Tri-County Public Airport Authority v. Board of County Com'rs of Morris County, TRI-COUNTY

• Court: United States State Supreme Court of Kansas
• Writing for the Court: HOLMES
• Citation: 245 Kan. 301,777 P.2d 843
• Parties: PUBLIC AIRPORT AUTHORITY, Appellant, v. BOARD OF COUNTY COMMISSIONERS OF MORRIS COUNTY, Kansas, Appellee.
• Docket Number: No. 63227,TRI-COUNTY,63227
• Decision Date: 14 July 1989

Page 843

777 P.2d 843 245 Kan. 301 TRI-COUNTY PUBLIC AIRPORT AUTHORITY, Appellant,
v.
BOARD OF COUNTY COMMISSIONERS OF MORRIS COUNTY, Kansas, Appellee. No. 63227. Supreme Court of Kansas. July 14, 1989.

Page 844

Syllabus by the Court

1. Several basic principles of taxation and exemption from taxation are stated and applied.

2. An airport authority created pursuant to the Surplus Property and Public Airport Authority Act, K.S.A. 27-315 et seq., has the power and authority to own property for investment and/or revenue producing purposes.

3. K.S.A.1988 Supp. 79-201a Second provides, inter alia, that property used exclusively by an airport authority, created pursuant to K.S.A. 27-315 et seq., for a governmental or proprietary function shall be exempt from property and ad valorem taxation.

4. To qualify for an exemption from taxation, exclusive use of property as defined by K.S.A.1988 Supp. 79-201a Second requires actual use of the property for a public purpose.

5. The leasing of property of an airport authority solely for the purpose of generating revenue does not constitute exclusive use for a "governmental or proprietary function" of the airport authority even though the particular use of the leased property may be proprietary in nature.

Charles R. Rayl, of Rayl and Fowler, Chartered, Cottonwood Falls, argued the cause and was on the brief, for appellant.

Michael F. Powers, County Atty., argued the cause, and William A. Kassebaum, Asst. County Atty., was with him on the brief, for appellee.

HOLMES, Justice:

The Tri-County Public Airport Authority (Tri-County) appeals from a decision of the Shawnee County District Court, which affirmed a Board of Tax Appeals (BOTA) order. The BOTA concluded that only part of the real property owned by Tri-County was exempt from ad valorem taxes pursuant to the Surplus Property and Public Airport Authority Act, K.S.A. 27-315 [245 Kan. 302] et seq., and K.S.A.1988 Supp. 79-201a Second. It concluded that land owned by Tri-County but leased to various other private entities for production of revenue was not exempt. The case was transferred to this court from the Court of Appeals pursuant to K.S.A. 20-3018(c). We affirm.

The facts are not in dispute. On September 24, 1948, the City of Herington, Kansas, acquired 1,720.5 acres of real estate, formerly known as Delavan Army Air Base, from the United States government. The City of Herington paid ad valorem taxes on the property while it was under city ownership. The city operated the property as an airport and entered into several leases with private entities for the use of various parcels of property on the old air base for a variety of purposes.

On June 27, 1978, the City of Herington, pursuant to K.S.A. 27-319, enacted an ordinance creating the Tri-County Public Airport Authority. On December 4, 1979, the city conveyed the property making up the old air base to Tri-County pursuant to K.S.A. 27-321. On July 18, 1980, Tri-County filed an action in mandamus with the District Court of Morris County, seeking a determination that the property was tax-exempt. The district court held that the entire parcel was exempt. On appeal, however, this court reversed and directed dismissal of the case, holding that the Morris County District Court lacked jurisdiction

Page 845

because Tri-County had not exhausted its administrative remedies. See Tri-County Public Airport Authority v. Board of Morris County Comm'rs, 233 Kan. 960, 967, 666 P.2d 698 (1983).

Tri-County soon thereafter filed an application for relief with the BOTA, seeking an abatement of taxes beginning in 1978 and requesting an exemption pursuant to K.S.A.1988 Supp. 79-201a. In its application, Tri-County indicated that the primary function of the property is as a municipal airport, and listed several businesses operating in the "Industrial Park." The County Appraiser contested the application, contending that not all of the subject property should be exempt. The BOTA held a hearing on the application on April 15, 1985.

