Upper Republican NRD v. Dundy Cty. Bd. of Equal.

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
07/06/2018 09:11 AM CDT
- 256 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
Upper R epublican Natural R esources District and
Steve Yost, appellees, and FEM, Inc., and M & L
Cattle Company, appellees and cross-appellants,
v. Dundy County Board of Equalization,
appellant and cross-appellee.
___ N.W.2d ___
Filed June 15, 2018. No. S-17-814.
1. Taxation: Judgments: Appeal and Error. An appellate court reviews
Nebraska Tax Equalization and Review Commission decisions for error
appearing on the record of the commission.
2. ____: ____: ____. When reviewing a Nebraska Tax Equalization and
Review Commission judgment for errors appearing on the record, the
inquiry is whether the decision conforms to the law, is supported by com-
petent evidence, and is neither arbitrary, capricious, nor unreasonable.
3. Administrative Law. An administrative agency’s decision is arbitrary
when it is made in disregard of the facts or circumstances without some
basis which would lead a reasonable person to the same conclusion;
administrative agency action taken in disregard of the agency’s own
substantive rules is also arbitrary and capricious.
4. Taxation: Appeal and Error. Questions of law arising during appellate
review of Nebraska Tax Equalization and Review Commission decisions
are reviewed de novo.
5. Constitutional Law: Due Process. The determination of whether
the procedures afforded to an individual comport with constitutional
requirements for procedural due process presents a question of law.
6. Taxation. Neb. Rev. Stat. § 77-5016(8) (Cum. Supp. 2018) provides that
for questions other than taxable value, the Nebraska Tax Equalization
and Review Commission’s power is limited to questions that are both
(1) raised in the proceeding before the commission and (2) a basis for
the order, decision, determination, or action appealed from.
7. Appeal and Error. An appellate court ordinarily considers only those
errors assigned and discussed in the briefs, but may notice plain error.
- 257 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
8. Appeal and Error: Words and Phrases. Plain error is error plainly
evident from the record and of such a nature that to leave it uncorrected
would result in damage to the integrity, reputation, or fairness of the
judicial process.
9. Taxation: Property: Public Purpose. Property can be used by a pub-
lic entity in more than one way and for more than one public purpose,
and all public purpose uses should be considered together in evaluat-
ing whether any private use of the property is merely incidental in the
analysis under Neb. Rev. Stat. § 77-202(1)(a) (Cum. Supp. 2012) of the
extent to which the property is used or being developed for use for a
public purpose.
Appeal from the Tax Equalization and Review Commission.
Affirmed in part, vacated in part, and in part reversed and
remanded with directions.
Jeanelle R. Lust, Richard C. Reier, and Carly L. Bahramzad,
of Knudsen, Berkheimer, Richardson & Endacott, L.L.P.,
for appellant.
Todd R. McWha, of Waite, McWha & Heng, and Lindsay
E. Pedersen for appellees FEM, Inc., and M & L Cattle
Company.
Joel E. Burke, of Burke & Pribbeno, L.L.P., for appellee
Upper Republican Natural Resources District.
Heavican, C.J., Miller-Lerman, Cassel, and Stacy, JJ., and
Luther and O’Gorman, District Judges.
O’Gorman, District Judge.
I. NATURE OF CASE
This is an appeal by the Dundy County Board of Equalization
(Board) from the decision of the Tax Equalization and Review
Commission (TERC). The central issue in this appeal is the
tax exempt status of land purchased by the Upper Republican
Natural Resources District (NRD) as part of a ground water
integrated management plan. The NRD retired irrigated acres
and converted them to grassland to achieve soil conservation
- 258 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
and range management objectives. The NRD leased much
of that grassland for grazing. The parties dispute the extent
to which the lease was at fair market value for a public pur-
pose, as described by Neb. Rev. Stat. § 77-202(1)(a) (Cum.
Supp. 2012). The parties also dispute the scope, under Neb.
Rev. Stat. § 77-5016(8) (Cum. Supp. 2016), of the questions
properly before the TERC; whether due process allowed for
any tax assessment to the lessees if they lacked notice of the
proceedings before the Board; and whether it is legally per-
missible, under Neb. Rev. Stat. § 77-202.11 (Reissue 2009), to
assess property tax to a public entity that has leased land for a
nonpublic purpose.
II. BACKGROUND
1. Purchase and Lease Agreements
In order to comply with the Republican River Compact
and to meet other water management objectives, in 2011,
the NRD paid approximately $10 million to purchase from
FEM, Inc., approximately 4,080 acres of agricultural land,
3,262 of which were certified irrigated acres. Under the terms
of the purchase agreement, FEM retained the right to lease
back the property, but once the NRD had decertified the
irrigated acres, FEM’s use of the land was limited to graz-
ing and use of certain fixtures. During the years pertinent to
this appeal, the land had been converted from irrigated land
to native grassland. FEM exercised its right to lease back the
entirety of the FEM property and, as allowed by the terms
of the lease, subleased the land to M & L Cattle Company
(M&L), the company through which FEM conducts its cattle
operations (M&L and FEM together are referred to herein
as “lessees”).
The lease agreement between the NRD and FEM provides
that the NRD “shall pay all real estate taxes and personal prop-
erty attributable to fixtures located on the property.”
In 2013, the NRD purchased an additional 3,200 certified
irrigated acres from Maurice Wilder, for $8,050,000. The land
- 259 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
was contiguous to the FEM parcels and was also acquired in
order to carry out the objectives of the management plan.
Both properties were located in Dundy County, Nebraska.
2. Assessor Notice of
Taxable Status
In 2013, the Dundy County assessor sent the NRD notices
of taxable status for 12 FEM parcels and 6 Wilder parcels. The
notices stated that the reason the assessor determined the par-
cels to be taxable was because they were not being used for a
public purpose.1 The notices did not state that the assessor had
determined that any of the parcels were being leased at less
than fair market value.
The notices advised the NRD that if the property was leased
to another entity and the NRD “d[id] not intend to pay the
taxes as allowed under subsection (4) of section 77-202.11,
[the NRD] must immediately forward this notice to the lessee.”
The NRD did not forward the notices to the lessees, and the
lessees did not have actual notice of the assessment.
The assessor similarly determined the parcels nonexempt in
2014 and 2015. The NRD similarly failed to forward notices
of the 2014 and 2015 assessments to the lessees, who lacked
actual knowledge thereof.
3. Protests to Board
The NRD protested the 2013 through 2015 assessments to
the Board. The NRD had apparently paid assessments by the
assessor for 2012, when the land was still being utilized by the
lessees as irrigated farmland. The NRD did not object to the
2013 through 2015 assessments against it on the ground that
it was legally impermissible to assess property tax against a
public entity leasing public land. The NRD argued simply that
the property was exempt from taxation, because it was being
used for a public purpose. The lessees did not have notice of
1
See § 77-202(1)(a).
- 260 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
the NRD’s protests and were not parties to the proceedings
before the Board.
