Court Opinion

ID: 6105529
Source: CourtListenerOpinion
Date Created: 2022-01-21 16:06:08.784606+00
Date Added: 2024-06-11T08:54:01.920520
License: Public Domain

No. 123,017

              IN THE COURT OF APPEALS OF THE STATE OF KANSAS

                                  ALLIANCE WELL SERVICE, INC.,
                                 AMIGOS WELL SERVICE, INC., and
                                  REDLINE WELL SERVICE, LLC,
                                          Appellants,

                                                    v.

                                      PRATT COUNTY, KANSAS,
                                             Appellee.

                                  SYLLABUS BY THE COURT

        The Kansas Department of Revenue's Property Valuation Division's Kansas Oil
and Gas Appraisal Guide classification of mobile service rigs as subclass 2(2) oil and gas
property does not violate the Equal Protection Clause under the Fourteenth Amendment
to the United States Constitution.

        Appeal from Pratt District Court; FRANCIS E. MEISENHEIMER, judge. Opinion filed January 21,
2022. Affirmed.

        John D. Beverlin II, of Stull, Beverlin, Nicolay & Haas, LLC, of Pratt, for appellants.

        Trevor C. Wohlford, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Topeka, for
appellee.

        Shelley Woodard, of Legal Services Bureau, for amicus curiae Kansas Department of Revenue.

Before GREEN, P.J., CLINE, J., and JAMES L. BURGESS, S.J.

                                                     1
       CLINE, J.: Three oil and gas well servicers (Well Servicers) challenge Pratt
County's classification of their mobile well service rigs as oil and gas property in tax
years 2015 and 2016. They claim the rigs should be tax exempt under the "commercial
and industrial machinery and equipment" (CIME) exception provided for in K.S.A. 79-
223. They also argue the property valuation guidelines in the Kansas Oil and Gas
Appraisal Guide (Guide) violate Kansas statutes and create an arbitrary and
discriminatory tax classification that violates their right to equal protection under the law.

       We find Pratt County properly taxed the rigs. Wells service rigs have been
classified as oil and gas property since Kansas' property tax classification scheme was
established by constitutional amendment and implemented in 1989. L. 1985, ch. 364, § 1
(effective January 1, 1989). Before the enactment of Article 11, section 1, such rigs were
taxed as mineral leasehold property since at least 1965. The rigs are not CIME exception
property, and the Guide does not violate Kansas statutes or the Constitution. Well
Servicers have come to the wrong branch of government to seek redress. We affirm the
district court's well-reasoned opinion.

                                           FACTS

       Well Servicers contract with oil and gas operators to provide services in
connection with oil and gas well operations throughout Kansas. They are licensed and
regulated by the Kansas Corporation Commission (KCC). Their principal place of
business is Pratt County, Kansas. Collectively, Well Servicers possess 14 mobile well
service rigs, also known as workover rigs. These rigs are used to perform services in
Kansas oil and gas fields. The rigs are driven from location to location as needed to
perform two types of services: (1) services through the wellbore mainly to influence the
underground reservoir or formation and (2) services on the wellbore and related
equipment. Well Servicers acquired 12 of the 14 rigs through bona fide transactions after
June 30, 2006.

                                              2
       The first type of services—services through the wellbore mainly to influence the
underground reservoir or formation—may be performed either during completion or
recompletion of a well. Completion is preparing a well for commercial production with a
wellhead and downhole tubing. Recompletion is reentering a well and redoing or
repairing the original completion to restore or enhance the well's productivity.

       During well completion, Well Servicers run tubing inside the cased wellbore and,
if needed, they may run rods and insert pumping apparatuses. Well Servicers also pull
and set tubing and equipment for production from new formations and plug or seal off
depleted formations.

       The second type of services—services on the wellbore and related equipment—
consist of machine repairs, cleaning, and well stimulation. When performing such work,
Well Servicers typically shut down production from the wells they are servicing and
sometimes shut down production from the lease entirely.

       Well Servicers also perform diagnostic oilfield well tests, well plugging services,
and services in connection with observation wells, injection wells, and other wells that do
not produce minerals. In the past, Well Servicers provided services in connection with
drinking water wells, but such services did not occur during the tax years at issue.

       Well Servicers' mobile service rigs are similar in use and character to rigs that
were once dedicated to a single well location. Mobile service rigs became the industry
standard in the 1950s. But some oil and gas companies still operate their own well service
rigs and perform their own well service work rather than outsource the work to
contractors (like Well Servicers).

       Beyond Well Servicers' services and equipment, other contractors and equipment,
such as seismic equipment, drilling rigs, backhoes, diagnostic equipment, downhole

                                             3
tools, and fishing tools, may be used to perform work during the various phases of an oil
and gas project.

Property Tax Classification in Kansas Generally

         Article 11, section 1 of the Kansas Constitution creates two general classes of
property for tax assessment purposes. Class 1 consists of real property and Class 2
consists of tangible personal property. Kan. Const. art. 11, § 1. Class 2 property—
tangible personal property—is divided into six subclasses with corresponding assessment
rates:

                                                                        Assessment Rate
 Subclass                          Description                        (percentage of value)

     (1)       Mobile homes used for residential purposes.                  11.5%
               Mineral leasehold interests except oil leasehold
               interests the average daily production from which
     (2)       is five barrels or less, and natural gas leasehold           30%
               interests the average daily production from which
               is 100 mcf or less, which shall be assessed at 25%.
               Public utility tangible personal property including
               inventories thereof, except railroad personal
     (3)       property including inventories thereof, which shall          33%
               be assessed at the average rate all other
               commercial and industrial property is assessed.
               All categories of motor vehicles not defined and
     (4)       specifically valued and taxed pursuant to law                30%
               enacted prior to January 1, 1985.

                                                 4
              Commercial and industrial machinery and
              equipment which, if its economic life is seven
              years or more, shall be valued at its retail cost
              when new less seven-year straight-line
              depreciation, or which, if its economic life is less
              than seven years, shall be valued at its retail cost
     (5)                                                                                25%
              when new less straight-line depreciation over its
              economic life, except that, the value so obtained
              for such property, notwithstanding its economic
              life and as long as such property is being used,
              shall not be less than 20% of the retail cost when
              new of such property.
              All other tangible personal property not otherwise
     (6)                                                                                30%
              specifically classified.

Kan. Const. art. 11, § 1.

Property Tax Classification of Oil and Gas Property

       K.S.A. 79-329 authorized the classification of Kansas oil and gas property as
tangible personal property. The statute provides:

               "For the purpose of valuation and taxation, all oil and gas leases and all oil and
       gas wells, producing or capable of producing oil or gas in paying quantities, together with
       all casing, tubing or other material therein, and all other equipment and material used in
       operating the oil or gas wells are hereby declared to be personal property and shall be
       assessed and taxed as such." K.S.A. 79-329.

