Heartland Apartment Ass'n v. City of Mission

IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 111,521
HEARTLAND APARTMENT ASSOCIATION, INC., et al.,
Appellants/Cross-appellees,
v.
CITY OF MISSION, KANSAS,
Appellee/Cross-appellant.
SYLLABUS BY THE COURT
1.
A tax is a forced contribution to pay for the government's general services, that is,
services that benefit the members of the public at large, regardless of whether any
particular person has paid the tax. A fee, on the other hand, is not a revenue measure. It is
assessed against those who gain the exclusive benefit of the service or, if a regulatory fee,
those who are the subject of the regulation.
2.
An excise tax is a tax imposed on performance of an act, engagement in an
occupation, or enjoyment of a privilege. The Transportation User Fee, or TUF, adopted
by the City of Mission is a tax on real property owners based on the use of their property,
rather than a tax on the property itself. As such, it is a tax on the enjoyment of a privilege,
and it qualifies as a prohibited excise tax under K.S.A. 2016 Supp. 12-194.
Review of the judgment of the Court of Appeals in 51 Kan. App. 2d 699, 352 P.3d 1073 (2015).
Appeal from Johnson District Court; JAMES F. VANO, judge. Opinion filed April 7, 2017. Judgment of the
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Court of Appeals reversing and remanding to the district court is affirmed. Judgment of the district court
is reversed and remanded with directions.
Mary Jo Shaney, of White Goss, a Professional Corporation, of Kansas City, Missouri, argued the
cause, and James C. Bowers, Jr., Daniel P. Goldberg, and Bryant E. Parker, of the same firm, were with
her on the briefs for appellants/cross-appellees.
Thomas V. Murray, of Lathrop & Gage LLP, of Overland Park, argued the cause, and Mark A.
Samsel, of the same firm, was with him on the briefs for appellee/cross-appellant.
Athena E. Andaya, deputy attorney general, for amicus curiae Office of Kansas Attorney General.
John A. Donley, of Devine and Donley, LLC, of Topeka, for amicus curiae National Federation
of Independent Business Small Business Legal Center.
Lucas Bell, of Topeka, for amicus curiae Kansas Association of Realtors.
The opinion of the court was delivered by
BEIER, J.: In 2010, the City of Mission passed a Transportation User Fee (TUF).
The TUF is assessed on all developed real property based on a formula that attempts to
estimate the number of vehicle "trips" a particular property generates. The revenue raised
by the TUF, according to the enacting ordinance, is used for maintenance and upkeep of
Mission's streets.
Plaintiffs Heartland Apartment Association, Inc., an association whose members
own or operate multifamily retail housing; Building Owners and Managers Association
of Metropolitan Kansas City, an association whose members own commercial buildings;
and several individual owners of developed property challenged the TUF as an
impermissible excise tax levied by Mission in violation of K.S.A. 2016 Supp. 12-194.
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The district court judge granted summary judgment to Mission. On appeal, a panel
of the Court of Appeals reversed, holding that the TUF is an impermissible excise tax
under K.S.A. 2016 Supp. 12-194. We granted Mission's petition for review.
For the reasons outlined below, we affirm the decision of the Court of Appeals and
reverse the judgment of the district court.
FACTUAL AND PROCEDURAL BACKGROUND
In August 2010, Mission's City Council adopted Ordinance No. 1332, which
established the TUF and created a "transportation utility" "for the purpose of maintenance
of City streets." Mission City Code §145.030. The ordinance "imposed and levied" the
TUF on "the owners of all developed property within the City of [Mission]." Mission
City Code §145.070. The ordinance does not cover real property exempt from taxation
under K.S.A. 79-201 (exempting religious, educational, similar property from all
property, ad valorem taxes). Mission City Code §145.071.
The TUF is based on the "direct and indirect use of or benefit derived from the use
of public streets, bicycle lanes and sidewalks generated by the developed property."
Mission City Code §145.070. It identifies three basic factors to be used in determining
the amount of the fee:
"1. The developed use of the property which includes the amount of vehicular traffic
generated by the property, as determined by [Mission's] City Administrator.
"2. For non-residential uses the developed square footage on the property or parcel.
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"3. The traffic generation factor for each use category of developed property." Mission
City Code §145.080A.
To calculate the fee, the ordinance requires the use of "Trip Generation, 8th Edition,
published by the Institute of Transportation Administrators ('ITE Manual')," Mission City
Code §145.020D, and outlines the following procedure:
"[Mission's] City Administrator shall determine the category of use from the ITE
Manual that shall apply to each developed lot or parcel within the City [of Mission]. In
the absence of a specific use category from within the ITE Manual for a particular
developed use, [Mission's] City Administrator shall determine the appropriate category
by interpreting the ITE Manual and assigning the category which most accurately reflects
the traffic generated by the particular developed use. After determining the appropriate
use category for a developed parcel, [Mission's] City Administrator shall use the
estimated vehicle trip generation figures for the assigned use category from the ITE
Manual to compute an estimate of annual trips related to the parcel and assign the parcel
to a group of similarly used properties ('customer group')." Mission City Code
§145.080B.
The three customer groups are: single-family residential, multi-family residential, and
non-residential use. Mission City Code §145.080B.
The ordinance does not set out the charge to be assessed, instead leaving that to
"be as fixed from time to time in [Mission's] annual budget." Mission City Code
§145.080D. The billing and collection of the fee is accomplished in conjunction "with ad
valorem real estate taxes annually." Mission City Code §145.090.
Mission's TUF Administrative Manual provides further details about the
calculation of the fee. The 2012 manual is included in the record on appeal. According to
this version of the manual, the TUF that is actually assessed depends on five factors:
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"1. That property's estimated trip generation over a period of time.
"2. A split trip rate that includes a 1-cent base charge and a differentiated commercial and
residential property component. The residential per trip rate is 2.076 cents and the
commercial per trip rate is 1.490 cents.
"3. Special consideration is given for specific trip generation data that better refines or
defines the trips a particular land use generates.
"4. The jurisdiction's total annual transportation funding requirement.
"5. The share of that budget to be generated through the TUF system versus other
sources."
The manual also contains Land Use classification data from the ITE Manual for all
property in Mission. The data is broken down into various categories, such as "Animal
Hospital/Vet Clinic," "Fast-Food Restaurant (w/Drive-through Window),"
"Gasoline/Service Station with Convenience Market and Car Wash," and
"Gasoline/Service Station with Convenience Market." Each classification includes data
such as the average trips generated each day of the week and the total weekly trips for a
particular usage. The per-day and per-week trips are based on a unit that varies,
depending on the use. For example, an animal clinic's trip generation is based on 1000
square feet gross floor area, a hotel on its number of rooms, and a gas station on "vehicle
fueling positions."
In March 2012, plaintiffs filed suit against Mission, seeking a declaratory
judgment and preliminary and permanent injunctions. Plaintiffs had paid the TUF in 2010
in amounts ranging from $72.00 to $16,159.87.
