In re Tax Appeal of Wedge Log-Tech

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No. 108,119

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

In the Matter of the Equalization Appeal of
WEDGE LOG-TECH, L.L.C./PIONEER WIRELINE SERVICES
for the Year 2008 in Ellis County, Kansas,

and

In the Matter of the Application of
WEDGE LOG-TECH, L.L.C./PIONEER WIRELINE SERVICES
for Exemption from Ad Valorem Taxation
in Ellis County, Kansas.

SYLLABUS BY THE COURT

1.
Issues involving constitutional or statutory interpretation are questions of law over
which an appellate court has unlimited review.

2.
To determine legislative intent, an appellate court must begin by examining the
language the legislature used in the statute. Only if the language is ambiguous does a
court rely on any revealing legislative history or background considerations that speak to
legislative purpose, as well as the effects of application of canons of statutory
construction.

3.
As a general rule, statutes imposing a tax must be interpreted strictly in favor of
the taxpayer, but tax exemption statutes are interpreted strictly in favor of imposing the
tax and against allowing an exemption for one that does not clearly qualify.


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4.
In interpreting and construing a constitutional amendment, the court must examine
the language used and consider it in connection with the general surrounding facts and
circumstances that caused the amendment to be submitted.

5.
Under the current constitutional and statutory scheme in Kansas, wireline
equipment is properly classified as commercial and industrial machinery and equipment,
thereby making the property exempt from ad valorem taxation pursuant to K.S.A. 2012
Supp. 79-223(b).

Appeal from the Court of Tax Appeals. Opinion filed April 12, 2013. Affirmed.

Thomas J. Drees, county attorney, and William W. Jeter, county counselor, for appellant.

Jarrod C. Kieffer, of Stinson Morrison Hecker LLP, of Wichita, for appellee.

Before MALONE, C.J., GREEN and STANDRIDGE, JJ.

MALONE, C.J.: Ellis County (the County) appeals the order of the Court of Tax
Appeals (COTA) granting an application for exemption from ad valorem taxation filed by
Wedge Log-Tech, L.L.C./Pioneer Wireline Services (the taxpayer). COTA granted the
exemption based upon its finding that the taxpayer's wireline equipment is included in the
category of commercial and industrial machinery and equipment as defined under
subclass 5 of class 2 of § 1(a) of Article 11 of the Kansas Constitution. Personal property
in this subclass is exempt from ad valorem taxation pursuant to K.S.A. 2012 Supp. 79-
223(b). The County argues on appeal that the taxpayer's wireline equipment is properly
classified with mineral leasehold interests under subclass 2 of the constitutional provision
because wireline equipment is intrinsically related to the oil and gas industry.

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Commercial and industrial machinery and equipment, as defined by the Division
of Property Valuation (PVD) of the Kansas Department of Revenue, is "any taxable,
tangible personal property [except for state assessed property and motor vehicles] that is
used to produce income or is depreciated or expensed for IRS purposes." 2008 Personal
Property Valuation Guide, § 2.05 at 58. At the hearing before COTA, the taxpayer
showed, by a preponderance of the evidence, that the wireline equipment met these
criteria. The County asked COTA to classify the taxpayer's wireline equipment as part of
a mineral leasehold interest, but the County's reasons for doing so have no supporting
legal authority and are contrary to the PVD's historical position on wireline equipment,
which has been to classify it as commercial and industrial machinery and equipment. For
these reasons, we affirm COTA's order granting the taxpayer's application for exemption
from ad valorem taxation.

FACTUAL AND PROCEDURAL BACKGROUND

The taxpayer operates a wireline data logging business. Most of the taxpayer's
customers are oil and gas producers, but the taxpayer also provides services in relation to
water wells, salt mines, and commercial disposal wells. Wireline equipment generally
consists of data logging tools that are lowered on a truck-mounted wire into well holes to
take various readings. The wireline tools are never attached to the well, and the
equipment is not owned by the well operator. Wireline equipment includes logging tools
that test porosity, resistivity, and permeability of rock in order to analyze the presence of
certain rock formations that may indicate the presence of oil or gas. Also included in
wireline equipment are tools used to perform perforation operations, which penetrate a
well's casing to obtain maximum reservoir productivity. In order to use wireline
equipment, production from a well must be stopped and the production equipment
removed.

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For tax year 2008 and all prior years, the taxpayer reported its wireline equipment,
along with other personal property assets, for tax purposes as schedule 5 property––
commercial and industrial machinery and equipment––which falls under subclass 5 of
class 2 of § 1(a) of Article 11 of the Kansas Constitution. The County listed the assessed
value of the taxpayer's commercial and industrial machinery and equipment at
$1,216,248. In 2008, the taxpayer asserted that its commercial and industrial machinery
and equipment, including the wireline equipment, was exempt under K.S.A. 2012 Supp.
79-223(b), which exempts certain commercial and industrial machinery and equipment
purchased after June 30, 2006, from ad valorem taxation.