       Kansas law "requires oil and gas properties to be appraised uniformly and equally
at fair market value. Toward that end, the law mandates county appraisers adhere to the

                                                     5
Kansas Oil and Gas Appraisal Guide developed by the Kansas Department of Revenue's
Property Valuation Division unless just cause is shown for deviation." In re Tax Appeal
of River Rock Energy Company, 313 Kan. 936, 937-38, 492 P.3d 1157 (2021).

       The Kansas Department of Revenue's Property Valuation Division (PVD), with
advice and input from industry representatives and county appraisers, develops the
Kansas Oil and Gas Appraisal Guide (the Guide) each year to help county appraisers
value oil and gas properties for purposes of ad valorem property taxation. K.S.A. 79-
5105a. The Guide does not list all equipment that may be used in connection with oil and
gas well operations. Rather, it includes only a partial list of prevalent items used.

       The Guide categorizes well service rigs according to engine size and hook load.
The rig classification categories range from the 100 Series rig for shallow wells to the
500 series rig for deep wells. All series of rigs do essentially the same work; it is the
depth of the well, and sometimes the well location, that determines which rig series is
appropriate for a particular well servicing assignment.

       For the tax years at issue in this appeal, Well Servicers listed and reported
(rendered) the service rigs as Series 200 and Series 300 rigs. The Guide specifically
identifies Series 200 and Series 300 rigs as "'[i]temized [e]quipment.'" Itemized
equipment is property located on the lease, in storage yards, or other sites which is not
part of the producing "'prescribed'" equipment.

       Well service rigs have been classified as subclass 2 of section 2 oil and gas
property since Kansas' property tax classification scheme was established by
constitutional amendment and implemented in 1989. L. 1985, ch. 364, § 1 (effective
January 1, 1989). Before the enactment of Article 11, section 1, Kansas property tax
authorities have taxed well service rigs as mineral leasehold property since at least 1965.

                                              6
       Certain mobile equipment, or portions of equipment, used in Kansas oil and gas
operations is not classified and taxed as subclass 2(2) oil and gas property. For example,
Series 100 rigs do not include a truck/carrier value because the rig equipment typically
can be separated from the chassis cab. The rig equipment on a Series 100 rig is taxed as
subclass 2(2) oil and gas property, and the chassis cab is taxed as subclass 2(4) motor
vehicle property. On the other hand, the values assigned to Series 200, 300, 400, and 500
rigs include a carrier value because the rig equipment and chassis cab are built as a single
operating machine issued exclusively for serving, cleaning out, or drilling oil wells. For
another example, diagnostic wireline equipment, consisting of data logging tools lowered
on a truck-mounted wire, is classified as subclass 2(5) CIME property.

       As discussed, oil and gas equipment is treated as tangible personal property for tax
assessment purposes, so oil and gas equipment is listed and reported (rendered) to the
local county appraiser by the property owner. See K.S.A. 79-332a. Property owners
render oil and gas property by filing a statement of assessment on standard rendition
forms. See K.S.A. 79-332a. The county appraiser then reviews the owner's rendition,
determines whether changes are required, and notifies the owner of the appraised value.
See K.S.A. 79-1460.

       Pratt County used the information rendered by Well Servicers and referenced the
Guide to classify and value the rigs for the tax years in issue (2015 and 2016) and then
assessed the property taxes due accordingly.

The CIME Exemption

       In 2006, the Kansas Legislature exempted CIME from ad valorem property
taxation "acquired by qualified purchase or lease made or entered into after June 30,
2006, as the result of a bona fide transaction not consummated for the purpose of
avoiding taxation." K.S.A. 79-223(b). The CIME exemption statute tracks Article 11,

                                               7
section 1 of the Kansas Constitution and defines CIME as subclass 2(5) property. K.S.A.
79-223(c).

       During committee hearings on the CIME exemption, the Secretary of the Kansas
Department of Revenue provided lawmakers with revenue data to forecast the statewide
fiscal impact of exempting subclass 2(5) CIME. Minutes, House Comm. on Taxation,
February 17, 2006 (H.B. 2619), p. 25-40. The Secretary also provided information to help
lawmakers define the scope of the CIME exemption, explaining that "[q]ualifying
equipment is that which would currently be valued at retail cost less depreciation
(classified in subclass 5 of class 2 section 1 article 11)." Minutes, House Comm. on
Taxation, February 17, 2006 (H.B. 2619), p. 33. In her written testimony, the Secretary
noted the exemption would not apply to tangible personal property historically valued at
market value, and specifically identified "[o]il and gas leases including the prescribed
personal property" and "[o]il and gas itemized personal property such as drilling
equipment and rigs, pipe, casing" as equipment that would not qualify as exempt subclass
2(5) CIME. Minutes, House Comm. on Taxation, February 17, 2006 (H.B. 2619), p. 33.

Failed Legislative Initiative to Reclassify Well Service Rigs as CIME

       In 2016, Well Servicers took part in a legislative initiative to amend the Kansas
tax code to reclassify well service rigs and other mobile equipment and materials used
temporarily at oil and gas well sites as CIME, and thus exempt under subclass 2(5)
personal property. The measure, introduced as House Bill 2264, would have amended
K.S.A. 79-329 as follows:

               "For the purpose of valuation and taxation, certain oil and gas property, certain
       equipment and material used in operating oil and gas wells and certain equipment and
       material temporarily used at an oil or gas well site, shall be treated as follows:
               "(a) All oil and gas leases and all oil and gas wells, producing or capable of
       producing oil or gas in paying quantities, together with all casing, tubing or other material

                                                     8
       therein, and all other equipment and material used in operating the oil or gas wells are
       hereby declared to be personal property and shall be assessed and taxed as such the
       mineral leasehold estate pursuant to subclass 2 of class 2 of subsection (a) of section 1 of
       article 11 of the constitution of the state of Kansas.
               "(b) Equipment and material used at an oil or gas well site: (1) On a temporary
       basis; (2) not attached to the real property; and (3) used in drilling, servicing, testing,
       acidizing or fracking, casing installation, pulling or resetting, cementing or setting,
       fishing, packing, jetting, perforating or logging the oil or gas well shall not be considered
       equipment and material used in operating the oil or gas well pursuant to subsection (a),
       and are hereby declared to be personal property and shall be assessed and taxed as
       commercial machinery and equipment pursuant to subclass 5 of class 2 of subsection (a)
       of section 1 of article 11 of the constitution of the state of Kansas." (Additions
       underlined; deletions struck through.)

       Ultimately, the Legislature did not enact House Bill 2264 into law.