Following a hearing, the Board determined that all 18 par-
cels were nonexempt, taxable property for the years 2013
through 2015. The Board stated as the basis for its decision
that the surface and buildings were not being used for a public
purpose. The Board was not presented with and did not pass
upon the issue of whether the lease was at fair market value.
4. A ppeal to TERC
The NRD timely appealed to the TERC. The NRD stated in
its appeal form that it was appealing the Board’s determination
that the property was not used for a public purpose. Again,
the NRD did not raise any issue of whether the lessees, rather
than the NRD, should be assessed tax liability in the event the
TERC rejected its contention that the parcels were for a public
use. The lessees received notice of the appeal, but they were
not originally made parties.
(a) Necessary Parties
The TERC issued an order to show cause whether it had
jurisdiction to determine the tax-exempt status of any leased
parcel without all lessees as parties. The NRD argued at the
show cause hearing that the lessees were not necessary parties,
because the question presented to the TERC was limited to the
NRD’s tax liability. But the TERC ultimately concluded that
any determination of whether the property was used for a pub-
lic purpose would have implications for lessee tax obligations.
Therefore, the TERC decided that it lacked some necessary
parties to the appeal.
Though the informal hearing on the merits had already been
held, the TERC vacated the hearing. The NRD, upon an order
to disclose, stated that M&L was the missing necessary party
to the proceedings. The TERC scheduled a new hearing and,
pursuant to its authority under Neb. Rev. Stat. § 77-5015.01
(Cum. Supp. 2016), served notice to M&L. Upon a joint
stipulation of the Board, the NRD, FEM, and M&L, the TERC
- 261 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
determined the issues based on the exhibits and transcript of
the prior hearing.
(b) Evidence and
Arguments Presented
At the informal hearing, the NRD and the Board were
given the opportunity to present evidence and argument.2 The
underlying facts related to the use of the property were not in
dispute. Instead, the parties disputed how those facts applied
to the concept of public purpose as set forth in the statutes.
Neither party presented argument as to whether the lease was
at fair market value.
The Board conceded that there was some public purpose
served by the NRD’s ownership of the parcels, but argued that
in determining whether the predominant use was for a public
purpose, the TERC should focus on the use of the surface of
the land and not the use or nonuse of the water underneath.
The assessor explained that in determining the parcels were
agricultural and not predominantly for a public use, she was
“looking at the surface and the surface only.” She also found it
pertinent in her assessment that the NRD was not specifically
required by law to purchase land as the means of complying
with its legal duties.
The NRD responded that its use of the land should include
the use or nonuse of the water rights, because ownership of
the overlying land was essential to that purpose. Moreover, the
NRD’s ownership of the land brought into play important statu-
tory duties of soil conservation and range and wildlife manage-
ment, as set forth in Neb. Rev. Stat. § 2-3229 (Reissue 2012),
which were furthered by the grazing.
(i) Management Plan
Dr. Jasper Fanning, general manager of the NRD, testified
at the hearing. Fanning explained that the impetus behind the
NRD’s purchase of the parcels was to carry out the goals of
2
See Neb. Rev. Stat. § 77-5015 (Cum. Supp. 2016).
- 262 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
the NRD’s integrated management plan, which involved both
the retirement of irrigated acres to reduce use and the estab-
lishment of a well field for controlled augmentation of stream-
flow during dry periods. Fanning explained that this combina-
tion of retirement and augmentation was a more reliable tool
for ground water management than simply retiring irrigated
acres and letting the water flow naturally into the streams dur-
ing wetter periods.
The integrated management plan was directed primarily
at compliance with the Republican River Compact. Fanning
explained that the location put the NRD at the forefront of
compliance. The augmentation aspect of the plan also sought
to benefit local water users by increasing the amount of water
that could be allotted to each irrigated acre.
Fanning explained that the integrated management plan
required a sizable property, since the amount of water a prop-
erty owner can reasonably use is related to the area of overlying
land. The property would also have to have a lot of irrigation
to retire, in order to balance the supply and use. The property
had to be a certain distance from the river to be able to use the
land’s aquifer as storage for the augmentation part of the plan.
Finally, the land would have to have high-capacity wells.
(ii) Purchases and
Implementation of Plan
The NRD discovered the FEM property listed for sale on the
open market, and it was “ideal for what the district needed.”
Fanning explained that the fact that the parcels were available
in the open market “allowed us to purchase those at market
cost and not have to go out and condemn property from mul-
tiple landowners to try to put the project together.”
Before the purchase by the NRD, the FEM parcels were
being used for irrigated agriculture. By January 2013, the
FEM parcels were decertified. By the relevant taxation
period, the NRD had decertified all the FEM parcels and had
completed construction of miles of pipeline underneath the
FEM parcels.
- 263 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
Fanning explained that the ground water aquifer under the
FEM parcels acted as a storage vessel. The NRD could then
discharge that water at a creek on the adjoining landowner’s
property as needed in order to “retime natural flows to the
river from all the other upland irrigation pumping that occurs
throughout the district.” The NRD utilized wells already on
the land and formerly for irrigation to monitor the water
depth and record the impact of pumping for the augmenta-
tion project.
Fanning testified that while the NRD could conceivably
have purchased solely the right to use the water on the FEM
parcels, this would not have served its augmentation purposes.
The NRD also considered the purchase of water rights to be a
risk, since the NRD would not have the land ownership that
would justify the reasonable use needed for the integrated man-
agement plan. Moreover, the purchase price of the land from
FEM with the leaseback was less than the purchase price of
water rights alone would have been.
With regard to the leaseback provision of the purchase
agreement, Fanning explained that FEM insisted upon the
leaseback as a condition of the sale, and it reduced the pur-
chase price of the FEM parcels.
In 2013, the NRD determined that due to declining water
levels, it needed to acquire additional certified irrigated acres
in order to balance water use. This led to the purchase of
the Wilder parcels. There were no augmentation wells on
the Wilder parcels, but the retirement of the irrigated acres
adjacent to the FEM well field would allow for the infiltra-
tion of Wilder water onto the FEM parcels. This, in turn,
would allow the NRD larger use for pumping water on the
FEM property.
(iii) Soil Conservation and Range
and Wildlife Management
Fanning explained that as the owner of the land, the NRD
was required to carry out its soil conservation and other duties
set forth in § 2-3229. The soil conservation also protected the
- 264 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
water quality in that area. While the NRD purchased the prop-
erty primarily as an augmentation project, Fanning pointed out
that the NRD was a multipurpose natural resources district and
that it was “not going to turn [the properties] into wasteland
and watch it blow away.”
The NRD worked with Nebraska’s Game and Parks
Commission, which considered the acquired parcels part of the
biologically unique Sand Sage Prairie area. With a large grant
from the Nebraska Environmental Trust, the NRD reseeded the
parcels with a mix of native grasses, forbs, and sand sage to
fit that biologically unique landscape. According to Fanning, it
was one of the largest conversions of irrigated land to native
grasslands ever undertaken in Nebraska.
