Opinion ID: 1355183
Heading Depth: 1
Heading Rank: 4

Heading: Did School District's 2001 tax levy rate violate section 67.110.2?

Text: Taxpayers allege that the trial court erred in determining that the tax levy did not violate section 67.110.2 so as to trigger a refund under section 139.031.5. Section 67.110 requires that each political subdivision in the state, except counties, fix its ad valorem property tax rates according to a procedure outlined in that statute. Section 67.110.2 requires that [t]he tax rates shall be calculated to produce substantially the same revenues as required in the annual budget. Sec. 67.110.2 (emphasis added).
School District argues that section 67.110 is merely a general statute relating to political subdivisions setting tax rates, whereas section 164.011 is the specific statute applicable to how school districts set tax rates. School District cites Greenbriar Hills Country Club v. Director of Revenue, 935 S.W.2d 36 (Mo. banc 1996), for the proposition that [w]hen the same subject matter is addressed in general terms in one statute and in specific terms in another, the more specific controls over the more general. 935 S.W.2d at 38. This theory, however, only applies where two statutes governing the same issue are in conflict and cannot be harmonized. Nichols v. Dir. of Revenue, 116 S.W.3d 583, 586 (Mo.App.2003). Section 164.011 is the statutory mechanism by which school districts must certify the taxes necessary to be produced (estimate of need) to the county clerk. Southwestern Bell Tel. Co. v. Mitchell, 631 S.W.2d 31, 37 (Mo. banc 1982). It provides in pertinent part: The school board of each district annually shall prepare an estimate of the amount of money to be raised by taxation for the ensuing school year, the rate required to produce the amount, and the rate necessary to sustain the school or schools of the district for the ensuing school year, to meet principal and interest payments on the bonded debt of the district and to provide the funds to meet other legitimate district purposes. In preparing the estimate, the board shall have sole authority in determining what part of the total authorized rate shall be used to provide revenue for each of the funds as authorized by section 165.011, RSMo. Sec. 164.011.1 (emphasis added). While section 164.011 governs the procedure school districts must use in certifying their estimated needs for the ensuing school year, section 67.110 governs the procedure that they must follow in actually fixing their ad valorem property tax rates to meet their estimated needs. Because sections 164.011 and 67.110 address separate and distinct steps in the taxing procedure of school districts, they are not properly characterized as being general versus specific, much less as being in conflict with each other. By its express terms, section 67.110 applies to [e]ach political subdivision in the state, except counties ... as defined in section 70.120. Sec. 67.110.1. Section 70.120(3) defines a political subdivision as any agency or unit of this state which now is, or hereafter shall be, authorized to levy taxes or empowered to cause taxes to be levied, which includes a school district. School District was required to comply with section 67.110.2 in setting its tax levy. The question is whether it did so. That question turns on whether the tax levy produced substantially the same revenues as required in School District's 2001-2002 budget.
There is no statute or case law defining the phrase substantially the same revenues as used in section 67.110.2. In interpreting statutes, this Court determines the intent of the legislature, giving the language used its plain and ordinary meaning. State, Mo. Dep't of Soc. Servs., Div. of Aging v. Brookside Nursing Ctr., Inc., 50 S.W.3d 273, 276 (Mo. banc 2001). In determining legislative intent, the statute is read as a whole and in pari materia with related sections. Id. In interpreting statutes, `it is appropriate to take into consideration statutes involving similar or related subject matter when such statutes shed light upon the meaning of the statute being construed, even though the statutes are found in different chapters and were enacted at different times.' Buck v. Leggett, 813 S.W.2d 872, 874-75 (Mo. banc 1991) (quoting Citizens Elec. v. Dir. of Dept. of Rev., 766 S.W.2d 450, 452 (Mo. banc 1989)). Statutes involving the assessment, levy and payment of taxes should be construed in context with each other. See id. Although the phrase substantially the same revenues as found in section 67.110.2 has not been interpreted, this Court has interpreted the nearly identical