Title: LIDDELL v. HEAVNER
Citation: 180 P.3d 1191, 2008 OK 6
Docket Number: 
State: Oklahoma
Issuer: Oklahoma Supreme Court
Date: January 29, 2008

LIDDELL v. HEAVNER Annotate this Case LIDDELL v. HEAVNER 2008 OK 6 180 P.3d 1191 Case Number: 102732 Decided: 01/29/2008 THE SUPREME COURT OF THE STATE OF OKLAHOMA HAROLD LIDDELL, Plaintiff/Appellant, v. DENISE HEAVNER, Cleveland County Assessor, in Her Official Capacity, and CLEVELAND COUNTY BOARD OF EQUALIZATION, Defendants/Appellees, and STATE OF OKLAHOMA, Intervenor/Appellee. ON CERTIORARI TO THE COURT OF CIVIL APPEALS, DIV. I ¶0 Harold Liddell filed a complaint in the Cleveland County Board of Equalization, alleging that the Cleveland County Assessor had systematically undervalued property owned by certain developers in Cleveland County for Tax Years 2003 and 2004 in violation of the Oklahoma Constitution, the Fourteenth Amendment of the United States Constitution, and various state statutes. The Board sustained the valuations and Liddell appealed to the Cleveland County District Court. The Oklahoma Attorney General sought and was granted leave to intervene to defend the constitutionality of the statute upon which the Assessor relied in making the challenged valuations. Upon counter motions for summary adjudication of the constitutional issue, the District Court, Tom A. Lucas, trial judge, ruled that the statute is constitutional. Liddell dismissed his remaining claims, the trial court entered final judgment, and Liddell appealed. The Court of Civil Appeals, Div. I, affirmed. On certiorari granted upon Liddell's petition, THE COURT OF CIVIL APPEALS' OPINION IS VACATED AND THE TRIAL COURT'S JUDGMENT IS REVERSED Louis W. Bullock and Robert M. Blakemore, MILLER KEFFER BULLOCK PEDIGO LLC, Tulsa, Oklahoma, for Appellant David L. Kinney and Scott D. Boughton, Assistant Attorneys General, OFFICE OF THE OKLAHOMA ATTORNEY GENERAL, Oklahoma City, Oklahoma, for Intervenor/Appellee Drew D. Webb, McAFEE & TAFT, Oklahoma City, Oklahoma, for Amicus Curiae, Oklahoma State Home Builders Association Julie L. Miller, Craig A. Crimmins, and Shelley A. Shelby, Oklahoma City, Oklahoma, for Amicus Curiae, Oklahoma State School Boards Association and Cooperative Council for Oklahoma School Administration OPALA, J. ¶1 The principal and dispositive issue presented on certiorari is whether the terms of 68 O.S. Supp. 2004 §2817(I)2 violate the fair cash value standard of Article X, §8(A)(2) of the Oklahoma Constitution. We answer in the affirmative.3 I THE ANATOMY OF LITIGATION ¶2 In May 2004 Harold Liddell ("Liddell" or "Plaintiff") filed a complaint in the Cleveland County Board of Equalization ("Board"), alleging that Denise Heavner, the Cleveland County Assessor ("Assessor"), had grossly and systematically undervalued real property belonging to certain Cleveland County land developers in violation of the state and federal constitutions. Plaintiff sought a full investigation of all Cleveland County assessments for Tax Years 2003 and 2004, a reassessment of all realty found to be undervalued during those years, the collection of unpaid back taxes from the owners of any realty found to be undervalued, and the implementation of policies and procedures in the Assessor's office to prevent a recurrence of the alleged discriminatory pattern of real estate valuation. ¶3 After hearing argument on Liddell's complaint on 25 May 2004, the Board sustained all the challenged valuations. According to Liddell's district court petition, he was told at this proceeding that each of the properties about which he complained had been correctly valued pursuant to the provisions 68 O.S. Supp. 2004 §2817(I) [hereinafter §2817(I)]. ¶4 Liddell appealed from the Board's decision to the Cleveland County District Court. In addition to the relief he had requested from the Board, Liddell now sought a judicial declaration that the provisions of §2817(I) violate: (a) Article X, §8(A)(2) of the Oklahoma Constitution and (b) the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution.4 ¶5 Assessor and Board ("defendants") moved to dismiss plaintiff's petition for lack of standing, failure to state a claim, and failure to include indispensable parties. Their motion was denied. II THE STANDARD OF REVIEW FOR APPEALABLE PRODUCTS OF SUMMARY PROCESS ¶6 Summary process - a special pretrial procedural track pursued with the aid of acceptable probative substitutes ¶7 Summary relief issues stand before us for de novo review. III THE CONSTITUTIONAL AND STATUTORY FRAMEWORK FOR THE VALUATION OF REAL PROPERTY TAXED AD VALOREM ¶8 The Legislature has plenary power to tax, subject only to constitutional restrictions and the will of the people expressed through elections.15 All non-exempt property is taxed ad valorem unless the Legislature provides otherwise through the enactment of a substitute tax.16 Ad valorem taxes are direct taxes on real and personal property based on the property's value.17 Determining the value of all county property for purposes of ad valorem taxation is the duty of