The NRD understood that the parcels were going to “require
significant mowing unless we want to fill every fence within
20 or 30 miles full of tumbleweeds.” The alternative to mow-
ing was grazing. Fanning described that mowing would cost
the NRD $1 to $12 an acre. In contrast, the NRD could
receive $5 or $6 an acre for the same weed control through a
lease allowing someone to seasonally graze cattle on the land.
Grazing, Fanning explained, had the additional advantage of
incorporating the seed through “hoof action.”
Three FEM parcels had improvements other than wells and
underground pipelines. Fanning testified that these improve-
ments were used primarily by the lessees for the lessees’
agricultural or commercial purposes. One parcel contained
seven grain bins and a 1-acre farmsite. One parcel contained
three mobile homes, scales and a scale house, 12 grain bins, a
garage, a livestock shed, two vertical tanks, a 1-acre farmsite,
and a 4-acre homesite. And one parcel contained an old air-
plane hangar and a 2.07-acre farmsite.
With respect to the Wilder parcels, the NRD did not retire
the certified irrigated acres and reseed with grassland dur-
ing the first year of acquisition. At the time of acquisition, it
was too late in the season to do so. Rather, the NRD deter-
mined that the best course of action for its ultimate goal of
- 265 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
planting native grasses was to plant sorghum and a ground
cover first. The NRD did not harvest the crop, but planted it
to add organic matter to the soil and to prevent soil erosion.
The NRD irrigated the sorghum, but Fanning emphasized that
this use was a reduction from the parcels’ historical, fully
irrigated use.
The NRD planted native grasses the following year, in
2014, and retired the Wilder irrigated acres. One of the Wilder
parcels contained a house, a machine shed, 10 grain bins, a
scale house, a scale, a dryer, two vertical tanks, two anhy-
drous tanks, and a 1-acre homesite. All of these improvements
were unusable. While the Wilder parcels had a lessee who
was grazing cattle on the land at the time of purchase, those
parcels were no longer leased after May 1, 2013. By the tax
levy date of October 15, 2013, none of the Wilder parcels
were leased.
(iv) Rents
Under the lease portion of the purchase agreement with
FEM, the NRD could evaluate each year how many cattle
were allowed to graze, in order to serve the NRD’s purposes
without overgrazing the property. When asked if the lease
had a base rate for grazing, based upon animal units per acre,
Fanning responded:
Yeah, we knew that the lease was going to be variable —
or the real world is going to be variable in the number of
cows that they’d be able to graze, so the lease essentially
sets out a grazing rate based on kind of what their fair
market value was at the time for grazing a cow/calf pair,
and then it’s adjusted based on the number of animals
that we determined they can actually run.
The FEM lease also established a rent of 5 cents per bushel of
all grain the lessees brought onto the property.
During the relevant tax years, after the NRD retired the
irrigated acres and the lessees were limited to grazing and
use of fixtures, the total annual income derived from the
leaseback agreement with FEM was approximately $57,000.
- 266 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
Fanning explained that by retiring the irrigated acres and
turning them into grassland, the NRD reduced the market
value of the land from “a $4,000 piece of irrigated prop-
erty . . . into something that’s worth 5- or 600 bucks.” And
Fanning pointed out that the NRD’s yearly rental income
under the lease was less than its monthly electricity bill for
the augmentation project.
(c) Posthearing Briefs
The NRD and the Board submitted posthearing briefs. The
lessees did not. In its posthearing brief, the NRD argued that
the parcels were predominantly used for the public purposes
of ground water management, compact compliance, soil ero-
sion control, and other public purposes under the NRD’s statu-
tory authority.
The Board asserted in its posthearing brief that “[t]he nar-
row question before the Commission is whether 6,640 acres
of real property owned [by the NRD] are exempt from taxa-
tion in 2013 because the property is ‘used or being developed
for use . . . for a public purpose,’” although the Board also
pointed out that the NRD had never adduced “independent”
evidence on the fair market value of the lease. The Board con-
cedes in this appeal that the “narrow question before TERC
was whether 6,640 acres of real property owned by [the NRD]
were exempt from taxation because the property is ‘used or
being developed for use . . . for a public purpose.’”3
(d) TERC’s Decision
Pursuant to 350 Neb. Admin. Code, ch. 15, § 003.07 (2009),
the TERC examined separate and distinct use portions of the
properties and divided them broadly into three groups: the
FEM parcels with improvements, the FEM parcels without
improvements (except wellheads and underground pipes), and
the Wilder parcels.
3
Brief for appellant at 5.
- 267 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
(i) FEM Parcels Without
Improvements
The TERC determined that the nine FEM parcels without
surface improvements were simultaneously used for multiple
purposes, but that, considering the factors set forth in 350
Neb. Admin. Code, ch. 15, § 003.07A (2009), the predominant
use was for public purposes. The TERC found that the cattle
grazing assisted in the NRD’s long-term and ongoing develop-
ment of a project plan for the purposes of compliance with the
Republican River Compact, management of water use, range
management, and the control of soil erosion. The TERC also
found that in order to achieve its plan, the NRD had expended
significant resources in purchasing the parcels, converting
wellheads, and planting natural grassland. The NRD received a
comparatively small $40,000 per year in grazing rental income
from the lease. At the same time, the TERC noted that the
cattle grazing under the lease supported the NRD’s primary use
by reducing costs that the NRD would otherwise have incurred
to mow the grasses. Finally, the TERC found that the NRD’s
public purpose use of the parcels was year round, while the
cattle grazing was seasonal.
Having concluded that the nine FEM parcels without
improvements were leased for a public purpose, the TERC
turned to the issue of whether they were leased at fair market
value. The TERC found sufficient evidence of fair market
value in Fanning’s testimony that the lease of the grazed acres
was based upon the fair market value of a grazing lease per
cow-calf pair. The TERC noted that there was no evidence to
the contrary.
(ii) Wilder Parcels
The TERC found that all six Wilder parcels were used
for the public purposes of soil conservation, development of
wildlife habitat, and range management. The TERC grouped
both the parcels with and the parcels without improvements
together. The TERC explained that none of the improve-
ments on the Wilder parcels—except, apparently, the irrigation
- 268 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
equipment—had any value. The improvements were unusable
and merely incidental to the NRD’s use of the parcels.
The TERC determined that the Wilder parcels should not be
considered leased property, even for 2013, because the lease
terminated before the levy date on October 15, 2013. And
under 350 Neb. Admin. Code, ch. 15, § 003.11A (2009), when
the tax status of real property owned by a public entity changes
after January 1, but before the levy date, the county assessor is
required to modify its determination of the tax status as of the
levy date. The TERC found that the planting of the sorghum
and use of the irrigation equipment to grow the sorghum were
for soil conservation and suppression of weeds until grasslands
could be planted.