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Specifically, plaintiffs asserted five claims in district court. In Claim I, the two
associations asked for a declaratory judgment that the TUF was an impermissible excise
tax violating K.S.A. 2016 Supp. 12-194 and that Mission must stop "assessing, billing,
and collecting the TUF"; return fees "collected illegally with pre- and post-judgment
interest"; and pay the associations' reasonable attorney fees and costs. In Claim II, the
individual plaintiffs sought the same relief as the associations had sought in Claim I. In
Claim III, plaintiffs asked for both a preliminary and a permanent injunction to prevent
Mission from enforcing the TUF and for an order requiring Mission to reimburse
plaintiffs for TUF amounts they had already paid, to pay pre- and post-judgment interest,
and to pay plaintiffs' reasonable attorney fees and costs. In Claim IV, the individual
plaintiffs asked the district court to order Mission to reimburse each individual plaintiff
for the TUF amount each had paid in 2010 and 2011, including interest, attorney fees,
and costs. In Claim V, plaintiffs alleged due process and equal protection violations
because Mission "has enacted an illegal and discriminatory tax, has treated similarly
situated persons and entities differently without a rational basis, and has infringed on the
political power and privileges of property owners in the City of Mission, Kansas."
The individual plaintiffs and Heartland filed a motion for summary judgment on
Claims I, II, and III. Mission filed its own motion for summary judgment against all
plaintiffs on all claims.
After reviewing the motions and supporting memoranda, the district judge issued
his memorandum decision granting summary judgment to Mission and denying summary
judgment to plaintiffs.
The judge began his analysis with acknowledgment of Mission's constitutional
"home rule" power to determine its local affairs, including "'the levying of taxes[,]
excises, fees, charges and other exactions except when . . . limited or prohibited by
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enactment of the legislature applicable uniformly to all cities of the same class.'" He then
noted that under K.S.A. 2016 Supp. 12-194, "'no city or county shall levy or impose an
excise tax or a tax in the nature of an excise'" and that the "substance of both Motions is
whether the TUF is an unlawful excise tax."
The judge next addressed whether the TUF qualified as a fee or a tax, concluding
that it is a tax, based on the definitions used in Kansas.
"The TUF is not voluntary—all property owners generally must pay it. The citizens who
pay the TUF do not receive any special benefit for it. There is no aspect of contract or
consent in payment of the fee. The money raised from the TUF is used to pay for street
improvements, which are used by all. And the TUF is not a way to compensate the
government for regulating a specific service, benefit, or privilege."
The judge then turned to the question of whether the TUF further qualified as an
excise tax. Relying on Kansas caselaw that had defined an "excise tax" as one "'imposed
on the performance of an act, the engaging in an occupation or the enjoyment of a
privilege,'" the district judge concluded that the TUF is not an excise tax. According to
the judge, "Mission determines the charge for the tax based on the estimated number of
trips a property generates. Clearly, residents of Mission are not charged based on the
actual performance of any act, engaging in an occupation, or the enjoyment of a
particular privilege."
The judge concluded that the "TUF, as it was enacted, was within City of
Mission's home rule authority and does not offend the legislative limitation upon that
power." Based on his determination that the TUF is not an illegal excise, the district
judge deemed plaintiffs' due process claim irrelevant and its equal protection claim
without merit. Plaintiffs moved to amend the district judge's memorandum decision, and
the judge denied the motion.
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Plaintiffs then appealed, raising four issues: (1) whether the TUF is an
impermissible excise tax; (2) whether Mission exceeded its powers by passing the TUF
through enactment of an ordinary ordinance; (3) whether the district judge erred by
granting summary judgment on plaintiffs' due process, equal protection, and
reimbursement claims on controverted or unconsidered facts; and (4) whether the district
judge abused his discretion in denying Plaintiffs' Motion to Amend. Mission filed a
cross-appeal, raising one issue: whether the TUF is a special fee rather than a tax, under
Kansas law.
The reviewing Court of Appeals panel analyzed two issues. First, the panel
addressed whether the TUF is a tax. The panel dismissed decisions from other
jurisdictions that had analyzed municipal exactions similar to the TUF as shedding "little
light on this dispute." Heartland Apartment Ass'n v. City of Mission, 51 Kan. App. 2d
699, 707, 352 P.3d 1073 (2015), rev. granted 303 Kan. 1077 (2016). Relying primarily
on this court's decision in Executive Aircraft Consulting, Inc. v City of Newton, 252 Kan.
421, 845 P.2d 57 (1993), the panel concluded that the TUF is a tax because it "is an
annual forced contribution from all improved real estate owners that is used for the
maintenance of a government service available to the general public." 51 Kan. App. 2d at
708.
The panel then turned to the question of whether the TUF is an impermissible
excise tax under K.S.A. 2016 Supp. 12-194. Through a 2006 amendment to the statute,
the panel said "the legislature has enlarged what taxes are prohibited to such an extent
that [the TUF] can be no other tax than an excise tax and is thus prohibited by law," and
it "is clearly assessed, in part, on how property owners decide to use their property." 51
Kan. App. 2d at 713, 717. Because it is an excise tax and does not fit any of the
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exceptions listed in K.S.A. 2016 Supp. 12-194, the panel ruled, Mission exceeded its
home rule authority in enacting the TUF. 51 Kan. App. at 717-18.
The panel declined to address plaintiffs' due process and equal protection
arguments. 51 Kan. App. 2d at 718. It also declined to address plaintiffs' arguments
raised after the district judge had ruled on the motions for summary judgment. 51 Kan.
App. 2d at 718.
Mission petitioned this court for review of three aspects of the panel's opinion: 1)
the TUF's categorization as an impermissible excise tax; 2) determination of the correct
standard of review for challenges to a City's tax measure enacted under its home rule
authority; and 3) the advisability of Kansas recognition of a "special fee." We granted
review.
DISCUSSION
To resolve this appeal, we must answer only two questions: Is the TUF a tax?
And, if so, is it a prohibited excise tax under K.S.A. 2016 Supp. 12-194? Because we
ultimately answer both questions yes, no other issues need be examined. Plaintiffs' should
have prevailed as a matter of law on their motion for summary judgment.
Standard of Review
An appellate court's standard of review on summary judgment is well known:
"'Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The trial court is required to resolve all facts and inferences which may
reasonably be drawn from the evidence in favor of the party against whom the ruling is
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sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, we apply the same rules and where we find reasonable
minds could differ as to the conclusions drawn from the evidence, summary judgment
must be denied. [Citations omitted.]' Shamberg, Johnson & Bergman, Chtd. v. Oliver,
289 Kan. 891, 900, 220 P.3d 333 (2009)." Fawcett v. Oil Producers, Inc. of Kansas, 302
Kan. 350, 358-59, 352 P.3d 1032 (2015).
The parties agree that there are no factual disputes, and our review is unlimited.
David v. Hett, 293 Kan. 679, 682, 270 P.3d 1102 (2011). And, to the extent this court is
required to interpret or construe the language of K.S.A. 2016 Supp. 12-194, such issues
raise questions of law subject to unlimited review. O'Brien v. Leegin Creative Leather
Products, Inc., 294 Kan. 318, 331, 277 P.3d 1062 (2012). When a statute is plain and
unambiguous, the court does not speculate about legislative intent. City of Dodge City v.