Well Servicers' Tax Dispute and BOTA Order

       Well Servicers paid their 2015 and 2016 taxes under protest and challenged the
Pratt County Appraiser's classification of their tangible personal property—the mobile
well service rigs. Well Servicers then brought their protest before the Board of Tax
Appeals (BOTA). See K.S.A. 79-2005(f), (g).

       Well Servicers argued to BOTA that the service rigs should be exempt from
taxation as CIME, under K.S.A. 79-223. Additionally, Well Servicers argued
classification of the rigs was arbitrary and does not meet the "uniform and equal" taxation
requirement of Article 11, section 1 of the Kansas Constitution because the machinery of
other oil well servicers is exempt from taxation under K.S.A. 79-223(b).

       As for the first issue, BOTA unanimously found the Pratt County Appraiser
correctly followed the PVD Guide when assessing the service rigs. BOTA then

                                                      9
concluded the service rigs did not qualify as CIME property. Thus, BOTA concluded that
Pratt County had properly classified Well Servicers' rigs as subclass 2(2) oil and gas
property rather than subclass 2(5) CIME property. BOTA declined to address the
constitutionality of the classification, noting it has no authority to render such decisions.
See Kaufman v. Kansas Dept. of SRS, 248 Kan. 951, 954, 811 P.2d 876 (1991)
("Administrative boards and agencies may not rule on constitutional questions; therefore,
the issue of the constitutionality of a state statute or an administrative regulation must be
raised when the case is appealed to a court of law."). BOTA concluded "that the
Taxpayer's request is either a matter for the legislature to re-consider or for a court of
competent jurisdiction's deliberations."

       Ultimately, BOTA denied Well Servicers' protests "[d]espite the Taxpayers'
compelling arguments of seeming inequity."

Pratt County District Court Decision

       Well Servicers petitioned the Pratt County District Court for judicial review of
BOTA's decision. After a hearing, the district court affirmed BOTA's decision.

       As for Well Servicers' first argument—that the rigs should be classified as CIME
property and not oil and gas property—the district court determined the service rigs were
properly classified as subclass 2(2) property.

       In so finding, the district court relied on both legislative history and on how
service rigs have been historically categorized. See, e.g., In re Tax Appeal of Wedge Log-
Tech, 48 Kan. App. 2d 804, 300 P.3d 1105 (2013). First, the court noted the Legislature
appears to have specifically intended to exclude oil and gas properties from the CIME
exemption in K.S.A. 79-223. Second, the district court pointed out that "since at least
1965, the workover rigs have been historically taxed as part of the oil and gas leasehold.

                                              10
They have been valued and taxed as subclass [2](2) properties since the constitutional
amendment implemented in 1989." The district court also noted that, while not indicative
of the legislative intent when the CIME exemption was passed, in 2016 the Legislature
declined the opportunity to amend K.S.A. 79-223 to include oil and gas property,
including the service rigs at issue, as CIME property.

       The district court held that BOTA properly determined the service rigs were
subclass 2(2) property, and thus properly denied a K.S.A. 79-223 exemption to the
property.

       As for Well Servicers' constitutional argument, the district court held that neither
the guidelines of the PVD Guide, nor the application of these guidelines by the Pratt
County Appraiser in classifying Well Servicers' property, violated Well Servicers' right to
equal protection:

               "The Court cannot find it unreasonable that similar equipment may be valued
       differently based upon its January 1 usage, when those distinctions are based on
       legitimate factors such as, whether it is idle or not, the type of well that it may be used on
       (oil or gas), and distinctions between different wells (depth or rate of decline) on which
       the equipment may be used. That is not a distinction based on class of ownership.
               "The legislature has determined classification distinctions should exist on
       equipment that is generally used in the oil and gas field. (i.e. drilling rigs, etc., v. wireline
       equipment and seismic equipment, etc.). Those distinctions reflect the fact the properties
       are different types of equipment. Those distinctions were explained and upheld based
       upon factual determinations and historical classifications in the [In re Tax Appeal of]
       Wedge Log-Tech decision. Those distinctions have a rational basis and they do not deny
       Equal Protection."

                                                      11
                                         ANALYSIS

       Well Servicers reprise their arguments on appeal. We find them no more
persuasive than the Pratt County District Court did.

Classification of the Service Rigs as Subclass 2(2) Oil and Gas Property

       Well Servicers first argue the service rigs should be classified as subclass 2(5)
CIME property because they claim the service rigs are not used in operating the mineral
leasehold interest of oil and gas wells. They assert the service rigs should not be in
subclass 2(2) oil and gas property as they "have no logical connection to mineral
leaseholds."

       A. Standard of Review

       "Whether certain property is exempt from ad valorem taxation is a question of law
if the facts are not in dispute." In re Tax Exemption Application of Mental Health Ass'n of
the Heartland, 289 Kan. 1209, 1211, 221 P.3d 580 (2009). Interpretation of a statute or
administrative regulation is also a question of law over which appellate courts have
unlimited review. In re Tax Appeal of LaFarge Midwest, 293 Kan. 1039, 1043, 271 P.3d
732 (2012). The burden of establishing the invalidity of an agency action rests with the
party asserting invalidity, here, Well Servicers. K.S.A. 77-621(a)(1).

       B. Burden of Proof and the Presumption of Taxation

       In Kansas, all property—real and personal—is subject to taxation, unless expressly
exempt. K.S.A. 79-101. For that reason, to successfully claim an exemption from
taxation, the claimant must show the State has clearly relinquished its power to tax the
subject property. In re Application of Riverton Water Co. for Tax Exemption, 23 Kan.
App. 2d 496, 497, 932 P.2d 452 (1997).

                                             12
       While "[s]tatutes imposing a tax must be interpreted strictly in favor of the
taxpayer," the burden of proving an exemption is high. In re Tax Exemption Application
of Mental Health Ass'n of the Heartland, 289 Kan. at 1211. A party claiming an
exemption to taxation must establish its right to such an exemption beyond a reasonable
doubt, the highest burden of proof. National Council v. Shawnee County, 63 Kan. 799,
803, 66 P. 1011 (1901) ("It is a rule universally recognized that laws exempting property
from taxation are to be strictly construed, and that the claimant of such exemption must
establish, beyond a reasonable doubt, his right thereto."); see In re B.D.-Y., 286 Kan. 686,
691, 187 P.3d 594 (2008) (discussing hierarchy of burdens of proof).

       "[T]ax exemption statutes are interpreted strictly in favor of imposing the tax and
against allowing an exemption for one that does not clearly qualify." In re Tax Exemption
Application of Mental Health Ass'n of the Heartland, 289 Kan. at 1211. "All doubts
concerning exemption are to be resolved against the exemption and in favor of taxation."
In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 532, 920 P.2d 947 (1996).
Yet, "[s]trict construction of an exemption provision does not, however, warrant
unreasonable construction." In re Tax Exemption Application of Mental Health Ass'n of
the Heartland, 289 Kan. at 1211.

