Opinion ID: 2549663
Heading Depth: 1
Heading Rank: 2

Heading: Does BOTA's Interpretation Result in an Equal Protection Violation?

Text: Meade County next argues that BOTA cannot do by interpretation what the legislature could not do directly, that is, treat members of the same class differently. Under BOTA's interpretation of the law, the natural gas inventory of Kansas public utilities is taxed, while the natural gas inventory of non-Kansas public utilities is not taxed. Meade County argues that this unequal treatment violates the uniform and equal rate of assessment and taxation clause of Article 11, § 1 of the Kansas Constitution (2002 Supp.). An initial question is whether Meade County has standing to raise an equal protection challenge. One who challenges the validity of state taxation as violating the Equal Protection Clause cannot rely on theoretical inequalities, or such as do not affect him, but must show that he is himself affected unfavorably by the discrimination of which he complains. Roberts & Schaeffer Co. v. Emmerson, 271 U.S. 50, 55, 70 L. Ed. 827, 46 S. Ct. 375 (1926). Clearly, if an equal protection violation exists, it would be tax-paying Kansas public utilities that have standing to bring such a challenge. And, if such a challenge were to succeed, the remedy would be to relieve Kansas public utilities from paying the tax, not to impose a tax on nonresident utilities for which the statutory taxation scheme does not provide. However, we also recognize that this court has a duty to construe a statute as constitutionally valid if there is any reasonable way to do so. In re Tax Application of Lietz Constr. Co., 273 Kan. 890, Syl. ¶ 8, 47 P.3d 1275 (2002). Therefore, we will consider the argument although we are hindered in doing so because, beyond citing State ex rel. Stephan v. Parrish, 257 Kan. 294, 891 P.2d 445 (1995), Meade County offers little analysis in support of this argument and appellees do not address the argument. In Parrish, this court quoted Topeka Cemetery Ass'n v. Schnellbacher, 218 Kan. 39, 542 P.2d 278 (1975), as follows: `We have consistently held that where public property is not involved, a tax exemption must be based upon the use of the property and not on the basis of ownership alone. The reason for the rule is that a classification of private property for tax purposes based solely upon owners unlawfully discriminates against one citizen in favor of another and therefore is a denial of equal protection of the law.' 257 Kan. at 303. However, if there is a rational basis for the disparate treatment, other than simply ownership, classification of property based solely upon ownership would pass constitutional muster. See Parrish, 257 Kan. at 302-04. Furthermore, it is unnecessary to determine the actual legislative purpose; rather, if any state of facts reasonably may be conceived to justify the alleged statutory discrimination, the statute will not be set aside as a violation of equal protection. [Citation omitted.] Leiker v. Gafford, 245 Kan. 325, 364, 778 P.2d 823 (1989), overruled in part on other grounds Martindale v. Terry, 250 Kan. 621, 629, 829 P.2d 561 (1992). There is no basis to discern the legislative purpose since, as previously discussed, there is no reason the legislature would have contemplated the distinction between Kansas and out-of-state utilities. Therefore, we consider whether any state of facts reasonably may be conceived to justify the alleged statutory discrimination. One possible rational basis for favorable tax treatment of nonresidents was recognized by the United States Supreme Court in Allied Stores of Ohio v. Bowers, 358 U.S. 522, 3 L. Ed. 2d 480, 79 S. Ct. 437 (1959). This court cited to Bowers in State ex rel. Tomasic v. Kansas City, Kansas Port Authority, 230 Kan. 404, 636 P.2d 760 (1981), for a statement of the principles governing state taxation and equal protection. In [ Bowers ], an Ohio statute exempted from ad valorem taxation merchandise warehoused by nonresidents if it were held in a storage warehouse for storage only. Plaintiff, a resident who operated several department stores and maintained warehouses for his merchandise, claimed denial of equal protection. In rejecting the challenge, the Supreme Court noted the states are subject to the Equal Protection Clause in the exercise of their taxing power but enjoy wide discretion nonetheless. The court observed the Equal Protection Clause `imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation.' 358 U.S. at 526. The state taxation scheme must have a rational basis with classifications based on differences having a fair and substantial relation to the object of the legislation. In Allied Stores of Ohio the court found `a statute which encourages the location within the State of needed and useful industries by exempting them, though not also others, from its taxes is not arbitrary and does not violate the Equal Protection Clause of the Fourteenth Amendment.' 358 U.S. at 528. 230 Kan at 425. The Bowers rationale could be applied in Kansas. See State ex rel. Tomasic v. City of Kansas City, 237 Kan. 572, Syl. ¶ 13, 701 P.2d 1314 (1985) (holding that the uniform and equal rate of assessment and taxation provision of Article 11, § 1 (2002 Supp.) is, in principle and effect, substantially identical to the principle of equality embodied in the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution.) Also, because the FERC regulations and appellees' contract with Panhandle give appellees little or no control over where the severed natural gas is stored or for how long, there is a rational basis to determine that it would be unfair and, at least arguably, a potential violation of the Commerce Clause to tax the severed natural gas of a public utility that has no dealings with Kansas consumers. Because we can conceive of several rational bases for the distinction between utilities regulated in Kansas and those which are not, we reject Meade County's argument. The parties raise other arguments relating to the power of Meade County to assess the property, the application of the free-port exemption contained in K.S.A. 79-201f, application of the exemption for municipalities, and the constitutionality of the public utilities exclusion to the merchants' and manufacturers' exemption. However, because we affirm BOTA's ruling that appellees are not public utilities as defined by K.S.A. 2002 Supp. 79-5a01 and that their natural gas inventories are therefore exempt from taxation under K.S.A. 79-201m as merchants' inventory, none of the remaining arguments need be addressed. Affirmed.