the county assessor.18 ¶9 Until 1972 our fundamental law, Article X, §8, directed that all property subject to taxation on an ad valorem basis be assessed up to a specified percentage of its fair cash value, estimated at the price it would bring at a fair voluntary sale. ¶10 Article X, §8 was amended in 1972. ¶11 Article X, §8 was last amended in 1996. The provisions applicable to the valuation of real property were set out in a separate provision from those applicable to the valuation of personal property and the phrase "estimated at the price it would bring at a fair voluntary sale" was removed from its association with real property valuation. The terms of Article X, §8(A)(2) have provided since 1996: § 8. Valuation of property for taxation - Limit on percentage of fair cash value - Approval by voters. A. Except as otherwise provided in Article X of this Constitution, beginning January 1, 1997, all property which may be taxed ad valorem shall be assessed for taxation as follows: * * * * * 2. Real property shall not be assessed for ad valorem taxation at a value less than eleven percent (11%) nor greater than thirteen and one-half percent (13.5%) of its fair cash value for the highest and best use for which such property was actually used, or was previously classified for use, during the calendar year next preceding the first day of January on which the assessment is made. The transfer of property without a change in its use classification shall not require a reassessment based exclusively upon the sale value of such property. In connection with the foregoing, the Legislature shall be empowered to enact laws defining classifications of use for the purpose of applying standards to facilitate uniform assessment procedures in this state; . . ." ¶12 In addition to amending Article X, §8, the people also approved in 1996 a new constitutional provision relating to the valuation of real property. The provisions of Article X, §8B prohibit county assessors from increasing the fair cash value of any parcel of real property by more than five percent (5%) per year unless title to the property is transferred, changed, or conveyed to another person, or improvements are made to the property, in which case the property is to be assessed for that year based on its fair cash value as provided in Article X, §8.25 ¶13 Following the 1972 amendment to Article X, §8, we modified our Bliss Hotel definition of fair cash value to give effect to the new constitutional language linking the valuation of real property to use. In Tulsa County Board of Equalization v. Independent School District No. 1 of Tulsa County, ¶14 The provisions of "the value or price at which a willing buyer would purchase property and a willing seller would sell property if both parties are knowledgeable about the property and its uses and if neither party is under any undue pressure to buy or sell and for real property shall mean the value for the highest and best use for which such property was actually used, or was previously classified for use, during the calendar year next preceding the applicable January 1 assessment date; . . ." The first complete predicate in this simple sentence restates the usual definition of fair market value, while the second complete predicate, joined to the first by the conjunction "and," merely qualifies the uses which may be taken into account when determining fair market value. ¶15 The Legislature has also adopted a comprehensive set of statutory procedures to guide assessors in determining the fair cash value of real property. Assessors are to physically inspect each parcel of taxable real property in a county on a four year inspection cycle. IV THE PROVISIONS OF §2817(I) VIOLATE THE FAIR CASH VALUE STANDARD MANDATED BY ARTICLE X, §8(A)(2) OF THE OKLAHOMA CONSTITUTION ¶16 In assessing the conformity of a challenged state statute to our fundamental law, we are guided by well-established principles. The Constitution is the bulwark to which all statutes must yield. ¶17 Liddell challenges the constitutionality of the statutory ascription of meaning to the term fair cash value as applied to lots in platted additions and subdivisions in the provisions of §2817(I). That section states in pertinent part: "[T]he fair cash value of a lot in any platted addition or a subdivision in a city, town or county zoned for residential, commercial, industrial or other use shall be deemed to be the total purchase price paid by the developer of the addition or subdivision for the land comprising the platted addition or subdivision divided by the number of lots contained in the addition or subdivision until the lot with building or buildings located thereon shall have been conveyed to a bona fide purchaser or shall have been occupied other than as a sales office by the owner thereof, or shall have been leased, whichever event shall first occur." Liddell argues that the valuation formula in the challenged statute bears no relationship to the Constitutional mandate that real property be assessed at its fair