       Well Servicers tacitly argue these maxims should not apply because they are not
arguing an exemption applies to them per se. Rather, they assert that whether an
exemption applies is irrelevant; they claim the only consideration before us is whether the
service rigs should be classified as subclass 2(2) or 2(5) property. ("It is Appellants'
position that consideration should be given to whether the Subject Properties are properly
classified as Subclass 2[2] or whether they should be classified as Subclass 2[5] and not
necessary whether the Subject Properties are exempt from property taxation under K.S.A.
79-223.").

                                              13
       Yet by framing the argument this way, Well Servicers essentially ask us to ignore
the facts and the practical implications of our ruling. This matter originates from Well
Servicers' payment of their 2015 and 2016 taxes under protest, arguing that the service
rigs should be exempt from taxation as CIME property. See K.S.A. 79-223. Should we
find that Well Servicers' rigs ought to be classified as subclass 2(5) CIME property, then
12 of the 14 service rigs would then become eligible for the statutory CIME exemption.
See K.S.A. 79-223. Moreover, not only would most of Well Servicers' rigs fall into the
CIME exception, but our ruling would, in effect, reclassify countless properties across
Kansas from subclass 2(2) oil and gas property to 2(5) tax-exempt CIME property. See
K.S.A. 79-223.

       The potential for such a monumental shift in Kansas' taxation base is precisely
why the well-accepted legal maxims mentioned above exist. The power of the Legislature
to express what property must be taxed implies the power to prescribe what property will
be exempt. Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454,
691 P.2d 1303 (1984). The relinquishment of such a power is never assumed. State, ex
rel. v. Shawnee County Comm'rs, 132 Kan. 233, 237, 294 P. 915 (1931) (quoting Chief
Justice Marshall in Providence Bank v. Billings and Pittman, 29 U.S. 514, 561, [4 Peters
514,] 7 L. Ed. 939 [1830]).

       Further, when discussing the meaning behind the strict construction of tax
exemptions, our Supreme Court has observed that, since taxes are the "'sole means by
which sovereignties can maintain their existence, any claim on the part of anyone to be
exempt from the full payment of his share of taxes on any portion of his property must on
that account be clearly defined and founded upon plain language.'" Shawnee County
Comm'rs, 132 Kan. at 237. Well Servicers offer no valid reason why we should treat
them differently than any other taxpayer.

                                            14
       C. Interpretation of K.S.A. 79-223 and Article 11, Section 1 of the Kansas
       Constitution

       As discussed above, K.S.A. 79-223(b) exempts certain items of commercial and
industrial machinery and equipment acquired after June 30, 2006. The statute defines
"commercial and industrial machinery and equipment" as "property classified for
property tax purposes within subclass (5) of class 2 of section 1 of article 11 of the
constitution of the state of Kansas." K.S.A. 79-223(d)(2). The CIME definition excludes
"any electric generation facility or addition to an electric generation facility that is used
predominately to produce and generate electricity utilizing renewable energy resources or
technologies." K.S.A. 79-223(d)(2). K.S.A. 79-223(b) reads in part:

               "(b) The following described property, to the extent specified by this section,
       shall be and is hereby exempt from all property or ad valorem taxes levied under the laws
       of the state of Kansas:
               "First. Commercial and industrial machinery and equipment acquired by
       qualified purchase or lease made or entered into after June 30, 2006, as the result of a
       bona fide transaction not consummated for the purpose of avoiding taxation."

K.S.A. 79-223(d)(2) reads:

               "(2) '[C]ommercial and industrial machinery and equipment' means property
       classified for property tax purposes within subclass (5) of class 2 of section 1 of article 11
       of the constitution of the state of Kansas, but shall not include any electric generation
       facility or addition to an electric generation facility that is used predominately to produce
       and generate electricity utilizing renewable energy resources or technologies as defined
       in K.S.A. 79-201, and amendments thereto."

       The most fundamental rule of statutory construction is that the intent of the
Legislature governs if that intent can be determined. State ex rel. Schmidt v. City of
Wichita, 303 Kan. 650, 659, 367 P.3d 282 (2016). An appellate court must first attempt to

                                                    15
ascertain legislative intent through the statutory language enacted, giving common words
their ordinary meanings. Nauheim v. City of Topeka, 309 Kan. 145, 149, 432 P.3d 647
(2019). With no ambiguity, we need not resort to statutory construction. Only if the
statute's language or text is unclear or ambiguous do we use canons of construction or
legislative history to construe the Legislature's intent. 309 Kan. at 150.

       First, K.S.A. 79-223 is ambiguous because it provides no real guidance on what
machines and equipment are removed from county tax rolls and what machines and
equipment remain part of the tax base other than to reference Article 11, section 1. Even
more, the terms "machines" and "equipment" are broad and can perform nearly unlimited
functions throughout all sectors of the economy. See Black's Law Dictionary 678, 1138
(11th ed. 2019) (defining "equipment" as "[t]he articles or implements used for a specific
purpose or activity [esp. a business operation]" and defining "machine" as "[a] device or
apparatus consisting of fixed and moving parts that work together to perform some
function").

       Because the statute invokes Article 11, section 1 of the Kansas Constitution in its
definition of CIME, we must also interpret that section of the Constitution. When
interpreting constitutional provisions, an appellate court has a duty to look to the
intention of the makers and adopters of the provision to achieve consistency so that the
amendment "'shall not be taken to mean one thing at one time and another thing at
another time.'" State ex rel. Stephan v. Finney, 254 Kan. 632, 643, 867 P.2d 1034 (1994);
see State ex rel. Six v. Kansas Lottery, 286 Kan. 557, 563, 186 P.3d 183 (2008). This
holistic approach requires us to examine "'language used and consider it in connection
with the general surrounding facts and circumstances that cause the amendment to be
submitted.'" In re Tax Exemption Application of Central Illinois Public Services Co., 276
Kan. 612, 621, 78 P.3d 419 (2003). The meaning of the constitutional provision must be
"'gathered from both the letter and spirit of the document.'" Hunt v. Eddy, 150 Kan. 1, 5,
90 P.2d 747 (1939).

                                             16
       As stated above, Article 11, section 1(a) subsection 5 provides a 25% taxation rate
for and calculation of taxes as:

               "Commercial and industrial machinery and equipment which, if its economic life
       is seven years or more, shall be valued at its retail cost when new less seven-year
       straight-line depreciation, or which, if its economic life is less than seven years, shall be
       valued at its retail cost when new less straight-line depreciation over its economic life,
       except that, the value so obtained for such property, notwithstanding its economic life
       and as long as such property is being used, shall not be less than 20% of the retail cost
       when new of such property." Kan. Const. art. 11, § 1(a), 5.

