In re Tax Exemption Application of Strother Field Airport

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No. 104,762

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

IN THE MATTER OF THE APPLICATION OF STROTHER FIELD AIRPORT
FOR EXEMPTION FROM AD VALOREM TAXATION
IN COWLEY COUNTY, KANSAS.

SYLLABUS BY THE COURT

1.
A petition for reconsideration under K.S.A. 2010 Supp. 74-2426(b) should state
the specific grounds upon which relief is requested. When a party fails to raise a specific
ground for relief in the petition for reconsideration, that argument is not properly
preserved for judicial review.

2.
In order for property to qualify for exemption under K.S.A. 2010 Supp. 79-
201q(a)(2) as leased by a political subdivision for purposes essential to the operation of
an airport, it must be shown that the airport could not operate without the subject property
or that the property is indispensable or basic to the function of an airport. It is not
sufficient to show that the airport is essential to the business purposes of the leased
property. In the absence of the required evidence, the exemption is inapplicable.

3.
Tracts of land leased by an airport solely for the purpose of generating revenue do
not qualify for an exemption under K.S.A. 2010 Supp. 79-201q(a)(2) solely because the
generation of income was of assistance to the airport.

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4.
While taxing statutes must be interpreted strictly in favor of the taxpayer, tax
exemption statutes are interpreted strictly in favor of imposing the tax and against
allowing an exemption for one that clearly does not qualify.

Appeal from the Court of Tax Appeals. Opinion filed August 26, 2011. Affirmed.

William E. Muret, of Winfield, for appellant.

No appearance by appellee.

Before GREENE, C.J., MARQUARDT and STANDRIDGE, JJ.

GREENE, C.J.: Strother Field Airport and Industrial Park (Strother Field) appeals a
decision of the Court of Tax Appeals (COTA) denying its application for an ad valorem
tax exemption on property leased by General Electric Engine Services, Inc. (GE) for its
business of refurbishing aircraft engines. Strother Field argues on appeal that the property
qualifies for exemption under either K.S.A. 2010 Supp. 79-201q(a)(2) or K.S.A. 79-201r.
Concluding that neither statute provides exemption for this property, we affirm COTA.

FACTUAL AND PROCEDURAL BACKGROUND

The cities of Winfield and Arkansas City (the Cities) jointly own and operate
Strother Field, located in Cowley County. A governing body, known as the Strother Field
Commission, manages and operates Strother Field pursuant to an Interlocal Cooperation
Agreement (ICA) executed by the Cities on September 20, 1966. The Strother Field
Commission is comprised of three members of the governing body of Winfield, three
members of the governing body of Arkansas City, and one member of the Cowley
County Board of Commissioners. Strother Field is financed entirely by non-tax revenue
including money derived from the lease, rental, and sale of property to industries, farm
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income generated from an expanded area of land around the airport, and grants from the
Federal Government.

On July 31, 2009, Strother Field filed an application requesting an ad valorem
taxation exemption for a specified parcel of real estate pursuant to K.S.A. 79-201r. The
parcel spans approximately 39 acres of land, and it contains three buildings comprising
approximately 50,000 to 80,000 square feet of gross building area. The appraised value of
the parcel is $7,350,100. GE currently occupies the buildings pursuant to a lease
agreement with Strother Field. GE operates "a multi-hundred million dollar business" on
the property, which refurbishes, reconditions, and rebuilds airplane engines. GE
maintains an administrative office, workshops, testing and storage facilities, and a fueling
depot on the land in the operation of its business.

It appears that Strother Field acquired the property on June 17, 2009, when GE
deeded "all of its interest in and to" the subject property by quitclaim deed. On June 22,
2009, GE and Strother Field entered into a lease agreement whereby Strother Field leased
all of the land described in the quitclaim deed and the buildings, fixtures, and
improvements located thereon to GE. The lease indicated that prior to the execution of
the quitclaim deed, the Cowley County Appraiser designated GE as "the owner of the
structures located on the property." Thus, the lease stated that it superseded several pre-
existing leases for the property and had been executed in conjunction with the quitclaim
deed in order to "clearly demonstrate" Strother Field as the owner of both the land and its
structures.

The county appraiser reviewed Strother Field's application and recommended
approval of the requested tax exemption, stating: "The lease clearly states that the
landlord is the owner of both land and buildings. Due to Kansas statute 79-201r and the
previously mentioned lease, the county has no option other than to agree to this request."