phrase, substantially the same amount of tax revenue, found in section 137.073.2, commonly referred to as the rollback statute. The present version of section 137.073.2 provides in relevant part: Whenever changes in assessed valuation are entered in the assessor's books .... [a]ll political subdivisions shall immediately revise the applicable rates of levy for each purpose ... for which taxes are levied to the extent necessary to produce from all taxable property, exclusive of new construction and improvements, substantially the same amount of tax revenue as was produced in the previous year.... Sec. 137.073.2, RSMo Cum.Supp.2003 (emphasis added). In St. Louis-Southwestern Railway Co. v. Cooper, 496 S.W.2d 836 (Mo.1973), this Court interpreted the 1969 version of this section, which provided in relevant part: Whenever the assessed valuation of real or personal property within the county has been increased by ten percent or more over the prior year's valuation ... then such taxing authorities shall immediately revise and lower the rates of levy to the extent necessary to produce from all taxable property substantially the same amount of taxes as previously estimated to be produced by the original levy. Sec. 137.073, RSMo 1969 (emphasis added). In Cooper , railroads sought to recover school taxes they paid under protest because they believed them to be excessive in light of section 137.073, RSMo 1969. 496 S.W.2d at 838. This Court held that an excess of 9.3 percent [11] over that required according to the original estimates did not comply with the mandate of section 137.073, RSMo 1969, stating: The meaning of the phrase substantially the same is well known. Substantially, as the word is used in the statute, is synonymous with practically, nearly, almost, essentially and virtually. ... [A]n increase of 9% in revenue, obviously cannot be said to have produced almost the same amount of revenue as had been originally estimated. Cooper, 496 S.W.2d at 842. School District points out, however, that this Court's conclusion in Cooper suggests a variance of 5.5 percent is substantially the same for purposes of satisfying section 137.073.2. One of the plaintiffs in Cooper requested the imposition of a correct levy rate that would still have produced approximately 5.5 percent [12] excess revenues. Id. at 843. After acknowledging this rate would still produce an excess, this Court concluded that the rates suggested by plaintiffs would have produced sufficient revenue for the districts and at the same time would have met the requirements of [section] 137.073. Id. This Court was again confronted with a case arising under section 137.073, RSMo 1969, in Southwestern Bell Telephone Co. v. Hogg, 569 S.W.2d 195 (Mo. banc 1978). In Hogg, the school district argued that it made a good faith effort to comply with the substantially the same requirements of section 137.073, RSMo 1969. Id. at 201. This Court stated that although the school district's computations would not result in the exact amount of estimated need from taxation, ... it can and should be very close to it.  Id. (emphasis added). Section 67.110.2 and section 137.073.2, RSMo Cum.Supp.2003, use nearly identical language in phrasing their substantially the same requirements. [13] Further, section 67.110 and section 137.073.2, RSMo Cum.Supp.2003, involve similar subject matter. As such, it is logical to apply the same definition of substantially the same to both statutes. The legislature intended the phrase produce substantially the same revenues as required in the annual budget to mean that the amount of the revenues produced be practically, nearly, almost, essentially, or virtually the same as that required in the budget. Although this definition does not advise school districts and other political entities as to what range of deviation between revenues produced and budgeted needs is acceptable, this Court discussed the meaning of substantially the same in section 137.073 in Cooper : [T]he words substantially the same amount were used in [section] 137.073 with the recognition that a rate which would yield precisely the same amount would be virtually impossible to determine[, but] the purpose of the section is obviously to prevent windfalls in school taxes to the school districts merely because the assessed valuation of the real property in a county increases. Cooper, 496 S.W.2d at 841 (emphasis added). Following Cooper , this Court should determine if School District's tax levy was calculated to produce revenues practically, nearly, almost, essentially, or virtually the same as its budgeted needs, or whether it provided School District a windfall.