(iii) FEM Parcels
With Improvements
With respect to the three FEM parcels with improvements,
the TERC concluded that the entirety of the parcel with the
airplane hangar and 2.07-acre farmsite was nonexempt and that
only those portions of the other two parcels with the improve-
ments were nonexempt.
In finding the one parcel nonexempt and portions of the two
parcels nonexempt, the TERC reasoned first that the NRD had
failed to adduce evidence that the portion of the lease associ-
ated with the use of improvements, other than wellheads or
other fixtures used to provide water for the cattle, was at fair
market value. The TERC reasoned second that the property
was not used predominantly for a public purpose.
Cattle were grazed on the remaining portions of those two
parcels. For the portions without improvements, the TERC
applied the same reasoning it applied to the FEM parcels with-
out improvements.
(iv) Responsible Party for
Nonexempt Parcels
Having concluded that one parcel was nonexempt and por-
tions of two parcels were nonexempt, the TERC believed it
- 269 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
necessary to then determine which party or parties held the
obligations to pay the tax for the nonexempt property.
Citing § 77-202.11(4), the TERC stated that a governmental
subdivision is permitted to operate as a tax collector, collect-
ing the tax on behalf of the county through monthly rental
payments, which it in turn pays to the county. But the TERC
believed the governmental subdivision was not permitted by
law to “assume the tax liability.” Citing to § 77-202.11(3), the
TERC concluded, “There is no set of circumstances under the
statute where the actual tax liability shifts to the state or its
governmental subdivisions.”
In the lease agreement, the NRD agreed to pay all prop-
erty taxes. And the TERC specifically found that the NRD
intended to exercise its authority granted by § 77-202.11(4), to
voluntarily pay any applicable tax and collect it as part of the
rent. Nevertheless, citing to § 77-202.11(1), the TERC decided
that “[r]egardless of the contract, or even in the event that the
[NRD] exercises its discretion to voluntarily pay the tax and
collect it from FEM . . . , the ultimate responsibility for the
property taxes lies with the lessee, FEM . . . .”
The TERC explained that while the NRD was allowed to
voluntarily pay the tax, but collect it from the lessee through
rents, the NRD was not permitted to assume its lessee’s prop-
erty tax liability. Otherwise, the NRD would effectively collect
taxes from all taxpayers in the district to pay for its lessee’s
tax liability.
The TERC accordingly concluded that property taxes for the
nonexempt portions of the FEM parcels with improvements
should not be assessed to the NRD. The TERC turned to the
question of whether it could assess the tax to FEM.
(v) Due Process for Lessees
The TERC concluded that FEM’s due process rights were
violated by lack of notice of the proceedings before the Board.
Though the TERC determined that no statutory notice provi-
sions were violated, it concluded that FEM was deprived of
- 270 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
participation in a contested hearing before the Board. Such
lack of participation was meaningful, the TERC concluded,
because the Board has a lower standard of review of an asses-
sor’s determination than the standard of review in the appeal
before the TERC of the Board’s decision. In the proceeding
before the Board, FEM would have had the burden to dem-
onstrate by a preponderance of the evidence that the asses-
sor was incorrect.4 In contrast, under § 77-5016(9), when the
TERC acts as an appellate body, there is a presumption that
the board of equalization acted upon sufficient competent evi-
dence, which presumption must be rebutted on appeal before
the TERC by clear and convincing evidence.5
The TERC pointed out that it was bound to exercise the
appellate standard of review set forth in § 77-5016(9), and the
TERC could identify no authority to remand the matter back to
the Board to correct the due process violation. The TERC con-
cluded that due to the due process violation, it lacked authority
to assign tax liability to FEM. The TERC also found that the
tax liabilities of FEM in relation to the nonexempt parcels or
portions of parcels were “void.”
III. ASSIGNMENTS OF ERROR
The Board timely filed a petition for review 6 by the
Nebraska Court of Appeals, and we moved the case to our
docket. The Board seeks an order reversing the TERC’s deci-
sion that (1) the unimproved FEM parcels and the Wilder
parcels were exempt, (2) portions of the improved FEM parcel
were exempt, (3) tax liability cannot be assessed to the NRD,
and (4) tax liabilities of FEM are void. The Board asks this
court to remand the cause to the TERC to assess tax liability
to the NRD or FEM.
4
See Cain v. Custer Cty. Bd. of Equal., 291 Neb. 730, 868 N.W.2d 334
(2015).
5
See id.
6
See Neb. Rev. Stat. § 77-5019 (Cum. Supp. 2016).
- 271 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
In its appellate brief, the Board assigns that the TERC
unlawfully determined that (1) certain unimproved FEM par-
cels were leased for a public purpose at fair market value
and were therefore exempt, (2) those portions of improved
FEM parcels were exempt, (3) the Wilder parcels were used
for a public purpose and exempt, (4) the property taxes of
non­exempt portions of the FEM parcels could be assessed to
neither the NRD nor FEM, (5) FEM’s due process rights were
violated, (6) the TERC lacked authority to assign the tax liabil-
ity for the nonexempt portions of the FEM parcels to FEM,
and (7) the tax liabilities of FEM were void.
The lessees assign in their brief on cross-appeal that the
TERC erred in determining that (1) it had subject matter juris-
diction to decide if any taxes could be assessed to the NRD or
assigned to the lessees, (2) the lease agreement was in conflict
with § 77-202.11, and (3) the lessees’ failure to receive direct
notice of the assessor’s determination that the property was
not exempt did not violate due process.
IV. STANDARD OF REVIEW
[1] We review TERC decisions for error appearing on the
record of the commission.7
[2] When reviewing a TERC judgment for errors appearing
on the record, the inquiry is whether the decision conforms to
the law, is supported by competent evidence, and is neither
arbitrary, capricious, nor unreasonable.8
[3] An administrative agency’s decision is arbitrary when
it is made in disregard of the facts or circumstances with-
out some basis which would lead a reasonable person to the
same conclusion; administrative agency action taken in dis-
regard of the agency’s own substantive rules is also arbitrary
and capricious.9
7
Cain v. Custer Cty. Bd. of Equal., 298 Neb. 834, 906 N.W.2d 285 (2018);
§ 77-5019(5).
8
Id.
9
See id.
- 272 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
[4] Questions of law arising during appellate review of the
TERC’s decisions are reviewed de novo.10
[5] The determination of whether the procedures afforded
to an individual comport with constitutional requirements for
procedural due process presents a question of law.11
V. ANALYSIS
In its appeal from the TERC’s decision, the Board argues
that all the parcels had a predominantly agricultural use
instead of a predominantly public use. The Board also argues
that the TERC erred in concluding the lease was at fair market
value. Both the Board and the lessees assert that the TERC
erred in concluding that the NRD cannot be assessed any
tax in these appeals and in even addressing that issue, which
the Board and the lessees assert was not properly before the
TERC. The Board and the lessees disagree whether the TERC
erred in concluding that assessing the tax to the TERC would
violate FEM’s due process rights. Neither the NRD nor the
lessees contest the TERC’s decision that one FEM parcel
and portions of two other FEM parcels with improvements
were nonexempt.
