Title: Angle v. Board of County Commissioners
Citation: 214 Kan. 708, 522 P.2d 347
Docket Number: 47,262
State: Kansas
Issuer: Kansas Supreme Court
Date: May 11, 1974

214 Kan. 708 (1974)
522 P.2d 347
GEORGE A. ANGLE, d/b/a FRONTIER OIL COMPANY, Appellee,
v.
THE BOARD OF COUNTY COMMISSIONERS OF RUSH COUNTY, KANSAS, Consisting of JOHN B. KOBER, RAYMOND REICHEL and REUBEN ROMEISER; RUTH ANNE KRUG, County Treasurer of Rush County, Kansas, and EVELYN BUSSART, County Clerk of Rush County, Kansas, Appellants.
No. 47,262

Supreme Court of Kansas.
Opinion filed May 11, 1974.
John C. Woelk, of Woelk and Culley, of Russell, argued the cause, and Ivan Krug, county attorney, was with him on the brief for the appellants.
Gerald Sawatzky, of Foulston, Siefkin, Powers and Eberhardt, of Wichita, argued the cause, and John J. Stang, of La Crosse, was with him on the brief for the appellee.
The opinion of the court was delivered by
FOTH, C.:
In the court below these were four consolidated actions brought by a taxpayer under K.S.A. 79-2005 to recover taxes paid under protest, covering first and second half taxes for the years 1970 and 1971, on seven oil and gas leases in Rush county. The controversy was over the value of the underlying reservoirs; no issue was raised as to the value of the equipment. The trial court granted judgment for the taxpayer, and the defendant taxing authorities have appealed.
Plaintiff taxpayer is an independent oil and gas operator who has, over the years, drilled numerous oil and gas wells in and around *709 Rush county, Kansas. Commencing in 1966, he drilled several leases in Rush county, in the immediate area of the leases involved in this suit.
The Lansing oil reservoir in this area was shown to be a short-lived gas drive reservoir. In all instances where production was obtained, the initial production for three to six months was quite high, followed by a steep decline. Plaintiff testified that, in his experience, to obtain maximum production from this type reservoir a well should be produced to its full capability in order to take advantage of the gas drive, which tended to dissipate in a short period of time regardless of the rate of production. Once the gas drive dissipated, movement of reservoir oil to the well bore ceased.
It was plaintiff's theory below, adhered to in this court, that in making the assessments for 1970 and 1971 the Rush county oil and gas assessor had ignored these known factors of productive well life in the area, which he characterized as initial high production, ensuing sharp decline, and short-lived wells. He points to K.S.A. 79-331, which requires an assessor of oil and gas leases to take into account, among other things, "the probable life of the wells."
He then relies on Garvey Grain, Inc. v. MacDonald, 203 Kan. 1, 453 P.2d 59, in which we held that where the legislature has "detailed the factors or combinations thereof to be considered by taxing officials" in assessing property, "State and local taxing officials may not ignore the standards prescribed, since the statute clearly requires consideration of the pertinent factors to specific property and of an assessment of specific property in conformity with its provisions. It requires no semantic niceties to conclude that consideration of the pertinent factors is mandatory to determine justifiable value." (Id., p. 10.)
It is defendants' position, on the other hand, that this case involves merely a difference of opinion over value, where the good faith judgment of the assessor must prevail. They rely on Cities Service Oil Co. v. Murphy, 202 Kan. 282, 447 P.2d 791, where we held:
*710 The issue presented to the trial court, then, was whether this was a case of a mere difference of opinion (Cities Service), or one of ignoring a statutory factor of value (Garvey). The trial court found it was the latter, and we are called upon to determine whether that finding was correct.
The trial court made detailed and extensive findings of fact (67 in all) reviewing the evidence in general and as it related to each of the seven leases. No particular finding is challenged by the defendants, and only a few need be reproduced here. The court found that all leases in the area had a history of rapid decline in production after the first few months, which exceeded 50% in the second year. The assessor had employed a valuation schedule prepared by Dr. Charles F. Weinaug of the University of Kansas and adopted in its manual by the property valuation department. (The "Weinaug" schedule is discussed and generally approved in Cities Service Oil Co. v. Murphy, supra.) This schedule contains factors designed to account for production declines up to 50%. The court went on to find:
It also found that the data reflecting actual production for each lease, reflecting the rapid decline, had been furnished to the assessor in time for his consideration in making both the 1970 and 1971 assessments.
These general findings were followed by detailed findings as to each of the seven leases in question, concluding as to each that the assessor had either ignored altogether the manual's provisions for rapidly declining production, or had applied a decline factor based on an assumed production which was substantially higher than the known actual production.
After its lease-by-lease findings, the court summarized:
In its conclusions of law the trial court took notice of the assessor's duty to consider the "probable life of the wells" under K.S.A. 79-331, and went on to say:
The result was the judgment appealed from, finding five of the wells overvalued in both 1970 and 1971, one well in 1970 alone and another in 1971 alone.
In their statement of points defendants, as noted above, make no attack on any particular finding of fact. They do assert generally that "It was error to find the assessor failed to give consideration to known production decline in making his assessments for the year of 1971." We assume that assertion is based on the testimony of the assessor that for 1971 "he did take into consideration the decline factors, according to the schedule." However, he also testified that the manual was not designed to  and he did not  take into account declines of over 50%, which was the actual experience of these leases. Lip service to a legislative mandate is not enough. Cf. Garvey Grain, Inc. v. MacDonald, supra, 203 Kan. at 14. We conclude that the trial court's findings that the assessor did not give appropriate consideration to the probable life of the wells is supported by the record.
This conclusion effectively answers defendants' arguments, advanced in their brief, that (1) "The assessor was not arbitrary or capricious;" (2) "Appellee was arbitrary in disregarding his production history of prior years;" and (3) "Appellee has failed to prove constructive fraud." Once it is determined as a matter of fact that the assessor has failed to give proper consideration to a statutory element of value, under Garvey there is arbitrary and capricious action amounting to constructive fraud, regardless of the subjective good faith of the assessor.
Defendants also argue that "Appellee seeks to avoid paying his fair share of taxes." They base this on the idea that where an operator rapidly depletes the reserves under his lease "most of his oil escapes taxation while the operator following the normal procedure pays a tax on each barrel produced." We think this argument mistakes the incidence of the tax. What is assessed is the lease, not the oil produced. Production is merely one gauge by which the value of the reservoir, and in turn the lease, is measured. It is apparent that a reservoir which has been largely *714 drained as of a particular January 1, has less value than one which has not. The trial court answered this argument in its letter opinion:
Finally, defendants argue that "The trial court's decision is bad precedent and public policy." By this contention they suggest once again that the trial court substituted its opinion for that of the assessor. If this were so they would, of course, be right, and the judgment could not stand. Judicial intervention of that kind in the assessment process is prohibited by Cities Service and a host of other cases. But we have pointed out above that this is not that kind of a case. The trial court found as a matter of fact that in exercising his judgment the assessor deliberately ignored a statutory element of value. That finding is essentially unchallenged, and is supported by the record. The case, therefore, falls into the mould of Garvey, not that of Cities Service.
The judgment is affirmed.
APPROVED BY THE COURT.