Court Opinion

ID: 9946775
Source: CourtListenerOpinion
Date Created: 2024-03-01 15:15:35.996388+00
Date Added: 2024-06-11T14:25:41.665456
License: Public Domain

RENDERED: JANUARY 19, 2024; 10:00 A.M.
                       NOT TO BE PUBLISHED

        ORDERED PUBLISHED: FEBRUARY 23, 2024; 10:00 A.M.

               Commonwealth of Kentucky
                        Court of Appeals
                           NO. 2022-CA-1470-MR

BILL DUNN, MCCRACKEN
COUNTY PROPERTY VALUATION
ADMINISTRATOR                                                   APPELLANT

             APPEAL FROM MCCRACKEN CIRCUIT COURT
v.          HONORABLE TIMOTHY J. KALTENBACH, JUDGE
                      ACTION NO. 21-CI-00685

SARATOGA, LLC; MCCRACKEN
COUNTY BOARD OF ASSESSMENT
APPEALS; AND SSH REAL ESTATE,
LLC                                                              APPELLEES

                                 OPINION
                                AFFIRMING

                                ** ** ** ** **

BEFORE: CETRULO, LAMBERT, AND TAYLOR, JUDGES.

CETRULO, JUDGE: This is an appeal from an Opinion and Order of the

McCracken Circuit Court which affirmed orders of the Kentucky Board of Tax

Appeals (“KBTA”) in favor of two taxpayers, Saratoga, LLC (“Saratoga”) and
SSH Real Estate, LLC (“SSH”). Bill Dunn, the current McCracken County

Property Valuation Administrator (“PVA Dunn”), asks this Court to determine that

improvements to land made after it was acquired and listed for taxation, and which

were not listed or reported to the Property Valuation Administrator (“PVA”), be

deemed “omitted property” pursuant to Kentucky Revised Statute (“KRS”)

132.290(1). “Omitted property,” pursuant to this statute, can be retroactively

assessed and subjected to ad valorem taxes and penalties for up to five prior years.

PVA Dunn asserts this is a case of first impression in the Commonwealth. As

stipulated in the circuit court, it is certainly a case of unusual facts.

                            FACTUAL BACKGROUND

              Saratoga and SSH are Kentucky companies that purchased property in

Paducah several years ago. Saratoga purchased part of a vacant lot in 2001 and an

additional parcel in 2007 for a total price of $3,225. SSH purchased property in

2012 for a total price of $100,000. The purchase prices were listed in the deeds.

The former PVA of McCracken County, Nancy Bock (“Bock”), received copies of

the deeds and reflected the transfers of title on the county property tax rolls.

              Both companies later constructed commercial buildings on their

respective properties, resulting in a significant increase in value for each. Both

companies properly obtained construction permits and other necessary inspections

to complete these improvements and receive a certificate of occupancy. Both

                                            -2-
companies continued to receive annual real property tax bills and timely paid the

same.

              However, Bock did not contact Saratoga or SSH to reassess the

properties after the construction permits and inspection reports were filed for the

improvements. It is undisputed that Bock did not assess the properties yearly, nor

examine them every four years as required by KRS 132.690(1). Bock resigned

from office in 2018 amid charges of theft and forgery and pled guilty to several

felonies. Thereafter, PVA Dunn reviewed several properties within the county and

determined that 49 properties were severely undervalued.1 These two parcels were

included in that list.

              PVA Dunn then issued “omitted property” tax assessments with

interest and penalties, seeking to retroactively increase the assessed values of the

properties. Saratoga received an omitted property notice with an adjusted

assessment of $1,883,724. SSH received an omitted property notice with an

adjusted assessment of $790,900. Both companies sought a timely conference with

PVA Dunn, who upheld the assessments and denied the objections. Saratoga and

SSH then appealed to the McCracken County Board of Assessment Appeals

(“BAA”).

1
 The record reflects that PVA Dunn sought guidance on this issue in 2019 when he asked for an
opinion from the Attorney General’s Office concerning the laws that apply to omitted real
property under these facts. There does not appear to have been any response to that request.