This subclass is one of six defined by the Legislature, mentioned earlier.

       Looking to the plain language of this constitutional provision, the language in
Article 11 is undoubtedly broad. For example, looking to the subclass in question,
commercial and industrial machinery and equipment is so broadly drawn that it might
embrace tangible personal property that falls within subclasses (2), (3), and (4).

       As a result, we must interpret this constitutional provision in keeping with the
surrounding facts and circumstances that led to the provision's enactment and consider
the legislative circumstances surrounding that enactment. See Hunt, 150 Kan. at 5 ("In
determining their true intent courts are not restricted and limited by a mere technical
interpretation of the exact words employed, but are required to place upon the
constitutional provision involved a construction which will take into account the
attendant circumstances, such as the mischief sought to be remedied, if such
considerations will assist them in arriving at the real intent of the framers and adopters.").

       Article 11, section 1 of the Kansas Constitution was amended in 1986 as a prelude
to statewide reappraisal, and that amendment established the property tax classification
framework that exists today. See Kan. Const. art. 11, § 1. Prior to that, since 1963, all real

                                                     17
and tangible property was taxed at 30%. See L. 1982, ch. 391, § 33 (tangible personal
property and real property must be assessed at 30% of fair market value). When the
Legislature was preparing this amendment, it considered the testimony of interested
citizens and organizations and the findings and recommendations of the Kansas Tax
Review Commission. Note, Kansas Property Classification and Reappraisal: The 1986
Constitutional Amendment and Statutory Modifications, 29 Washburn L.J. 26, 34-35
(1989). The amendment became effective January 1, 1989. See In re Appeal of Director
of Property Valuation, 284 Kan. 592, 596, 161 P.3d 755 (2007); 29 Washburn L.J. at 43.
The commission concluded that additional changes in the law were necessary because
property was not being taxed uniformly in the state. 29 Washburn L.J. at 35-36. Another
panel of this court has examined the circumstances that prompted the 1986 taxation
amendment. See In re Tax Appeal of Wedge Log-Tech, 48 Kan. App. 2d at 810-11.
Crediting the Court of Tax Appeals' (COTA) (now BOTA) analysis, the panel quoted:

              "'This language was adopted by amendment in 1986, creating the property
      classification scheme that exists to this day. Like most constitutional provisions, this
      section is expressed in broad terms. In particular, we note that subclass 2(5) is so broadly
      drawn as to conceivably embrace property within any of the other tangible personal
      property subclasses. In view of this contextual ambiguity, our interpretation must not be
      narrow or technical but should be based on the facts and circumstances giving rise to the
      provision's enactment. [Citation omitted.]
              'Leading up to the 1986 constitutional amendment, the Kansas Tax Review
      Commission was formed to advise the legislature on exigent property tax issues. This
      commission concluded that statewide reappraisal was appropriate because property was
      not being taxed uniformly and equally throughout the state. See Kansas Tax Review
      Commission, Final Report and Recommendations, P-5 (1985). In its report, the
      commission concluded that additional changes in the law were necessary to mitigate
      shifts in tax burden among the various classes of property that would inevitably result
      from reappraisal. See id. at P-6. The commission recommended "a comprehensive,
      straightforward classification system." See id. at P-9. The legislative history indicates no
      intention to redefine the substantive criteria for property classification. In fact, the

                                                    18
       commission's final report suggests the opposite—that the amendment's purpose was to
       mitigate the anticipated disproportionate effects of reappraisal on existing classes of
       property throughout the state.'" 48 Kan. App. 2d at 811.

       With these considerations in mind, we now move to the classification of mobile
service rigs by the PVD as oil and gas property.

       D. The PVD's Classification of Mobile Service Rigs as Oil and Gas Property

       The PVD has classified the type of property at issue as oil and gas properties since
1965. This classification seems to rely on K.S.A. 79-329. As discussed above, K.S.A. 79-
329 authorized the classification of Kansas oil and gas property as tangible personal
property. The statute, passed in 1917, provides:

               "For the purpose of valuation and taxation, all oil and gas leases and all oil and
       gas wells, producing or capable of producing oil or gas in paying quantities, together with
       all casing, tubing or other material therein, and all other equipment and material used in
       operating the oil or gas wells are hereby declared to be personal property and shall be
       assessed and taxed as such." K.S.A. 79-329.

       Well Servicers do not believe the Kansas Legislature intended their service rigs to
be taxed as subclass 2(2) personal property "together with" oil and gas leases and oil and
gas wells. Additionally, Well Servicers do not believe the Kansas Legislature intended
the rigs to be taxed as subclass 2(2) personal property because they claim the rigs are not
used in "operating" oil and gas wells.

               1. Interpretation of "Together With"

       Well Servicers point to In Tax Appeal of Barker, 54 Kan. App. 2d 364, 398 P.3d
870 (2017), in support of their position that equipment used for oil and gas need not be
classified the same as oil and gas property. In that case, the Barkers were seeking to

                                                    19
exempt equipment used in production of minerals from low production wells under a tax
exemption in K.S.A. 79-201t(a). The Barker panel held that the phrase "together with" in
K.S.A. 79-329 did not mean "including":

               "Our tax statute provides that an oil lease 'together with . . . tubing . . . and all
       other equipment' used to operate wells is personal property for purposes of taxation and
       does not compel the conclusion that equipment is part of an oil lease for purposes of the
       relevant tax exemption. We cannot reasonably read the phrase 'together with' to mean
       'including.' The verbiage indicates that such equipment is what we used to call an
       'appurtenance'—'[s]omething that belongs or is attached to something else.' Black's Law
       Dictionary 123 (10th ed. 2014)." 54 Kan. App. 2d at 373.

       The Barker panel concluded that, for purposes of K.S.A. 79-201t, the term "oil
lease" was intended to exempt the leasehold interest, not the leasehold interest together
with the appurtenant well equipment. 54 Kan. App. 2d at 375. As the panel stated:
"Equipment used to produce oil is not exempt from taxes pursuant to K.S.A. 2016 Supp.
79-201t(a), the statute exempting certain low production oil leases." 54 Kan. App. 2d at
365.

       This holding undercuts Well Servicers' argument that the PVD lacks the power to
classify these properties as subclass 2(2) oil and gas property. Instead, Barker reinforces
the conclusion that all oil and gas property in Kansas is taxable, regardless of the
profitability of the lease on which the equipment is used.

               2. Interpretation of "Operating"

       Well Servicers also argue that because they claim the rigs are not used to operate
oil and gas wells they cannot be classified as subclass 2(2) property.

                                                     20
       This argument is misplaced and conflates the terms "operate" and "produce."
"Operate" means "to work," or "to bring about a desired or appropriate effect; have a
certain influence." Webster's New World College Dictionary 1025 (5th ed. 2014).
"Produce" means "to bring forth; bear; yield (a well that produces oil)." Webster's New
World College Dictionary 1161 (5th ed. 2014).

