Transportation user fee assessed to landowners found to be a prohibited excise tax

by Andrea Vaage

Heartland Apartment Association v. City of Mission, Kansas
Kansas Court of Appeals, July 2, 2015

In 2010, the City of Mission, Kansas enacted a transportation user fee on all improved real estate. The fee was to be used for street maintenance and repair. The fee was imposed on owners of developed property and calculated based on an estimate of vehicle trips generated by the size and use of a building. Only real property exempt from property or ad valorem taxes, such as churches, were exempt from paying the fee. If the fee was not paid, additional fees and interest would be assessed and a lien could be placed on the property.

Heartland Apartment Association, Inc. and others filed a lawsuit challenging the legality of the fee. The district court ruled in favor of the City on all counts, declaring the fee was a tax that was legally adopted by ordinance under the City’s power of home rule. Heartland appealed, contending the fee was an illegal excise tax.  The issue at hand was whether Mission’s fee is really a tax, and, if it is a tax, if it is one that can be legally levied by a municipality under Kansas law.

The Kansas Court of Appeals first noted that the distinction between a fee and a tax is not determined by the label given it, but rather the nature and function of the charge.

[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.

Using this principle, the Court determined the City’s “fee” to be, in reality, a tax.  Every landowner must pay the fee when they pay property taxes; no landowner can opt out of the fee unless they are exempt entities from property taxes. Failure to pay the fee may result in a lien, potentially leading to a sheriff’s sale of the property. Thus this fee is a “forced contribution.”

Furthermore, the landowners required to pay the fee do not receive special benefits or services. Transportation infrastructure is a common good provided to all members of the general public, such as police and fire protection, and is enjoyed by landowner and non-landowner alike.

Having determined that the fee was a tax, the Court then examined whether it was a tax that the City had the authority to levy.  The Home Rule Amendment of the Kansas Constitution grants cities the power to determine their local affairs and government.  Under the Home Rule Amendment cities are allowed to exempt themselves from a state statute by adopting either an ordinary or charter ordinance; however, there are limits to this opting-out process.   Cities are prohibited from opting out of (1) enactments of statewide concern which are uniformly applicable to all cities; (2) other legislative enactments uniformly applicable to all cities; (3) enactments uniformly applicable to all cities of the same class that limit or prohibit “the levying of any tax, excise, fee, charge or other exaction”; and (4) legislative enactments prescribing limits of indebtedness.

Under Kansas law, K.S.A. 12-194, cities cannot levy or impose an excise tax or a tax in the nature of an excise tax. This law applies uniformly to all cities, but no definition is given for “excise tax” or “in the nature of an excise tax.” After reviewing the legislative intent of K.S.A. 12-194 the Court concluded that “the legislature has enlarged what taxes are prohibited to such an extent that this tax can be no other tax than an excise tax and is thus prohibited by law.”  The Court based their decision on a change of the statute in 2006 that removed language limiting the prohibited taxes to those imposed on transactions.  The result was that the term “excise tax” has come to mean “practically any tax which is not an ad valorem tax.”  The Court found the transportation user “fee” enacted by the City of Mission was an excise tax, and as such was prohibited by law.

The case was reversed and remanded.

Business growth is a self-created hardship for variance purposes

by Kaitlin Heinen

Larry Hacker et al. v. Sedgwick County, Kansas Board of Zoning Appeals
(Kansas Court of Appeals, September 14, 2012)

Norman and Leatha Hein have operated a lawn care business from their rural home for 30 years. Their property is zoned as RR Rural Residential. In 2010, the Heins filed a petition with the Sedgwick County, Kansas Board of Zoning Appeals for three variances: “(1) to allow up to 20 employees with no more than 15 on site in excess of 1 hour per day; (2) to allow the use for business purposes of existing outbuildings with a combined floor area exceeding 3,000 square feet; and (3) to allow outdoor storage closer to the street than the buildings used for the business and closer than 200 feet from property lines.” The Heins alleged that these variances were necessary because they had acquired additional customers. Also, more equipment was stored at their property, and the new variances would allow the employees to perform necessary equipment maintenance on the property, especially during inclimate weather.

In October of 2010, the Board held a meeting at which the Heins’ petition was considered. The Board looked at the five criteria under K.S.A 12-759(e)(1) that must be met before the Board can grant a variance as well as the Board staff’s report, which recommended that only two of the three variance be granted under certain conditions. At this meeting, Norman Hein explained that the first variance was necessary to allow six drivers to transport lawn care equipment instead of the four needed in the past. It would also allow employees to gather at the property and share rides with each other to the job sites and account for the need to perform equipment maintenance on the property.

