northern's post-trial motions assigned as a ground for reconsideration the discovery of substantial, material evidence not available at the time of the hearing before the Board, whereby it attempted to pinpoint the fraud, or its equivalent, involved. It is Northern's contention that this newly discovered evidence, consisting of the deposition of the Director's utility appraisal expert, Mike Gillgannon, conclusively demonstrated that the Board did not follow the statutory mandates in arriving at Northern's justifiable value, but rather determined the justifiable value of Northern's operating property in Kansas to be the amount of the original cost undepreciated, and from such predetermined figure worked back by giving lip service to the...