       Well Servicers stipulated that they are "in the business of providing services in
connection with oil and gas well operations" and are licensed service rig contractors,
which means they act as agents "in the operator's oil and gas operations." See K.S.A. 55-
150(b); K.A.R. 82-3-101(a)(18). Yet they argue that the equipment they use to perform
their services is not used in connection with oil and gas operations. To support this
argument, Well Servicers stress that lease production typically stops when the service
rigs are being used on a well site.

       But the simple fact that a well operator typically temporarily halts production
before it repairs or works over a wellbore does not mean it ceases well operations while
those services are performed. If that were true, the operator would be in jeopardy of
losing its lease rights. And it also does not mean that the equipment used while
production is paused is not used in connection with oil and gas operations. Logically, an
operator cannot sustain its operations without repairing and replacing well equipment,
reworking wells to restore production, and recompleting wells to tap other pay zones. The
service rigs are essential to well operations, so much so that prior to mobile well service
rigs, these rigs were built dedicated for use at a single well location. Contracting
operations out does not mean that those performing the work are not providing services
that aid the operation of the oil and gas leasehold. Exemptions are granted based on the
use of the property, not based on ownership alone. See Topeka Cemetery Ass'n v.
Schnellbacher, 218 Kan. 39, Syl. ¶ 2, 542 P.2d 278 (1975).

                                             21
       K.S.A. 79-329, along with Article 11, section 1, contemplates that all oil and gas
leases and wells and the equipment and materials used to operate those wells are to be
included in the oil and gas property base. Support for this conclusion is supplied by
looking at how the service rigs have been historically classified.

              3. Historical Classifications

       We can find more guidance in In re Tax Appeal of Wedge Log-Tech, 48 Kan. App.
2d 804. In that case, another panel of this court affirmed an order of COTA denying a
request by the Ellis County Appraiser to reclassify truck-mounted diagnostic tools
(known as "wireline equipment") as subclass 2(2) oil and gas property. 48 Kan. App. 2d
at 805-06. "Wireline equipment includes logging tools that test porosity, resistivity, and
permeability of rock in order to analyze the presence of certain rock formations that may
indicate the presence of oil or gas." 48 Kan. App. 2d at 806. This property had
historically been classified as subclass 2(5) CIME property and was so categorized across
the State. 48 Kan. App. 2d at 813.

       The In re Tax Appeal of Wedge Log-Tech panel rejected the county's attempt to
refine the parameters of Kansas' tax classifications through ad hoc decision-making. The
panel held that "'rulemaking, not adjudication, is the proper vehicle for implementing a
shift in tax policy with such broad application and wide-ranging impact as that proposed
here by Ellis County.'" 48 Kan. App. 2d at 816. The panel concluded that "it is the role of
the legislature, not COTA or this court, to implement a shift in ad valorem tax policy in
Kansas." 48 Kan. App. 2d at 816-17. In support of this holding, the panel relied on the
following: "If the County desires to change the historical classification of wireline
equipment from schedule 5 property to schedule 2 property, the proper avenue is either
promulgation of the change through the appropriate PVD guides or through statutory
changes made by the legislature." 48 Kan. App. 2d at 817.

                                              22
       As in In re Tax Appeal of Wedge Log-Tech, Well Servicers are seeking to engineer
a statewide shift in tax policy through litigation rather than legislation or rulemaking. The
only distinction between Wedge Log-Tech and this case is that in Wedge Log-Tech the
policy shift advocated by Ellis County would have presumably enlarged the tax base,
while here the policy shift Well Servicers seek would presumably erode the tax base. As
in Wedge Log-Tech, the service rigs have always been classified a particular way—as
subclass 2(2) oil and gas property—and nowhere else in the State categorizes the
disputed property in the manner advocated by Well Servicers. See 48 Kan. App. 2d at
809. Our courts have repeatedly emphasized the principle that broad shifts in the tax
policy should be implemented through legislation and rules, not from the bench,
regardless of whether the shift enlarges or erodes the tax base. See O'Brien v. Leegin
Creative Leather Products, Inc., 294 Kan. 318, 348, 277 P.3d 1062 (2012) ("the
legislature, unlike the judiciary, is one of the branches of government charged with
development of public policy on behalf of the electorate"). We have no intention of
departing from that well-reasoned principle.

       The concerns of legislating by the judiciary are amplified here because, within the
last five years, Well Servicers have already tried—unsuccessfully—before the
Legislature to accomplish the reclassification they advocate for here. As discussed above,
in 2016, Well Servicers participated in a legislative initiative that would have amended
the Kansas tax code to reclassify property currently classified under subclass 2(2) oil and
gas property, such as well service rigs and other mobile oil and gas equipment, as
subclass 2(5) CIME property. The measure died in committee.

       E. The 2006 CIME Exemption and Classification of Mobile Oil Well Service Rigs

       Bringing all these pieces together, we find the service rigs were correctly
classified as subclass 2(2) oil and gas property and are therefore not subject to the
subclass 2(5) CIME exemption under K.S.A. 79-223.

                                             23
       Under K.S.A. 79-329, all oil and gas property, including equipment used in the
production of oil and gas, is personal property subject to very few exemptions. See
K.S.A. 79-201t(a) (exemption for oil lease on low-producing wells, but equipment not
exempt); In Tax Appeal of Barker, 54 Kan. App. 2d at 365 ("[e]quipment used to produce
oil is not exempt from taxes pursuant to K.S.A. 2016 Supp. 79-201t[a], the statute
exempting certain low production oil leases").

       Article 11, section 1 requires that tangible property be categorized into one of six
subclasses of property. Subsection 2(2) provides the following be taxed at 30%:
"Mineral leasehold interests except oil leasehold interests the average daily production
from which is five barrels or less, and natural gas leasehold interests the average daily
production from which is 100 mcf or less, which shall be assessed at 25%." Kansas law
"requires oil and gas properties to be appraised uniformly and equally at fair market
value. Toward that end, the law mandates county appraisers adhere to the [Guide]
developed by the [PVD] unless just cause is shown for deviation." In re River Rock
Energy Company, 313 Kan. at 937-38. Because the Legislature has defined oil and gas
personal property to include equipment used in the production of it, it makes sense that
this property would then be subcategorized under the most specific applicable subclass
that the Kansas Constitution provides for, which is subclass 2(2). See Merryfield v.
Sullivan, 301 Kan. 397, 398, 343 P.3d 515 (2015) ("It is a general rule of statutory
interpretation that, when both a general statute and a specific statute govern the same
topic, the specific statute controls."). Well Servicers' equipment is used in the operation
of oil and gas leaseholds and is thus subclass 2(2) property. See K.S.A. 79-329.