The parties stipulated to certain facts, including the following:

"5. The Tri County Public Airport Authority currently leases to third parties portions or all of the tracts described in paragraph 3 above. Several non-aviation businesses lease property including farm lands, pasture lands, manufacturing and assembly plants, feed lot and processing plants from the Tri County Public Airport Authority, situated on the real estate described in paragraph 3 above. All [245 Kan. 303] of the revenues derived from the lease of said property described above are exclusively used by The Tri County Public Airport Authority for its operations as a political subdivision for the furtherance of the public good achieved by the maintenance and operation of a public airport. The airport is a public airport within the definition of K.S.A. 27-329(f) and includes property needed to develop sources of revenue from non-aviation businesses at such airport."

At the hearing, Morris County did not contest the request for exemption as to the property used for airport purposes, but did question whether the exemption should include the leased acreage. Evidence presented at the hearing indicated that Tri-County leases approximately 1,336 acres to private parties, or about 78% of its total acreage. The buildings, facilities, cattle, and other personal property belonging to the lessees are on the tax rolls as personal property. Tri-County does not seek a tax exemption for the buildings and personal property owned by the lessees which are located on the site. The only matter in dispute is whether the land owned by Tri-County is exempt from ad valorem tax in its entirety.

The evidence presented at the hearing established that all revenue generated by leasing parts of the property to nonaviation-related businesses was used to finance airport operations and debt service on airport revenue bonds. Although K.S.A. 27-322 authorizes an airport authority to levy taxes on city property, the financial records submitted at the hearing showed that Tri-County financed its operations solely from non-tax revenue.

The BOTA issued a preliminary order on July 9, 1986. It recognized that Tri-County was statutorily authorized by K.S.A. 27-320(c) to own and operate property for the production of revenue from nonaviation businesses. However, the BOTA determined that the applicable statutory tax exemption, 79-201a Second, does not extend to property leased to and used by private entities for purposes unrelated to a function or purpose of government.

For the purpose of implementing its decision, the BOTA directed Tri-County to provide a legal description encompassing that part of its property including "runways, taxi-ways, terminals, and a sufficient amount of surrounding land which is directly necessary to the operation of the airport." Those parts of the property leased to private entities were determined to be non-exempt "except to the extent they are directly necessary to the operation of the airport." On October 27, 1986, Tri-County and [245 Kan. 304] Morris County submitted a list of acreage, totalling 349 acres, in response to the BOTA's preliminary order.

The BOTA issued its final order on December 2, 1987, and based upon the information submitted by the parties it held 349 acres of the Tri-County property to be exempt. Following the denial of a motion for rehearing, Tri-County filed a timely

Page 846

petition for judicial review in Shawnee County District Court. The district court affirmed the BOTA order and Tri-County has appealed. Tri-County raises two basic issues in this appeal:

1) Whether all of the property of Tri-County qualifies for an ad valorem tax exemption under K.S.A.1988 Supp. 79-201a Second as a matter of law based upon the undisputed evidence; and

2) whether the Tri-County property should be exempt as a unit.

As provided in K.S.A.1988 Supp. 74-2426(c), an appeal from a decision of the BOTA is generally subject to the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. Tri-County contends, inter alia, that the BOTA erroneously interpreted or applied the law, K.S.A. 77-621(c)(4), and that the BOTA otherwise acted unreasonably, arbitrarily, and capriciously, K.S.A. 77-621(c)(8).

Before turning to the specific issues asserted by Tri-County, certain basic rules and legal principles warrant review. Whether particular property is exempt from ad valorem taxation is a question of law if the facts are agreed upon. T-Bone Feeders, Inc. v. Martin, 236 Kan. 641, 645, 693 P.2d 1187 (1985); State ex rel. Goodell v. Davis, 144 Kan. 708, 709-10, 62 P.2d 893 (1936). Taxation is the rule, and exemption from taxation the exception under the Kansas Constitution and statutes. T-Bone Feeders, Inc. v. Martin, 236 Kan. at 645, 693 P.2d 1187; City of Arkansas City v. Board of County Commissioners, 197 Kan. 728, Syl. p 1, 420 P.2d 1016 (1966); Sunday School Board of the Southern Baptist Convention v. McCue, 179 Kan. 1, 7, 293 P.2d 234 (1956); Defenders of the Christian Faith, Inc. v. Horn, 174 Kan. 40, 44, 254 P.2d 830 (1953); Manhattan Masonic Temple Ass'n v. Rhodes, 132 Kan. 646, 649, 296 P. 734 (1931). Constitutional and statutory provisions...