T-Bone Feeders, Inc. v. Martin
Decision Date | 26 January 1985 |
Docket Number | No. 56739,T-BONE,56739 |
Citation | 236 Kan. 641,693 P.2d 1187 |
Court | Kansas Supreme Court |
Parties | FEEDERS, INC., and J & J Feeders, Inc., Applicants, and Kansas Livestock Association, Intervenor, Plaintiffs-Appellants, v. Philip W. MARTIN, Director, Division of Property Valuation of the State of Kansas; Harley T. Duncan, Secretary of Revenue, State of Kansas; and Board of County Commissioners, Sherman County, Kansas, Defendants-Appellees. |
Syllabus by the Court
Machinery and equipment used in a commercial feedlot operation are not personal property used exclusively in farming or ranching operations and are not included within the exemption from property or ad valorem taxes provided under K.S.A. 1982 Supp. 79-201j.
Wilbur G. Leonard, Topeka, argued the cause and was on briefs for appellants.
Carol B. Bonebrake, Kansas Department of Revenue, Topeka, argued the cause and was on brief for appellees, Philip W. Martin and Harley T. Duncan.
F.L. McGinley, Goodland, was on the brief for appellee, Board of County Com'rs.
This is an administrative appeal from an order of the Board of Tax Appeals of the State of Kansas (BOTA) denying the claims of two corporate taxpayers for an exemption from taxation of certain personal property owned by them and used in the operation of their cattle feedlots. The district court of Shawnee County affirmed the order of BOTA, and the taxpayers then filed an appeal to this court. The taxpayers, appellants in this case, are T-Bone Feeders, Inc., and J & J Feeders, Inc., applicants for the exemption. The Kansas Livestock Association was permitted to intervene in the case in support of the taxpayers. The appellees participating in this appeal include Philip W. Martin, Director, Division of Property Valuation of the State of Kansas; Harley T. Duncan, Secretary of Revenue; and the Board of County Commissioners of Sherman County. They will be referred to as the taxing agencies.
The claim of exemption in this case was made by the taxpayers on the basis of K.S.A. 1982 Supp. 79-201i and 79-201j which were enacted in 1982. K.S.A. 1982 Supp. 79-201j provides an exemption from ad valorem taxation for farm machinery and equipment in the following language:
K.S.A. 1982 Supp. 79-201i, which was enacted along with 79-201j in Chapter 390, Laws of 1982, sets forth the legislative purpose of the tax exemption:
(Emphasis supplied.)
In order to determine the question of exemption raised in this case, it is necessary to interpret the legislative intent as expressed in the two statutes set forth above and to apply the same to the undisputed factual circumstances present in this case. Simply stated they are as follows: T-Bone Feeders, Inc., and J & J Feeders, Inc. (the taxpayers) are separately engaged in the commercial feedlot business.
T-Bone Feeders, Inc., is a Kansas corporation, 97% owned by members of the House family, who are responsible for the management of the feedlot which has a capacity of 5,500 head. Recent occupancy varies from 3,700 to 4,200 head, of which approximately 70% are owned by the House family. In 1983 the family's cultivated farming operations included 6,030 acres owned by them and 3,840 acres leased from others, on which land they produced a substantial part of the grain and other foodstuffs fed to feedlot cattle.
J & J Feeders, Inc., is a Kansas corporation, wholly owned by John Cogswell who also owns and operates one hundred quarters (25 sections) of grassland on which he maintains an extensive cattle herd. The feedlot, near Goodland, has a capacity of 7,500 head, with an estimated break-even point of 3,500 head. From one-third to one-half of the cattle on feed are owned by Mr. Cogswell, with the remainder belonging to other persons. The Cogswell pastures annually provide some 500 tons of hay for feedlot use. Grains and other foodstuffs are purchased from neighboring farmers.
The Kansas Livestock Association was permitted to intervene in the case before BOTA on behalf of the Kansas livestock industry and the cattle feedlots which are members of the association. It supported taxpayers' applications for exemption before BOTA and joins the taxpayers in this appeal.
The personal property for which exemption is claimed includes such items as grinders, loaders, tractors, dirt movers, sprayers, hay trailers, feed boxes and other equipment used in the feeding and maintenance of the cattle and the general upkeep of the feedlot facilities. Equipment and machinery used on farms and ranches are not involved in this case.
The physical facilities maintained by these taxpayers are typical of the feedlots operated throughout the state. Their sole purpose is to complete the final conditioning of beef animals, at the end of which period the cattle are shipped to nearby packers for slaughter and processing. Termed "feeder cattle," most animals are about two years old and weigh from 500 to 750 pounds when they enter the feedlots. They previously have been on grass, wheat pasture or other type of forage and usually have not been fed a substantial amount of grain. When received at the feedlot they are vaccinated, dipped, tagged for identification and subjected to other veterinary procedures. They are then confined in pens of 100 to 200 head and fed concentrated diets of grain, roughage and supplements to produce the maximum gain in the shortest period of time. Usually, the feeding cycle is from three to six months, depending on the size and condition of the animal when it is received, the feeding formula used, weather conditions and other factors.
The basic issue in the case is stated by the taxpayers in the following manner: Is the machinery and equipment actually and regularly used exclusively in the operation of cattle feedlots exempt from personal property taxation under the provisions of K.S.A.1982 Supp. 79-201i and 79-201j, when the owners of such feedlots, in addition to feeding their own cattle, feed cattle belonging to other persons?
Following the filing of the claims for exemption, BOTA set the claims for hearing and afforded the parties a full opportunity to present their evidence and legal arguments. After hearing all the evidence and having received briefs of counsel for the taxpayers and the taxing agencies, BOTA on May 2, 1983, denied the taxpayers' applications for exemption. In denying the claims for exemption, BOTA found that the taxpayers' machinery and equipment used in their feedlot operations were not used exclusively in farming or ranching operations. BOTA concluded that the taxpayers used their machinery and equipment for a dual purpose:
(1) In a service-oriented business in connection with cattle owned by the taxpayers; and
(2) as instruments of husbandry with respect to cattle owned by the taxpayers.
In arriving at its decision, BOTA noted the term "agricultural", is a much broader term than "farming or ranching." BOTA recognized that commercial feedlots are agricultural endeavors or agri-businesses, but held they do not fall in the category of "farming or ranching operations." The taxpayers appealed the order of BOTA to the district court of Shawnee County pursuant to K.S.A. 74-2426(d)(2) which affirmed the decision of BOTA in a short memorandum decision stating it agreed with the conclusions reached by BOTA.
As we view it, the sole issue presented on appeal is whether the machinery and equipment used by the taxpayers in their commercial feedlot operations constituted "personal property actually and...
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