Kansas Attorney General Opinion 2012-018

2012-018Kanag

Full text

August 8, 2012
ATTORNEY GENERAL OPINION NO. 2012- 18
Secretary Nick Jordan
Kansas Department of Revenue
915 SW Harrison Street
Topeka, KS 66612
Re: 	Constitution of the United States—Amendments to the U.S. Constitution—
Rights and Immunities of Citizens; Surface and Mineral Rights Taxed
Separately
Constitution of the State of Kansas—Finance and Taxation—System of
Taxation; Classification; Exemption
Taxation—Listing and Valuation of Real Estate—Surface and Mineral
Rights Taxed Separately
Synopsis: 	The Kansas Legislature may separately classify severed and non-severed
mineral interests for taxation purposes without violating equal protection
guarantees under the Kansas and United States Constitutions. Cited
herein: K.S.A. 79-420; Kan. Const., Art. 11, § 1; U.S. Const., Amend. 14.
* 	* 	*
Dear Secretary Jordan:
As Secretary of the Kansas Department of Revenue, you ask our opinion regarding the
constitutionality of K.S.A. 79-420. Specifically, you ask whether there is a violation of the
equal protection guarantees of the United States and Kansas Constitutions when the
same mineral interest is valued at a different rate for taxation purposes based upon
ownership of the interest in the surface land.
K.S.A. 79-420 states in relevant part:
Secretary Nick Jordan
Page 2
Whenever the fee to the surface of any tract, parcel or lot of land is in any
person or persons, natural or artificial, and the right or title to any minerals
therein is in another or in others, such mineral interest shall be listed and
the market value, if any, determined separately from the fee of such land,
in separate entries and descriptions. Such land and such mineral interest
shall be separately taxed to the owners thereof respectively.
In plain language, this statute requires a mineral interest to be taxed separately from the
land in which the minerals are located when the land and the mineral interest are owned
by different persons.
Your question relates to Article 11, § 1 of the Kansas Constitution, which states that the
Legislature shall provide for a “uniform and equal basis of valuation and rate of taxation
of all property subject to taxation.”1 Article 11, § 1(a) further provides that “[p]roperty
shall be classified into the following classes for the purpose of assessment and
assessed at the percentage of value prescribed therefor.” Real property is classified into
four subclasses. The two subclasses relevant to your question are “Land devoted to
agricultural use which shall be valued upon the basis of its agricultural income or
agricultural productivity . . .”2 and “[a]ll other urban and rural real property not otherwise
specifically subclassified.” 3
As you note in your letter, severed mineral interests are not specifically subclassified in
Article 11, § 1(a) and therefore fall into the “all other” classification. You further note that
in the vast majority of cases, the land in which minerals are located falls within the
“agricultural use” classification. This means that land containing a non-severed mineral
interest is usually valued based upon agricultural income or productivity. If the same
mineral interest is severed from the fee to the surface land, the mineral interest is
valued based upon fair market value. As a result, the same mineral interest may be
subject to very different tax assessments depending on whether the interest is severed
from the surface fee.
You ask whether disparate treatment of severed versus non-severed mineral interests
for taxation purposes violates equal protection. Your question requires an analysis of
the Equal Protection Clause of the United States Constitution, which prohibits states
from denying “to any person within its jurisdiction the equal protection of the laws.” 4 The
Kansas Supreme Court has held that Article 11, §1 provides equal protection to Kansas
citizens for taxation purposes that is virtually identical to the protection afforded by the
Equal Protection Clause of the United States Constitution. 5
Kansas courts have previously determined that K.S.A. 79-420 does not violate equal
protection. 	In 	Cherokee 	& 	Pittsburg 	Coal 	& 	Mining 	Co. 	v. 	Crawford 	County
1 Kan. Const. Art. 11, §1(a).
2 Id. at §1(a)(2).
3 Id. at §1(a)(7).
4 U.S. Const., Am. 14.
5 State ex rel. Tomasic v. City of Kansas City, 237 Kan. 572, 583 (1985).
Secretary Nick Jordan
Page 3
Commissioners, 	the 	Kansas 	Supreme 	Court 	considered 	Laws 	1897, 	c. 	244, 	the
statutory predecessor to K.S.A. 79-420. 6 In that case, a coal company owning mineral
rights in real estate, but not the fee to the surface land, challenged the statute on the