Webb, 305 Kan. 351, 356, 381 P.3d 464 (2016). Only where a statute's language is
unclear or unambiguous does the court rely on canons of construction or other tools to
construe the legislature's intent. City of Dodge City, 305 Kan. at 356.
Two other considerations are worth noting.
First, Article 12, § 5 of the Kansas Constitution, commonly referred to as the
Home Rule Amendment, grants cities the power of home rule "to determine their local
affairs and government." Moreover, the "[p]owers and authority granted cities pursuant to
this section shall be liberally construed for the purpose of giving to cities the largest
measure of self-government." Kan. Const. art. 12, §5(d). Because of this, a city's
ordinance is "entitled to a presumption of validity and should not be stricken unless its
infringement upon a statute is clear beyond substantial doubt." Executive Aircraft, 252
Kan. at 424.
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"This provision simply means that the home rule power of cities is favored and should be
upheld unless there is a sound reason to deny it. Where the legislature has acted in some
area[,] a city's power to act in the same area should be upheld unless the legislature has
clearly preempted the field so as to preclude city action. Unless there is actual conflict
between a municipal ordinance and a statute, the city ordinance should be permitted to
stand." Claflin v. Walsh, 212 Kan. 1, 7, 509 P.2d 1130 (1973).
Second, tax statutes must be strictly construed, and if there is reasonable doubt as
to the statute's meaning, it must be construed in favor of the taxpayer. Executive Aircraft,
252 Kan. at 425.
In Executive Aircraft, this court was faced with similar interplay between the
deference given to municipal ordinances and strict construction of tax enactments. The
court ultimately concluded that "[a]ny reasonable doubt concerning the meaning of these
tax statutes must be construed in favor of the taxpayer, not the municipality." 252 Kan. at
425.
Is the TUF a Tax?
The Home Rule Amendment provides:
"Cities are hereby empowered to determine their local affairs and government
including the levying of taxes, excises, fees, charges and other exactions except when and
as the levying of any tax, excise, fee, charge or other exaction is limited or prohibited by
enactment of the legislature applicable uniformly to all cities of the same class." Kan.
Const. art. 12, § 5(b).
Under the Home Rule Amendment, if the legislature "has spoken through a statute
with statewide effect," a city may opt out of the enactment by charter ordinance, "which
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is subject to more rigorous notice requirements and public challenge not applicable to
ordinary ordinances." Farha v. City of Wichita, 284 Kan. 507, Syl. ¶ 3, 161 P.3d 717
(2007). But there are four types of statutes that a city may not opt out of: "(1) enactments
of statewide concern uniformly applicable to all cities; (2) other enactments uniformly
applicable to all cities; (3) enactments uniformly applicable to all cities of the same class
that prohibit or limit the levying of any tax, excise, fee, charge, or other exaction; and (4)
enactments prescribing limits of indebtedness." (Emphasis added.) 284 Kan. 507, Syl.
¶ 4.
The legislature has enacted several limitations on a city's ability to levy taxes. See,
e.g., K.S.A. 12-140 (cities generally prohibited from levying, collecting income tax). In
addition to these statutory prohibitions, the "uniform and equal basis of valuation" clause
of Article 11, § 1(b) of the Kansas Constitution limits the manner in which property taxes
can be levied and assessed. This provision "requires the legislature to provide for
uniformity in the basis of assessment as well as in the rate of taxation. Uniformity in
taxing implies equality in the burden of taxation." State ex rel. Stephan v. Martin, 227
Kan. 456, 461, 608 P.2d 880 (1980).
Of dispositive importance to this case is K.SA. 2016 Supp. 12-194(a), which states
that
"no city or county shall levy or impose an excise tax or a tax in the nature of an excise,
other than a retailers' sales tax and a compensating use tax." (Emphasis added.)
The statute also lists five specific exceptions, such as contracts with a utility for a fixed
charge, none of which is relevant to this case.
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Given the language of the statute, the threshold question on whether K.S.A. 2016
Supp. 12-194 applies is therefore whether the TUF is a tax at all. We thus turn to the way
the word "tax" is understood and employed.
Black's Law Dictionary defines "tax" as:
"A charge, usu. monetary, imposed by the government on persons, entities,
transactions, or property to yield public revenue. Most broadly, the term embraces all
governmental impositions on the person, property, privileges, occupations, and
enjoyment of the people, and includes duties, imposts, and excises. Although a tax is
often thought of as being pecuniary in nature, it is not necessarily payable in money."
Black's Law Dictionary 1685 (10th ed. 2014).
This court has recognized that a "tax is a forced contribution to raise revenue for
the maintenance of government services offered to the general public." Citizens' Utility
Ratepayer Bd. v. Kansas Corporation Comm'n, 264 Kan. 363, Syl. ¶ 5, 956 P.2d 685
(1998).
In addition, the distinction between a tax and a fee was discussed at length in
Executive Aircraft, including a survey of the caselaw of many jurisdictions. In that case,
Executive Aircraft Consulting filed a declaratory judgment action against the City of
Newton and Harvey County, challenging the legality of a "fuel flowage fee." 252 Kan. at
422. In holding in favor of Executive Aircraft, the Executive Aircraft court noted that the
United States Supreme Court had defined a tax as an "'enforced contribution to provide
for the support of government.'" 252 Kan. at 426 (quoting United States v. Mississippi
Tax Comm'n, 421 U.S. 599, 606, 95 S. Ct. 1872, 44 L. Ed. 2d 404 [1975]). In contrast, a
"'fee . . . is incident to a voluntary act . . . which, presumably, bestows a benefit on the
applicant, not shared by other members of society.'" Executive Aircraft, 252 Kan. at 426
(quoting National Cable Television Assn. v. United States, 415 U.S. 336, 340-41, 94 S.
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Ct. 1146, 39 L. Ed. 2d 370 [1974]). According to the District of Columbia Court of
Appeals: "'A "fee" is a payment for a special privilege or service rendered, and not a
revenue measure. If the "fee" unreasonably exceeds the value of the specific services for
which it is charged[,] it will be held invalid.'" Executive Aircraft, 252 Kan. at 426
(quoting National Cable Television Ass'n, Inc. v. F.C.C., 554 F.2d 1094, 1106 [D.C. Cir.
1976]). In Kentucky "'"any payment exacted by the state or its municipal subdivisions as
a contribution toward the cost of maintaining governmental functions, where the special
benefits derived from their performance is merged in the general benefit, is a tax." On the
other hand, a fee is generally regarded as a charge for some particular service.'" Executive
Aircraft, 252 Kan. at 427 (quoting Dickson, Sheriff v. Jeff. Co. Bd. of Education, 311 Ky.
781, 786, 225 S.W.2d 672 [1949]).
Based on these definitions and others the court concluded:
"Thus, a tax is a forced contribution to raise revenue for the maintenance of
governmental services offered to the general public. In contrast, a fee is paid in exchange
for a special service, benefit, or privilege not automatically conferred upon the general
public. A fee is not a revenue measure, but a means of compensating the government for
the cost of offering and regulating the special service, benefit, or privilege. Payment of a
fee is voluntary—an individual can avoid the charge by choosing not to take advantage of
the service, benefit, or privilege offered." 252 Kan. at 427.
