Panhandle Eastern Pipe Line Co. v. Dwyer, 46257

• Decision Date: 15 May 1971
• Docket Number: No. 46257,46257
• Citation: 207 Kan. 417,485 P.2d 149
• Parties: PANHANDLE EASTERN PIPE LINE COMPANY, a Corporation, Appellant, v. Ronald F. DWYER, Director of Property Valuation of the State of Kansas, etal., Appellees.
• Court: Kansas Supreme Court

Page 149

485 P.2d 149

207 Kan. 417

PANHANDLE EASTERN PIPE LINE COMPANY, a Corporation, Appellant, v. Ronald F. DWYER, Director of Property Valuation of the State

of Kansas, etal., Appellees.

No. 46257.

Supreme Court of Kansas.

May 15, 1971.

Rehearing Granted June 16, 1971.

Syllabus by the Court

1. Matters of taxation, especially assessments, are administrative in their character and should remain free of judicial interference in the absence of fraud, corruption or conduct so oppressive, arbitrary or capricious as to amount to fraud.

2. In an appeal by an interstate gas pipeline company from an assessment of its properties located in Kansas by the taxing authorities the record is examined and it is held, (1) there was no evidence that the taxing authorities' acts in arriving at the assessment were unreasonable, arbitrary or capricious, and (2) the record does not disclose a lack of uniformity or equality in the assessment.

3. Evidence of ratio studies, provided by K.S.A. 79-1436, standing alone, is not conclusive in establishing a basis for comparison in determining uniformity of values for assessment purposes.

John S. Seeber, of Adams, Jones, Robinson & Manka, Wichita, argued the cause, and C. A. Conoley, Kansas City, No., was with him on the brief for appellant.

Clarence J. Malone, Topeka, Chief Attorney for Property Valuation Department, argued the cause and John L. Bingham, for Property Valuation Department, and John E. Royston, Topeka, and Secretary of State Board of Tax Appeals, were with him on the brief for appellees.

HATCHER, Commissioner.

This is an appeal from a judgment of the district court of Johnson County, Kansas upholding an order of the State Board of Tax Appeals which determined the statewide 1969 ad valorem assessment of the appellant's interstate natural gas pipeline property located in Kansas.

The primary issue presented for this court's determination is whether the trial court erred in not finding that the order of the State Board of Tax Appeals (hereinafter referred to as the Board) was unreasonable, arbitrary or capricious in not granting the appellant relief from the order.

The facts leading up to this appeal will be stated.

The appellant operates an interstate pipeline system originating in gas fields in the Texas and Oklahoma panhandles and the Hugoton field in southwest Kansas. From Liberal, Kansas the appellant operates four parallel pipelines running through twenty-six counties in Kansas and extending through the states of Missouri, Illinois, Indiana and Ohio and into southeast Michigan where it serves an area in and about Detroit.

The Federal Power Commission at this time controls and limits the earnings which appellant is permitted to make by limiting appellant to a rate of return of 6 5/8% on the original cost of its property less depreciation. Any buyer of plaintiff's property would also be limited to the same earnings base and rate as appellant now has. The F.P.C. requires depreciation to be taken at the rate of 3 1/2% per year on appellant's property in Kansas, and the rate base on which appellant is permitted to earn is reduced each year by additional mandatory depreciation except for net adjustments made to increase original cost less depreciation as a result of replacements of items that are part of the system or for new construction. All figures relating to the original cost and depreciation of appellant's entire system used by both parties have as their basic source appellant's annual report filed with the F.P.C.

Appellant filed with the Director of Property Valuation, on statements and schedules prescribed by the director, a report showing a 'Return Value' of $30,967,805.00 for 1969 for properties in the state of Kansas. The director, by an order dated May 28, 1969, assessed appellant's tangible properties in the state of Kansas for 1969 in the sum of $56,078,497.00.

Appellant timely appealed to the Board on June 27, 1969, from the findings, rulings, orders, decisions and other final action of the director pursuant to K.S.A. 74-2438. On August 1, 1969, the Board, having heard all the evidence presented by appellant and the director on said appeal, entered its final order August 20, 1969, denying the appeal.

The appellant then appealed the order of the Board to the district court of Johnson County, where part of its property is located. The appellant challenged the order of the Board as unreasonable, arbitrary or capricious and sought relief therefrom under the provisions of K.S.A.1970 Supp. 74-2426.