ground that it provides for “unequal and inequitable valuation and assessment” of
mineral interests in violation of Article 11, § 1 of the Kansas Constitution. 7 The Court
held that the statute did not violate the Kansas Constitution, and further noted that
“[m]inerals in the earth are real estate, and, when the owner of them has not the fee to
the surface of such land, they should be separately assessed and taxed.” 8 The Court
has reaffirmed its 1905 holding in Cherokee. 9
Generally, lawmakers are afforded broad discretion in creating taxation schemes, even
if such schemes result in unequal taxation. “[I]n taxation, even more than in other fields,
legislatures possess the greatest freedom in classification.” 10 A tax classification that
does not involve a fundamental right or suspect classification need meet only the
rational basis level of scrutiny to satisfy equal protection. 11
In this case, owners of mineral interests are classified according to whether the mineral
interest is severed from the fee to the surface land. Such classification does not involve
a 	fundamental 	right 	(e.g. 	freedom 	of 	speech 	or 	the 	right 	to 	vote) 	or 	a 	suspect
classification (e.g. race or religion). Therefore, the tax classification of severed versus
non-severed mineral interests need meet only the rational basis level of scrutiny to
satisfy equal protection.
The 	rational 	basis 	test 	examines 	whether 	a 	statutory 	classification 	bears 	some
reasonable 	relationship 	to 	a 	valid 	legislative 	purpose. 12 A 	tax 	classification 	is
constitutionally valid on equal protection grounds “if there is any reasonably conceivable
state of facts that could provide a rational basis for the classification.” 13 “[I]t is entirely
irrelevant for constitutional purposes whether the conceived reason for the challenged
distinction actually motivated the legislature.”14
The statute requiring severed mineral interests to be valued separately from the surface
land was originally enacted in 1897, 15 and later codified at K.S.A. 79-420. There is no
legislative history available to explain the actual reason for enactment of the statute.
However, Kansas courts have noted that the purpose of K.S.A. 79-420 is to ensure that
6 71 Kan. 276 (1905).
7 Id.
8 Id. at Syl. 2.
9 See, e.g., Hitch Land & Cattle Co. v. Board of County Comm’rs of Seward County, 179 Kan 357, 361
(1956); Catlett v. Roemer, 174 Kan. 309, 313 (1953); Hushaw v. Kansas Farmers’ Union Royalty Co., 149
Kan. 64 (1939).
10 Peden v. Kansas Dept. of Revenue, 261 Kan. 239, 253 (1996) (quoting Madden v. Kentucky, 309 U.S.
83 [1940]).
11 Armour v. City of Indianapolis, __ U.S. __, 132 S. Ct. 2073, 2076 (2012); In re CIG Field Services Co.,
279 Kan. 857, 878 (2005).
12 279 Kan. at 878.
13 See, e.g., F.C.C. v. Beach Communications, Inc., 508 U.S. 307, 313 (1993).
14 Id. at 315.
15 Laws 1897, c. 244.
Secretary Nick Jordan
Page 4
property is properly listed for taxation. The Cherokee court described of the purpose of
the statute as follows:
The act under consideration was passed to meet a newly developed class
of property or division of ownership of real estate in Kansas, by which
lands came to be divided horizontally, as it were. But for this provision, it
would be possible for a very large and highly valuable class of real estate
to escape taxation. 16
In Hushaw v. Kansas Farmers’ Union Royalty Co., the court stated:
It is a matter of common knowledge that Kansas contains vast reservoirs
of oil and gas. The value of these mineral deposits baffle computation.
The purpose of the statute is to place these properties on the tax roll. The
method selected by the legislature was to compel disclosure of the true
ownership of such minerals as they are from time to time transferred.17
Thus, K.S.A. 79-420 serves to place severed mineral interests on the tax rolls. In our
opinion, this is a valid legislative purpose, and K.S.A. 79-420 bears a reasonable
relationship to such purpose. As previously noted, a tax classification distinguishing
owners of severed versus non-severed mineral interests does not involve a fundamental
right or a suspect class. Therefore, we conclude that K.S.A. 79-420 meets the rational
basis level of scrutiny under an equal protection challenge.
Accordingly, we opine that the state may separately classify severed and non-severed
mineral interests for taxation purposes without violating the equal protection guarantees
of the Kansas and United States Constitutions.
Sincerely,
Derek Schmidt
Kansas Attorney General
Sarah Fertig
Assistant Attorney General
DS:AA:SF:sb
16 71 Kan. at 278.
17 149 Kan. at 74.

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