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Heartland Apartment Association Inc. v. City of Mission

Supreme Court of Kansas

April 7, 2017

Heartland Apartment Association, Inc., et al., Appellants/Cross-appellees,
City of Mission, Kansas, Appellee/Cross-appellant.


         1. A tax is a forced contribution to pay for the government's general services, that is, services that benefit the members of the public at large, regardless of whether any particular person has paid the tax. A fee, on the other hand, is not a revenue measure. It is assessed against those who gain the exclusive benefit of the service or, if a regulatory fee, those who are the subject of the regulation.

         2. An excise tax is a tax imposed on performance of an act, engagement in an occupation, or enjoyment of a privilege. The Transportation User Fee, or TUF, adopted by the City of Mission is a tax on real property owners based on the use of their property, rather than a tax on the property itself. As such, it is a tax on the enjoyment of a privilege, and it qualifies as a prohibited excise tax under K.S.A. 2016 Supp. 12-194.

         Review of the judgment of the Court of Appeals in 51 Kan.App.2d 699, 352 P.3d 1073 (2015). Appeal from Johnson District Court; James F. Vano, judge. Opinion filed April 7, 2017. Judgment of the Court of Appeals reversing and remanding to the district court is affirmed. Judgment of the district court is reversed and remanded with directions.

          Mary Jo Shaney, of White Goss, a Professional Corporation, of Kansas City, Missouri, argued the cause, and James C. Bowers, Jr., Daniel P. Goldberg, and Bryant E. Parker, of the same firm, were with her on the briefs for appellants/cross-appellees.

          Thomas V. Murray, of Lathrop & Gage LLP, of Overland Park, argued the cause, and Mark A. Samsel, of the same firm, was with him on the briefs for appellee/cross-appellant.

Athena E. Andaya, deputy attorney general, for amicus curiae Office of Kansas Attorney General.

          John A. Donley, of Devine and Donley, LLC, of Topeka, for amicus curiae National Federation of Independent Business Small Business Legal Center.

          Lucas Bell, of Topeka, for amicus curiae Kansas Association of Realtors.


          Beier, J.

         In 2010, the City of Mission passed a Transportation User Fee (TUF). The TUF is assessed on all developed real property based on a formula that attempts to estimate the number of vehicle "trips" a particular property generates. The revenue raised by the TUF, according to the enacting ordinance, is used for maintenance and upkeep of Mission's streets.

         Plaintiffs Heartland Apartment Association, Inc., an association whose members own or operate multifamily retail housing; Building Owners and Managers Association of Metropolitan Kansas City, an association whose members own commercial buildings; and several individual owners of developed property challenged the TUF as an impermissible excise tax levied by Mission in violation of K.S.A. 2016 Supp. 12-194.

         The district court judge granted summary judgment to Mission. On appeal, a panel of the Court of Appeals reversed, holding that the TUF is an impermissible excise tax under K.S.A. 2016 Supp. 12-194. We granted Mission's petition for review.

         For the reasons outlined below, we affirm the decision of the Court of Appeals and reverse the judgment of the district court.

         Factual and Procedural Background

         In August 2010, Mission's City Council adopted Ordinance No. 1332, which established the TUF and created a "transportation utility" "for the purpose of maintenance of City streets." Mission City Code §145.030. The ordinance "imposed and levied" the TUF on "the owners of all developed property within the City of [Mission]." Mission City Code §145.070. The ordinance does not cover real property exempt from taxation under K.S.A. 79-201 (exempting religious, educational, similar property from all property, ad valorem taxes). Mission City Code §145.071.

         The TUF is based on the "direct and indirect use of or benefit derived from the use of public streets, bicycle lanes and sidewalks generated by the developed property." Mission City Code §145.070. It identifies three basic factors to be used in determining the amount of the fee:

"1. The developed use of the property which includes the amount of vehicular traffic generated by the property, as determined by [Mission's] City Administrator.
"2. For non-residential uses the developed square footage on the property or parcel.
"3. The traffic generation factor for each use category of developed property." Mission City Code §145.080A.

