State ex rel. Stephan v. Martin, 51844

• Decision Date: 14 March 1980
• Docket Number: No. 51844,51844
• Citation: 608 P.2d 880,227 Kan. 456
• Parties: STATE of Kansas ex rel. Robert T. STEPHAN, Attorney General, Appellant, v. Philip W. MARTIN, Director of Property Valuation, Kansas Department of Revenue, Appellee.
• Court: Kansas Supreme Court

Page 880

608 P.2d 880

227 Kan. 456

STATE of Kansas ex rel. Robert T. STEPHAN, Attorney General, Appellant, v. Philip W. MARTIN, Director of Property Valuation, Kansas Department of Revenue, Appellee.

No. 51844.

Supreme Court of Kansas.

March 14, 1980.

Syllabus by the Court

1. Article 11, § 1 of the Kansas Constitution is the fundamental law against which the validity of property tax statutes must be tested.

2. Article 11, § 1 of the Kansas Constitution requires that "(t)he legislature shall provide for a uniform and equal rate of assessment and taxation," except that the legislature may classify or exempt constitutionally specified property for tax purposes. Article 11, § 1 expressly exempts from taxation property used for specified purposes.

3. Article 11, § 1 of the Kansas Constitution requires the legislature to provide for uniformity in the basis of assessment as well as in the rate of taxation. Uniformity in taxing implies equality in the burden of taxation.

4. The term "assessment" as employed in art. 11, § 1 means the process of listing and valuing property for taxation.

5. The legislature, in responding to the mandate of art. 11, § 1 of the Kansas Constitution that it provide for a uniform and equal rate of assessment and taxation, has provided that all property subject to taxation be valued on an equal basis. The equal basis currently provided by the legislature is "fair market value in money."

6. "Fair market value" has a well defined meaning in our free economy and in case law. The legislature defined "fair market value" in K.S.A. 79-503 in substantially the same language as this Court has defined it, and as it is generally understood and accepted.

7. The legislature, in K.S.A.1979 Supp. 79-342, directs the county appraisers of this State to reduce the values of certain farm machinery and equipment contained in the 1979 Kansas Appraisal Guide, by subtracting from such values an amount equal to 20% thereof. The effect of a flat, across-the-board reduction of 20% fails to achieve the ultimate goal of valuing all property upon an equal basis.

8. The Director of Property Valuation is required to devise or prescribe guides showing the fair market value in money of tangible personal property. In the absence of evidence to the contrary, the Director is presumed to have followed the statutory requirements. Hence, the 1979 Kansas Appraisal Guide establishes the fair market value in money of farm machinery and equipment in average condition in accordance with K.S.A. 79-503 and 75-5105a(b).

9. The unprofitable nature of a business, that is, the adverse economic conditions confronting the owner of a business, is not the same as the economic factor of functional, economic or social obsolescence which affects the value of the property itself.

10. Article 11, § 1 of the Kansas Constitution prohibits favoritism, and requires uniformity in valuing property for assessment purposes so that the burden of taxation will be equal. Property taxation is not based upon the owner's ability to pay. Economic distress is no justification for ignoring the constitution.

11. For the reasons stated in the opinion, it is held : The provisions of K.S.A.1979 Supp. 79-342 destroy the uniformity and equality in the rate of assessment of tangible personal property required by art. 11, § 1 of the Kansas Constitution and are therefore void. The act grants a partial exemption from taxation to certain items of farm machinery and equipment, according preferential tax treatment to some owners of such property, in violation of art. 11, § 1 of the Kansas Constitution.

Rodney J. Bieker, Asst. Atty. Gen., argued the cause, and Robert T. Stephan, Atty. Gen., was with him on briefs, for appellant.

Carol B. Bonebrake of Kansas Dept. of Revenue, argued the cause, and Alan F. Alderson, Gen. Counsel, Clarence J. Malone, and William L. Edds, Kansas Department of Revenue, Topeka, were with her on brief, for appellee.

SCHROEDER, Chief Justice:

This is an appeal by the Attorney General in a declaratory judgment action from a decision of the district court upholding the constitutionality of K.S.A.1979 Supp. 79-342. The sole issue on appeal is whether that statute violates art. 11, § 1 of the Kansas Constitution.