Several neighbors and customers spoke in support of the Heins’ petition at the meeting.  The exceptions were Richard Gronniger and Terry and Larry Hacker.  Gronniger owned property south of the Heins’, and Hacker operated Kansas Paving (a sand pit) on Gronniger’s property. Kansas Paving was paying for maintenance of the road (~$15,000 per year) that separates Gronniger’s and the Heins’ properties in accordance with the conditional use permit given to operate the sand pit. Gronniger and Hacker argued that the Heins should also be required to apply for a conditional use permit and contribute to road maintenance costs.

The Board initially found that all five criteria under K.S.A. 12-759(e)(1) had been met for each variance and granted all three for the Heins.  Larry Hacker, Terry Hacker, Richard Gronniger, and Kansas Paving filed a petition in the district court challenging the reasonableness of the Board’s decision. After the district court twice reversed the Board’s decision, the Board appealed to the Kansas Court of Appeals, arguing that the plaintiffs lacked standing to appeal the Board’s decision, and so the district court, by extension, lacked jurisdiction to rule on the matter. The Board also argued that there was substantial evidence to support its finding of a hardship that was not self-created by the Heins in accordance with 12-759(e)(1)(C).

The Board argued that the plaintiffs’ only way to appeal its decision was under K.S.A. 12-759(f), which allows appeals from any person “dissatisfied with” a board of zoning appeal’s decision. The Board urged that the district court interpret the phrase “dissatisfied with” so as to give standing only to the original parties of a board’s proceedings, which is a smaller class of persons than those who may be “aggrieved by” a board’s decision under K.S.A. 12-760. The Board also argued that the plaintiffs did not have a particularized interest affected by its decision. To the contrary, the plaintiffs argued that they can appeal under both K.S.A. 12-759(f) and K.S.A. 12-760. The plaintiffs alleged that the Board’s above interpretation would prevent neighbors from appealing a board’s decisions that adversely affect their interests. The plaintiffs also held that they have a particularized interest in the increased traffic on and the increased maintenance costs of the road in question.

The Kansas Court of Appeals addressed the two relevant statutes at issue in this case: K.S.A. 12-759(f) and K.S.A. 12-760. The court held that a specific statute will control over a general statute. Since K.S.A. 12-759(f) applies only to decisions made by a board of zoning appeals, it is more specific than K.S.A. 12-760, which applies to multiple kinds of boards. Even so, the court ruled that the test for “dissatisfied with” in K.S.A. 12-759(f) should be considered the same as the test for “aggrieved by” in K.S.A. 12-760. The Kansas Court of Appeals cited its former decision in Tri-County Concerned Citizens, Inc. v. Board of Harper County Comm’rs that found that the plaintiffs had standing under K.S.A. 12-760 because the plaintiffs would suffer a pecuniary loss as a result of the county’s decision to allow a waste disposal company to build a new landfill nearby. Applying this decision to the current case, the court ruled that the Hackers, Gronniger, and Kansas Paving had a substantial grievance and a pecuniary interest in the effects of the Board’s decision, granting them standing under K.S.A. 12-759(f).

The Kansas Court of Appeals stated that under K.S.A. 12-759(e)(1), a board of zoning appeals is authorized to grant a variance only if all five statutory criteria are met. The only criterion at issue was the finding of an unnecessary hardship. In the past, the Kansas courts have held as a general rule that a variance may not be granted to relieve a self-created hardship. The Board argued that an unnecessary hardship may be found where hardship is imposed by self-created business growth. The plaintiffs argued that it cannot.  Citing four different cases as precedent, the Kansas Court of Appeals found that there was no indication that the Heins would lose their business without the variances; the business would simply be less profitable. Considering this, self-created business growth is not an exception to the general rule that an unnecessary hardship may not be self-created.

The Kansas Court of Appeals concluded that the district court rightly found that the Board acted outside its scope of authority in granting the variances. The Heins expanded their business with full knowledge of the zoning regulations under which they were operating. Because the Board’s findings were not supported by substantial evidence, the district court’s rule to vacate the variances granted by the Board was affirmed.