                                             -3-
             The BAA conducted a hearing and issued its decision that the

“omitted property” assessments were erroneous. The BAA agreed that the

property was undervalued, but ruled that they should simply be added to the future

tax roll, and the taxpayers should not be assessed a penalty nor any arrearages.

PVA Dunn then filed a Petition of Appeal with the KBTA. The KBTA granted

summary judgment in favor of Saratoga and SSH, finding that the improvements

were not “omitted property” as defined by KRS 132.290.

             The KBTA specifically held that Saratoga’s and SSH’s parcels were

not “omitted property” because the companies had properly listed the parcels as

required by KRS 132.220 when they recorded the deeds in the county clerk’s

office. Bock had not issued a written request to Saratoga and SSH to provide

further information about the parcels. PVA Dunn appealed those decisions to the

McCracken Circuit Court.

             The circuit court consolidated the two actions and affirmed the

KBTA. The court stated that the undervaluation of the parcels was due to the

failure of Bock to perform her statutory duties and not due to any violation on the

part of the taxpayers. The circuit court upheld the KBTA rulings, resulting in this

appeal.

                                         -4-
                              STANDARD OF REVIEW

               Judicial review of a final order of the KBTA is governed by KRS

 13B.150(2). That statute provides, in part, that “[t]he court shall not substitute its

 judgment for that of the agency as to the weight of the evidence on questions of

 fact.” Id. The reviewing court may generally only reverse the agency if the

 decision is

               (a) [i]n violation of constitutional or statutory provisions;
               (b) [i]n excess of the statutory authority of the agency; (c)
               [w]ithout support of substantial evidence on the whole
               record; (d) [a]rbitrary, capricious, or characterized by
               abuse of discretion; (e) [b]ased on an ex parte
               communication which substantially prejudiced the rights
               of any party and likely affected the outcome of the
               hearing; (f) [p]rejudiced by a failure of the person
               conducting a proceeding to be disqualified pursuant to
               KRS 13B.040(2); or (g) [d]eficient as otherwise provided
               by law.

KRS 13B.150(2).

               This Court’s standard of review of an appeal from an administrative

 action is similarly limited and we must accept the findings of fact made by the

 KBTA if they are supported by any substantial evidence in its record. See River

 City Fraternal Ord. of Police Lodge No. 614, Inc. v. Louisville/Jefferson Cnty.

 Metro. Gov’t, 664 S.W.3d 486, 493 (Ky. 2022), reh’g denied (Feb. 16, 2023).

                                           -5-
             As to legal conclusions, we review them de novo. Arterburn v. First

Cmty. Bank, 299 S.W.3d 595, 598 (Ky. App. 2009) (citation omitted). Applying

that standard, we turn to the legal arguments herein.

                                    ANALYSIS

             At issue here is the application of KRS 132.290 – which details

omitted property – but as noted by the KBTA and the circuit court, that section

must also be read in conjunction with other provisions of Chapter 132.

             KRS 132.290, in pertinent part, reads as follows:

          (1) Any real property which has not been listed for taxation,
              for any year in which it is taxable, by the time the [BAA]
              completes its work for that year shall be deemed omitted
              property. . . .

          (2) All omitted property shall be assessed retroactively in the
              manner provided by law at any time within five (5) years
              from the date when it became omitted, but the lien
              thereby accruing on any such property, except real
              property, shall not prejudice the rights of bona fide
              purchasers acquired in the meantime.

          (3) All omitted property voluntarily listed shall be subject to
              a penalty of ten percent (10%) of the amount of taxes, and
              interest at the tax interest rate as defined in KRS
              131.010(6) from the date when the taxes would have
              become delinquent had the property been listed as
              required by law, until the date the tax bill is paid.

          (4) All omitted property not voluntarily listed shall be
              subject to a penalty of twenty percent (20%) of the
              amount of taxes, and interest at the tax interest rate as
              defined in KRS 131.010(6) from the date when the taxes

                                         -6-
              would have become delinquent had the property been
              listed as required by law, until the date the tax bill is paid.