cash value. He contends that fair cash value is synonymous with fair market value and cites to the court's definition of fair cash value in Tulsa County Board of Equalization for its more expansive exposition of the term's meaning. ¶18 The State argues that §2817(I) is a valid exercise of the Legislature's power to create classifications for purposes of taxation. The State identifies two constitutional sources of this power: (1) the provisions of Article X, §22, Okla. Const., which give the Legislature the power to classify property for purposes of taxation and to value property by different means or methods ¶19 In its brief amicus curiae the Oklahoma State Home Builders Association argues that §2817(I) reflects the Legislature's judgment that land under development and construction should be assessed using the same use-based valuation approach applied to farmland, which is valued for ad valorem tax purposes based on its use as farmland regardless of the price it might bring on the open market based on the different use of nearby land for more lucrative purposes. ¶20 To arrive at fair cash value, an assessor must do two things: determine how the real property being assessed was actually used or classified for use during the assessment year and obtain relevant and reliable market data about the value of property of that kind. The Legislature has provided guidance in making both of these decisions, first, by identifying three use categories: residential, commercial-industrial, and agricultural, ¶21 The first sentence of §2817(I) says, "If any real property shall become taxable after January 1 of any year, the county assessor shall assess the same and place it upon the tax rolls for the next ensuing year." Under the provisions of §2817(I), the filing of a plat triggers the separate taxation of the lots drawn on the plat. They must be separately assessed and placed on the tax rolls for the next ensuing year. The challenged portion of §2817(I) then supplies a method of arriving at their fair cash value for ad valorem tax purposes. It instructs assessors to deem the fair cash value of each platted lot in an addition or subdivision as a pro-rata share of the purchase price of the underlying tract of land on the date of purchase and to freeze that valuation until a building is constructed on the lot and it is either conveyed to a bona fide purchaser, leased, or occupied by the owner as other than a sales office. ¶22 The provisions of §2817(I) do not define the terms platted addition or subdivision nor do they define the term lot. Generally, a plat is defined as a map of a subdivision and a lot as a parcel of land on a plat that is separately owned and capable of being separately conveyed. Platting indicates an intent to use the land for a particular purpose in the future. In and of itself, platting does not have any physical impact on the land. It may or may not entail the contemporaneous installation of streets, utilities, and other indicia of development. Land that is platted may continue to be used as it was used prior to platting, it may not be used at all for some period of time, or it may be at any stage of completion toward becoming fully developed building sites. ¶23 The Legislature, in the exercise of its authority to categorize property by use, may recognize that land with development potential requires a specialized means of determining its fair cash value. As proto-residential or proto-commercial/industrial property, platted lots do not necessarily have a use value commensurate with their fair market value if and when sold as individual units. The fair cash value of the land as a whole may more accurately represent the individual platted lots' current worth. Recognizing this, the Legislature in the provisions of §2817(I) has implicitly created a separate use category for platted lots and determined that their fair market value is best measured by looking to the value of the underlying tract. This the Legislature is constitutionally empowered to do. What it may not constitutionally do and what it has done in §2817(I) is to potentially divorce the valuation of platted lots from the fair market value of the underlying tract of land as of the relevant assessment date. It arrested the process of annual reassessment required by law. ¶24 The provisions of §2817(I) invariably value platted lots at the acquisition cost of the underlying tract of land, regardless of the circumstances of the land's purchase, the time of the purchase in relation to the relevant assessment date, and without considering whether the land remains in the same condition as it was when it was acquired. Excluded from consideration are such things as whether the property was acquired in an arm's length transaction, any compulsion in the sale, changes in the real estate market between the date of the tract's purchase and the relevant assessment date, and alterations in the condition of the property. The acquisition cost of the tract as a whole may be a factor in arriving at the value of platted