1. Scope of Questions Before TERC
As a threshold matter, we must determine what issues were
properly before the TERC, because that governs what issues
are properly presented in this appeal. The TERC was acting
as an intermediate appellate body. In an ordinary civil case, an
appellate court will not consider an issue on appeal that was
not presented to or passed upon by the trial court, because a
trial court cannot commit error in resolving an issue never
presented and submitted to it for disposition.12 Statutes govern
the scope of review by the TERC, and, as an administrative
10
Id.
11
Id.
12
See Brown v. Jacobsen Land & Cattle Co., 297 Neb. 541, 900 N.W.2d 765
(2017).
- 273 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
body, it only has that power that has been granted to it by
the Legislature.13
Section 77-5016(8) provides that “[t]he [TERC] may deter-
mine any question raised in the proceeding upon which an
order, decision, determination, or action appealed from is
based.” Additionally, under § 77-5016(8), “[t]he [TERC] may
consider all questions necessary to determine taxable value
of property as it hears an appeal or cross appeal.” Neb. Rev.
Stat. § 77-5017(1) (Cum. Supp. 2016) states that in resolving
an appeal or petition, the TERC may “make such orders as are
appropriate for resolving the dispute but in no case shall the
relief be excessive compared to the problems addressed.” Neb.
Rev. Stat. § 77-5018(1) (Cum. Supp. 2016) provides that the
TERC “may issue decisions and orders which are supported
by the evidence and appropriate for resolving the matters
in dispute.”
Accordingly, in an appeal from the TERC’s decision deny-
ing tax exempt status under § 77-202(1)(c) to an assisted liv-
ing facility, we held in Bethesda Found. v. Buffalo Cty. Bd.
of Equal.14 that only the question of whether the facility was
used for charitable purposes was before us on appeal. The
other element of exempt status under § 77-202(1)(c), i.e., that
the facility be owned by a charitable organization, was not
before us. That question was not before us because it was not
a contested issue before the Board:
Since the issue was not presented to the [board of equal-
ization], it could not be presented to TERC, and TERC
had no power to reach the issue sua sponte. The appeal
is restricted to questions raised before the [b]oard. TERC
has no authority to consider questions not raised before a
county board of equalization.15
13
Id.
14
Bethesda Found. v. Buffalo Cty. Bd. of Equal., 263 Neb. 454, 640 N.W.2d
398 (2002).
15
Id. at 458, 640 N.W.2d at 402.
- 274 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
Likewise, in several cases decided when district courts acted
as the intermediate appellate body reviewing decisions of a
county board of equalization, we held that the district court
lacked the power to consider questions that were not raised
before the county board of equalization.16 Neb. Rev. Stat.
§ 77-1511 (Reissue 1996) controlled appeals from decisions
by a county board of equalization and provided that the district
court shall hear and determine “all questions raised before the
county board of equalization.”
In Nebraska State Bar Found. v. Lancaster Cty. Bd. of
Equal.,17 we said that the parties disputing the merits of
whether the subject property was exempt under provisions
relating to state-owned property had overlooked the “impor-
tant and dispositive procedural point in [the] case.” The
important and dispositive point, we explained, was that the
issue of such exemption was not raised before the board
of equalization.18 We explained that in the application filed
with the county assessor, the issue presented was whether
the subject property fell under charitable and educational
exemptions. The discussion at the hearing before the board
of equalization likewise focused on whether the property was
owned by a charitable organization and was used for chari-
table purposes. Finally, the board’s decision disallowed the
educational and charitable exemption and did not address any
other exemption.19
16
See, Nebraska State Bar Found. v. Lancaster Cty. Bd. of Equal., 237 Neb.
1, 465 N.W.2d 111 (1991); Gordman Properties Co. v. Board of Equal.,
225 Neb. 169, 403 N.W.2d 366 (1987); Reichenbach Land & Loan Co. v.
Butler County, 105 Neb. 209, 179 N.W. 1015 (1920); Reimers v. Merrick
County, 82 Neb. 639, 118 N.W. 113 (1908); Arcadian Fertilizer v. Sarpy
Cty. Bd. of Equal., 7 Neb. Ct. App. 499, 583 N.W.2d 353 (1998).
17
Nebraska State Bar Found. v. Lancaster Cty. Bd. of Equal., supra note 16,
237 Neb. at 19, 465 N.W.2d at 122.
18
See id.
19
See id.
- 275 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
We described the statutory limitation of the scope of the
appeal from a county board of equalization as jurisdictional.20
We said that where there was no jurisdiction at the intermedi-
ate appellate tribunal to consider an issue, we likewise lacked
the power to adjudicate its merits.21 We also pointed out that
in Reichenbach Land & Loan Co. v. Butler County,22 we had
described that it is the public policy of the state that the county
board of equalization should have an opportunity to pass on
the question for ultimate decision before the public revenues
become involved in protracted or vexatious litigation.
[6] Section 77-5016(8) provides that for questions other than
taxable value, the TERC’s power is limited to questions that
are both (1) raised in the proceeding before the TERC and (2) a
basis for the order, decision, determination, or action appealed
from. Thus, in this case, the TERC lacked the power to address
questions that were not raised in the proceeding before the
TERC or that were not questions upon which the Board’s deci-
sion was based. When the TERC addresses questions outside
the scope of its limited statutory authority, its decision in that
respect must be vacated.
This case began when the assessor gave the NRD notice
that she had determined the parcels were taxable because they
were not being used for a public purpose. Though it may be the
burden on the party seeking the exemption to prove tax exempt
status, the assessor initially frames the issues that the party
seeking the exemption must respond to. More importantly, the
parties raised before the Board solely the question of whether
the parcels were being used for a public purpose. And the
Board determined they were not being used for a public pur-
pose, without addressing any other issue. The assessment by
the Board was against the NRD.
20
See id.
21
See id.
22
Reichenbach Land & Loan Co. v. Butler County, supra note 16. See
Nebraska State Bar Found. v. Lancaster Cty. Bd. of Equal., supra note 16.
- 276 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
Finally, on appeal to the TERC, the only issue raised by the
parties was whether the parcels were being used for a public
purpose. Indeed, the Board expressly stated that the only issue
presented was whether the land was being used for a public
purpose. The NRD did not contest its liability for the taxes
in the event the TERC determined the parcels were not being
used for a public purpose. And the Board did not argue as an
alternative ground to affirm the nonexempt determination that
the lease was not for fair market value.
In deciding whether to affirm or reverse the Board’s deci-
sion, the TERC erred in considering questions beyond whether
the parcels were being used for a public purpose. Not only
was it unfair for the TERC to decide issues that the parties
had no notice were being litigated; doing so was outside of
the TERC’s appellate jurisdiction as set forth by § 77-5016(8).