Kansas law further recognizes a subset of taxes called special assessments or, as
sometimes referred to, special taxes. We have noted that
"'[a] distinction exists between general taxes and assessments for special or local
improvements. The former are exactions placed upon the citizens by the taxing
authorities for the support of the government while the latter are imposed upon property
within a limited area for payment of special or local improvements.' [Citation omitted.]
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....
"'The foundation of the power to make a special assessment for a local
improvement of any character, including the construction of a sanitary sewer system, is
that the property against which the assessment is levied derives some special benefit from
the improvement.' [Citation omitted.]" (Emphasis added.) In re Tax Appeal of Boeing Co.,
261 Kan. 508, 516, 930 P.2d 1366 (1997).
See also Black's Law Dictionary 140 (10th ed. 2014) ("special assessment" defined as
assessment of tax on property that benefits in some important way from public
improvement).
In Mount Hope Cemetery Co. v. City of Topeka, 190 Kan. 702, 707, 378 P.2d 30
(1963), this court relied on the United States Supreme Court's decision in Illinois Central
Railroad Co. v. Decatur, 147 U.S. 190, 13 S. Ct. 293, 37 L. Ed. 132 (1893), to
distinguish between general taxes and special assessments. The Supreme Court noted that
"special assessments or special taxes proceed upon the theory that when a local
improvement enhances the value of neighboring property that property should pay for the
improvement." (Emphasis added.) 147 U.S. at 198. Moreover,
"[s]pecial assessments, on the other hand, are made upon the assumption that a portion of
the community is to be specially and peculiarly benefited, in the enhancement of the
value of property peculiarly situated as regards a contemplated expenditure of public
funds; and, in addition to the general levy, they demand that special contributions, in
consideration of the special benefit, shall be made by the persons receiving it. The justice
of demanding the special contribution is supposed to be evident in the fact that the
persons who are to make it, while they are made to bear the cost of a public work, are at
the same time to suffer no pecuniary loss thereby, their property being increased in value
by the expenditure to an amount at least equal to the sum they are required to pay." 147
U.S. at 199.
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This court has also discussed the distinction between taxes and fees, at least
tangentially, in relation to regulatory fees demanded by administrative agencies.
In Panhandle Eastern Pipe Line Co. v. Fadely, 183 Kan. 803, 804, 332 P.2d 568
(1958), this court discussed legislation ordering the State treasurer to transfer $100,000
from the "natural gas conservation fund of the state corporation commission to the state
general revenue fund." The state corporation commission had been authorized to levy
assessments to "pay the conservation division expenses and other costs in connection
with the administration of the gas conversation laws," and the plaintiff argued that the
transfer was "an attempt to raise revenue under the guise of the police power," which,
among other things, violated Article 11, §§ 1 and 5 of the Kansas Constitution. 183 Kan.
at 805-06.
The court said that it was "clear that under its police power the state may
reimburse itself for the costs of otherwise valid regulation and supervision by charging
the necessary expenses to the businesses or persons regulated." 183 Kan. at 806. But, if a
statute "shows on its face that some part of the exaction is to be used for a purpose other
than the legitimate one of supervision and regulation . . . or if more than adequate
remuneration is secured," it is void. 183 Kan. at 806-07. The court ruled that such a
transfer might be justified if it reimbursed other departments or state agencies for indirect
aid given to the regulating agency, but the legislation in question had no such purpose
and transferred the funds to the general fund of the state without any limitation. 183 Kan.
at 807-08. It was therefore void. 183 Kan. at 808.
"When a regulatory measure openly becomes a revenue enactment, that portion
thereof which exacts revenue fails as a valid exercise of the police power. We are of the
opinion [that the legislation in question] amount[s] to a tax and a revenue measure levied
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under the guise of a regulatory fee, and violate[s] article 11, section 1 of our state
constitution, the commerce clause and the Fourteenth Amendment of the Federal
constitution." (Emphasis added.) 183 Kan. at 808.
Against this backdrop, the distinction between a tax and fee comes into sharp
relief. In determining whether an exaction is a tax or fee, the primary considerations are:
Who is paying? Who is benefiting? and What will the revenue be used for?
A tax is a forced contribution to pay for the government's general services, that is,
services that benefit the members of the public at large, regardless of whether any
particular person has paid the tax. A tax is a "general tax" or a "special tax" (or "special
assessment") depending on whether those paying the tax receive a special benefit in
addition to the general benefit available to everyone. A general tax bestows no special
benefit to anyone. In contrast, a special tax is premised and justified on the assumption
that the taxpayer will realize a specific and cognizable benefit—typically, an increase in
property value—beyond that realized by members of the general population. Because a
special tax requires such a benefit, its revenues will be allocated to a very specific
purpose. In fact, the purpose will likely be for "special or local improvements." See
Mount Hope Cemetery, 190 Kan. at 708. For example, a special assessment may be
exacted against the owners of property to pay for paving an abutting street. See, e.g., 190
Kan. at 708 (cemetery abutting street undergoing paving improvement, including curbing
and guttering, requires payment of special assessment). The general public often will be a
secondary beneficiary of a special assessment, as in the case of road paving.
A fee, on the other hand, is not a revenue measure. It is assessed against those who
gain the exclusive benefit of the service or, if a regulatory fee, those who are the subject
of the regulation. In other words, an exaction is a fee when the benefits are not enjoyed
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by the public at large. As noted in Executive Aircraft, fees are voluntary in nature in that
a person can decline to take advantage of the service or benefit.
Applying the law reviewed above, we have no hesitation in classifying the TUF as
a tax. It is levied against the owners of all developed property in Mission. Although the
revenue generated from the tax is earmarked for maintenance of city streets, the TUF is
still a general revenue measure, i.e., it is not for specific improvements nor does it
compensate Mission for the costs of administering a special service. To the extent that
those who pay the TUF benefit from the governmental service the TUF funds, the benefit
is of a general nature and shared with the public at large. Finally, the TUF is not
voluntary, which is a requirement for a fee under Executive Aircraft. 252 Kan. at 427.
Rather, the TUF "is a forced contribution to raise revenue for the maintenance of
governmental services offered to the general public." 252 Kan. at 427.
Throughout this case, Mission has argued that the TUF is most comparable to
stormwater or sewer utility fees. But this comparison fails, as those fees are for services
actually rendered. See Jennings v. Walsh, 214 Kan. 398, 401, 521 P.2d 311 (1974)
("Generally speaking, sewer charges by a municipality must be [tied] to the use of the
services and the fee imposed, under most authorities is not a tax, but a charge for services
rendered."); see also Regency Park v. City of Topeka, 267 Kan. 465, 472, 981 P.2d 256
(1999) (recognizing difference in handling of stormwater, sewage; payment for handling
of either not characterized as tax; both in nature of "tolls or rents" paid for services
actually furnished). Because both charges are for services rendered, they satisfy the
Executive Aircraft definition of a fee.
To the extent Mission may argue that the TUF is akin to stormwater or sewer
utility fees because it is based on "services rendered" in the form of provision of roads for
car trips, such an argument also fails. Although the TUF is assessed based on the number
18
of trips a property generates, it is not assessed against those that are actually using the
road. It is not a payment from motorists, which could properly be characterized as a fee.