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On February 8, 2010, COTA issued an order denying Strother Field's request for
an exemption under both of two potentially applicable exemption statutes. The court
explained that K.S.A. 79-201r only provides an exemption for property owned on and
prior to January 1, 1992; because it found that Strother Field did not acquire the subject
property until June 17, 2009, this section was inapplicable. COTA further explained that
Strother Field did not qualify for an exemption under K.S.A. 2010 Supp. 79-201q(a)(2)
because this section only provides an exemption for property owned and operated as an
airport by a political subdivision and it found that Strother Field had failed to provide the
necessary evidence to prove its status as a political subdivision.

On February 19, 2010, Strother Field filed a petition for reconsideration arguing
that the subject property qualified for an exemption under K.S.A. 2010 Supp. 79-
201q(a)(2) and requesting an opportunity to present additional evidence in support of this
contention. On March 9, 2010, COTA granted Strother Field's request for
reconsideration.

On April 23, 2010, COTA held a hearing to review Strother Field's petition for
reconsideration. At the hearing, Strother Field argued that the subject property qualified
for an exemption under K.S.A. 2010 Supp. 79-201q(a)(2) because the revenue generated
from GE's lease supports the continued operation of the airport and GE's business is of a
type that is typically performed at an airport. Additionally, Cowley County expressed its
support for the requested exemption and its belief that such an exemption was necessary,
as "Strother Field and the work that GE is doing there just go hand-in-hand."

On July 14, 2010, COTA issued an order denying Strother Field's application for
an exemption from ad valorem taxation. Although COTA found that the subject property
is owned by a political subdivision, i.e., the Cities, it held that the leased parcel did not
qualify for an exemption under K.S.A. 2010 Supp. 79-201q(a)(2). COTA explained that
there was "no evidence in the record to indicate that the subject property is leased for
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purposes essential to the operation of an airport." Instead, COTA found that GE was
engaged in "strictly commercial endeavors" and, as such, the lease constituted an
investment/business activity.

Strother Field filed a timely petition for judicial review.

STANDARDS OF REVIEW

Orders from COTA are reviewed pursuant to the Kansas Judicial Review Act,
K.S.A. 2010 Supp. 77-601 et seq. See In re Tax Appeal of Sprint Communications Co.,
278 Kan. 690, 694, 101 P.3d 1239 (2004). When, as in this case, the facts are not
disputed, the question whether property is entitled to an exemption from ad valorem
taxation is a question of law subject to de novo review. In re Tax Exemption Application
of Mental Health Ass'n of the Heartland, 289 Kan. 1209, 1211, 221 P.3d 580 (2009).

Strother Field's arguments on appeal involve the interpretation of statutory
language. Interpretation of a statute is a question of law over which an appellate court has
unlimited review. Unruh v. Purina Mills, 289 Kan. 1185, 1193, 221 P.3d 1130 (2009).
The most fundamental rule of statutory construction is that the intent of the legislature
governs if that intent can be ascertained. Bergstrom v. Spears Manufacturing Co., 289
Kan. 605, 607, 214 P.3d 676 (2009). When interpreting a statute, an appellate court must
first attempt to "ascertain the legislature's intent through the statutory language it
employs, giving ordinary words their ordinary meaning." State v. Stallings, 284 Kan. 741,
742, 163 P.3d 1232 (2007). An appellate court does not speculate as to the legislative
intent when a statute is plain and unambiguous and will not read into the statute
something not readily found within it. Where there is no ambiguity in the statutory
language, the court need not resort to statutory construction. Only if the statute's language
or text is unclear or ambiguous does the court use canons of construction or legislative
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history to construe the legislature's intent. Double M Constr. v. Kansas Corporation
Comm'n, 288 Kan. 268, 271-72, 202 P.3d 7 (2009).

While taxing statutes must be interpreted strictly in favor of the taxpayer, "tax
exemption statutes are interpreted strictly in favor of imposing the tax and against
allowing an exemption for one that does not clearly qualify. [Citation omitted.]";
however, this rule of strict construction does not warrant an unreasonable statutory
interpretation. Mental Health Ass'n of the Heartland, 289 Kan. at 1211.The party
requesting the exemption has the burden of establishing its eligibility under the applicable
statutory provision. In re Tax Appeal of Genstler Eye Center & Clinic, 40 Kan. App. 2d
411, 414, 192 P.3d 666 (2008).

