Opinion ID: 2507841
Heading Depth: 1
Heading Rank: 2

Heading: Did the Department of Revenue's Application of K.S.A. 79-3606(kk) to Deny Refunds Violate the Equal Protection Clauses of the Kansas and United States Constitutions?

Text: Next, Taxpayers argue that the Department's interpretation of K.S.A. 79-3606(kk) to deny them the exemption violates the Equal Protection Clauses of the United States and Kansas Constitutions because it treats similarly situated taxpayers differently. Specifically, Taxpayers complain that the Department allows the exemption for machinery and equipment used by electric companies to manufacture electricity. The Department denies this, claiming it allows the exemption for machinery and equipment which generates electricity but not for machinery and equipment which transmits or distributes electricity. With regard to the Taxpayers' equal protection argument, BOTA determined that while it did not have authority to declare a statute unconstitutional, it did have authority to determine whether the Department's application of a statute was unconstitutional. However, BOTA found the Taxpayers' argument to be without merit. BOTA stated: The Act is clear that telecommunication services are not included in K.S.A. 79-3606(kk). Further, as the Department points out, electricity companies and telecommunication providers are treated equally. Specifically, the machinery used by electric companies in the service of delivering electricity is not exempt. See K.S.A. 79-3603(c). Consistently, the machinery used by telecommunication providers in the service of delivering information is also not exempt. As such, all delivery service machinery is taxed. Therefore, the Department's interpretation and application of K.S.A. 79-3606(kk) has not violated the constitutional rights of the Taxpayers. The Fourteenth Amendment to the United States Constitution guarantees equal protection of the laws, and the Kansas Constitution provides virtually the same protection. See Colorado Interstate Gas Co. v. Beshears, 271 Kan. 596, 609, 24 P.3d 113 (2001). If similarly situated taxpayers receive disparate treatment, the one receiving the less favorable treatment may have been denied equal protection of the law even if the taxpayer receiving the less favorable tax is taxed according to the law. [Citation omitted.] However, the taxpayer seeking to establish a violation of the Equal Protection Clause must demonstrate that his or her treatment is the result of a `deliberately adopted system' which results in intentional systematic unequal treatment. [Citation omitted.] In re Tax Appeal of City of Wichita, 274 Kan. 915, 920, 59 P.3d 336 (2002). This court has stated the following rules with regard to its consideration of a claim that a tax statute violates equal protection: `A statute is presumed constitutional and all doubts must be resolved in favor of its validity. If there is any reasonable way to construe a statute as constitutionally valid, the court must do so. A statute must clearly violate the constitution before it may be struck down. This court not only has the authority, but also the duty, to construe a statute in such a manner that it is constitutional if the same can be done within the apparent intent of the legislature in passing the statute.' Syl. ¶ 2. `Equal protection is implicated when a statute treats arguably indistinguishable classes of people differently....' Syl. ¶ 3. `The rational basis standard (sometimes referred to as the reasonable basis test) applies to laws which result in some economic inequality. Under this standard, a law is constitutional, despite some unequal classification of citizens, if the classification bears a reasonable relationship to a valid legislative objective.' Syl. ¶ 4. `The reasonable basis test is violated only if the statutory classification rests on grounds wholly irrelevant to the achievement of the State's legitimate objective. The state legislature is presumed to have acted within its constitutional power, even if the statute results in some inequality. Under the reasonable basis test, a statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it.' Syl. ¶ 5. `A plaintiff asserting the unconstitutionality of a statute under the rational basis standard has the burden to negate every conceivable basis which might support the classification.' Syl. ¶ 6. `In taxation, even more than in other fields, legislatures possess the greatest freedom in classification.' Syl. ¶ 7. In re Tax Appeal of Alsop Sand Co., Inc., 265 Kan. 510, 522, 962 P.2d 435 (1998) (quoting Peden v. Kansas Dept. of Revenue, 261 Kan. 239, 930 P.2d 1 [1996], cert. denied 520 U.S. 1229 [1997]). Applying these principles, we conclude that Taxpayers have failed to establish an equal protection violation. First, as the Department points out, beyond comparing electricity and telecommunications, Taxpayers have failed to demonstrate that they are similarly situated to electric companies or that they have been the victim of any deliberately adopted system resulting in intentional unequal treatment. Nor have Taxpayers negated every conceivable basis which might support the classification differentiating between telecommunications companies and electric companies. The Department contends the legislative intent is clear that the tax exemption contained in K.S.A. 79-3606(kk) was intended to benefit manufacturers of goods rather than service providers. In Alsop Sand, this court discussed the legislative history of K.S.A. 79-3606(kk) and stated that its purpose was to make the expense of expansion or modernization of a Kansas manufacturing plant competitive with the expense in neighboring states and . . . to assist in attracting new manufacturing plants to this state. 265 Kan. at 520. As noted by the Department, telecommunications companies are simply not the equivalent of manufacturing plants and have never been viewed as such. Taxpayers counter that electric companies provide both the product of electricity and the service of delivery and transmission of electricity, just as telecommunications companies provide both the product of telecommunications and the service of delivery and transmission of telecommunications. However, the Department points out that these industries are, in fact, different because electric companies sell electricity to their customers for consumption whereas telecommunication companies only use electricity to deliver telecommunication services to their customers. In conclusion, Taxpayers have failed to meet their burden of establishing an equal protection violation.