We also note that use of a toll road is voluntary; a motorist can choose an alternative
route or even an alternative mode of transportation, such as walking. In contrast, the TUF
cannot be avoided by the owner of developed property.
Mission's fallback argument is that the court should consider adopting another
category of exaction: a special fee. A "special fee" would share characteristics of both a
tax and a fee and would presumably not violate the prohibition on excise taxes. Mission
"suggests that the Executive Aircraft test should be reevaluated to incorporate more
recent developments in the law, such as the TUF, special fees, service fees, stormwater
fees, or solid waste fees, none of which Executive Aircraft addressed."
Mission relies on Bloom v. City of Fort Collins, 784 P.2d 304 (Colo. 1989), to
support the adoption of this new category. In Bloom the Colorado Supreme Court
addressed the validity of Fort Collins' "'transportation utility fee'" in light of a challenge
that it violated the Colorado Constitution's requirement of property tax uniformity. 784
P.2d at 304. If the Fort Collins TUF was held to be a property tax, it would be struck
down as unconstitutional. 784 P.2d at 305.
At the outset of its analysis, the Colorado Supreme Court identified four types of
revenue-generating measures available to Colorado municipalities that might cover the
Fort Collins TUF: an ad valorem tax, an excise tax, a special assessment, and a special
fee. The court then outlined the general properties of each under Colorado law. See 784
P.2d at 307-10. With that framework in mind, the court discussed the TUF and attempted
to categorize it.
19
First, the court rejected the notion the Fort Collins TUF was an ad valorem
property tax because such a tax must be assessed on the value of the property being
taxed. Second, the court determined that the TUF was not an excise tax either, because, to
be an excise tax, the "tax itself [must be] made a condition precedent to [an] act, event, or
occurrence." 784 P.2d at 310. Third, the court eliminated the possibility that the TUF
qualified as a special assessment, because the ordinance did not require revenue raised by
the TUF to be used to pay for improvements benefitting a particular property. Fourth, the
court defined a special fee as "a charge imposed on persons or property and reasonably
designed to meet the overall cost of the service for which the fee is imposed." 784 P.2d at
310.
As to the TUF before it, the court noted that the "owners and occupants of
developed lots subject to the fee receive the benefit of a program of city maintenance
calculated to provide effective access to and from residences, buildings, and other areas
within the city." 784 P.2d at 310. Although another method for raising the funds could
have been chosen and the class of persons liable for the fee could have been broader, the
availability of such options did not invalidate the ordinance, and the TUF was a valid
special fee. 784 P.2d at 310. Although the court acknowledged that "the transportation
utility fee is not conditioned on the voluntary choice of owners or occupants of developed
lots," it had never held "that a service fee must be voluntary. 784 P.2d at 310.
We reject Mission's invitation to adopt a new category of a special fee based on
Bloom's example. On close examination, we are convinced that most assessments
Colorado refers to as "special fees" would already be considered "fees" in Kansas' current
framework.
The Bloom court distinguished special fees from taxes because "a special fee is not
designed to raise revenues to defray the general expenses of government, but rather is a
20
charge imposed upon persons or property for the purpose of defraying the cost of a
particular governmental service. . . . The amount of a special fee must be reasonably
related to the overall cost of the service." 784 P.2d at 308. In Colorado, a special fee
generally will be upheld if "the ordinance is reasonably designed to defray the cost of the
particular service rendered by the municipality." 784 P.2d at 308 (citing cases upholding
sewage service fee, annual emergency medical services fee, fee assessed on rental
property to defray costs of administering hearings to resolve rental disputes, storm
drainage service charge, building permit fees.) A special fee may be invalidated "when
the principal purpose of the fee is to raise revenues for general municipal purposes rather
than to defray the expenses of the particular service for which the fee is imposed." 784
P.2d at 308.
We also reject Mission's invitation to mimic Bloom because in its discussion of
special fees, use for a governmental "service" seems to distinguish only between revenue
allocated to a general fund and revenue allocated to a specific fund, such as road
maintenance. Taken to its logical extreme, any revenue measure might be a "special fee"
in Colorado if it is earmarked to pay for a specific governmental function. This is much
broader than what has been contemplated under Kansas law, and we do not wish to
expand the Kansas concept of fee today.
Finally, we observe that our conclusion that the TUF is a tax is consistent with the
results of several other jurisdictions that have addressed TUF-like exactions. See State v.
City of Port Orange, 650 So. 2d 1 (Fla. 1994) (considering transportation utility fee as
tax); Brewster v. City of Pocatello, 115 Idaho 502, 768 P.2d 765 (1988) ("street
restoration and maintenance fee" assessed against all owners and occupants of property
within city qualifies as tax); Covell v. City of Seattle, 127 Wash. 2d 874, 905 P.2d 324
(1995) (classifying monthly "street utility" fee as tax). These decisions reinforce our
decision.
21
Is the TUF an Excise Tax?
As noted above, K.S.A. 2016 Supp. 12-194(a) prohibits all excise taxes with
certain exceptions. The exceptions for retailers' sales taxes and compensating use taxes
are broad while five enumerated exceptions are more narrow and detailed. The parties
agree that the TUF is not a retailers' sales tax or compensating use tax and does not meet
one of the enumerated exceptions. Simply, if Mission's TUF is an excise tax, it is
prohibited by K.S.A. 2016 Supp. 12-194.
"Excise tax" is not an expressly defined statutory term, and its meaning is not so
plain that construction is unnecessary. See City of Dodge City v. Webb, 305 Kan. 351,
356, 381 P.3d 464 (2016). We thus turn to other sources to discern its meaning.
In Callaway v. City of Overland Park, 211 Kan. 646, 508 P.2d 902 (1973), this
court interpreted a previous version of K.S.A. 12-194 (then K.S.A. 1971 Supp. 79-4424).
And the parties and the Court of Appeals panel have relied heavily on Callaway in
interpreting the current version of the statute. To put current statutory language and
Callaway into context, we must discuss the history of K.S.A. 12-194 and related statutes.
The Home Rule Amendment was adopted by vote of the people and became
effective on July 1, 1961. 211 Kan. at 648. That amendment gave cities broad powers in
levying taxes and fees, among other things. Those powers, however, could be limited by
legislative enactment. The legislature immediately exercised its power of limitation by
enacting G.S. 1961 Supp. 12-139, 12-140, and 12-141.
G.S. 1961 Supp. 12-139 provided: "No city shall impose an excise tax, or tax in
the nature of an excise, upon a sale or transfer of personal or real property, or the use
22
thereof, or the rendering or furnishing of a service." G.S. 1961 Supp. 12-140 prohibited
cities from levying taxes on income. G.S. 1961 Supp. 12-141 listed two exceptions to the
prohibited taxes. The first exception allowed contracting with a utility for a fixed charge,
and the second exception allowed license fees on the privilege of doing business. The
legislature also outlined procedures for a city to exercise its home rule taxing powers in
G.S. 1961 Supp. 12-137.