Consideration of photos only on remand, without testimony or arguments, did not violate due process

by Victoria Heldt

Russell Leffel and Paula Leffel v. City of Mission Hills, City of Mission Hills Board of Zoning Appeals
(Kansas Court of Appeals, February 6, 2012)

This appeal was submitted subsequent to a remand by the same Court.   The Leffels applied for a permit in July 2006 to construct a home on an empty lot they own in the City of Mission Hills.  The city’s architectural review board (ARB) initially approved the construction plans, but the City of Mission Hills Board of Zoning Appeals (BZA) reversed the approval.  On appeal by the Leffels, the trial court found that the BZA’s reliance on public opinion amounted to an impermissible plebiscite (i.e., that it amounted to a decision reached through direct vote of the public, rather than a decision by the BZA).  It also found the BZA’s comparison of the proposed structure to surrounding structures was unreasonable, and also that the BZA conducted an improper de novo review of the ARB’s decision.  Then on the city’s appeal of the trial court’s decision, this Court of Appeals affirmed the trial court’s decision regarding the plebiscite, but rejected the court’s other grounds for reversing the BZA’s decision.  It reversed the ruling in part and remanded the case to the trial court for it to be remanded to the BZA.

On remand, the BZA discussed the possible procedures to be undertaken on reconsideration of the proposal.  The BZA’s counsel recommended only a review of the record with no new evidence submitted.  Doug McKenna, the Leffel’s counsel, objected to that and requested an opportunity to submit new evidence.  The BZA’s chairman, Tom Roszak, expressed a desire to receive input from the ARB regarding the proposal’s conformance in style and size to surrounding structures.  It defined “surrounding structures” to be an area extending 500 feet from the proposal site.  The rest of the Board agreed and the matter was sent to the ARB for further review.

The ARB received 75 photos by city staff members of the homes within a 500 foot radius and asked each board member to review them for a quasi-judicial deliberative session in June 2009.  No arguments, testimonies, or evidence would be accepted except for the 75 photographs and board members’ personal observation of the area.  In July 2009 the ARB voted that the proposal did not conform to surrounding structures and passed this recommendation to the BZA.  The BZA affirmed its previous denial of the Leffel’s building application.  The Leffels appealed, but the trial court affirmed the BZA.  Leffels then appealed once again to the Court of Appeals.

On second appeal, the Court of Appeals looked at whether the BZA’s decision to affirm the denial of the Leffel’s permit was lawful and reasonable.   The Leffel’s first major argument was that the Court should not give deference to the BZA’s decision because it was not reasonable.  The BZA applied a standard of “good faith and fair play” rather than reasonableness when making the decision.  The Court dismissed this claim because it found “no principled reason to believe that a presumption of reasonableness does not encompass a presumption that the government officials acted fairly with good faith.”  It noted that the error in language was harmless because the Court conducts an independent review of the BZA’s conduct.  The Leffels next argued against giving deference to the BZA because the BZA’s initial decision was ruled illegal by the trial court in the first appeal, so the BZA lost its presumption of reasonableness.  The Court dismissed this claim because to so hold would contradict the limited role court’s have in zoning decisions.  It cited previous Kansas caselaw which warned the Court against substituting its decisions for those of public officials in regards to zoning matters.  The Leffels further argued that because the case was presented to the BZA in documents only that the court was in as good a position as the BZA to rule on the matter.  The Court rejected that claim, pointing out that most zoning decisions are made strictly on documentary evidence.

The Leffel’s second major claim was that the BZA decision did not comply with the Court of Appeals’ orders on remand in two ways.  First, the Leffels believed that the BZA took a “new look” at the case rather than reconsider it.  The Court began its analysis by noting that, absent specific instructions, a trial court has discretion in how to implement a remand.  The same goes for the BZA in this case since it was given the duty of reconsideration.  The Leffels took issue with the fact that the ARB accepted new photographs of the surrounding area.  The Court found it to be in compliance with the remand because one of the factors the BZA used to reverse the ARB’s recommendation was that it had improperly considered the proposal’s conformity with the surrounding structures.  Consequently, it was consistent with the remand to reconsider the conformance to surrounding structures.  Additionally, the Leffel’s counsel explicitly requested the BZA to send the case back to the ARB for reconsideration during the hearing.

Next the Leffels argued that the BZA failed to comply with the Court’s mandate by not addressing the extent to which the impermissible plebiscite affected its decision.  The Court clarified that it did not ask the BZA to determine the effect of the plebiscite, but rather asked it to reconsider its opinion without it.  The BZA did this when it (and the ARB) disregarded  public opinion regarding the proposal and reconsidered the matter based on the proposed home’s conformance to surrounding structures, without listening to arguments, or taking testimony or other evidence.