         To calculate the fee, the ordinance requires the use of "Trip Generation, 8th Edition, published by the Institute of Transportation Administrators ('ITE Manual'), " Mission City Code §145.020D, and outlines the following procedure:

"[Mission's] City Administrator shall determine the category of use from the ITE Manual that shall apply to each developed lot or parcel within the City [of Mission]. In the absence of a specific use category from within the ITE Manual for a particular developed use, [Mission's] City Administrator shall determine the appropriate category by interpreting the ITE Manual and assigning the category which most accurately reflects the traffic generated by the particular developed use. After determining the appropriate use category for a developed parcel, [Mission's] City Administrator shall use the estimated vehicle trip generation figures for the assigned use category from the ITE Manual to compute an estimate of annual trips related to the parcel and assign the parcel to a group of similarly used properties ('customer group')." Mission City Code §145.080B.

         The three customer groups are: single-family residential, multi-family residential, and non-residential use. Mission City Code §145.080B.

         The ordinance does not set out the charge to be assessed, instead leaving that to "be as fixed from time to time in [Mission's] annual budget." Mission City Code §145.080D. The billing and collection of the fee is accomplished in conjunction "with ad valorem real estate taxes annually." Mission City Code §145.090.

         Mission's TUF Administrative Manual provides further details about the calculation of the fee. The 2012 manual is included in the record on appeal. According to this version of the manual, the TUF that is actually assessed depends on five factors:

"1. That property's estimated trip generation over a period of time.
"2. A split trip rate that includes a 1-cent base charge and a differentiated commercial and residential property component. The residential per trip rate is 2.076 cents and the commercial per trip rate is 1.490 cents.
"3. Special consideration is given for specific trip generation data that better refines or defines the trips a particular land use generates.
"4. The jurisdiction's total annual transportation funding requirement.
"5. The share of that budget to be generated through the TUF system versus other sources."

         The manual also contains Land Use classification data from the ITE Manual for all property in Mission. The data is broken down into various categories, such as "Animal Hospital/Vet Clinic, " "Fast-Food Restaurant (w/Drive-through Window), " "Gasoline/Service Station with Convenience Market and Car Wash, " and "Gasoline/Service Station with Convenience Market." Each classification includes data such as the average trips generated each day of the week and the total weekly trips for a particular usage. The per-day and per-week trips are based on a unit that varies, depending on the use. For example, an animal clinic's trip generation is based on 1000 square feet gross floor area, a hotel on its number of rooms, and a gas station on "vehicle fueling positions."

         In March 2012, plaintiffs filed suit against Mission, seeking a declaratory judgment and preliminary and permanent injunctions. Plaintiffs had paid the TUF in 2010 in amounts ranging from $72.00 to $16, 159.87.

         Specifically, plaintiffs asserted five claims in district court. In Claim I, the two associations asked for a declaratory judgment that the TUF was an impermissible excise tax violating K.S.A. 2016 Supp. 12-194 and that Mission must stop "assessing, billing, and collecting the TUF"; return fees "collected illegally with pre- and post-judgment interest"; and pay the associations' reasonable attorney fees and costs. In Claim II, the individual plaintiffs sought the same relief as the associations had sought in Claim I. In Claim III, plaintiffs asked for both a preliminary and a permanent injunction to prevent Mission from enforcing the TUF and for an order requiring Mission to reimburse plaintiffs for TUF amounts they had already paid, to pay pre- and post-judgment interest, and to pay plaintiffs' reasonable attorney fees and costs. In Claim IV, the individual plaintiffs asked the district court to order Mission to reimburse each individual plaintiff for the TUF amount each had paid in 2010 and 2011, including interest, attorney fees, and costs. In Claim V, plaintiffs alleged due process and equal protection violations because Mission "has enacted an illegal and discriminatory tax, has treated similarly situated persons and entities differently without a rational basis, and has infringed on the political power and privileges of property owners in the City of Mission, Kansas."

         The individual plaintiffs and Heartland filed a motion for summary judgment on Claims I, II, and III. Mission filed its own motion for summary judgment against all plaintiffs on all claims.

         After reviewing the motions and supporting memoranda, the district judge issued his memorandum decision granting summary judgment to Mission and denying summary judgment to plaintiffs.