K.S.A. 12-194's 1961 predecessor thus prohibited only a subset of excise taxes:
those "upon a sale or transfer of personal or real property, or the use thereof, or the
rendering or furnishing of a service." G.S. 1961 Supp. 12-139. Notably, this narrow
statute appears to have prohibited the type of excise tax now explicitly allowed, i.e., sales
taxes. See Callaway, 211 Kan. at 650-51.
In 1970, the legislature enacted what was known as "the tax lid law," which
suspended K.S.A. 12-139, 12-140, and 12-142. See K.S.A. 1971 Supp. 79-4414
(suspending K.S.A. 12-139, 12-140, and 12-142 until December 31, 1972); see also
K.S.A. 1972 Supp. 12-169 (suspending K.S.A. 12-139, 12-140, and 12-142 until
December 31, 1973). In place of those statutes, the legislature enacted K.S.A 1971 Supp.
79-4424, 79-4425, and 79-4426. Of particular relevance, K.S.A. 1971 Supp. 79-4424
then provided:
"(a) No city shall impose an excise tax or tax in the nature of an excise, upon a
sale or transfer of personal or real property, or the use thereof, or the rendering of a
service without the governing body of such city having first submitted such proposition
to and having received the approval of a majority of the electors voting thereon at any
election authorized for such city by K.S.A. 1970 Supp. 79-4409, as amended, and the
only such tax which may be enacted by a city is a retailers' sales tax which conforms to
the requirements of this act."
23
This section has two primary parts. The first part is a general requirement that
such taxes must be adopted with the approval of a majority of a city's electors. The
second part—"the only such tax which may be enacted by a city is a retailers' sales tax
which conforms to the requirements of this act"—is a limitation on the type of permitted
taxes to sales only. What had been prohibited under the previous law—a sales tax—was
now permitted, at least in the form of a retailers' sales tax. The previous prohibition "upon
a sale or transfer of personal or real property, or the use thereof, or the rendering of a
service" remained in place.
Meanwhile, K.S.A. 12-141's exceptions for contracting with a utility and licensing
fees remained in effect. See K.S.A. 1971 Supp. 79-4414; K.S.A. 12-141.
In 1972 the legislature continued the 1970 suspension of statutes under the tax lid
law and replaced K.S.A. 1971 Supp. 79-4424 with the following language:
"No city shall levy or impose an excise tax or a tax in the nature of an excise,
other than a retailers' sales tax levied under and subject to the restrictions and provisions
of this act, upon the sale or transfer of personal or real property, or the use thereof, or the
rendering of a service." K.S.A. 1972 Supp. 12-165.
The statute also contained three enumerated exceptions, two of which were identical to
those in G.S. 1961 Supp. 12-141.
The practical effects of K.S.A. 1972 Supp. 12-165 were (1) to continue the general
prohibition on excise taxes that had originated with G.S. 1961 Supp. 12-139, (2)
incorporate the exceptions of G.S. 1961 Supp. 12-141, and (3) continue the permission
for a retailers' sales tax that had originated with K.S.A. 1971 Supp. 79-4424. The 1972
24
provisions were designed to sunset on December 31, 1973. See K.S.A. 1972 Supp. 12-
168.
In 1973, the legislature gave the basic framework of the 1972 legislation
permanent effect. The new excise tax provision—K.S.A. 12-180 (Weeks)—was identical
to K.S.A. 1972 Supp. 12-165.
In 1978, the legislature again addressed excise taxes. It repealed K.S.A. 12-180
(Weeks), see L. 1978, ch. 56, sec. 20, and adopted a new statute, which would become
K.S.A. 12-194. See L. 1978, ch. 56, sec. 8. The only substantive change from K.S.A. 12-
180 (Weeks) was extension of the prohibition to include counties as well as cities.
In 1982, the legislature amended K.S.A. 12-194 to add "a compensating use tax"
to retailers' sales tax as explicitly permissible taxes. See L. 1982, ch. 66, sec. 2.
In 2002, the legislature added another exception to the enumerated list, see L.
2002, ch. 105, sec. 11, but that exception was short lived. The legislature deleted it from
K.S.A. 12-194 in 2003. See L. 2003, ch. 120, sec. 14.
In 2006, K.S.A. 12-194 was amended to its present form. The legislature also
restructured the statute slightly and added two new enumerated exceptions. See L. 2006,
ch. 204, sec. 3.
Most important for today's case, the 2006 legislature deleted "upon the sale or
transfer of personal or real property, or the use thereof, or the rendering of a service." See
L. 2006, ch. 204, sec. 3. Before this amendment, the statute applied to "an excise tax or a
tax in the nature of an excise . . . upon the sale or transfer of personal or real property, or
the use thereof, or the rendering of a service." (Emphasis added.) K.S.A. 2005 Supp. 12-
25
194. After the amendment, the statute applied to "an excise tax or a tax in the nature of an
excise." K.S.A. 2016 Supp. 12-194.
The parties and the panel each relied on Callaway in defining "excise tax."
According to Mission, "'Kansas courts have defined an "excise tax" as one "imposed on
the performance of an act, the engaging in an occupation or the enjoyment of a
privilege."'" Based on this definition, Mission concludes that an excise tax is a "charge
that is imposed on a transactional basis." For their part, Plaintiffs also quote the same
passage from Callaway, but they focus on another statement from that decision: "The
term 'excise tax' has come to mean and include practically any tax which is not an ad
valorem tax." Callaway, 211 Kan. at 651.
Callaway concerned an Overland Park ordinance that imposed an occupational tax
of $.0035 per square foot of living space leased or subject to being leased on "'[p]ersons,
firms, partnerships or corporations engaged in the business of owning and leasing or of
leasing apartments, duplexes and all other rental properties'" within certain zoning
classifications. 211 Kan. at 647.
The Callaway parties agreed the ordinance in question "was not submitted to the
electors for their approval, was not a retailers' sales tax and if the general prohibition in
the statute as to excise taxes covers the tax imposed by the ordinance it should be held
invalid." 211 Kan. at 650. The court was concerned with possible conflict between the
ordinance and K.S.A. 1971 Supp. 79-4424(a), stating, "'No city shall impose an excise
tax or tax in the nature of an excise, upon a sale or transfer of personal or real property, or
the use thereof, or the rendering of a service . . . ." 211 Kan. at 651. If the tax imposed by
the ordinance fell within this class of taxes, it would be invalid, because it did not qualify
as a sales tax and was not passed in the prescribed manner. 211 Kan. at 650.
26
The court began its analysis by noting that "[t]he term 'excise tax' has come to
mean and include practically any tax which is not an ad valorem tax." 211 Kan. at 651.
An "ad valorem tax is a tax imposed on the basis of the value of the article or thing
taxed," while an "excise tax is a tax imposed on the performance of an act, the engaging
in an occupation or the enjoyment of a privilege." 211 Kan. at 651. In Kansas, "excise
tax" had been used in caselaw to refer to occupation taxes, franchise or privilege taxes,
and license fees. 211 Kan. at 651. The court said that, because "'excise tax" is but a
general term covering the entire field,'" the limitations of the statute at issue could not be
discerned from the legislature's use of that term alone. 211 Kan. at 651. The court thus
turned to the more specific language—"upon a sale or transfer of personal or real
property, or the use thereof, or the rendering of a service" to determine whether the
statute's prohibition would reach Overland Park's occupational tax. 211 Kan. at 651.