lots, but fixing it rigidly as the sole and conclusive factor violates the fair cash value standard of Article X, §8(A)(2). ¶25 Moreover, our Constitution mandates annual reassessments of real property, subject to the 5% cap on increases provided by Article X, §8B. The provisions of §2817(I) freeze the initial valuation of a lot until a building is constructed on it and it is either conveyed to a bona fide purchaser, leased, or occupied by the owner for a purpose other than as a sales office. The fair cash value of the land may change for many reasons, including the progress made away from a single tract of land that is merely adaptable to subdivision purposes as evidenced by a plat and toward the actual physical creation of lots suitable for sale to many individual buyers. The discrepancy Liddell complains of between the fair cash value of platted lots as measured by the fair market value of the underlying tract as a whole and the fair cash value of individual lots that have been fully developed and sold as building sites can only be addressed in conformity to Article X, §8B. A freeze at the property's initial valuation is manifestly inconsistent with our fundamental law's command. ¶26 The dissent would uphold the constitutionality of §2817(I) on the basis of the language in Article X, §8 that permits the fair cash value of property to be based upon a property's earlier classification for use during the previous calendar year. Because newly platted lots must be classified, assessed and placed on the tax rolls for the next ensuing year, ¶27 The dissent also relies upon the sentence in Article X, §8 that states: "[t]he transfer of property without a change in its use classification shall not require a reassessment based exclusively upon the sale value of such property." This provision is not applicable to newly platted lots, as to which no transfer is effected by virtue of being platted. ¶28 Finally, the dissent misinterprets the court's decision to mean that platted lots must invariably be valued at their fair market value. This is not our intent. The legislature may create a valuation method that takes into account how developers use land platted for development. We say today only that such method, which must account for the property's use as a residential or commercial/industrial lot, cannot indefinitely lock in a value. V SEVERABILITY ANALYSIS ¶29 A severability analysis is necessary when some, but not all, provisions of an enactment are to be condemned as unconstitutional and hence void. ¶30 Because §2817(I)'s valuation formula for platted lots in additions or subdivisions is constitutionally infirm, we must also determine whether it can be severed from the remainder of the statute, leaving that which is left operational. The general subject matter covered by the provisions of §2817(I) consists of guidance to assessors in dealing with newly taxable real property. Those provisions not involved in today's pronouncement are not dependent upon the presence of the platted lot valuation formula for their meaning or enforcement. In somewhat different form, the untainted provisions actually predate the enactment of the platted lot valuation formula, a clear indication that they should be regarded as operationally independent of the voided provision. We therefore hold that the platted lot valuation provision of §2817(I) is severable from the remainder of the statute. VI THE PRESUMPTIVE VALIDITY OF 2817(I) CALLS FOR THE PROSPECTIVE APPLICATION OF TODAY'S DECISION ¶31 Today's pronouncement invalidating the valuation formula for platted lots in additions or subdivisions contained in §2817(I) casts into doubt the accuracy of valuations made in reliance on the statute. While the instant case involves the valuation of property in Cleveland County alone, it potentially throws into a state of uncertainty and even chaos valuations of platted lots made in every county in this state. All county assessors statewide have until now stood under an obligation to value property held by a developer according to the formula contained in §2817(I). Ordinarily, an unconstitutional statute confers no rights, creates no liability, and affords no protection. VII SUMMARY ¶32 Oklahoma's fundamental law mandates that real property be valued based upon its current use value. Departure from that command can be authorized only by a vote of the people. By providing a fixed and void formula for the valuation of all platted lots tied to the acquisition cost of the property without regard to the circumstances of the sale or the interval between the sale and the relevant assessment date and by freezing that valuation until the occurrence of a specified event, the terms of §2817(I) fail to conform to the Constitutional command that real property be assessed at its fair cash value. ¶33 THE COURT OF CIVIL APPEALS' OPINION IS VACATED AND THE TRIAL COURT'S JUDGMENT IS REVERSED ¶34 WINCHESTER, C.J., EDMONDSON, V.C.J., and HARGRAVE, OPALA, WATT, TAYLOR, and COLBERT, J.J., concur ¶35 KAUGER and REIF, J.J., dissent FOOT