DID COTA ERR IN DENYING EXEMPTION UNDER K.S.A. 79-201r?

At the outset, we note that Strother Field did not present this issue in its petition
for reconsideration at COTA. Whether this omission limits our jurisdiction is a question
we must examine on our own initiative. See State v. Gill, 287 Kan. 289, 294, 196 P.3d
369 (2008).

K.S.A. 2010 Supp. 74-2426(b) provides that the filing of a petition for
reconsideration, in accordance with the provisions of K.S.A. 2010 Supp. 77-529, is a
prerequisite to seeking judicial review of a decision by COTA. Pursuant to K.S.A. 2010
Supp. 77-529(a), a petition for reconsideration should state "the specific grounds upon
which relief is requested." When a party fails to raise a specific ground for relief in the
petition for reconsideration, that argument is not properly preserved for judicial review.
In fact, in Kansas Industrial Consumers v. Kansas Corporation Comm'n, 30 Kan. App.
2d 332, Syl. ¶ 4, 42 P.3d 110 (2002), a panel of this court held that "[a]n issue not
presented to the Kansas Corporation Commission in a petition for reconsideration cannot
be decided on appeal." The panel in Kansas Industrial Consumers explained that issues
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not included in the petition for reconsideration cannot be raised in judicial review
proceedings. 30 Kan. App. 2d at 338-39. In rendering its decision, the panel relied upon
K.S.A. 66-118b, which states that a party challenging an order from the Kansas
Corporation Commission may not rely upon a ground not set forth in the petition for
reconsideration, and the requirement in K.S.A. 77-529(a) that a party seeking
reconsideration state "the specific grounds upon which relief is requested." 30 Kan. App.
2d at 338. The panel explained:

"The purpose of requiring that all issues be included in the petition for reconsideration is
to inform the KCC and other parties where mistakes of law and fact were made in the
order. [Citations omitted.] Requiring a petition for reconsideration permits the KCC to
correct errors which are called to its attention and thereby perhaps avoid judicial review.
[Citation omitted.]" 30 Kan. App. 2d at 338.

Although K.S.A. 2010 Supp. 74-2426(b) does not contain a provision similar to
K.S.A. 66-118b that specifically addresses the requirement to specify grounds for relief
in a petition for reconsideration, we hold that same prohibition applies in cases involving
COTA due to the language in K.S.A. 2010 Supp. 77-529(a) and the policy reasons set
forth in Kansas Industrial Consumers. These pleading defects deprive us of jurisdiction
to address the merits of Strother Field's argument on the applicability of K.S.A. 79-201r.
Even if we were able to address the argument, however, we note that the record on appeal
fails to establish that Strother owned the subject property "prior to and on January 1,
1992," a key requirement for exemption under K.S.A. 79-201r.

DID COTA ERR IN DENYING EXEMPTION UNDER K.S.A. 2010 SUPP.79-201q(a)(2)?

Strother Field also argues that COTA erred by denying its request for an
exemption under K.S.A. 2010 Supp. 79-201q(a)(2). K.S.A. 2010 Supp. 79-201q(a)
exempts certain property owned and operated as an airport by a political subdivision from
all property or ad valorem taxation. K.S.A. 2010 Supp. 79-201q(a) provides as follows:
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"The following described property, to the extent herein specified, shall be and is
hereby exempt from all property or ad valorem taxes levied under the laws of the state of
Kansas:
"(a)(1) All property owned and primarily operated as an airport by a political
subdivision, including property leased by the political subdivision for purposes not
essential to the operation of an airport, for all taxable years commencing before January
1, 1993.
"(2) For all taxable years commencing after December 31, 1992, all property
owned and primarily operated as an airport by a political subdivision, including property
leased by the political subdivision for purposes essential to the operation of an airport.
Payments in lieu of property taxes may be required for any or all of such years for such
leased property, and such payments shall be apportioned and distributed in the same
manner as general property taxes."

Thus, the subject property is entitled to an exemption under K.S.A. 2010 Supp. 79-
201q(a)(2) if the following ownership and use requirements are satisfied: (1) The subject
property must be owned or leased by a "political subdivision"; and (2) The subject
property must be primarily operated as an airport or leased "for purposes essential to the
operation of an airport."