Prior to 2008, the County had listed, classified, valued, assessed, and taxed the
subject property as commercial and industrial machinery and equipment. But after the
taxpayer applied for the exemption, the County notified the taxpayer that it had
reclassified the subject property as schedule 2 property under subclass 2 of the
constitutional provision, which covers mineral leasehold interests. The County disagreed
with the taxpayer's request for an exemption and, after an informal hearing, the County
appraiser found that the property was not exempt under K.S.A. 2012 Supp. 79-223(b).

On July 14, 2008, the taxpayer filed a notice of equalization appeal with the
regular division of COTA, claiming improper valuation of exempt commercial and
industrial machinery and equipment for tax year 2008. Additionally, in August 2009, the
taxpayer filed an application for tax exemption for tax years 2007 through 2009, arguing
again that the property was statutorily exempt. COTA consolidated the equalization
appeal and the exemption application, but the equalization appeal was dismissed during
the hearing by agreement of the parties. Accordingly, the only matter remaining is the
exemption application.

COTA held a hearing on February 9, 2010, at which both the taxpayer and the
County presented witnesses and evidence. First, the taxpayer called Dean Denning, the
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county appraiser. Denning testified regarding the process by which the County initially
assessed the subject property as schedule 5 property and certified it as such to the county
clerk. Denning further admitted that all of the property the taxpayer claimed as exempt
was either purchased after June 30, 2006, cost less than $1,500, or both.

On cross-examination, Denning testified that whether to classify property as
schedule 2 or schedule 5 was not important to the appraiser's office until the legislature
enacted the exemption for certain schedule 5 property. Denning testified that he believed
the legislature did not intend to exempt property related to the oil industry; therefore, he
believed that such property should be moved to schedule 2 "to keep [the property] from
being exempt." Regarding the taxpayer's wireline equipment, Denning determined that
the property was oil equipment schedule 2 property because the property "would have
never been bought by the taxpayer if there was not an oil industry to use it in." Denning
saw the issue as whether the property related more to oil and gas or to other
manufacturing, and he believed that the taxpayer's business was oil and gas.

Next, the taxpayer called Craig McLaughlin, an open hole manager for the
taxpayer, who testified regarding the type of work the taxpayer performs and how the
taxpayer uses the wireline logging tools. McLaughlin emphasized that the taxpayer did
not produce any oil and gas, nor did it own any mineral leasehold interests. McLaughlin
testified that he believed the wireline equipment fell within the PVD's definition of
"commercial and industrial machinery and equipment." McLaughlin also read the PVD's
definition of "mineral leasehold interests" for purposes of taxation under schedule 2, but
drew a distinction between the wireline equipment's use in gathering information about
oil and gas wells and the PVD's requirement that the equipment be used in operating the
oil and gas wells to qualify as mineral leasehold interests.

Steve Ofstehage, the taxpayer's controller, verified the documentation supporting
the exemption application, stating that the assets in question were purchased after June
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30, 2006. Ofstehage also read aloud K.S.A. 2009 Supp. 79-223(b) and explained why he
believed the wireline equipment was exempt under the statute. Ofstehage testified that the
wireline equipment provided information about oil and gas wells, which was an exempt
use, and the well owners then used the information to operate the wells.

The taxpayer then called Ronald Cook, a registered professional petroleum
engineer, to testify. COTA accepted Cook as qualified as an expert on the PVD's Oil and
Gas Appraisal Guide. Cook had extensive experience with wireline equipment and had
prepared an expert report in which he concluded that the wireline equipment at issue here
was schedule 5 property, not schedule 2 property. Cook also distinguished between
schedule 2 equipment, which is used in the extraction of oil and gas or the operation of
oil and gas wells, and wireline equipment, which he characterized as being used "to
quantify reservoir properties," not to operate oil and gas wells.

The County called Lisa Ree, the deputy county appraiser who had assisted with
reviewing the rendition the taxpayer filed for the tax years at issue; she had also made the
determination to adjust certain items from schedule 5 to schedule 2. When asked the
standard by which she determined whether property fell under schedule 5 or schedule 2,
Ree stated she based it on "[w]hether it's regular personal property or whether it's oil field
use" and that if she was uncertain of the use, she decided in favor of taxation.

The County next called Lynn Kent, the manager of the oil and gas section at the
PVD. Kent was responsible for publishing the PVD's Oil and Gas Appraisal Guide and
assisting county appraisers with questions on valuing oil and gas properties. Kent
testified that she had been the manager of the oil and gas section at the PVD when the
legislature enacted K.S.A. 79-223 and that she "was told by numerous staff members here
and also having talked to the oil and gas industry representatives, that there was no
equipment that was considered as oil and gas-related to be included as exempt in this . . .
exception." Kent further testified that she believed wireline equipment "is very necessary
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in discovering oil and gas properties and—and then producing oil and gas properties,"
although she admitted that the wireline equipment was not used in the "actual extraction"
of the oil and gas. Kent acknowledged that no other county but Ellis County is classifying
wireline equipment as schedule 2 mineral leasehold interest property. She stated that
other counties are "waiting to see the results of this case" to know whether to classify
wireline equipment as schedule 2 property.