       The service rigs were properly classified by PVD as subclass 2(2) property.
Because K.S.A. 79-223(b)'s exemption only applies to subclass 2(5) CIME property, this
property was not exempt from taxation. BOTA and the district court were correct in
upholding Pratt County's classification.

                                             24
       Second, the Legislature knows how to exempt specific subclasses of property, and
its silence on this issue indicates there is no intent for oil and gas property to fall within
the CIME exemption. For example, beyond K.S.A. 79-223, K.S.A. 79-224, which was
enacted at the same time as K.S.A. 79-223's tax exemption, exempts certain
telecommunications machinery and equipment as well as railroad machinery and
equipment from taxation. Like K.S.A. 79-223, the definition of part of the exempted
property in K.S.A. 79-224 tracks a specific subclass of property delineated in Article 11,
section 1—there, subclass 2(3) property. K.S.A. 79-224(c)(4) ("'railroad machinery and
equipment' means railroad machinery and equipment classified for property tax purposes
within subclass [3] of class 2 of section 1 of article 11 of the constitution of the state of
Kansas"). The rule of expressio unius est exclusio alterius instructs that the inclusion of
one thing implies excluding another. Cole v. Mayans, 276 Kan. 866, 878, 80 P.3d 384
(2003). Here, in 2006 the Legislature expressly exempted subclass 2(3) and 2(5) railroad,
telecommunications, and CIME property. And none of these subclasses include this
property.

       BOTA and the district court were correct in their analysis. Well Servicers' mobile
well service rigs are subclass 2(2) property and are not subject to K.S.A. 79-223's CIME
exemption.

PVD's Use of the Guide Does Not Violate Well Servicers' Equal Protection Rights

       Well Servicers argue the PVD's use of the Guide violates their right to equal
protection. Well Servicers make two arguments in support of their assertion that their
right to equal protection is violated here. First, they argue classifying the mobile service
rigs as part of an oil and gas leasehold violates their rights of equal protection because it
fails to treat similarly situated taxpayers equally. Second, they argue the Guide violates
their right of equal protection because it does not uniformly tax tangible personal

                                               25
property it classifies as subclass 2(2) oil and gas property. Each argument is addressed in
turn.

        A. Standard of Review and Legal Maxims

        The director of the PVD is tasked with devising or prescribing guides for the
valuation of personal property, including the Guide at issue. See K.S.A. 75-5105a.
County appraisers are mandated to follow the "policies, procedures and guidelines"
established by the Guide. See K.S.A. 79-1456(a). As an administrative regulation, the
Guide has the force and effect of law. See In re Tax Appeal of City of Wichita, 277 Kan.
487, 495, 86 P.3d 513 (2004). Challenges to the constitutionality of statutes are questions
of law over which an appellate court has unlimited review. Peden v. Kansas Dept. of
Revenue, 261 Kan. 239, 250, 390 P.2d 1 (1996).

        Tax classifications that do not involve a fundamental right or suspect classification
are reviewed for a rational basis. In re Tax Appeal of CIG Field Services Co., 279 Kan.
857, 878, 112 P.3d 138 (2005); see State ex rel. Stephan v. Parrish, 257 Kan. 294, 302,
891 P.2d 445 (1995) (applying rational basis review to Article 11, section 1 challenge).
Under the rational basis standard, the party asserting the statute is unconstitutional has the
burden to negate "'every conceivable basis which might support'" the classification.
Peden, 261 Kan. at 253.

        The Kansas Supreme Court has held that Article 11, section 1 of the Kansas
Constitution provides virtually the same protection afforded by the Equal Protection
Clause of the Fourteenth Amendment to the United States Constitution. State ex rel.
Tomasic v. City of Kansas City, 237 Kan. 572, Syl. ¶ 13, 701 P.2d 1314 (1985). To
establish an equal protection violation, the taxpayer must show that it has suffered
disparate treatment from a deliberately adopted system which leads to intentional

                                             26
systematic unequal treatment. In re Tax Appeal of Weisgerber, 285 Kan. 98, 104, 169
P.3d 321 (2007).

       "'[I]n taxation, even more than in other fields, legislatures possess the greatest
freedom in classification.'" Peden, 261 Kan. at 253 (quoting Madden v. Commonwealth
of Kentucky, 309 U.S. 83, 88, 60 S. Ct. 406, 84 L. Ed. 590 [1940]). Legislatures have
broad discretion in defining who is similarly situated for purposes of tax classification.
See City of Cleburne v. Cleburne Living Center, Inc., 473 U.S. 432, 439-42, 105 S. Ct.
3249, 87 L. Ed. 2d 313 (1985). In fact, the United States Supreme Court has held that so
long as a tax classification system is supported by a rational basis and is not "palpably
arbitrary," even if it lacks "a precise, scientific uniformity," it will be upheld. Allied
Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 526-27, 79 S. Ct. 437, 3 L. Ed. 2d 480
(1959). The Kansas Supreme Court has held similarly. Under a rational basis test, a tax
classification must only have a fair and substantial relation to the underlying purpose of
the legislation. Peden, 261 Kan. at 258. Specifically, "[c]ourts are compelled under
rational basis review to accept a legislature's generalizations even when there is an
imperfect fit between means and ends. A classification does not fail rational basis review
because it is not made with mathematical nicety or because in practice it results in some
inequality." 261 Kan. 239, Syl. ¶ 9. Because of the great freedom of classification
legislatures enjoy when devising tax schemes, courts must defer to the legislative branch
as all tax schemes carry some form of discriminatory impact and weighing the relative
discriminatory impacts of various proposals is mainly a legislative function, not a judicial
function. 261 Kan. at 260.

       Tax schemes are presumptively constitutional, and the burden rests with the
provision's challenger to prove "'by the most explicit demonstration that a classification is
a hostile and oppressive discrimination against particular persons and classes.'"
Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 364, 93 S. Ct. 1001, 35 L. Ed.
2d 351 (1973).

                                               27
       B. The Guide's Treatment of Similarly Situated Taxpayers

       Well Servicers claim their equal protection rights have been violated because the
Guide requires county appraisers to levy tax on some "non-productive mobile equipment"
but allows other "non-productive mobile equipment" to escape taxation.

       Tacit in Well Servicers' argument is the assumption that any equipment used in oil
and gas operations not specifically listed in the Guide must be classified as subclass 2(5)
CIME property. But they provide no legal or factual support for this assumption. Rather,
the catch-all classification for tangible personal property is subclass 2(6), not 2(5). See
Article 11, section 1 (defining subclass 2[6] as "[a]ll other tangible personal property not
otherwise specifically classified"). And there is no disparity between subclass 2(2) and
2(6) property because both subclasses are assessed in the same manner and at the same
taxation rate—30% of fair market value. See Article 11, section 1; K.S.A. 79-
1439(b)(2)(B), (b)(2)(F).