The court noted that
"[t]he tax imposed by the Overland Park ordinance is upon engaging in a particular
business, in this case leasing rental properties. The tax imposed, .0035 dollars per square
foot of living space subject to being rented or leased, is an annual governmental exaction.
It is not due on a transactional basis for it is paid only once a year whether the properties
are rented or vacant and whether the same property is rented one or more times during a
year." [Emphasis added.] 211 Kan. at 651.
This appears to be the portion of the Callaway opinion that Mission relies on for its
argument that a tax qualifies as an excise tax only when it has a transactional tie. But the
Callaway court was not using this language to define "excise tax." It was instead
addressing the language of the statute that narrowed the group of excise taxes that would
be prohibited.
The Callaway court then turned to case precedent for guidance.
27
In Hampton v. City of Wichita, 192 Kan. 534, 389 P.2d 757 (1964), the court had
upheld an occupational tax imposed by Wichita when it faced a similar challenge. The
controlling version of the statute was G.S. 1961 Supp. 12-139, which contained
prohibition-restricting language identical to that in 79-4424—"upon a sale or transfer of
personal or real property, or the use thereof, or the rendering of a service." The
occupational tax in Hampton also was imposed on an annual basis. Callaway, 211 Kan. at
651-52. Although the tax was related to property, the ordinance at issue "'create[d] no
property tax nor attempt[ed] to impose a tax on the sale or transfer of real or personal
property or the use thereof, nor [did the] ordinance make the tax a charge upon any
specific property; it is solely an occupational tax on the business conducted.'" Callaway,
211 Kan. at 652 (quoting Hampton, 192 Kan. at 536). The Callaway court applied
Hampton's reasoning and ruled that the Overland Park ordinance did not violate K.S.A.
1971 Supp. 79-4424(a).
In arriving at this conclusion, the Callaway court also rejected an argument that
the ordinance's basis on square footage of living area rented and its imposition on the
business of owning and leasing made the exaction an impermissible tax on the property
or the inventory of a business. "'In determining the amount of a business or occupation
tax, the city may use property as a measure, without imposing a tax on the property
itself.'" 211 Kan. at 653 (quoting Wichita Produce Co. v. City of Wichita, 112 Kan. 28,
29, 209 P. 667 [1922]). Ultimately,
"the tax is imposed on an annual basis for engaging in a business and not on a
transactional basis as prohibited in 79-4424(a), supra. Square footage of living area is
used only to measure the amount of the occupation tax. There can be little question that
the present tax is neither an ad valorem tax nor a sales, use or earnings tax." Callaway,
211 Kan. at 654.
28
The court concluded its analysis of whether the occupation tax was permissible by
stating:
"We are, however, of the opinion that the limitation upon the home rule power of
a city to impose excise taxes (K.S.A. 1971 Supp. 79-4424) prohibits a city from imposing
such taxes upon a transactional basis, i.e., upon each sale, transfer or use of personal or
real property or upon each rendition of service by a licensee or taxpayer." 211 Kan. at
655.
Again, this passage of the Callaway opinion does not define "excise tax" to require a
transactional basis. Instead, the court was stating that the subset of excise taxes prohibited
by the then-controlling version of the statute were those assessed on a transactional basis.
Implicit in this pattern of analysis is the notion that there are other excise taxes assessed
on a nontransactional basis.
In the case before us today, the Court of Appeals panel did not appear to recognize
the essential distinction between defining "excise tax" generally and setting of the
boundaries of the subset of statutorily prohibited excise taxes.
"Both the Callaway and Home Builders [Ass'n v. City of Overland Park, 22 Kan.
App. 2d 649, 921 P.2d 234 (1996)] courts permitted the questioned taxes because they
were not taxing transactions. These interpretations were based on the working definitions
adopted by the Callaway court for excise and ad valorem property taxes:
"'The term "excise tax" has come to mean and include practically
any tax which is not an ad valorem tax. An ad valorem tax is a tax
imposed on the basis of the value of the article or thing taxed. An excise
tax is a tax imposed on the performance of an act, the engaging in an
occupation or the enjoyment of a privilege.' Callaway, 211 Kan. at 651."
Heartland Apartment, 51 Kan. App. 2d at 714.
29
This statement misdirects. A tax on engaging in an occupation, for example, is not
necessarily transactional. But, under the governing statute as worded before the 2006
amendment, a tax on engaging in an occupation would be prohibited if it were imposed
on a transactional basis.
Despite this miscue, the panel ultimately reached the correct conclusion when it
acknowledged that the 2006 amendment had removed all transactional bases as a way of
determining if a tax is prohibited by law. The panel could have used more precise
language, however. It said: "Simply put, the legislature removed all transactional bases
as a way to decide if a tax is an excise tax prohibited by law." 51 Kan. App. 2d at 715. A
more accurate synthesis of Callaway and the 2006 amendment would read: The
legislature removed all transactional bases as a way to decide if an excise tax is
prohibited by law; as a general rule, unless explicitly permitted, all excise taxes are now
prohibited.
Mission relies on the panel's miscue to argue that the panel incorrectly enlarged
the definition of excise tax. In its view, the definition of excise tax from Callaway still
should be good law. Strictly speaking, Mission is correct. But this point does not lead
where Mission would like us to go. The 2006 amendment did nothing to alter what
Callaway described as excise taxes. Yet, because the statute in effect when Callaway was
decided did not prohibit all excise taxes, the Callaway court was concerned only with
discerning which excise taxes were prohibited. The panel correctly concluded that the
2006 amendment altered the breadth of the statutory prohibition. As the panel said,
"What was once permitted is now prohibited." Heartland Apartment, 51 Kan. App. 2d at
716. The 2006 amendment did remove all transactional bases, but that affected the basis
for prohibition rather than the general definition of "excise tax."
30
This brings us back to the question we must face: Is the TUF an excise tax?
Callaway did not address whether the ordinance at issue in that case levied an excise tax;
it merely held that it did not levy a prohibited excise tax. But two statements from
Callaway are nevertheless instructive for us here: "The term 'excise tax' has come to
mean and include practically any tax which is not an ad valorem tax." Callaway, 211
Kan. at 651. And "[a]n excise tax is a tax imposed on the performance of an act, the
engaging in an occupation or the enjoyment of a privilege." 211 Kan. at 651.
These observations from Callaway are in general accord with that from other
jurisdictions and legal authorities. See United States v. Wells Fargo Bank, 485 U.S. 351,
355, 108 S. Ct. 1179, 99 L. Ed. 2d 368 (1988) (estate tax a form of excise tax;
"Underlying this doctrine is the distinction between an excise tax, which is levied upon
the use or transfer of property even though it might be measured by the property's value,
and a tax levied upon the property itself."); Board of County Comm'rs of Kay County,
Okla. v. Federal Housing Finance Agency, 754 F.3d 1025, 1030 (D.C. Cir. 2014)
("excise taxes may be measured by the property's value, but they are levied upon its use
or transfer and not upon its existence"); Black's Law Dictionary 684 (10th ed. 2014)
(excise "tax imposed on the manufacture, sale, or use of goods [such as a cigarette tax] or
on an occupation or activity [such as a license tax or an attorney occupation fee]").