The TERC also violated the mandate of § 77-5017(1) that it
shall in no case provide relief excessive compared to the prob-
lems addressed.
[7,8] Though the parties dispute only the TERC’s power to
decide the issue of whether the NRD could be assessed any
tax for nonexempt property, we find plain error in the TERC’s
consideration of the fair market value of the lease. An appellate
court ordinarily considers only those errors assigned and dis-
cussed in the briefs, but may notice plain error.23 Plain error is
error plainly evident from the record and of such a nature that
to leave it uncorrected would result in damage to the integrity,
reputation, or fairness of the judicial process.24
Neither the issue of assessment to the NRD nor the issue
of fair market value was the basis for the Board’s order. And,
as discussed, § 77-5016(8) limits the TERC’s review to ques-
tions upon which the Board’s decision was based. Furthermore,
neither the issue of assessment to the NRD nor the issue of
fair market value was an issue raised in the proceeding before
23
See Cain v. Custer Cty. Bd. of Equal., supra note 4.
24
Id.
- 277 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
the TERC. And § 77-5016(8) also limits the jurisdiction of the
TERC to the questions raised before it.
Thus, we vacate the TERC’s decision inasmuch as it
addressed whether the parcels were leased at fair market value,
whether the NRD could be assessed the tax on the one FEM
parcel and the portions of the two FEM parcels it found non-
exempt, and whether to assess this tax to the lessees would
violate due process.
Without deciding the merits, we reverse that portion of the
TERC’s decision concerning FEM’s due process rights. The
lessees’ due process rights in this case were only potentially
affected when the TERC elected to declare sua sponte any
assessment against the NRD void, and we have vacated that
portion of the TERC’s decision.
We affirm the TERC’s decision that one FEM parcel is non-
exempt and that portions of two other FEM parcels are non­
exempt, to the extent that the TERC reasoned the land was not
being used for a public purpose. The nonexempt status of such
property is not assigned as error, and we find no plain error
in the TERC’s conclusion that the property was nonexempt
for the alternative reason that it was not being used predomi-
nantly for a public purpose.
Because the TERC lacked the statutory authority to decide
in this case that it was improper to assess tax liability to the
NRD, it should have simply affirmed the assessment against
the NRD as to any property it affirmed to be nonexempt. We
therefore reverse, and remand with directions for the TERC to
affirm the Board’s order as to the parcel and portions of parcels
it found nonexempt.
The only issue remaining in this appeal is whether the TERC
was correct that the parcels it found to be exempt were being
used for a public purpose.
2. Use for Public Purpose
The Nebraska Constitution, article VIII, § 2, provides that
the property of the state and its governmental subdivisions
is exempt from taxation to the extent the property is used for
- 278 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
a public purpose. This has been codified in § 77-202(1)(a),
which states in part that “[p]roperty of the state and its gov-
ernmental subdivisions [shall be exempt from property taxes]
to the extent used or being developed for use by the state or
governmental subdivision for a public purpose.”
Section 77-202(1)(a)(ii)(B) then defines public purpose in
relevant part as use of the property “to carry out the duties
and responsibilities conferred by law with or without con-
sideration.” Section 77-202(1)(a)(ii) also states in part that
“[p]ublic purpose does not include leasing of property to a
private party unless the lease of the property is at fair market
value for a public purpose.”
Under 350 Neb. Admin. Code, ch. 15, § 002.01 (2009),
“[p]ublic purpose does not include the leasing of property to
a private party for purposes other than a public purpose,” and
that regulation elaborates that “[i]ncome generated for the state
or governmental subdivision, either through leases or other
receipts, will not convert a nonpublic use of a property to a
tax exempt public purpose use.” Agency regulations, properly
adopted and filed with the Nebraska Secretary of State, have
the effect of statutory law.25
We have held that the primary or dominant use of the prop-
erty, and not an incidental use, is controlling in determining
whether property is exempt from taxation.26 Likewise, 350
Neb. Admin. Code, ch. 15, § 003.06 (2009), explains: “When
the assessor or county board of equalization determines the
use of property pursuant to this regulation, the dominant or
primary use of property shall be considered, such that any
incidental use for other purposes shall not effect the tax status
of the property.” Similarly, § 003.07 provides in relevant part:
“When a parcel of governmentally owned property is used for
several purposes simultaneously, the determination of taxable
25
City of Omaha v. Kum & Go, 263 Neb. 724, 642 N.W.2d 154 (2002).
26
City of York v. York Cty. Bd. of Equal., 266 Neb. 305, 664 N.W.2d 452
(2003).
- 279 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
status should be based on the predominant use of the prop-
erty. The predominant use of the property is the primary or
dominant use.”
Finally, § 003.07A states that in the analysis of mixed use
parcels, a number of factors may be considered in determin-
ing the predominant use, including whether (1) “the use of the
property assists the government entity in meeting a long term
or ongoing purpose,” (2) “the governmental entity has spent
significant money in making the property ready for its public
purpose use in comparison with any revenue generated by its
nonpublic use,” and (3) “the public purpose use is ongoing
throughout the year as opposed to the seasonal nature of its
nonpublic use.”
Generally, statutes exempting property from taxation should
be strictly construed, and one contending that property is
exempt must clearly show that it is within the exemption pro-
vided by statute.27 This does not mean, however, that there
should not be a liberal construction of the language used in
order to carry out the expressed intention of the Legislature,
but, rather, that the property which is claimed to be exempt
must come clearly within the provisions granting such exemp-
tion.28 Also, we must apply the plain language of the statutes
when they are unambiguous.29
The policy behind limiting exempt status to leases utilized
for public purposes is a balance of interests. On the one hand,
the public should not have to subsidize a private party’s prof-
itmaking use at an unfair competitive advantage because the
public entity can offer the tax exempt land at a lower rate.30
27
See Berean Fundamental Church Council, Inc. v. Board of Equalization,
186 Neb. 431, 183 N.W.2d 750 (1971).
28
See Doane College v. County of Saline, 173 Neb. 8, 112 N.W.2d 248
(1961).
29
See Pfizer v. Lancaster Cty. Bd. of Equal., 260 Neb. 265, 616 N.W.2d 326
(2000).
30
See Annot., 54 A.L.R. 3d 402, § 3 (1973).
- 280 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
Furthermore, if the leased property were exempt without
limitation to leases for a public use, exempt entities would be
tempted to acquire and rent property for the sole purpose of
generating income, thereby acquiring revenues in excess of
those permitted through legal taxation.31
On the other hand, if a lease to a private party is for a pub-
lic purpose other than simply creating revenue, taxation of the
leased property would not inure to any public advantage, since
the tax debtor would also be the tax creditor.32 The exemption
from taxation of public property used for a public purpose
avoids the burden of collecting tax revenues from, and disburs-
ing them to, the same public entity.33
Courts addressing similar constitutional and statutory
schemes generally hold that a lease is for a public purpose
when it procures performance of the exempt function for
which the owner would or might have used the property if
not leased, regardless of whether private interests of the les-
see are also served by such use.34 Two cases from other juris-
dictions have specifically addressed use by a lessee of land
acquired for the public purpose use of its aquifer or to prevent
soil erosion.
