Court Opinion

ID: 9565169
Source: CourtListenerOpinion
Date Created: 2023-08-21 19:16:16.869446+00
Date Added: 2024-06-11T09:19:26.527451
License: Public Domain

Herd, J.,
dissenting: The ten-year exemption from taxation provided under K.S.A. 79-201a Second for property financed by industrial revenue bonds fails to qualify as either a constitutional or statutory exemption.
To qualify as a constitutional exemption under Article 11, § 1 of the Kansas Constitution and the implementing provisions of K.S.A. 79-201a Second, municipally owned property must be exclusively used by the municipality. It is too obvious to require argument that the property involved in this case will be used exclusively by General Motors Corporation to build automobiles as a profit-making endeavor by the corporation rather than used exclusively by the municipality. We have defined exclusive use many times. In Seventh Day Adventist v. Board of County Commissioners, 211 Kan. 683, Syl. ¶ 2, 508 P.2d 911 (1973), we stated:
“The phrase ‘used exclusively’ in the constitution and statute means that the use made of the property sought to be exempted from taxation, must be only, solely and purely for the purposes stated, and without participation in any other use.”
See also Lutheran Home, Inc. v. Board of County Commissioners, 211 Kan. 270, 505 P.2d 1118 (1973); Topeka Presbyterian Manor v. Board of County Commissioners, 195 Kan. 90, 402 P.2d 802 (1965); Kansas State Teachers Ass’n v. Cushman, 186 Kan. 489, 351 P.2d 19 (1960).
In City of Arkansas City v. Board of County Commissioners, 197 Kan. 728, 420 P.2d 1016 (1966), we held where city owned *597property was leased for production of oil and gas and production was obtained, the property ceased to be used exclusively by the city and the tax exemption was lost. That case is analogous to the situation here. Kansas City has agreed to lease $775 million worth of property to General Motors for ten years, giving GM an option to purchase the property from the City for $100. The annual rental for the lease is the amount required for debt service on the industrial revenue bonds plus a payment to the City in lieu of taxes. Only part of the payment in lieu of taxes accrues to the City. The tax exemption here clearly does not qualify as a constitutional exemption.
In spite of the requirements of Article 11, § 1 of the Kansas Constitution requiring the legislature to provide a uniform and equal rate of assessment and taxation except for certain enumerated exempt classes of property, we have recognized the right of the legislature to provide other tax exemptions under certain conditions. To meet the constitutional test, a statutory exemption must pass a four-pronged test as stated in the majority opinion: (1) It must promote the public welfare; (2) it must provide a substantial, peculiar benefit; (3) it must not provide for a large accumulation of tax-exempt property; and (4) it must not be a preferential classification of property. See State, ex rel., v. Board of Regents, 167 Kan. 587, 207 P.2d 373 (1949); Alpha Tau Omega v. Douglas County Comm’rs., 136 Kan. 675, 18 P.2d 573 (1933); and Washburn College v. Comm’rs of Shawnee Co., 8 Kan. 344 (1871).
The majority opinion indicates the legislature is the sole judge to determine if it has met the four-pronged test for constitutionality of statutory tax exemption. I disagree. Chief Justice Marshall in Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803), states the reason:
“Certainly, all those who have framed written constitutions contemplate them as forming the fundamental and paramount law of the nation, and consequently, the theory of every such government must be, that an act of the legislature, repugnant to the constitution, is void.
“It is, emphatically, the province and duty of the judicial department, to say what the law is. Those who apply the rule to particular cases, must of necessity expound and interpret that rule.” p. 176
Thus, determination of the constitutionality of the legislature’s action is a judicial, rather than legislative, function.
*598Let us now turn to an examination of the constitutionality of the legislation. The Industrial Revenue Bond Tax Exemption Act passes only two prongs of the four-pronged test. It promotes the public welfare and provides a substantial benefit by encouraging industrial development and thus provides employment for the residents of the community utilizing the exemption. However, as stated by the majority, over $4 billion worth of property has been exempted from taxation in Kansas under the exemption. That is a large accumulation of exempt property by any standard and with the exemption here proposed it will exceed $5 billion worth of exempt property. This exemption clearly provides for a large accumulation of tax-exempt property in violation of test No. 3. The fact the property will be placed on the tax rolls ten years hence does not change the issue. The fact remains that for ten years $5 billion worth of property will not bear its share of the cost of government.
Finally, the industrial revenue bond exemption creates a preferential class. Businesses which can convince a city or county government to fund them with industrial revenue bonds are the preferred class. It is usually a foreign company which is being enticed to change locations with the indirect subsidy of tax exemption. Local established business, many times in competition with tax-exempt companies, seldom qualify for the tax benefit as they are not new industrial development. Usually the benefit conferred, namely, increased employment, falls short of paying its way in taxes. The municipality must furnish the increased municipal services, among which are electricity, water, sewer, streets, and police and fire protection, from an unexpanded tax base. Most of the increases in taxes received from new residents are income taxes and sales taxes, a large part of which are paid to the state, which bears none of the costs of increased services. Thus, the tax exemption also fails test No. 4. We have repeatedly held exemption provisions must be strictly construed and that taxation is the rule and exemption the exception, with the burden on those who claim exemption. State, ex rel., v. Security Benefit Ass’n, 149 Kan. 384, 87 P.2d 560 (1939). Thus, that part of K.S.A. 79-201a Second pertaining to IRB property is unconstitutional.
I also take issue with the majority’s statement in Syllabus ¶ 13 and the corresponding statement in the opinion that article II, *599§ 1 of the Kansas Constitution is substantially identical with the Equal Protection Clause of the 14th Amendment to the United States Constitution. The sections of the two constitutions are not analogous. Article 11, § 1 provides for a uniform and equal method of assessment and taxation for all property. Under the Kansas Constitution, there is only one class of property,
“except that the legislature may provide for the classification and taxation uniformly as to class of motor vehicles, mineral products, money, mortgage, notes and other evidence of debt or may exempt any of such classes of property from property taxation and impose taxes upon another basis in lieu thereof.”
On the other hand, the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution permits a taxation scheme on a rational basis with classification of property based on differences having a fair and substantial relationship to the legislative objective. Thus, we see the Equal Protection Clause permits classification while the uniform and equal clause does not. If we adopt the majority’s holding in this regard there is no reason to submit the classification amendment, adopted this year by the legislature, to the people since we would have accomplished classification by court decree.
I would hold the portion of K.S.A. 79-201a Second granting tax exemption to industrial revenue bond property unconstitutional in violation of the uniform and equal clause of article 11, § 1 of the Kansas Constitution. I would reverse State ex rel. Tomasic v. Kansas City, Kansas Port Authority, 230 Kan. 404, 636 P.2d 760 (1981), and make this judgment effective prospectively. If industrial revenue bond property is to be exempt from taxation in Kansas, the constitution should be amended to permit it. The public deserves an opportunity to vote on the issue. This decision and that in the Port Authority case were decided as acts of expediency. The rule of expediency is bad policy, violative of the very essence of constitutional government. This court should fulfill its role as guardian of the constitution on this issue as it so zealously does on other issues.