We focus on the specific use requirement for leased property because it was on
this basis that COTA denied exemption under this statute. Strother Field argued at COTA
that the requirement was met because GE's business is for purposes essential to the
operation of the airport "[b]ecause it is . . . a function of the type that would go on at the
airport. Plus, it is essential in that operation for the monies that come from that lease for
continued operation of the airport."

On reconsideration, COTA denied the exemption under 79-201q(a)(2), concluding
in material part:

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"[T]he Court finds that the subject property is not primarily operated as an airport. The
Court finds no evidence of any airport uses of the subject property. The Applicant lease
of the subject property to GE is primarily an investment/business activity. Further, there
is no evidence in the record to indicate that the subject property is leased for purposes
essential to the operation of an airport. GE's use of the subject property for
manufacturing, engine repair, and airplane and engine testing are strictly commercial
endeavors."

The record evidence establishes that the property is used by GE for its operations
in refurbishing, reconditioning, and rebuilding of aircraft engines. The operation is a
multi-hundred million dollar business in Cowley County. Strother Field argued at COTA
that the property "benefits the airport and goes to the use of what an airport is there for.
The refurbishing and rebuilding of the engines located at an airport where they test the
engines, where they test planes coming in and out, just falls right into the use of an
airport." According to the county appraiser, "Strother Field and the work that GE is doing
there just go hand-in-hand. They need one another."

Although it is clear that the airport is critical to GE's operations, there is no
evidence in the record to support an argument that GE's business is essential to the
operation of the airport. In order to qualify for exemption under K.S.A. 2010 Supp. 79-
201q(a)(2), it must be shown that the airport could not operate without the subject
property or that the property is indispensable or basic to the function of an airport. It is
not sufficient to show that the airport is essential to the business purposes of the leased
property. In the absence of the required evidence, the exemption is inapplicable.

Strother Field's alternative argument, that the rentals from the lease of the subject
property are indispensable to the airport, would have presumably exempted the property
under K.S.A. 2010 Supp. 79-201q(a)(1) for tax years prior to January 1, 1993, but not
thereafter.

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In Tri-County Public Airport Auth. v. Board of Morris County Comm'rs, 245 Kan.
301, 777 P.2d 843 (1989), our Supreme Court held that "'[t]he mere fact that the [airport]
receives rental income does not constitute "use" within the meaning of K.S.A. 1987
Supp. 79-201a Second.'" 245 Kan. at 309 (quoting Salina Airport Authority v. Board of
Tax Appeals, 13 Kan. App. 2d 80, 84, 761 P.2d 1261 [1988]). The court rejected an
application for exemption, concluding that "[o]wnership of property solely for the
purpose of producing revenue which may ultimately be used to finance a governmental
function, in this case the airport facility, is not exclusive use as defined by [the statute]."
245 Kan. at 310.

Even though these cases construed and applied a different exemption statute, it is
clear that our Supreme Court recognized that the mere lease of property by a political
subdivision to generate revenue for an airport was not use for a governmental or
proprietary function. The statute before us here contains no requirement for exclusive use,
but given the clear rejection in these cases of a revenue purpose as a qualifying purpose,
it cannot be said that revenue generation alone satisfies an exemption statute requiring a
"purpose essential to the operation of an airport."

K.S.A. 2010 Supp.79-201q(a)(1) provides for exemption of property leased by the
political subdivision for purposes not essential to the operation of an airport, but it is
limited to tax years prior to 1993. The current version of 79-201q(a)(1), (a)(2) was
enacted in 1992 in apparent legislative response to the appellate court cases noted above.
See L. 1992, ch. 171, sec. 1; McKenzie, Survey of Kansas Law: Taxation, 41 Kan. L.
Rev. 727, 740-43. (Summer 1993) The subsequent enactment of 79-201q(a)(1) appears to
provide limited relief in allowing such "revenue" use to qualify for an exemption for tax
years prior to 1993, but not thereafter. To interpret the statute as urged by Strother Field
would destroy the intended dichotomy between 79-201q(a)(1) and (a)(2).

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COTA correctly denied Strother Field's application for exemption under K.S.A.
2010 Supp.79-201q(a)(2).

Affirmed.