         The judge began his analysis with acknowledgment of Mission's constitutional "home rule" power to determine its local affairs, including "'the levying of taxes[, ] excises, fees, charges and other exactions except when . . . limited or prohibited by enactment of the legislature applicable uniformly to all cities of the same class.'" He then noted that under K.S.A. 2016 Supp. 12-194, "'no city or county shall levy or impose an excise tax or a tax in the nature of an excise'" and that the "substance of both Motions is whether the TUF is an unlawful excise tax."

         The judge next addressed whether the TUF qualified as a fee or a tax, concluding that it is a tax, based on the definitions used in Kansas.

"The TUF is not voluntary-all property owners generally must pay it. The citizens who pay the TUF do not receive any special benefit for it. There is no aspect of contract or consent in payment of the fee. The money raised from the TUF is used to pay for street improvements, which are used by all. And the TUF is not a way to compensate the government for regulating a specific service, benefit, or privilege."

         The judge then turned to the question of whether the TUF further qualified as an excise tax. Relying on Kansas caselaw that had defined an "excise tax" as one "'imposed on the performance of an act, the engaging in an occupation or the enjoyment of a privilege, '" the district judge concluded that the TUF is not an excise tax. According to the judge, "Mission determines the charge for the tax based on the estimated number of trips a property generates. Clearly, residents of Mission are not charged based on the actual performance of any act, engaging in an occupation, or the enjoyment of a particular privilege."

         The judge concluded that the "TUF, as it was enacted, was within City of Mission's home rule authority and does not offend the legislative limitation upon that power." Based on his determination that the TUF is not an illegal excise, the district judge deemed plaintiffs' due process claim irrelevant and its equal protection claim without merit. Plaintiffs moved to amend the district judge's memorandum decision, and the judge denied the motion.

         Plaintiffs then appealed, raising four issues: (1) whether the TUF is an impermissible excise tax; (2) whether Mission exceeded its powers by passing the TUF through enactment of an ordinary ordinance; (3) whether the district judge erred by granting summary judgment on plaintiffs' due process, equal protection, and reimbursement claims on controverted or unconsidered facts; and (4) whether the district judge abused his discretion in denying Plaintiffs' Motion to Amend. Mission filed a cross-appeal, raising one issue: whether the TUF is a special fee rather than a tax, under Kansas law.

         The reviewing Court of Appeals panel analyzed two issues. First, the panel addressed whether the TUF is a tax. The panel dismissed decisions from other jurisdictions that had analyzed municipal exactions similar to the TUF as shedding "little light on this dispute." Heartland Apartment Ass'n v. City of Mission, 51 Kan.App.2d 699, 707, 352 P.3d 1073 (2015), rev. granted 303 Kan. 1077 (2016). Relying primarily on this court's decision in Executive Aircraft Consulting, Inc. v City of Newton, 252 Kan. 421, 845 P.2d 57 (1993), the panel concluded that the TUF is a tax because it "is an annual forced contribution from all improved real estate owners that is used for the maintenance of a government service available to the general public." 51 Kan.App.2d at 708.

         The panel then turned to the question of whether the TUF is an impermissible excise tax under K.S.A. 2016 Supp. 12-194. Through a 2006 amendment to the statute, the panel said "the legislature has enlarged what taxes are prohibited to such an extent that [the TUF] can be no other tax than an excise tax and is thus prohibited by law, " and it "is clearly assessed, in part, on how property owners decide to use their property." 51 Kan.App.2d at 713, 717. Because it is an excise tax and does not fit any of the exceptions listed in K.S.A. 2016 Supp. 12-194, the panel ruled, Mission exceeded its home rule authority in enacting the TUF. 51 Kan.App. at 717-18.

         The panel declined to address plaintiffs' due process and equal protection arguments. 51 Kan.App.2d at 718. It also declined to address plaintiffs' arguments raised after the district judge had ruled on the motions for summary judgment. 51 Kan.App.2d at 718.

         Mission petitioned this court for review of three aspects of the panel's opinion: 1) the TUF's categorization as an impermissible excise tax; 2) determination of the correct standard of review for challenges to a City's tax measure enacted under its home rule authority; and 3) the ...

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