           (5) When the property is assessed retroactively by action
               prosecuted in the manner provided by KRS 132.330 and
               132.340, an additional penalty of twenty percent (20%)
               of the amount of the original tax, interest and penalty may
               be collected for the purpose provided in KRS 134.552
               and paid into the State Treasury. All other penalties and
               interest shall be distributed in the same manner as the tax.

           (6) Taxes on omitted property shall be due and payable as
               provided in KRS 134.015.

             On appeal, PVA Dunn asserts that taxpayers have a duty to make

certain that their property is accurately “listed” under KRS 132.290. Of course,

KRS 132.290(1) defines “omitted property” as “[a]ny real property which has not

been listed for taxation[.]” However, it does not make clear whether subsequent

improvements to land that had previously been listed constitute “omitted” property.

PVA Dunn asserts that the language of KRS 132.220 imposes such a duty on

taxpayers if improvements are made that affect the assessed value of listed

property. Sarasota and SSH disagree and argue that the purchase of property for a

value stated in the deed is considered a continuing listing. They assert that no

further duty exists, unless information is requested in writing by the PVA or the

Department of Revenue (“DOR”) under KRS 132.220. Thus, we look to that

statute.

             KRS 132.220, in relevant part, reads as follows:

                                           -7-
             Any real property correctly and completely described in
             the assessment record for the previous year, or purchased
             during the preceding year and for which a value was stated
             in the deed according to the provisions of KRS 382.135,
             may be considered by the owner to be listed for the current
             year if no changes that could potentially affect the assessed
             value have been made to the property. However, if
             requested in writing by the [PVA]or [DOR], any real
             property owner shall submit a property tax return to
             verify existing information or to provide additional
             information for assessment purposes.               Any real
             property which has been underassessed as a result of
             the owner intentionally failing to provide information,
             or intentionally providing erroneous information shall
             be subject to revaluation, and the difference in value
             shall be assessed as omitted property under the provisions
             of KRS 132.290.

(Emphasis added.)

             It is clear that intentional failure to respond to a request by the PVA or

intentionally providing false information will lead to a reassessment of value as

“omitted property.” However, here, there was no evidence of any intentional

failure by either property owner. Indeed, as PVA Dunn admits, there was no prior

request for a property tax return or for any documentation from the taxpayers.

There was also no dispute that the taxpayers did report the improvements to the

land, by virtue of filing building/construction permits and requesting electrical and

other needed inspections as the improvements were being made.

             The circuit court noted that statutes should be construed, if possible,

in accord with their plain meaning and intent. Commonwealth v. Montaque, 23

                                         -8-
S.W.3d 629, 631 (Ky. 2000) (citation omitted). Applying that premise to its

review of KRS 132.220, the circuit court found that PVA Dunn did not request a

property tax return or additional information for assessment purposes after the

improvements were performed. Contrary to PVA Dunn’s contention, the circuit

court held that KRS 132.220 does not require taxpayers to “relist” their properties

or impose a duty to list improvements to real property, unless information is

requested in writing by the PVA.

             In short, the circuit court held that the additional ad valorem taxes

were not collected because Bock did not comply with her duties. The PVA’s

duties are set forth in KRS 132.690. KRS 132.690(1)(a) provides that

             [e]ach parcel of taxable real property or interest therein
             subject to assessment by the property valuation
             administrator shall be revalued during each year of each
             term of office by the [PVA] at its fair cash value . . . and
             shall be examined no less than once every four years by
             the [PVA].

             KRS 132.690(1)(b) provides that “[f]or any property upon which any

improvements have been made since the prior examination, the [PVA] shall

perform on-site, in-person visual examination of the real property and the

improvements.”

