Opinion ID: 2521087
Heading Depth: 1
Heading Rank: 1

Heading: History of farm equipment tax exemption.

Text: Adopted at the Wyandotte Constitutional Convention in 1859, the original version of article 11, section 1 provided for `a uniform and equal rate of taxation.' Between 1859 and 1974, this provision was amended three times, but all versions retained the `uniform and equal rate of assessment and taxation' language. Kansas Property Classification and Reappraisal: The 1986 Constitutional Amendment and Statutory Modifications, 29 Washburn L.J. 26, 27-29 (1989). In 1982, the legislature passed H.B. 2425, creating the statutory tax exemption for farm machinery and equipment, K.S.A. 79-201j (Ensley 1984). See L. 1982, ch. 390, sec. 3. The new statute provided that all farm machinery and equipment was exempt from property or ad valorem taxes levied in Kansas. L. 1982, ch. 390, sec. 3. The provision further defined farm machinery and equipment to mean that personal property actually and regularly used exclusively in farming or ranching operations. L. 1982, ch. 390, sec. 3. Passenger vehicles, trucks, and trailers were not included in the definition of exempt equipment, unless designed or used primarily as a farm vehicle as provided in K.S.A. 8-126. See L. 1982, ch. 390, sec. 3; L. 1982, ch. 36, sec. 2. The legislature set forth the purpose of the statutory farm machinery and equipment tax exemption in K.S.A. 79-201i. That statute reads, in pertinent part: It is the purpose of K.S.A. 79-201j of this act to promote, stimulate and develop the general welfare, economic development and prosperity of the state of Kansas by fostering the growth and development of agricultural endeavors within the state. Agriculture, as conducted in farming and ranching operations throughout the state, is the primary basis of the Kansas economy. Communities, regions, and the state as a whole are materially dependent upon agricultural endeavors and derive substantial financial benefit from the success of Kansas agriculture. Farming and ranching operations require the investment of large sums of capital for the purpose of providing the land on which the operations are conducted, and the farm machinery and equipment necessary to satisfactorily carry out such endeavors. Because of agriculture's unique requirements of substantial capital investment, the property tax burden becomes a deterrent to such investment and, in some instances, and encouragement to farm and ranch abandonment. Kansas, and all its citizens, will benefit from any improvement in the economic environment of Kansas agriculture. The exemption from the ad valorem property tax of farm machinery and equipment actually and regularly used in farming and ranching operations will constitute an incentive to agriculture and will improve the general economy of the state. Considering this state's heavy reliance on agriculture, the enhancement of agricultural endeavors is deemed to be a public purpose which will promote the general welfare of the state and be for the benefit of the people of the state. In Farmers Co-op v. Kansas Bd. of Tax Appeals, 236 Kan. 632, 694 P.2d 462 (1985), this court construed the language of K.S.A. 79-201j (Ensley 1984), used exclusively in farming and ranching operations, and found an implied intent by the legislature to limit tax exemption strictly to those who actually farm or ranch. See 236 Kan. at 637. There, this court held that property owned by a nontax-exempt entity (custom cutters) which provides a service for profit to a qualifying tax-exempt entity is not being used exclusively for tax-exempt purposes and is subject to ad valorem and property taxes. 236 Kan. at 640. In a companion case, T-Bone Feeders, Inc. v. Martin, 236 Kan. 641, 693 P.2d 1187 (1985), this court held that machinery and equipment used in commercial feedlot operations did not qualify as personal property used exclusively in farming or ranching operations under K.S.A. 79-201j (Ensley 1984). 236 Kan. at 649. In both the Farmers Co-op and T-Bone Feeders, Inc. decisions, this court focused on the statutory phrase used exclusively in denying tax exemption to the appellants. See Farmers Co-op, 236 Kan. at 636-37; T-Bone Feeders, Inc., 236 Kan. at 646. Thus, the statute was narrowly interpreted to impose an exclusive use requirement. Due to inflation and inequities in property appraisal in the 1980s, many disputed whether the existing property tax system was truly uniform and equal as required by article 11, § 1 of the Kansas Constitution. See 29 Washburn L.J. at 31-33. The legislature sought to resolve property taxation problems through sweeping reform. 29 Washburn L.J. at 34. As part of these reform measures, the legislature drafted an amendment to article 11, § 1 of the Kansas Constitution creating a new system of property tax classification. 29 Washburn L.J. at 26. Witnesses before the House and Senate Committees on Assessment and Taxation expressed their opinions and made recommendations on property tax reform. Before presenting the proposed amendment to article 11, section 1 to the voters, the legislature heard testimony concerning assessment and taxation of farm machinery and equipment.... 29 Washburn L.J. at 39. A Kansas Farm Bureau representative requested that farm machinery be constitutionally exempt from taxation, as it is in 27 other states. [Citation omitted.] The Kansas Livestock Association (KLA) also endorsed this proposal, pointing out that personal property was `not a good tax base because it's not a good measure of wealth or of the ability of the taxpayer to pay.' [Citation omitted.] 29 Washburn L.J. at 39 n.60. In 1986, Kansas voters approved the amendment to article 11, § 1.29 Washburn L.J. at 26. Within that constitutional amendment, farm machinery and equipment, livestock, and business inventories were exempted from taxation. See 29 Washburn L. J. at 43. Article 11, § 1(b)(2) stated: All property used exclusively for state, county, municipal, literary, educational, scientific, religious, benevolent and charitable purposes, farm machinery and equipment, merchant's and manufacturer's inventories and livestock and all household goods and personal effects not used for the production of income, shall be exempted from property taxation. In 1992, Kansas voters approved another amendment to article 11, § 1 of the Kansas Constitution. The language of the new subsection (b) did not substantially change in regard to the farm machinery and equipment exemption, however. The 1992 version of article 11, § 1(b) exempts [a]ll property used exclusively for state, county, municipal, literary, educational, scientific, religious, benevolent and charitable purposes, farm machinery and equipment, merchants' and manufacturers' inventories ... livestock, and all household goods and personal effects not used for the production of income. L. 1992, ch. 342, sec. 1. In addition, the legislature changed the provisions of K.S.A. 79-201j in 1992. The new statute contained provisions exempting aquaculture and Christmas tree machinery and equipment, and enlarged the statutory definition of a farming or ranching operation. The term `farming or ranching operation' shall include the performing of farm or ranch work for hire. See L. 1992, ch. 102, sec. 4. The statutory definition of farm machinery and equipment remained that personal property actually and regularly used exclusively in any farming or ranching operation. L. 1992, ch. 102, sec. 4. Since 1992, article 11, § 1 of the Kansas Constitution has remained unchanged. However, the legislature has amended K.S.A. 79-201j three times. See L. 1997, ch. 122, sec. 1; L. 1999, ch. 126, sec. 2; L. 2000, ch. 139, sec. 4. In 1999, tax-exempt status was granted to machinery and equipment for the purpose of providing fuel for irrigating agricultural land. L. 1999, ch. 126, sec. 2. In 2000, K.S.A. 79-201j(a) was again enlarged to grant tax-exempt status to any greenhouse not permanently affixed to real estate used in a farming or ranching operation. For the purpose of this appeal, the most significant statutory amendment occurred in 1997, when the legislature removed the word exclusively from K.S.A. 79-201j(a). Following that amendment, the statute's definition of tax-exempt farm machinery and equipment changed to that personal property actually and regularly used in any farming or ranching operation. The term `farming or ranching operation' shall include the operation of a feedlot and the performing of farm or ranch work for hire. L. 1997, ch. 122, sec. 1.