The Leffel’s third and final claim contended that the reconsideration process violated due process.  The Court found that this argument was poorly constructed and that the Leffels failed to show how their due process rights were violated.  They tried to argue that the submission of the 75 photographs was new evidence that the Leffels were not given due opportunity to challenge or respond to.  The Court ruled that it was not new evidence, only reconsideration with a redefinition of scope.  Any effects of the photographs were neutralized by the fact that each ARB board member personally visited the site uninfluenced by either party.  The remainder of the Leffel’s arguments were poorly articulated and the Court dismissed them.  The Court affirmed the trial court’s decision.

Kansas Court of Appeals strikes down municipal nuisance ordinance

by Gary Taylor

City of Lincoln Center v. Farmway Co-op
(Kansas Court of Appeals, April 12, 2012)

Farmway owns and operates a grain elevator located within the City of Lincoln Center, a small rural farming community in central Kansas. The neighborhood surrounding the Farmway elevator is residential. In December 2008, Farmway applied for a building permit to construct a new grain storage bin adjacent to the existing facility. The new storage bin went into operation on July 14, 2009. From that day forward, nearby residents complained about the increased noise level from the drying fans and the increased grain dust and truck dust in the air. On July 27, 2009, Dawn and Melvin Harlow filed a noise complaint against Farmway. The Harlows described the increased noise levels from the new grain bin and its effect on their everyday life. Other neighbors also complained about the noise, and explained how their yard and vehicles were covered with grain dust and how the operation of the new facility had led to increased health problems.

The Kansas Department of Labor and the Kansas Department of Health and Environment made a total of four visits to the site to investigate and take measurements.  All tests for noise and dust were well within legal limits.  No citations were ever issued.  Nonetheless, on December 9, 2009, the City charged Farmway with violating City ordinances regarding excessive loud noises and nuisances. Count I of the City’s complaint alleged that between July 16, 2009, and December 3, 2009, Farmway willfully, unlawfully, and intentionally did “make, continue, maintain or cause to be made or continue an excessive, unnecessary, unreasonable or unusually loud noise which annoys, disrupts, injures or endangers the comfort, repose, health, peace or safety of others within the City of Lincoln Center, Lincoln County, Kansas, in violation of [City] ordinance #643.”  Count II alleged that Farmway did “maintain a public nuisance by act or failure to perform a legal duty intentionally causing or permitting a condition to exist which injures or endangers the public health, safety, or welfare, namely the excessive, unnecessary, unreasonable or unusually loud noise, and by causing or permitting excessive air pollution and contamination from grain dust all generated by, for or from the new concrete grain storage bin facility” in violation of ordinance #633.  Farmway was found guilty in municipal court and charged a total of $466 in fines and assessments.  Farmway appealed to district court, where the judge threw out the complaint because “the City’s ordinances provide no guidelines or constraints on those that enforce it. One must guess at the meaning of these ordinances and its application may depend upon those attempting to enforce it.”  The City appealed to the Kansas Court of Appeals.

The Court of Appeals stated that “in determining whether an ordinance is void for vagueness, two inquiries are appropriate: (1) whether the ordinance gives fair warning to those persons potentially subject to it and (2) whether the ordinance adequately guards against arbitrary and discriminatory enforcement.”  The court observed that the case fell somewhere in between a long line of cases in which the courts found the ordinances constitutionally deficient because of the complete lack of an objective standard, and another line finding ordinances constitutional because they contained expressly stated-objective standards clarifying the ordinance’s application.  The Lincoln Center ordinance’s use of the word “unreasonable” in describing one type of loud noise “appears to be an attempt at creating an objective standard”; however, the court concluded that the noise ordinance “does not give fair warning to those potentially subject to its reach because there are no objective standards imparted.”

[T]he critical piece of the Lincoln ordinance is … the fact that it only applies where the noise “either annoys, disrupts, injures or endangers” the comfort, repose, health, peace or safety of others within the City. It is the ordinance’s application language that makes it vague. There is no objective standard by which to judge whether the complainants have reasonable grounds to complain about the noise either annoying, disrupting, injuring, or endangering them. We agree with the district court that this language fails to provide an objective standard. The absence of an objective standard subjects the defendant to the particular sensibilities of the complainant, not something that is geared toward a “reasonable sensibility” standard. Consequently, the ordinance does not adequately guard against arbitrary and discriminatory enforcement….

We find there is no reason that the City cannot enact a more specific ordinance to proscribe the objectionable conduct involving dust and industrial noise and provide constitutionally acceptable objective standards for consideration of the conduct. We realize that small farm towns depend on the agricultural economy for its survival and vice versa…. However…if dust and industrial noise present a public nuisance, then it lies within the power of the City to enact an ordinance specifically prohibiting such nuisance and defining objective standards to give anyone subject to its criminal penalties fair warning for what conduct will be prosecuted.