The facts are stipulated. The Kansas Legislature in 1978 enacted K.S.A. 79-341 and 342 in response to cries for ad valorem tax relief for the State's farmers and ranchers. In 1979 the legislature enacted a minor amendment to 79-342. On November 7, 1979, the Attorney General (plaintiff-appellant) initiated this action in the District Court of Shawnee County at Topeka, Kansas, against Philip W. Martin, Director of Property Valuation, Kansas Department of Revenue (defendant-appellee). The petition sought a declaratory judgment that K.S.A.1979 Supp. 79-342 violated art. 11, § 1 of the Kansas Constitution. The case was submitted to the trial court on a stipulated record and written briefs. On December 31, 1979, the trial court upheld the constitutionality of K.S.A.1979 Supp. 79-342 in a memorandum opinion. Appeal was duly perfected to the Court of Appeals. On January 25, 1980, on motion of appellant, and in accordance with the authority granted by K.S.A.1979 Supp. 20-3017, this case was transferred to the Supreme Court and set for hearing on February 28, 1980.

Article 11, § 1 of the Kansas Constitution is the fundamental law against which the validity of K.S.A.1979 Supp. 79-342 must be tested. In clear and simple language that fundamental law vests the State's taxing authority in the legislature, stating:

"The legislature shall provide for a uniform and equal rate of assessment and taxation, except that the legislature may provide for the classification and the taxation uniformly as to class of motor vehicles, mineral products, money, mortgages, notes and other evidence of debt or may exempt any of such classes of property from property taxation and impose taxes upon another basis in lieu thereof. All property used exclusively for state, county, municipal, literary, educational, scientific, religious, benevolent and charitable purposes, and all household goods and personal effects not used for the production of income, shall be exempted from property taxation."

In response to the constitutional command to provide for a uniform and equal rate of assessment and taxation the legislature has enacted many statutes. Among the statutes material to a decision herein are the following:

K.S.A. 79-501 provides:

"Each parcel of real property shall be appraised at its fair market value in money, the value thereof to be determined by the assessor from actual view and inspection of the property; but the price at which such real property would sell at auction or forced sale shall not be taken as the criterion of such fair market value in money. Tangible personal property shall be appraised at its fair market value in money at the place where the same may be held. All such real and tangible personal property shall be appraised at its fair market value in money and assessed as required in K.S.A. 79-1439."

K.S.A. 79-1406 provides:

"All property, real or personal, shall be appraised at its fair market value in money, and all real and tangible personal property which is subject to general property taxes shall be assessed at its fair market value in money as required in K.S.A. 79-1439."

K.S.A. 79-1439 provides in pertinent part:

"(A)ll real and tangible personal property which is subject to general property taxes shall be appraised uniformly and equally at its fair market value in money, as defined in K.S.A. 79-503, and assessed at thirty percent (30%) thereof."

K.S.A. 79-503, in pertinent part, provides for the determination of fair market value in money as follows:

"Fair market value in money shall mean the amount of money that a well informed buyer is justified in paying and a well informed seller is justified in accepting, assuming that the parties thereto are acting without undue compulsion and that the property has been offered at the market place for a reasonable length of time. Sales in and of themselves shall not be the sole criteria of fair market value but shall be used in connection with cost, income and such other factors as may be appropriate including but not by way of exclusion:

"(a) The proper classification of lands and improvements;

"(b) the size thereof;

"(c) the effect of location on value;

"(d) depreciation, including physical deterioration or functional, economic or social obsolescence;

"(e) cost of reproduction or improvements;

"(f) productivity;

"(g) earning capacity as indicated by lease price or by capitalization of net income;

"(h) rental or reasonable rental values;

"(i) sale value on open market with due allowance to abnormal inflationary factors influencing such values; and

"(j) comparison with values of other property of known or recognized value. The ratio study shall not be used as an appraisal for appraisal purposes."

K.S.A. 75-5105a instructs the Director of Property Valuation of the State Department of Revenue to render assistance and provide certain assessment tools to all county and district appraisers. In pertinent part, 75-5105a(b) provides that the director shall:

"Devise and/or prescribe guides showing fair market value in money of personal property. The director of property valuation shall furnish to each county one copy of each guide so prescribed and a copy or copies, at said director's discretion, of each guide so devised. In the preparation of such guides, the director of property valuation shall confer with representatives of the county appraisers and district appraisers, and shall seek counsel from official representatives of organized groups interested in and familiar with the value of classes of property with which they are concerned." (Emphasis added.)

The two statutes which gave birth to this dispute, K.S.A.1979 Supp. 79-341 and 342, provide as follows:

"79-341. ...