In Whitehouse v. Tracy,35 the court found that a lease to a
farmer for his own profit was exclusively for a public pur-
pose. The land was owned by the local government in order to
31
See Pbgh. Sch. Dist. v. Allegheny County, Aplnt., 347 Pa. 101, 31 A.2d 707
(1943).
32
See Cleveland v. Carney, 172 Ohio St. 189, 174 N.E.2d 254 (1961).
33
See id.
34
See, e.g., First Unitarian Soc. v. Hartford, 66 Conn. 368, 34 A. 89 (1895);
Central Baptist Church of Miami, Fla. v. Dade County, 216 So. 2d 4 (Fla.
1968); People ex rel. Korzen v. Amer. Airlines, 39 Ill. 2d 11, 233 N.E.2d
568 (1967); Adams Co. v. Diocese of Natchez, 110 Miss. 890, 71 So. 17
(1916); Davis v. Congregation Agudas Achim, 456 S.W.2d 459 (Tex. Civ.
App. 1970); Hanover County v. Trustees, 203 Va. 613, 125 S.E.2d 812
(1962); State v. Kittle et al., 87 W. Va. 526, 105 S.E. 775 (1921).
35
Whitehouse v. Tracy, 72 Ohio St. 3d 178, 648 N.E.2d 503 (1995).
- 281 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
utilize the ground water underneath the surface, in a well field
that pumped water to the village residents.36 The government
was renting the surface of the land to the farmer for the sole
purpose of saving mowing and maintenance expenses that it
would otherwise incur under its general obligations as owner
of the property.37 The court held that the private use was suf-
ficiently incidental to the public purpose of the property.38
Although the court found it significant that there was no lease,
and that the government maintained full control over the prop-
erty, the statutory scheme apparently lacked applicable provi-
sions specifically for leased property.39
In City of Osceola v. Board,40 land adjoining an artificial
lake constituting part of a city’s waterworks was acquired as a
watershed to prevent soil wash from filling the lake. The land
was withdrawn from cultivation and seeded with grass. The
city leased the land to a private entity for pasture. The court
found that despite this fact, the land was exempt as devoted
entirely to public use and not for profit.41 The court explained
that the grass needed to be either cut or pastured in order to
properly maintain it. The city’s rental for pasturing, the court
explained, was simply an economical way of meeting the city’s
maintenance obligations for the grassland.42
The following three Nebraska cases involving the city of
York and the York County Board of Equalization are also rel-
evant to the case at bar. We held in each of these cases that
leased public property was used for a public purpose and there-
fore was tax exempt. In each case, the property was leased to
a private party who utilized the surface for his or her private
36
See id.
37
See id.
38
See id.
39
See id.
40
City of Osceola v. Board, 188 Iowa 278, 176 N.W. 284 (1920).
41
See id.
42
See id.
- 282 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
agricultural operations. We held in each case that such surface
agricultural use was merely incidental to predominant public
purposes of the property.
City of York v. York Cty. Bd. of Equal.43 (York I) involved city-
owned land required by the Federal Aviation Administration
to be a buffer zone around an airport. That federal agency
also had applicable regulations regarding erosion control. To
maintain the land as a buffer zone and to control erosion, the
city could either seed and maintain the land on its own or
lease the land for agricultural use. The city elected to lease
the land, since that was a more economical means of carrying
out its duties of maintaining the land and weed control. The
revenue from the lease was used to support the airport’s oper-
ating expenses.44
The TERC had found the property to be nonexempt on the
ground that the lessees were using the land for private pur-
poses and in direct competition with other agricultural lessees
not so fortunate as to be leasing public lands. We reversed,
stating in York I that the TERC erred on the legal question
of whether the lease served a public purpose, which question
we reviewed de novo on the record. We held that the lessee’s
agricultural use was incidental to the primary public purposes
of maintaining the area as a buffer zone and ensuring that the
buffer zone was properly maintained.45
In City of York v. York County Bd. of Equal.46 (York II), lots
were acquired by the city for the purpose of resale as part of
an industrial park meant to attract industry to the community.
The lots were being leased for agricultural use until appro-
priate buyers could be found.47 The agricultural lease was
43
City of York v. York Cty. Bd. of Equal., 266 Neb. 297, 664 N.W.2d 445
(2003).
44
See id.
45
See id.
46
York, supra note 26.
47
See id.
- 283 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
s­ubject to the sale of the property for industrial use, though
no resale was imminent.48
We held in York II that the primary use of the lots was for
a public purpose and that the agricultural use by the lessee
was incidental. We noted that the industrial park was part of
a comprehensive plan for community development. We also
considered the fact that the revenue from the lease, $100 per
acre, was small in proportion to the investment of the city of
$13,500 per acre to improve the lots for industrial use.
Lastly, in City of York v. York County Bd. of Equal.49
(York III), we held that 44 acres acquired as part of the local
solid waste agency’s long-term waste management and water
monitoring planning were for public use, despite the agency’s
lease of the surface for the lessee’s agricultural operations.
The property was located adjacent to a landfill, and the agency
contemplated it would need to use soil from the land in
approximately 30 years. But the more immediate reason for
the acquisition of the property was for water monitoring. Three
wells placed on the land for such purpose were located along
the property line.50
We concluded in York III that the use of the property by
the lessee as irrigated cropland was merely incidental to the
public purposes of waste management and water monitor-
ing. We observed that long-term planning was necessary to
ensure adequate capacity. We also observed that the income
of $135 per acre from the lease was small compared to the
$216,191 that the agency paid to acquire the land. We said
that “[t]he fact that the [local agency] derives income from
the leased property does not change its primary purpose.”51
48
See id.
49
City of York v. York Cty. Bd. of Equal., 266 Neb. 311, 664 N.W.2d 456
(2003).
50
See id.
51
Id. at 316, 664 N.W.2d at 460.
- 284 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
We concluded that the TERC’s decision that the land was used
primarily for nonpublic, agricultural purposes did not conform
to the law.52
[9] We reject any assertion by the Board that the public use
to be considered in determining the predominant use of the
property is limited to one purpose for which the property was
primarily acquired, to the exclusion of other public purposes
incident to ownership of property. Public purpose is defined
in relevant part as carrying out the duties and responsibilities
conferred by law.53 As this language indicates, and York III
illustrates, those duties and responsibilities are, or the usage
to carry out those duties and responsibilities is, not necessar-
ily singular. It would be illogical to read the statutory scheme
as making property taxable when it serves several public pur-
poses, but tax exempt when it serves only one. Property can
be used by a public entity in more than one way and for more
than one public purpose, and all public purpose uses should
be considered together in evaluating whether any private use
of the property is merely incidental in the analysis under
§ 77-202(1)(a) of the extent to which the property is used or
being developed for use for a public purpose.