Taxpayers argue that the undisputed evidence established that the tax levy would produce substantially more revenue than budgeted. School District's 2001-2002 budget declared needs of $56,232,505 in local tax revenues. The total assessed valuation of the taxable property in School District was $1,281,852,353. The tax rate set by School District was $4.7544 per $100 assessed valuation. [14] Assuming a collection rate of 100 percent, the rate set would produce revenues of approximately $60,944,388, or $4,711,883 (7.73 percent) more than the budgeted figure for local tax revenues. School District, however, formulated its budget with the assumption that its tax collection rate would be only 94 percent, which lowered local property tax revenues to $57,287,725, or only $1,055,220 (1.88 percent) more than budgeted. Taxpayers' arguments to this Court use calculations based on a 100 percent collection rate, yielding an excess taxes figure of $4,711,883 (7.73 percent) more than budgeted. Collector and School District, however, challenge Taxpayers' use of the 100 percent collection calculations. They correctly argue that Taxpayers are barred by Rule 83.08(b) from presenting a new argument based on the 100 percent collection rate to this Court because Taxpayers used School District's 94 percent collection rate in their arguments to the trial and appellate courts. Taxpayers' amended petition used calculations based on School District's assumption that 6 percent of the 2001 billed property taxes would be uncollectible. Taxpayers argued: Utilizing the School's budget figure, the total assessed valuation figure, and the six percent uncollectible rate, complying with [section] 67.110 RSMo, and complying with [section] 137.073.6 RSMo requiring the tax rate to be expressed equal to the nearest 1/100th of a cent, [15] the correct levy rate to produce the same amount of revenue called for in the budget would be $4.6668 per $100.00 of assessed valuation of property. (emphasis added). Taxpayers' amended petition argued that the tax levy violated section 67.110.2 in that it would produce $57,287,725, or $1,055,220 (1.88 percent) more than the local property tax need of $56,232,505 declared in School District's budget. Taxpayers' amended petition sought a refund based on the 94 percent collection calculation of $1,055,220 in excess revenues. Like Taxpayers' amended petition, their arguments to the court of appeals were based on a 94 percent collection rate and asserted that School District's levy rate produced excess revenues of $1,055,220. School District argues that this Court should evaluate Taxpayers' claims based on calculations using the 94 percent collection rate, or the $1,055,220 excess revenue calculation. School District argues that Rule 83.08(b) prohibits Taxpayers from arguing that School District collected $4,711,883 excess taxes because they cannot alter the basis for their claims on appeal. Rule 83.08(b) provides in relevant part: A party may file a substitute brief in this Court ... [which] shall include all claims the party desires this Court to review, [but] shall not alter the basis of any claim that was raised in the court of appeals brief. The record on appeal and Taxpayers' brief at the court of appeals do not reflect that Taxpayers challenged School District's use of the 94 percent collection rate in its budget process or in its levy determinations. In the trial court and the court of appeals, Taxpayers claimed that the $57,287,725 in revenue produced by the levy was not substantially the same as the $56,232,505 budgeted by School District such that the levy violated section 67.110.2, thereby triggering a refund under section 139.031.5. In contrast, they ask this Court to determine whether the revenue produced was substantially the same by weighing a figure that is $3,656,663 more than the original challenged difference. Taxpayers argue that they have altered their first point only with respect to the tax rate and revenue amounts driven by the uncollectible issue. This alteration, however, is significant in the analysis of whether the collected revenue and the budgeted revenue figures are substantially the same pursuant to section 67.110.2. This calculation is central to the determination of the issues presented in this case. Taxpayers' alteration of the challenged amount has altered the basis for their claim in violation of Rule 83.08(b). Despite the violation of Rule 83.08(b), this Court finds that the use of the 94 percent collectible figure does not violate existing case law in that School District presented evidentiary support for the use of that collection rate. In Southwestern Bell Telephone Co. v. Feuerstein, 529 S.W.2d 371 (Mo.1975), this Court was asked to determine whether the trial court had erred in ordering a refund to certain taxpayers from their school district, pursuant to section 137.073, RSMo 1969. 529 S.W.2d at 372. That statute required a reduction in the local tax rate levied by the district based on certain instances of increases in assessed valuation of real or personal property. Id. at 373. This Court resolved the issue in favor of the taxpayers and affirmed the trial court's judgment, ordering a reduction in the district's levy. Id. at 374. This Court also addressed the district's argument that the reduction ordered by the trial court was incorrect in that it was based on a 100 percent collection rate of the levy, rather than the lesser collection rate employed by the district. Id. In ruling against the district on that issue, this Court stated: [T]here is no statutory authority which allows a school district to estimate and assume a rate of collection and state their needs on that basis. Id. In addition to pointing out the lack of statutory authority for using a collection rate other than 100 percent, this Court also noted the lack of any evidentiary support for the district's use of the lesser rate. Id. In this case, however, there was evidentiary support for School District's use of a 94 percent collection rate in calculating its 2001-2002 budget. Treasurer testified at trial that School District calculates the collection rate by taking the total current taxes [to be distributed to School District that year] and dividing by the taxes levied. He further testified that the 6 percent uncollectible rate includes the 1.5 percent fee that School District pays the county collector and the county assessor from its tax revenue. The 2001-2002 budget included a schedule of School District's collection rates for the budget years 1993 to 2001, and then listed the projected 2002 collection rate as 94 percent. This collection rate schedule also shows School District's five-year average collection rate was 94.62 percent and its three-year average was 94.02 percent. Given that School District does not lack evidentiary support for its use of the 94 percent collection rate, Feuerstein does not dictate that School District's use of the 94 percent collection rate was improper. This case is properly analyzed by using the calculations based on a 94 percent collection rate, which reflect that School District collected $1,055,220 more taxes than its declared needs.