Substantial evidence did not exist to support island annexation

by Victoria Heldt

James Baggett, et al., v. The Board of County Commissioners of Douglas County, Kansas
(Kansas Court of Appeals, September 30, 2011)

A group of business owners (applicants) owned 155 acres of land to the northwest of the city limits of Lawrence, Kansas that was zoned County A (Agricultural.)  In 2008, the applicants petitioned the city of Lawrence for a voluntary annexation of the property by the City of Lawrence.  They intended to develop the property into an industrial area.  Since the property was not next to the existing borders of the city, it would be considered an island annexation.  Mastercraft Corporation, the developer of the property, intervened in the case and pursued the annexation and rezoning on behalf of the business owners.  Baggett Group, the plaintiff, is made up of individual homeowners that are located within ½-mile of the property.

K.S.A. 12-520c governs island annexations.  Among the conditions of approval, the statute states that “the board of county commissioners of the county must find and determine that the annexation of such land will not hinder or prevent the proper growth and development of the area or that of any other incorporated city located within such county.”

Initial findings of the City Planning Commission’s staff recommended that the annexation be deferred until a sector plan could be completed. The staff report pointed out that sanitary sewer services, water services, and private utilities were needed for the property, and that a regional detention plan for each watershed on the property was needed but not yet developed. Finally, the report noted that the property was outside the existing service response districts..  Despite these findings, the Commission recommended  to the Board approval of the annexation.  Pursuant to state law, the City then adopted a resolution requesting the County Board find and determine that the annexation of the described property into the City would not hinder or prevent the proper growth and development of the area or that of any other incorporated city located within the County.  At the Board meeting, representatives for Mastercraft stated that annexation was requested in order to 1) bring the property under the jurisdiction of the City and thereby regulate the development more stringently to protect the neighbors; 2) provide for much needed industrial space for the long-term growth of the County; 3) provide more jobs and more tax revenue.  Representatives for the Baggett Group argued the annexation should be denied because of the lack of adequate water or sewage and the fact that future use of the property was unknown.  Mastercraft said it was unable to describe the intended use because the property will be leased out to business owners.  It was only able to say that all future uses will be those permitted within the industrial zoning classifications.  The Board concluded that the annexation would not “hinder or prevent proper growth and development of the area” and approved it.  The Baggett Group filed in district court which affirmed the Board’s ruling.

On appeal, the Baggett Group argued that the Board’s decision was not supported by substantial evidence and was arbitrary, capricious, and unreasonable.  The Court first looked to the report prepared by the City Planning Commission’s staff.  The report found that the annexation request was not in accordance with the “Horizon 2020” policy, which is the city’s formal planning policy.  The property is outside of the plan’s designated urban growth area.  The Plan also specifies that any development should indicate an intended use in order to mitigate harm to the surrounding area.  The Board received several letters from property owners testifying that they had relied on the Horizon 2020 plan.  One such individual stated he had made an investment in property near the property in question based on the fact that it would not be developed within the next 10 to 15 years.

The Baggett Group also raised issue with the lack of specified uses for the property.  They claimed it was impossible for the Board to consider how the annexation would affect the surrounding area without knowing what the land would be used for.  The only description of future use for the property was that it would include only those that were allowed under the industrial zoning classifications.  This very broad description of uses includes “those that cause continuous, frequent, or repetitive noises; noxious or toxic fumes, odors, and emissions; electrical disturbances; night illumination; explosive storage; and other nuisances that would be disturbing to surrounding residences.”  There were 11 homes directly adjacent to the property and 63 homes located within ¾-mile.

The Court noted that there was no evidence in the record of the case that the Board adequately considered how the development of the property would affect the surrounding area.  Although the specific use was not stated, any kind of industrial use can be concluded to be incompatible with residential areas.  Since there are existing residential areas adjacent to the property, the Board should have realized that industrial development would most certainly hinder or prevent proper development as a matter of logic.  The Court then observed that the Board never explored the possible uses that fall under the industrial zoning classification and how the most harmful ones would affect the surrounding area.  The Court ruled that “where the developer of the land in an island annexation cannot specify the intended uses of the land but provides only a category of potential uses, the Board must examine those potential uses – or at least the most potentially deleterious uses – and determine whether those potential deleterious uses would ‘hinder or prevent the proper growth and development of the area.’” For the above reasons, the Court concluded that substantial evidence to support the Board’s conclusion did not exist.  It reversed the district court’s approval of the annexation.

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