As for the Board’s focus on the reason for acquisition, noth-
ing in the statutory scheme indicates that the relevant public
purpose use must be tied to the reason for acquisition. It would
be contrary to public policy to discourage public uses that were
not contemplated at the time of purchase. Presumably, a public
entity ought to use exempt, publicly owned land for as much
public benefit as possible.
We also find no merit to any contention by the Board
that the lessees’ uses on the surface are the only activities
considered in the analysis of whether the leased property is
tax exempt as predominantly used for a public purpose. In
52
See York III, supra note 49.
53
See § 77-202(1)(a)(ii)(B).
- 285 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
York III, we found the property exempt where the lessee was a
farmer who cultivated the surface of the property, even though
the only public purpose uses were of the property’s under-
ground wells and its development for future use of the soil (to
a significant depth).
We find no reason to treat underground uses—in this case
the use of the aquifer, wells, and pipeline system—differently
from any other use of the property. As the NRD points out, use
of the ground water is a derivative right immediately depen-
dent on ownership of the surface over it.54 We have thus held
in other contexts that the ground water is part of the “prop-
erty” at issue under the exemption statutes.55 The right to use
the ground water “does not float in a vacuum of abstraction
but exists only in reference to and results from ownership of
the overlying land.”56 We have thus said, “[I]t is clear that the
right to use ground water is an attribute of owning fee simple
title to land overlying a source of ground water and is insepa-
rable from the land to which it applies.”57
Accordingly, in our analysis of the public purposes for
which the subject property was used, we give weight to the
NRD’s continual use of the underground aquifer, pipelines, and
wells, to carry out the NRD’s statutory duties of water manage-
ment. The duties and responsibilities of the NRD are set forth
in § 2-3229, which specifically describes programs to control
water supply and conservation.
We held in Estermann v. Bose,58 in the context of condem-
nation, that an easement sought by a joint water manage-
ment entity to comply with the Republican River Compact by
54
See Sorensen v. Lower Niobrara Nat. Resources Dist., 221 Neb. 180, 376
N.W.2d 539 (1985).
55
Id. at 191, 376 N.W.2d at 548.
56
Id. at 191, 376 N.W.2d at 547.
57
Id. at 191, 376 N.W.2d at 548.
58
Estermann v. Bose, 296 Neb. 228, 892 N.W.2d 857 (2017).
- 286 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
augmenting waterflows to a creek and offsetting surface water
depletions was for a public purpose. And we said that use of
the surface by private irrigators was merely incidental to the
overriding public purpose of the project. In evaluating the pre-
dominance of the augmentation use in the public purpose anal-
ysis, we observed that the failure to comply with the compact
could expose the state of Nebraska to significant liability.59
Likewise here, the water management use of the property is
significant not only in its physical scope, but also in its benefit
to the public.
But that is not the only public use of the property. We fur-
ther consider in our predominant use analysis the fact that the
NRD implemented a plan on the property for the large-scale
reseeding of the Sand Sage Prairie area. This is also encom-
passed by the duties and responsibilities conferred by law
upon the NRD. Described in § 2-3229 is the NRD’s purpose to
develop and execute programs of soil erosion prevention and
control, soil conservation, development and management of
fish and wildlife habitat, and range management.
The NRD developed and continuously maintains the ecolog-
ically unique surface prairie as part of its public purposes set
forth in § 2-3229. As steward of this prairie, the NRD has an
ongoing responsibility to control weeds that could destroy the
public’s investment in this biologically diverse landscape. As
steward of the property, the NRD also has a responsibility to
prevent the nuisance for the community that would result from
a failure to control weeds. The lessees’ grazing of the prairie
performs, in a more economical way, an exempt function that
the NRD would otherwise have to perform itself. We agree
with the TERC that the lessees’ activities are “for a public pur-
pose,” as required by § 77-202(1)(a)(ii).
While the lessees also serve their own interests through the
grazing lease and grain storage, the evidence demonstrates
59
See id.
- 287 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
that these private purposes are merely incidental to the impor-
tant public purposes for which the NRD uses the property.
Besides the predominance of public uses already described,
relevant to this conclusion—as described in York II, York III,
and § 003.07A—is the comparatively minor income from the
lease in relation to the multimillion-dollar investment in the
property’s acquisition and conversion to its current public uses.
The evidence was undisputed that the lease income was minor
even in comparison to the ongoing operations costs of the aug-
mentation project.
The NRD is not making a profit from the lease and thereby
acquiring revenues in excess of those permitted through legal
taxation. Also, we observe that under the factors weighing
in favor of exempt status set forth in § 003.07A, the NRD’s
public purpose uses are ongoing throughout the year, while the
grazing is seasonal.
For all the foregoing reasons, we affirm, in our de novo
review of the record,60 the decision of the TERC insofar as
it concluded property was exempt because it was predomi-
nantly used for a public purpose. We agree with the TERC
that the property was used for the public purposes of water
management and the development and maintenance of the
prairie. We also agree that these uses were the predominant
use of the property. The sorghum cover crop on the Wilder
property in 2013 and the lessees’ grazing activities served the
public purposes associated with the prairie project. Any pri-
vate use by the lessees is incidental to the public purposes of
the property.
VI. CONCLUSION
We affirm the TERC’s determination that the Wilder par-
cels, 10 FEM parcels, and portions of two FEM parcels were
used for a public purpose and therefore exempt. We vacate
60
See Harold Warp Pioneer Village Found. v. Ewald, 287 Neb. 19, 844
N.W.2d 245 (2013).
- 288 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
UPPER REPUBLICAN NRD v. DUNDY CTY. BD. OF EQUAL.
Cite as 300 Neb. 256
those parts of the TERC’s opinion addressing issues other than
whether the property was used for a public purpose. We reverse
the TERC’s decision and remand the cause with directions for
the TERC to affirm the Board’s tax assessment to the NRD of
the property that the TERC found nonexempt.
A ffirmed in part, vacated in part, and in part
reversed and remanded with directions.
Funke, J., participating on briefs.
Wright, J., not participating.
Cassel, J., concurring.
I fully understand the social impact to Dundy County and its
citizens of exempting at least 6,640 acres from the property tax
rolls. The county’s land area comprises only 920 square miles.1
Thus, of approximately 588,800 acres, the decision removes
over 1 percent from the tax roll. Taxes are lost that would have
funded school districts and other local needs. Effectively, this
compels the remaining property taxpayers to pay more. And
other projects for Republican River Compact compliance may
be looming to imperil even more of the area’s tax base.
I join the court’s decision, because I believe it faithfully
follows existing law. Perhaps another provision of current law,
not invoked by the parties before us, is available to address
this problem. But only the Legislature is empowered to deter-
mine whether current law is adequate or whether the law
should be changed to balance the competing public interests
differently.
1
Nebraska Blue Book 2016‑17 at 843.