             Under these provisions, the PVA is required to establish the

mechanism to reassess property, and there are strict accountability measures in the

event that a PVA neglects his or her duties. As this Court has previously stated,

                                         -9-
DOR and “PVAs are both mandated to assess all property in Kentucky at its fair

cash value.” Ky. Exec. Branch Ethics Comm’n v. Atkinson, 339 S.W.3d 472, 475

(Ky. App. 2010) (citation omitted). “While PVAs are elected state officials, they

are . . . obliged to comply with [DOR’s] rules, regulation, direction, instruction,

and supervision” and can be removed for failure to perform their duties. Id. at

475-76 (citations omitted). Those duties are further detailed in KRS Chapters 131,

132, and 133, but the “primary duties are to make the assessment of all property in

their counties and to prepare property assessment records.” Id. at 475 (citation

omitted). As the circuit court held, it was Bock that failed in her duties, and there

was no evidence of any failure on the part of the taxpayers to adhere to their

statutory obligations.

              PVA Dunn also asserts that when improvements are made to the land

and not reported, those improvements constitute “omitted property” permitting its

reassessment and retroactive penalties under KRS 132.290. However, there is no

citation to legal authority for this position other than a single case out of Utah.2

Utah’s property tax law is very different from ours. Utah’s legislation defines real

estate separately from improvement and allows improvements to be assessed

2
 Cnty. Bd. of Equalization of Salt Lake Cnty., State of Utah v State Tax Comm’n of Utah ex rel.
Sunkist Serv. Co., 789 P.2d 291 (Utah 1990).

                                             -10-
separately.3 However, Kentucky legislation, in pertinent part, states that “omitted

property” is real property – KRS 132.290(1) – and “real property” is defined as “all

lands and improvements thereon[.]” KRS 132.010(3). Therefore, we do not find

Utah law persuasive in our analysis.

                 We believe the real issue is whether our statutory authorization for

retroactive assessments applies to property that has not been omitted, but rather has

been undervalued. Our research indicates that other jurisdictions are divided on

this issue. Some allow retroactive taxation when all improvements on the land

have been omitted. Korash v. Mills, 263 So.2d 579, 580-81 (Fla. 1972). There,

retroactive taxation was applicable where the assessor was assessing “for the first

time property which escaped assessment entirely.” Mun. of Anchorage v. Alaska

Distribs. Co., 725 P.2d 692, 694 (Alaska 1986) (citing Korash, 263 So.2d at 581).

                 “However, other jurisdictions preclude later reassessment, reasoning

that the property as a unit consisting of the land and improvements has already

been taxed.” Id. (citing Leyh v. Glass, 508 P.2d 259, 262-63 (Okla. 1973); In re

Westward Look Dev. Corp., Inc., 673 P.2d 26, 27-28 (Ariz. App. 1983); and Bd.

for Assessment and Revision of Taxes of Lancaster Cnty., Twp. of Drumore, Tmp.

of Martic, Solanco Sch. Dist. v. Philadelphia Elec. Co., 308 A.2d 627, 631-32 (Pa.

Commw. Ct. 1973)). Therefore, omission of the improvements, “constitutes an

3
    In re W. Side Prop. Assocs., 13 P.3d 168, 173 (Utah 2000).

                                                -11-
undervaluation of the tax on the entire property which cannot be reassessed.” Id.

(citing Leyh, 508 P.2d at 263 and Westward Look, 673 P.2d at 28).4

               We note the split among other jurisdictions because we agree with

PVA Dunn that there is little precedent within our own case law. However, we

have found some guidance. In Thomas’ Executrix v. Commonwealth, 215 S.W.2d

546, 550 (Ky. 1948), the Court, although interpreting a prior version of KRS

132.290, stated that “‘[o]mitted property’ contemplated by our assessment statutes

is property which is not assessed at all.” To the contrary, it has been held that the

previously accepted assessment constitutes a “continuing listing” by the taxpayer

which would not be considered previously unassessed or “omitted property.”

Layson v. Brady, 576 S.W.2d 223 (Ky. App. 1978).

               Our courts have also held that an undervaluation cannot generally be

corrected by retroactive assessment. Ky. Tax Comm’n v. Airlene Gas Co., 328

S.W.2d 832, 833-34 (Ky. 1958). While Airlene Gas dealt with taxation of

accounts rather than real property, the Court therein noted that the principal

question it faced was whether the difference in listed valuations may be assessed as

omitted property or property which was merely undervalued. Id. at 833. “[E]ven

4
  In Municipality of Anchorage v. Alaska Distributors Company, 725 P. 2d 692 (Alaska 1986),
the Court did ultimately rule in favor of the municipality, assessing a million dollar warehouse
addition as escaped property, because it had assessed and taxed other improvements on the land
for the tax years in question.