The trial court concluded:

'* * * All factors specified by K.S.A. 79-503 for determining of justifiable value were considered by the assessing authorities.

'The use by the Board of a 5% capitalization rate was a matter of judgment and not unlawful.

'The factor of F.P.C. control on the income earnings of the appellant (F.P.C. rate base of original cost less accrued depreciation) was considered as an element of the Board's valuation and appraisal.

'The system market value approach or unit method is best suited for valuation of plaintiff's property for its entire system and an allocation made on the percentage of the original cost in Kansas bears to the original cost of the entire system, and the correct Kansas allocation percentage is 29.47%

'The market approach and net stock and debt approach to value were not used or applied by either party, and should not be used or applied in this matter, and was not pertinent under the evidence before the Board.

'This is a review of an order of the Board of Tax Appeals which involves not only the assessment of the appellant's property for taxation but also the question of equalization of that assessment, and it is the performance of a highly technical administrative function.

'Under K.S.A. 79-709, after the completion of an assessment it must be apportioned not only to the several counties but to the townships, cities, school districts and other taxing districts which is determined by a formula which apportions to each taxing district that part of the total assessment as is proportionate to the total length of lines within the taxing district. The District Court should not undertake to 'substitute its judgment' for the determinations of the Director of Property Valuation and the findings of the Board of Tax Appeals, or to impose a method of distribution which is incomplete under statutory requirements.

'The Court further finds that the order of the Board of August 20, 1969, appealed from herein, with respect to plaintiff, was not unreasonable, was not arbitrary, and was not capricious. Said order was lawful and applied required statutory standards of value to plaintiff's property. The order was also reasonable and not arbitrary or capricious in all respects, and in accordance with the evidence before it. There was ample evidence to support said order and findings of and by the Board.

'There is no evidence that the Board of Tax Appeals has been guilty of doing acts under the influence of a corrupt motive, or acted with unreasonable, arbitrary or capricious conduct; and therefore the administrative decision should be upheld by this Court.

'The record indicates only a difference of opinion as to the amount of assessment and there is nothing in the record to justify a conclusion by the Court upon review that the Board of Tax Appeals in this case has not exercised good faith and rendered an opinion honestly formed.'

The appellant has now appealed to this court raising substantially the same issues.

Before considering the specific objections we will give attention to the limited extent of this court's power to review.

The statute under which this appeal is taken, K.S.A. 74-2426, closes with the following statement:

'* * * In hearing and considering any such appeal, the court shall not enforce or give effect to any rule or regulation which it shall find to be unreasonable, arbitrary or capricious.'

However, regardless of the statute it has always been the rule of this court that matters of taxation, especially assessments, are administrative in their character and should remain free of judicial interference in the absence of fraud, corruption or conduct so oppressive, arbitrary or capricious as to amount to fraud. (Harshberger v. Board of County Commissioners, 201 Kan. 592, 442 P.2d 5; Mobil Oil Corporation v. McHenry, 200 Kan. 211, 436 P.2d 982.)

In the early case of Symns v. Graves, 65 Kan. 628, 70 P. 591, we stated at page 636, 70 P. at page 594 of the opinion:

'* * * Matters of assessment and taxation are administrative in their character, and not judicial; and an interference by judges, who are not elected for that purpose, with the discharge of their duties by those officers who are invested with the sole authority to make and estimate value, is unwarranted by the law. The district court could not substitute its judgment for that of the board of equalization, and this court cannot impose its notion of value upon either. These are fundamental principles in the law of taxation, and cannot be waived aside to meet the exigencies of any particular case. * * *'

Unless there has been fraud, corruption or conduct so oppressive, arbitrary or capricious as to amount to fraud in the assessment, the courts cannot interfere.

Appellant first contends--

'The trial court erred in finding the order of the Board of Tax Appeals determining the assessment of Appellant's property in Kansas was not unreasonable, arbitrary or capricious under Chapter 368 of the Laws of Kansas 1969 when the pertinent mandatory statutory factors for determining the justifiable value required by K.S.A. (1964) 79-501 and K.S.A.1968 Supp. 79-503 which in common experience determine and control the justifiable value of Appellant's property, were not considered, applied, or followed, and were totally ignored, lost sight of, or willfully abandoned by the Board.'

In considering the merits of this appeal, it is necessary to have before us K.S.A....