       Well Servicers point only to one nontheoretical comparison where there appears to
be disparate treatment: wireline equipment, which, as discussed, is classified as subclass
2(5) CIME property. See In re Tax Appeal of Wedge Log-Tech, 48 Kan. App. 2d at 814.
It is Well Servicers' burden to show that this disparate treatment is void of any rational
basis. Yet, the State, in its amicus brief, filed by the Kansas Department of Revenue,
points us to a rational basis for the seemingly disparate treatment of wireline equipment
and the Appellants' mobile well service rigs: one is used in operations and the other is
merely diagnostic. Workover rigs are used to complete, maintain, and stimulate the
production of wells. Wireline equipment is diagnostic and not used in the production of
oil and gas.

       The State asserts the commonalities with wireline equipment that are not shared by
permanently affixed drilling equipment does not mean that workover rigs and wireline

                                             28
equipment are "arguably indistinguishable," and we agree. See Weisgerber, 285 Kan. at
106. As explained in In re Tax Appeal of Wedge Log-Tech, 48 Kan. App. 2d at 814,
wireline equipment is purely diagnostic, consisting of data logging tools lowered from
truck-mounted wires into wellbores to test the porosity, resistivity, and permeability of
subsurface rock. In contrast, drilling rigs are different because they are "clearly used to
extract oil and gas from the ground." 48 Kan. App. 2d at 814. The workover rigs at issue
are functionally similar to drilling rigs—both types of rigs perform essential physical
work that allows the operator to extract hydrocarbons from the ground. Drilling rigs
establish the well's initial production and workover rigs restore or enhance the well's
production. Williams & Meyers, Manual of Oil and Gas Terms 292, 1161-62 (2020)
(defining "drilling rig" as "[t]he structures and equipment used in drilling an oil or gas
well. This includes the derrick, the engine, the engine house, plus other equipment, the
nature of which depends upon whether the rig is cable tool or rotary"; defining "workover
rig" as "[a] piece of equipment designed to carry various tools necessary to engage in
workover operations. A typical rig will contain equipment and tools such as a large crane
to hoist the pipe and the block, slips to hold the pipe, [e]levators that attach to the pipe,
tongs that make up and break it out, rod tools to pull and run rods, tubing handling tools
such as backups and 36-inch pipe wrenches"; defining "work overs" as "[o]perations on a
producing well to restore or increase production"); see 30 C.F.R. § 250.601 (defining
"workover operations" as "the work conducted on wells after the initial completion for
the purpose of maintaining or restoring the productivity of a well"). Given these
similarities in rigs, the service rig owners are not similarly situated to wireline equipment
owners. Well Servicers provides us with no other allegedly similarly situated comparator,
so there can be no equal protection violation on these grounds. The disparate treatment is
based in a rational basis.

                                              29
       C. The Guide and Uniformity of Taxation

       Well Servicers argue the Guide "provides discounts to property based on the
taxpayer's business practices or the temporary unprofitability of their business" and
"allows previously classified Prescribed Equipment . . . to be removed and reclassified as
Itemized Equipment but at a different value."

       As discussed multiple times, Article 11, section 1 of the Kansas Constitution
mandates that "the legislature shall provide a uniform and equal basis of valuation and
rate of taxation of all property subject to taxation." Under this constitutional mandate, the
Legislature enacted the statutes that govern oil and gas property tax appraisal in broad
outline and delegated to PVD exclusive authority and discretion to develop appraisal
policies, procedures, and directives to address the complexities of the field. See K.S.A.
75-5105a(b); Board of Johnson County Comm'rs v. Duffy, 259 Kan. 500, 507, 912 P.2d
716 (1996). The policy, procedures, and guidelines incorporated in the Guide carry the
force and effect of law. See In re Tax Appeal of City of Wichita, 277 Kan. at 495.
Properly promulgated rules and regulations, such as those in the Guide, are presumed
valid. See Hall v. Knoll Building Maintenance, Inc., 48 Kan. App. 2d 145, 150, 285 P.3d
383 (2012).

       The parameters set forth in the Guide come from industry consensus, formulated
annually in accordance with a rulemaking process designed to ensure participation from
industry and government stakeholders. See K.S.A. 75-5105a(b). The Guide is a
substantial document that consists of many schedules, tables, maps, definitions, and
procedures formulated with the aim to produce uniform estimates of fair market value.
See generally Kansas Oil and Gas Appraisal Guide.

       In support of their argument that the Guide treats similarly situated property
owners differently, Well Servicers point to the fact that two owners of the same

                                             30
equipment are taxed differently based on the amount of use the equipment received. They
provide this specific illustration:

       "A used series 200 derrick workover rig owned and currently used by Company A is
       taxed at a market value determined by PVD to be $52,500. The same used 200 series rig,
       currently unused by Company B for a period of between 6 months and a year, would be
       valued at $18,375. The Guide allows a taxpayer to apply a discount to the property
       depending on its use. Doing so grants Company B a temporary reprieve because of the
       company's unprofitability, whether as a result of the market conditions or as a result of
       bad business practices. The built-in discounts to the fair market value of the property
       have no relation to the functional, economic or social obsolescence [which] affect the
       value of the property. It also allows any taxpayer to inefficiently hoard and not use the oil
       and gas equipment."

       Yet, this argument—that the perceived discount in tax based on the property's
production violates the notion of fair market value—ignores the Legislature's declaration
that when determining the fair market value of producing oil and gas leases for property
tax purposes the "primary and predominant consideration" "is, has been and shall be the
actual value of oil and gas production severed from the earth." K.S.A. 79-331(d)(1).

       Again, "[t]he rational basis standard is a very lenient standard. All the court must
do to uphold a legislative classification under the rational basis standard is perceive any
state of facts which rationally justifies the classification." Peden, 261 Kan. at 258. One
state of facts that rationally justify the classification and valuation here is that the
Legislature has an interest in, and the right to determine that, taxing the actual production
of a piece of equipment better serves the oil and gas industry rather than the mere
existence of the equipment by imposing taxes tied to the likely increased or decreased
output/income of a leasehold that are often out of control of the operator. Well Servicers
have not negated every conceivable basis which might support the classification. See 261
Kan. at 253. There is no demonstrated equal protection violation.

                                                    31
       The Kansas Department of Revenue's Property Valuation Division's Kansas Oil
and Gas Appraisal Guide classification of mobile service rigs as subclass 2(2) oil and gas
property does not violate the Equal Protection Clause under the Fourteenth Amendment
to the United States Constitution.

       We therefore affirm the conclusions of BOTA and the district court.

       Affirmed.

                                            32