                                              -12-
if the valuations were less than the true value, the difference should not be

regarded as being omitted property.” Id. at 834.

             Further, “[w]here it is sought by an officer of the state or county to

assess omitted property, the one seeking the re-assessment must show to the

satisfaction of the court that property has been omitted[.]” Commonwealth v.

Louisville Gas & Elec. Co., 128 S.W.2d 778, 785 (Ky. 1938); see also

Commonwealth v. J.M. Robinson, Norton & Co., 142 S.W. 406, 409 (Ky. 1912)

(“[T]here is a wide difference between omitting property entirely for assessment,

and assessing it at less than its assessable value. In the one instance it has not been

assessed at all, and in the other it has been assessed. . . . but merely undervalued.”).

Even if there was some ambiguity in our legislation, our precedent requires – in

cases other than those providing exemptions to tax – strictly construing the statute

against the taxing authority and in favor of the taxpayer. Popplewell’s Alligator

Dock No. 1, Inc. v. Revenue Cabinet, 133 S.W.3d 456, 463 (Ky. 2004), as modified

(Jun. 3, 2004) (citations omitted); cf. Klosterman v. Johnson, 10 S.W.2d 602, 603

(Ky. 1928) (citation omitted) (“A penalty is exacted only when the taxpayer is at

fault or to blame for the failure to assess the property.”).

             Finally, both parties referenced a 1985 Attorney General Opinion

which provides guidance where, as here, improvements were made to the property

after the initial listing. Although this Court is not required to follow opinions of

                                          -13-
the Attorney General, we can “afford them great weight.” Louisville Metro. Dep’t

of Corrections v. King, 258 S.W.3d 419, 421-22 (Ky. App. 2007) (citation

omitted). We believe this Opinion provides further support for the rulings of the

KTBA and the circuit court. As the Attorney General stated, our case law has

found it significant to consider whether the “failure to assess the property is based

upon the taxpayer’s error or an error by the property valuation administrator.”

1985-1987 Ky. Op. Att’y Gen. 85-143, 1985 WL 193350 (1985).

             The circuit found that fact significant in this case, and we agree. The

Attorney General Opinion admittedly opened the door to classification of

significantly improved property as “omitted property,” but it did so based upon the

taxpayer’s failure to list its major improvements on property. The Opinion further

guides us, though, stating:

             We would, however, not classify as omitted property the following:

             (1) improvements not assessed for any reason other
             than the taxpayer’s failure to comply with KRS 132.230,
             and,

             (2) improvements which are merely undervalued or
             inadequately described.

1985-1987 Ky. Op. Att’y Gen. 85-143, 1985 WL 193350 (1985) (emphasis added).

             While retroactive tax bills are authorized by KRS 132.290, the

language of the statute, considered with KRS 132.230, suggests that such

retroactivity and penalties follow a request for information by a PVA who is

                                         -14-
properly performing his or her duties. We cannot say that the circuit court or the

FTBA erred in determining the legislature’s intent. The legislation was designed

to hold the PVA responsible for performing its duties and to apply the penalties

and retroactivity provisions to a property owner who fails to initially list the

property with improvements or fails to respond to a written inquiry by the PVA.

Saratoga and SSH listed their properties when purchased. They received and paid

the tax bills each year. The PVA did not issue any inquiry to the property owners

and failed to reassess the property at its fair cash value. That failure resulted in the

properties being undervalued, but they were not omitted property.

             For all the foregoing reasons, we affirm the McCracken Circuit Court.

             ALL CONCUR.

 BRIEFS FOR APPELLANT:                      BRIEF FOR APPELLEES:

 Cody R. Walls                              Timothy J. Eifler
 Glenn D. Denton                            Stephen A. Sherman
 Paducah, Kentucky                          Louisville, Kentucky

                                          -15-