Summary
In City of Arkansas City v. Board of County Commissioners, 197 Kan. 728, 420 P.2d 1016, a situation was presented which at first blush might appear to be somewhat similar to the case at bar in that the county taxed assets which had been a part of an airport, title to which had reverted to two second class cities. The cities had executed oil and gas leases on the property upon which production was developed.
Summary of this case from Board of Park Commissioners v. Board of County CommrOpinion
No. 44,566
Opinion filed December 10, 1966.
SYLLABUS BY THE COURT
1. TAXATION — Exemptions Strictly Construed. Taxation is the rule — exemption is the exception — and statutes granting exemption from taxation are to be strictly construed.
2. SAME — Use as Test for Exemption. By virtue of the 1963 amendments to pertinent statutes, now appearing as K.S.A. 14-1001 and K.S.A. 79-201, Sixth, the former concept of ownership — rather than use — as being the test for exemption from taxation of property belonging to a city ( City of Harper v. Fink, 148 Kan. 278, 80 P.2d 1080) is no longer the rule. Use is now the important factor.
3. SAME — Land Owned by Cities — Oil and Gas Leases — Land Placed on Tax Rolls. Plaintiff cities owned land as tenants in common. They executed oil and gas leases. Production was had. In 1964, as provided by K.S.A. 79-330 and 331, the taxing officials placed plaintiffs' one-eighth landowner's royalty interest on the tax rolls. Held — under the facts, and for reasons set forth in the opinion, imposition of the tax was correct.
Appeal from Sumner district court; JOHN A. POTUCEK, judge. Opinion filed December 10, 1966. Affirmed.
W.R. Mathews, of Winfield, argued the cause and Lawrence E. Christenson and Marion P. Mathews, also of Winfield, were with him on the brief for appellants.
Charles E. Watson, of Wellington, argued the cause and was on the brief for the appellees.
The opinion of the court was delivered by
This is an action to recover taxes paid under protest and for injunctive relief from further taxation.
Plaintiff landowners have appealed from an adverse judgment.
The facts are not in dispute.
In 1948, by a deed not shown in the record, the United States of America conveyed a half section of land situated in Sumner county to the City of Arkansas City and the City of Winfield as tenants in common. (At oral argument of this appeal it was stated that during World War II the land in question was used for a military air field.) In 1952 the cities — hereafter referred to as plaintiffs — executed oil and gas leases covering the land. Production was obtained, and plaintiffs received their one-eighth royalty interest. The moneys so received were commingled with other municipal revenues and were used for various and sundry purposes with the consent of the United States of America.
In force during the foregoing period — and for some years thereafter — were G.S. 1949, 14-1001, which provided —
"All lands, houses, moneys, debts due the city, and property and assets of every description belonging to any city or municipal corporation under this act, shall be exempt from taxation, execution and sale." (Emphasis supplied.)
and G.S. 1949, 79-201 which, in material part, provided —
"That the property described in this section, to the extent herein limited, shall be exempt from taxation: . . . Sixth. All property belonging exclusively to any county, city, town or school district, except lands bid off for counties or cities at tax sales." (Emphasis supplied.)
In City of Harper v. Fink, 148 Kan. 278, 80 P.2d 1080, it was held that under those statutes the test of whether real estate belonging to a city is exempt from taxation was ownership, and not use.
In 1963, however, both statutes were amended.
K.S.A. 14-1001 now reads:
"All lands, houses, moneys, debts due the city, and property and assets of every description belonging to any city or municipal corporation under this act, shall be exempt from taxation, execution and sale: Provided, That if any of such lands, houses, or other property or assets are leased, loaned or otherwise made available to any person, firm or corporation for use in any trade or business or commercial enterprise, such property so leased, loaned or otherwise made available shall not be exempt from taxation for and during the term or terms thereof, . . ." (Emphasis supplied.)
K.S.A. 79-201, as material, reads:
"That the property described in this section, to the extent herein limited, shall be exempt from taxation: . . . Sixth. All property belonging to and used exclusively by the state or any municipality or political subdivision of the state, except lands bid off for counties or cities at tax sales: Provided, That if any of such property is leased, loaned or otherwise made available to any person, firm or corporation for use in any trade, business or commercial enterprise, such property so leased, loaned, or otherwise made available shall not be exempt from taxation, for and during the term or terms thereof, . . ." (Emphasis supplied.)
In 1964, pursuant to the 1963 amendments — and also pursuant to K.S.A. 79-330 and 331, which provide the formula for taxation of oil and gas properties — the defendant taxing officials of Sumner county placed plaintiffs' one-eighth landowner's royalty interest on the tax rolls.
Relief was denied by the State Board of Tax Appeals. Plaintiffs then brought this action and, as stated, the trial court upheld the imposition of the tax — hence this appeal.
It is stipulated that the land in question is not — within the purview of other portions of K.S.A. 79-201 — a municipal airport, a swimming pool, or any of the other exceptions enumerated.
The parties state the sole question is whether the act of plaintiffs in leasing the land for oil and gas purposes and receiving royalty payments attributable to their one-eighth landowner's royalty, constituted a leasing, loaning or otherwise making such property available to any person, firm or corporation for use in any trade, business or commercial enterprise, within the purview of the first proviso of the sixth subsection of K.S.A. 79-201, above.
The former statute (G.S. 1949, 79-201) exempted from taxation all property belonging exclusively to any city. The 1963 amendment states that all property belonging to and used exclusively by any city is exempt from taxation — provided that if any of such property is leased or otherwise made available to any person, firm or corporation for use in a trade, business or commercial enterprise, such property thereby loses its exemption from taxation. In other words, the former concept of ownership as the test for exemption is no longer the rule. Use is now the important factor. By virtue of the oil and gas leases executed by plaintiff cities, their interest in the land was made available to the lessee for use in a trade, business or commercial enterprise and, under the statute, it thereby lost its exemption from taxation. Further discussion of the matter would add nothing to this opinion. The decision of the trial court denying relief was correct, and the judgment is affirmed.