Whether School District's 2001 tax levy rate generated substantially the same revenues as School District's budgeted needs depends on whether a collection of $1,055,220 in excess revenues complies with the nearly, almost, essentially, virtually standard. The budgeting process for school districts in Missouri is an inexact practice. Southwestern Bell Tel. Co., Inc. v. Mahn, 766 S.W.2d 443, 445 (Mo. banc 1989); Salisbury R-IV Sch. Dist. v. Westran R-I Sch. Dist., 686 S.W.2d 491, 496 (Mo.App.1984). In Salisbury , the court noted: The school district budget process is an inexact practice.... because neither the revenues nor the expenditures can be predicted with certainty. The revenues derive from local county, state and federal sources. The local revenues are from the school district levy, and comprise the most significant component of anticipated income. The local revenues also include income from ... miscellaneous sources. Other significant income derives from the short-term investment of tax receipts, but that fluctuates with the current interest rate. The school district budget extends from July 1 to June 30. The estimated budget must be approved by the board of education before July 1 of the year, and the Estimate of Required Local Taxes [for the local revenue component of the budget] must be submitted  along with the rate of levy to be extended against the assessed property in the district  to the county clerk by July 15 of the year. The preponderant portion of the taxes, however, are paid to the schools during the early months of the calendar year .... [which] compounds the uncertainty of the budget process. 686 S.W.2d at 496. School District's 2001-2002 budget is a 99-page document, which Treasurer testified was prepared in a yearlong budgeting process. School District presented evidence of some of the uncertainties it faced in formulating its budget at the time it was presented for approval at the June 11, 2001, School Board meeting: (1) Assessed valuation figures for property within School District were merely preliminary and subject to later adjustment. [16] (2) School District did not know what the proration factor would be for allocation of basic state aid under the state foundation formula. (3) School District had not received the worksheets from the State Auditor for use in calculating permissible tax rates for 2001. (4) School District had not yet received from the Missouri Department of Elementary and Secondary Education the projections on the amount of proposition C sales tax revenues, cigarette tax revenues, and free textbook revenues it would receive in 2001-2002. (5) The amount of funds it would receive from taxes on state-assessed utilities was not yet known. Expert testified at trial that the budgeting process for schools in Missouri is a moving target. He stated: Statutes said that you're supposed to have a budget adopted before the beginning of the fiscal year. To do that you don't even have the assessed valuation figures which don't allow you to even calculate your final tax rate. Anybody who says they can develop a final school budget prior to beginning the fiscal year is, you can't do that. That's why the budget statutes allow for boards of education to amend their budgets..... The biggest single thing in Missouri school finance is the tax rate. Not only does it determine your local revenues, but .... [it] determines your state revenues. And to have any kind of final budget adopted before you can set your tax rate is just nuts. You can't do it. You've got to come back and change it after you have that information. Immediately before giving this testimony Expert was asked: [I]f the projected funds coming in from local tax revenues ... exceeded by two percent the budgeted amount, you would not consider that to be substantial? Expert opined that it was not a substantial deviation. This Court agrees. In light of the uncertainties at issue in the school budgeting process, a deviation of 1.88 percent in this case does not violate section 67.110.2. The intent of the legislature's substantially the same language in section 67.110.2 is to prevent tax windfalls, and holding taxing entities to the nearly, almost, essentially, virtually standard accomplishes this purpose. Because establishing a school budget is an inexact process, it will produce inexact results. The nearly, almost, essentially, virtually standard should not be read to require that revenues produced from a school district's levy match exactly the district's budgeted needs. The statute does not require the same revenues, but merely substantially the same revenues. School District's levy rate produced 1.88 percent more taxes than budgeted, but it permitted School District to meet its budgeted needs without a windfall collection of tax monies. Given this, the trial court did not err in finding that School District's 2001 tax levy rate did not violate section 67.110.2. [17]