Still other jurisdictions focus more on the taxing of an "act," when compared with
Callaway. For example, in Steven Banks v. Heineman, 286 Neb. 390, 396-97, 837
N.W.2d 70 (2013), the Nebraska Supreme Court noted:
"An excise tax is a tax imposed on the manufacture, sale, or use of goods or on
an occupation or activity, and is measured by the extent to which a privilege is exercised
by the taxpayer, without regard to the nature or value of the taxpayer's assets. An excise
tax is imposed upon the performance of an act. We have also stated that an excise tax
includes taxes sometimes designated by statute or referred to as 'privilege taxes,' 'license
31
taxes,' 'occupation taxes,' and 'business taxes.' In contrast, a property tax is levied on real
or personal property, with the amount of the tax usually dependent upon the value of the
property." (Emphasis added.)
Although the Nebraska definition states that an excise tax is imposed on the performance
of an act, this does not necessarily make it a transaction-based tax. Rather it appears that
the Steven Banks court used "act" in a broader sense, to include things such as a tax on
the privilege of the "act" of engaging in an occupation.
As the authorities cited above also illustrate, courts often are called upon to
contrast excise taxes with property taxes. In Wells Fargo, the United State Supreme
Court addressed a provision that exempted certain public housing entities from "all
taxation." The Court began by noting that generally "an exemption of property from all
taxation had an understood meaning: the property was exempt from direct taxation, but
certain privileges of ownership, such as the right to transfer the property, could be taxed."
Wells Fargo, 485 U.S. at 355. A "direct tax" is a "tax that is imposed on property, as
distinguished from a tax on a right or privilege. A direct tax is presumed to be borne by
the person on whom it is assessed, and not 'passed on' to some other person. Ad valorem
and property taxes are direct taxes." Black's Law Dictionary 1685 (10th ed. 2014); cf.
Black's Law Dictionary 1686 (10th ed. 2014) (indirect tax a "tax on a right or privilege,
such as an occupation tax or franchise tax"). Underlying the doctrine of limiting an
exemption for "all taxes" to direct taxes was the distinction "between an excise tax, which
is levied upon the use or transfer of property even though it might be measured by the
property's value, and a [direct] tax levied upon the property itself." (Emphases added.)
485 U.S. at 355.
The Callaway court implicitly acknowledged this distinction between property
taxes and excise taxes when it noted that excise taxes include practically all taxes except
32
ad valorem taxes. At the time of Callaway, the overwhelming majority of property taxes
were ad valorem taxes, but our court would be called upon later to address a non-ad
valorem property tax.
In Von Ruden v. Miller, 231 Kan. 1, 6, 642 P.2d 91 (1982), the court considered an
intangibles tax that required payment of 3 percent of gross earnings from intangible
property such as "money, notes, and other evidences of debt." The plaintiff argued that
this tax violated Article 11, section 1's uniform and equal clause. In contrast, the
defendant, the Reno County treasurer, argued it was a permissible excise tax. At the
outset of its analysis, the court noted that "[a]lthough Callaway noted, as a practical
matter, that an excise tax includes practically any tax which is not an ad valorem tax, this
is not invariably true." 231 Kan. at 8. "The Kansas intangibles tax fits neither the
definition of an ad valorem tax nor an excise tax, which includes income taxes, defined in
article 11, § 11, and K.S.A. 79-3201 et seq., as a tax on net income." 231 Kan. at 8.
Ultimately, the court decided the intangibles tax was a type of property tax. 231 Kan. at
8.
Mission relies on Von Ruden in an attempt to undercut the assertion in Callaway
that excise taxes include virtually all taxes other than an ad valorem tax. Again, strictly
speaking, Mission's assertion has some validity. As Von Ruden illustrates, there are taxes
other than ad valorem and excise. But, also again, Mission's point does not lead where
Mission would like us to go. Von Ruden actually undercuts the Callaway court's use of
"ad valorem tax" rather than the more accurate "property tax." The grouping of taxes into
two general types, as implied by Callaway, appears to remain valid. But the more precise
names for the two groupings are property taxes and excise taxes, rather than ad valorem
taxes and excise taxes.
33
Mission also tries to persuade us that the TUF is not an excise tax without
identifying what the TUF is, if not an excise tax. Without calling the TUF a property tax,
Mission highlights the fact that both "the Attorney General and Plaintiffs contend that 'the
TUF is assessed and levied based upon ownership of property.'" Mission notes that
"ownership of property does not fall within any definition of 'excise tax' advanced by
anyone in this litigation, much less within any Kansas precedents involving an excise tax.
Specifically, ownership of property is not the performance of any act. Nor is it engaging
in any occupation. Nor is it enjoyment of any 'privilege.' Indeed, the TUF is assessed on
all developed property regardless of whether the property is used or enjoyed at all."
This argument ignores the distinction between a tax levied on the property itself
and a tax "levied upon the use or transfer of property." See Wells Fargo, 485 U.S. at 355.
This court acknowledged this distinction in Callaway when addressing the plaintiffs'
argument that taxation based on the square footage of living area meant the tax inevitably
qualified as property tax. 211 Kan. at 653. The court noted that "[t]he use of square
footage of living area rented is merely a means of measuring the amount of the
occupational tax to be collected annually," rather than making the tax one on the property
itself. 211 Kan. at 653; see also Wichita Produce Co., 112 Kan. at 29 ("'In determining
the amount of a business or occupation tax, the city may use property as a measure,
without imposing a tax on the property itself.'").
With all of the foregoing discussion in mind, and applying Callaway's definition
that an "excise tax is a tax imposed on the performance of an act, the engaging in an
occupation or the enjoyment of a privilege," we conclude that the TUF is an excise tax.
The TUF is a tax on real property owners based on the use of their property, rather than a
tax on the property itself. See Mission City Code §145.070 (TUF based on "direct and
indirect use of or benefit derived from the use of public streets, bicycle lanes and
sidewalks generated by the developed property"); cf. Wells Fargo, 485 U.S. at 355
34
(excise tax levied on use or transfer of property). Black's defines "enjoyment" as the
"[p]ossession and use, esp. of rights or property." Black's Law Dictionary 647 (10th ed.
2014). Based on this definition, a tax based on how a property is used and developed, as
the TUF is, falls within Callaway's definition of an excise tax because it is a tax on "the
enjoyment of a privilege." The privilege in this case being the benefits of property
ownership beyond the ownership itself.
Mission's TUF is an excise tax that does not meet any of the exceptions in K.S.A.
12-194. Mission is thus prohibited from levying the TUF.
CONCLUSION
The decision of the Court of Appeals is affirmed. The district court's summary
judgment in favor of the City of Mission is reversed, and this case is remanded to the
district court for the entry of summary judgment in favor of the moving plaintiffs on the
issue of whether the TUF is a prohibited excise tax and for any other proceedings the
district judge deems necessary to full resolution of the parties' claims. See Shamberg,
Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 910, 220 P.3d 333 (2009).
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