Court Opinion

ID: 9791714
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:16:39.411165+00
Date Added: 2024-06-11T07:37:38.111861
License: Public Domain

Kaul, J.,
dissenting: I dissent from the holding stated in subsection (1) of paragraph 2 of the syllabus for the reason that the assessment was not made in accordance with the mandate of K. S. A. 79-503.
As indicated in the majority opinion, this court has repeatedly said matters of taxation especially assessments are administrative in character and should remain free of judicial interference in the absence of fraud. It is equally true that this court has frequently said that assessment of property for taxes must be made in accordance with the provisions of applicable statutes and where taxing officials fail in this respect the issue presented to the court is not the exercise of their administrative judgment, but the legality of *425their acts. (Garvey Grain, Inc., v. MacDonald, 203 Kan. 1,453 P. 2d 59.)
The controlling issue in this case is whether the control of appellant’s earnings by the Federal Power Commission was recognized in determining the justifiable value of appellant’s property by the taxing authorities involved.
It was admitted by Director Dwyer and Mike Gillgannon, an expert witness called by the State Board of Tax Appeals, that FPC control of earnings was a factor to be considered under 79-503 (d). On this point Dwyer testified as follows:
“Q. What is your definition of economic obsolescence, Mr. Dwyer?
"A. Well economic obsolescence is a loss in value generally due to conditions outside the property itself.
“Q. Yes. And is it not a fact that a control that is exercised by the Federal Power Commission, which limits a company’s earnings to its rate base of original cost less depreciation, is a factor affecting the earnings and economic value of the company outside of the property itself?
“A. Yes.
“Q. And is it not also true that when you consider a trended method, that if you are using, I believe, what was used here, a Handy Whitman Index, you are trying to show what it would cost to reproduce, actually reproduce the same line and everything today, with the cost index being of 1911, as equal to one hundred?
“A. I think that is correct, yes, sir, for the reproduction part.
“Q. And is it not true that when you arrive at the reproduction cost, that the economic obsolescence of the Federal Power Commission limiting the earnings to original cost less depreciation is not reflected in the trended approach?
“A. If you stop there, it is reflected in the trended approach, but if you stop merely at the reproduction, it is not reflected at that time, no sir.”
The Board’s expert Gillgannon was questioned on the point by reference to Dwyer’s testimony as follows:
“Q. Now, were you present when Mr. Dwyer the Property Valuation Director testified?
“A. Today?
“Q. Yes.
“A. Yes, I was here.
“Q. He testified that the earnings base of the Federal Power Commission, of the earnings rate of six and five-eighths percent on original cost less depreciation reflected an economic obsolescence with respect to this company’s property, do you agree with his statement?
“A. I would agree to that, yes.”
Although it was admitted to constitute economic obsolescence, I am unable to find FPC control reflected or recognized by Gillgannon in his calculations of the three approaches — income, cost *426and reproduction cost less depreciation which he used as correlated value indicators with allocated mathematical weights of twenty, forty and forty percent, respectively, in arriving at justifiable value.
In calculating reproduction cost less depreciation, Gillgannon did use a three and one-half percent depreciation rate in which he says he allowed one percent for functional obsolescence and one-half of one percent for economic obsolescence. However, he made no claim that either allowance reflected the abnormal factor of FPC control of appellant’s earnings based on a rate base of original cost less depreciation.
Despite the admissions of Director Dwyer and Gillgannon previously referred to, the trial court in Finding No. 33 found that “F. P. C. regulation and control does not constitute functional, economic or social obsolescence.”
Time does not permit a discussion of appellant’s evidence. It will suffice to say the undisputed evidence discloses that because of the abnormal factor of FPC control, appellant is limited to earnings of six and five-eighths percent on a rate base equal to the original book cost of its property less accrued depreciation. F. P. C. control was admitted by appellees to fall within the scope of economic obsolescence under K. S. A. 79-503 (d). It was not applied as a factor in assessing appellant’s property.
In Finding No. 34 the trial court found — “The rate base of FPC or any other regulatory body is not named in K. S. A. 79-503 as one of the factors to be considered.” It is true that 79-503 does not mention the rate base of a regulatory body as a factor to be considered. However, in addition to what has been said with respect to subsection (d), subsection (g) specifically enumerates “earning capacity as indicated by . . . capitalization of net income,” as a factor to be considered. In his calculation of capitalization of net income, Gillgannon used a capitalization rate of five percent. It should be kept in mind that the use of a lower capitalization rate results in a higher value indicator, while the effect of the use of a higher rate is conversely a lower indicator. On cross-examination Mr. Gillgannon admitted that prudent investors would have wanted a rate of seven and one-half percent or more. Gillgannon failed to supply any satisfactory explanation for his choice of a five percent capitalization rate. In view of the limitation on appellant’s earnings, Gillgannon’s arbitrary choice of a five percent capitalization *427rate appears unrealistic and reflects a further failure to consider an obviously pertinent factor enumerated in 79-503.
In view of our holding in Garvey Grain, Inc., v. MacDonald, supra, the judgment should be reversed.
Fatzer and Schroeder J. J., join in the foregoing dissent.