Kansas Attorney General Opinion 1992-012

1992-012Kanag

Full text

ROBERT T. STEPHAN
ATTORNEY GENERAL January 29, 1992
ATTORNEY GENERAL OPINION NO. 92- 12
The Honorable Clyde D. Graeber
State Representative, Forty-First District
State Capitol, Room 502-S
Topeka, Kansas 66612
Re: Taxation--Rules for Valuing Property--Fair Market
Value Defined; Factors to be Considered in
Determining Fair Market Value; Effect of Failure to
Consider Factors
Synopsis: Pursuant to K.S.A. 79-503a and the holding in
Garvey Grain, Inc. v. MacDonald, 203 Kan. 1
(1969), guidelines and schedules promulgated by the
director of property valuation must reflect, where
applicable, realistic market-place depreciation,
including short and long-term physical
deterioration or functional, economic or social
obsolescence. Cited herein: K.S.A. 1991 Supp.
79-503a; K.S.A. 79-1439; K.S.A. 1991 Supp. 79-1476;
K.S.A. 1968 Supp. 79-503 (repealed L. 1982, ch.
391, § 39).
* *
Dear Representative Graeber:
You request our opinion regarding application of the factors
listed in K.S.A. 1991 Supp. 79-503a in determining the fair
market value of property. Specifically your questions are as
follows:
"1. Would the legal holding of the Kansas Supreme Court in
the case of Garvey Grain, Inc. v. Macdonald, 203 Kan.,
1, 453 P.2d 59, apply with equal force to a substantially
similar set of facts in regard to the utilization by certain
Kansas county appraisers, along with the division of property
valuation, of arbitrary and capricious depreciation factors in
the attempt to determine the fair market value of property as
required by K.S.A. 1990 Supp. 79-503a?
"2. Considering the language earlier referred to in the
Garvey Grain decision, would its legal holding that if the
property valuation division guidelines do not make an
appropriate distinction, depreciation-wise, between long life
items and short life items, render the PVD depreciation
schedules arbitrary and capricious because they failed to take
into account pertinent market factors which an appraiser
should utilize in attempting to determine fair market value
pursuant to K.S.A. 79-503?"
K.S.A. 79-1439(a) and K.S.A. 1991 Supp. 79-1476 require that
property be appraised at its fair market value in accordance
with the provisions of K.S.A. 1991 Supp. 79-503a. K.S.A. 1991
Supp. 79-503a provides as follows:
"'Fair market value' means the amount in
terms of money that a well informed buyer
is justified in paying and a well informed
seller is justified in accepting for
property in an open and competitive
market, assuming that the parties are
acting without undue compulsion. For the
purposes of this definition it will be
assumed that consummation of a sale occurs
as of January 1.
"A variance of 10% in any individual
appraisal at fair market value shall not
be considered willful neglect of the
county appraiser's duty to achieve fair
market value. The foregoing provision
shall not be construed to mean that a
series of such variances does not
constitute willful neglect.
"Sales in and of themselves shall not be
the sole criteria of fair market value but
shall be used in connection with cost,
income and other factors including but not
by way of exclusion:
"(a) The proper classification of lands
and improvements;
"(b) the size thereof;
"(c) the effect of location on value;
"(d) depreciation, including physical
deterioration or functional, economic or
social obsolescence;
"(e) cost of reproduction of
improvements;
"(f) productivity;
"(g) earning capacity as indicated by
lease price or by capitalization of net
income;
"(h) rental or reasonable rental values;
"(i) sale value on open market with due
allowance to abnormal inflationary factors
influencing such values;
"(j) restrictions imposed upon the use of
real estate by local governing bodies,
including zoning and planning boards or
commission; and
"(k) comparison with values of other
property of known or recognized value.
The assessment-sales ratio study shall not
be used as an appraisal for appraisal
purposes.
"The appraisal process utilized in the
valuation of all real and tangible
personal property for ad valorem tax
purposes shall conform to generally
accepted appraisal procedures which are
adaptable to mass appraisal and consistent
with the definition of fair market value
unless otherwise specified by law."
(Emphasis added).
In Garvey Grain, Inc. v. MacDonald, 203 Kan. 1 (1969)
the court considered the necessity of applying factors listed
in K.S.A. 79-503, as amended by L. 1965, ch. 515, § 1. In
the 1982 session, the legislature repealed K.S.A. 79-503 (L.
1982, ch. 391, § 39) and enacted K.S.A. 79-503a (L. 1982,
ch. 391, § 2). The two statutes differ in many respects,
but for purposes of this opinion we believe the analysis of
Garvey Grain applies equally to K.S.A. 79-503a. See
Board of Johnson County Comm'rs v. Greenhaw, 241 Kan.
119, 126 (1987).
Garvey Grain and its progeny set forth the following
principles: 1) The assessment and valuation of property are
administrative functions, not judicial ones, and courts will
not substitute their judgment for that of the assessing
authority in the absence of fraud, corruption or conduct so
oppressive, arbitrary or capricious as to amount to
constructive fraud [Garvey Grain, 203 Kan. at 13,
Northern Natural Gas Co. v. Dwyer, 208 Kan. 337, 341
(1971), Northern Natural Gas Co. v. Williams, 208 Kan.
407, 413 (1972)1; 2) where state and local officials do not
perform their duties in accordance with law, the issue is not
the exercise of administrative judgment, but rather the
legality of the acts [Garvey Grain, 203 Kan. at 13]; 3)
the factors listed in K.S.A. 79-503a must be considered -- an
intentional or gross disregard of such factors may amount to
constructive fraud [Northern Natural, 208 Kan. at 355,
356, Northern Natural, 208 Kan. at 417, Garvey Grain,
203 Kan. at 12, 13 ("[a]n assessment of property for taxes
must be made in accordance with the provisions of a statute,
and it would hardly seem necessary to state that if an
assessment schedule failed to direct local taxing officials to
consider and apply any pertinent statutory factors in
determining justifiable value, the schedule would be erroneous
as a matter of law. And if through adherence to that
manifestly unlawful schedule, the evidence showed the assessor
made a palpably excessive overvaluation of the property to be
assessed, such act, although made in good faith, would be
illegal and amount to constructive fraud or the equivalent of
fraud on the rights of the taxpayer.")]; 4) while all of the
factors listed must be considered, not all may be applicable
-- what factors apply depends on the individual type of
property, after consideration has been given to all of the
factors [id]. Thus, pursuant to K.S.A. 1991 Supp. 79-503a
and the holding in Garvey Grain, Inc. v. MacDonald, 203
Kan. 1 (1969), guidelines and schedules promulgated by the
director of property valuation must reflect, where applicable,
realistic market-place
depreciation, including short and long-term physical
deterioration or functional, economic or social obsolescence.
(For an example of the court's acknowledgement that
depreciation realistically reflect the market place, see
Garvey Grain, 203 Kan. at 4.)
Very truly yours,
ROBERT T. STEPHAN
Attorney General of Kansas
Julene L. Miller DeputyAttorneyGeneral
RTS:JLM:jm

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