Opinion ID: 2516415
Heading Depth: 3
Heading Rank: 1

Heading: Michael W. GoodwinAppraiser for the PVD

Text: Michael W. Goodwin, an expert appraiser, testified on behalf of the PVD. Goodwin stated that it is not the task in unitary valuation to arrive at fair market value of specific assets within a geographical area but rather to apportion a reasonable amount of the unitary value to the area. Goodwin admitted that it would be preferable to use multiple allocation factors to do so in that more allocation factors would offset deficiencies in the others. He testified that there is no universally applicable allocation factor. Rather, the bottom line is that the results should make sense. Goodwin opined that original cost is a usable factor because it reflects the amount of investment made throughout the system and the Kansas allocation method based on original cost is reasonable. He testified that the Kansas allocation, if used by all states, would fully apportion CIG's value. According to Goodwin, some states use original cost exclusively and others use it with other factors as a basis for allocation of value. The PVD has in the past and continues to use original cost for all pipelines. Moreover, original cost is used by FERC to allocate expenses. He testified that there are other allocation factors which would give Kansas a higher percentage of value. However, under cross-examination, he admitted that original cost is not a reliable indicator of value for a large gas transmission taxpayer and noted that most states that use original cost as an allocation factor blend it with other factors. BOTA DECISION Two of the five members of BOTA recused themselves for this hearing. BOTA's final decision consisted of a majority opinion by two members and a concurring opinion by another member. The majority determined that BOTA's review was de novo but also found that it was required to defer to the judgment of the PVD unless the standards prescribed by K.S.A. 79-5a04 had been intentionally and grossly disregarded. Using this standard, the BOTA majority found that the capitalization rate used by the PVD was appropriate. The BOTA majority further found that CIG had not shown that the PVD incorrectly taxed exempt intangible property. The BOTA majority also determined that the PVD's use of original cost was reasonable and further held that the allocation in Kansas did not have to be representative of the fair market value of CIG's property in Kansas. According to the BOTA majority, this would require abandonment of the unit value methodology. The BOTA majority found no evidence that the allocation factor used imported value to Kansas grossly out of proportion to CIG's presence in the state. Accordingly, the BOTA majority affirmed the allocation factors used by the PVD. The concurring opinion disagreed with the BOTA majority's determination that allocation in Kansas did not have to be representative of fair market value in Kansas. The concurring opinion would hold that fair market value must be the benchmark and that if the allocation factor used or the unit valuation system did not reasonably relate to fair market value, different factors and methods must be used under the statute. However, the concurring opinion concluded that the results reached by the majority were correct and that the appellate courts would be able to sort out the requirements and reach a just result. CIG filed a motion for reconsideration which was granted. On reconsideration, the three members of BOTA modified their opinion, acknowledging that the allocation must have a rational relationship on its face and in its application to the property of the taxpayer in the state. BOTA affirmed its original order. CIG appealed directly to the Court of Appeals pursuant to K.S.A. 74-2426(c)(3) (granting the Court of Appeals jurisdiction over action for review of property appraised and assessed by the PVD). The matter was then transferred to this court on its own motion pursuant to K.S.A. 20-3018(c). APPELLATE COURT STANDARD OF REVIEW This is an appeal from an order of BOTA and this court's scope of review is dictated by K.S.A. 77-621. See K.S.A. 74-2426(a) (stating that actions by BOTA are subject to review in accordance with the act for judicial review and civil enforcement of agency actions). Under K.S.A. 77-621(c), this court may grant relief if it determines: (1) The agency action, or the statute or rule and regulation on which the agency action is based, is unconstitutional on its face or applied; (2) the agency has acted beyond the jurisdiction conferred by any provision of law; (3) the agency has not decided an issue requiring resolution; (4) the agency has erroneously interpreted or applied the law; (5) the agency has engaged in an unlawful procedure or has failed to follow prescribed procedure; (6) the persons taking the agency action were improperly constituted as a decision-making body or subject to disqualification; (7) the agency action is based on a determination of fact, made or implied by the agency, that is not supported by evidence that is substantial when viewed in light of the record as a whole, which includes the agency record for judicial review, supplemented by any additional evidence received by the court under this act; or (8) the agency action is otherwise unreasonable, arbitrary or capricious. We have stated that BOTA is a specialized agency that exists to decide taxation issues, and its decision should be given great weight and deference when it is acting in its area of expertise. However, if we find that BOTA's interpretation is erroneous as a matter of law, we will take corrective steps. In re Tax Appeal of Univ. of Kan. School of Medicine, 266 Kan. 737, 749, 973 P.2d 176 (1999).