COTA took the matter under advisement, and both parties filed posthearing briefs.
On March 13, 2012, COTA filed its order; the next day, COTA filed a corrected order to
correct typographical errors and an error in the certification of the original decision. In
the corrected order, COTA granted the taxpayer's application for exemption. COTA
noted that the burden was on the taxpayer to prove by a preponderance of the evidence
that it was entitled to the statutory exemption. COTA concluded that "based on the
existing regulatory framework as interpreted and applied by taxing authorities throughout
Kansas, this court finds the applicant here has established that all of the subject property
satisfies the statutory requirements for exemption." The County filed a petition for
reconsideration, which was denied. The County subsequently filed a petition for judicial
review with this court.

DID COTA PROPERLY CLASSIFY THE WIRELINE EQUIPMENT AS
COMMERCIAL AND INDUSTRIAL MACHINERY AND EQUIPMENT?

On appeal, the County limits its question to whether the taxpayer's wireline
equipment should be classified as commercial and industrial machinery and equipment
under subclass 5 of class 2 of § 1(a) of Article 11 of the Kansas Constitution or as a
mineral leasehold interest under subclass 2 of the same constitutional provision. The
County argues that COTA erred and the wireline equipment is properly classified as a
mineral leasehold interest under subclass 2. The taxpayer contends that COTA correctly
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found that the wireline equipment is commercial and industrial machinery and equipment
under subclass 5 and is therefore eligible for an exemption.

The proper classification is important because the classification controls whether
the wireline equipment is exempt from ad valorem taxation. K.S.A. 2012 Supp. 79-
223(b) exempts from taxation "[c]ommercial and industrial machinery and equipment
acquired by qualified purchase or lease made or entered into after June 30, 2006, as the
result of a bona fide transaction not consummated for the purpose of avoiding taxation."
For purposes of the exemption, the statute defines "commercial and industrial machinery
and equipment" as "property classified for property tax purposes within subclass (5) of
class 2 of section 1 of article 11 of the constitution of the state of Kansas." K.S.A. 2012
Supp. 79-223(d)(2). Other than referencing the constitutional classification, however, the
statute provides no definitional guidance.

Section 1(a) of Article 11 of the Kansas Constitution establishes the system of
taxation in Kansas and states:

"Property shall be classified into the following classes for the purpose of assessment and
assessed at the percentage of value prescribed therefor:
. . . .
"Class 2 shall consist of tangible personal property. Such tangible personal
property shall be further classified into six subclasses, shall be defined by law for the
purpose of subclassification and assessed uniformly as to subclass at the following
percentages of value:
. . . .
"(2) Mineral leasehold interests except oil leasehold interests the average daily
production from which is five barrels or less, and natural gas leasehold
interests the average daily production from which is 100 mcf or less, which
shall be assessed at 25% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30%
. . . .
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"(5) Commercial and industrial machinery and equipment which, if its economic
life is seven years or more, shall be valued at its retail cost when new less
seven-year straight-line depreciation, or which, if its economic life is less
than seven years, shall be valued at its retail cost when new less straight-line
depreciation over its economic life, except that, the value so obtained for
such property, notwithstanding its economic life and as long as such
property is being used, shall not be less than 20% of the retail cost when
new of such property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25%"

In its order, COTA examined the circumstances surrounding the 1986
constitutional amendment that created the classification scheme at issue:

"This language was adopted by amendment in 1986, creating the property
classification scheme that exists to this day. Like most constitutional provisions, this
section is expressed in broad terms. In particular, we note that subclass 2(5) is so broadly
drawn as to conceivably embrace property within any of the other tangible personal
property subclasses. In view of this contextual ambiguity, our interpretation must not be
narrow or technical but should be based on the facts and circumstances giving rise to the
provision's enactment. [Citation omitted.]
"Leading up to the 1986 constitutional amendment, the Kansas Tax Review
Commission was formed to advise the legislature on exigent property tax issues. This
commission concluded that statewide reappraisal was appropriate because property was
not being taxed uniformly and equally throughout the state. See Kansas Tax Review
Commission, Final Report and Recommendations, P-5 (1985). In its report, the
commission concluded that additional changes in the law were necessary to mitigate
shifts in tax burden among the various classes of property that would inevitably result
from reappraisal. See id. at P-6. The commission recommended 'a comprehensive,
straightforward classification system.' See id. at P-9. The legislative history indicates no
intention to redefine the substantive criteria for property classification. In fact, the
commission's final report suggests the opposite—that the amendment's purpose was to
mitigate the anticipated disproportionate effects of reappraisal on existing classes of
property throughout the state."
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This court reviews COTA decisions under the guidance of the Kansas Judicial
Review Act (KJRA), K.S.A. 2012 Supp. 77-601 et seq. Under the KJRA, the burden of
proving the invalidity of COTA's action rests on the party asserting invalidity. See K.S.A.
2012 Supp. 77-621(a)(1). This court is authorized to grant relief only in limited
circumstances, including where the agency erroneously interpreted or applied the law.
See K.S.A. 2012 Supp. 77-621(c)(4). Both parties agree that the issue revolves around the
correct classification of the wireline equipment. Because there is no factual dispute, the
issue presented is a question of law. See In re Tax Exemption Application of Mental
Health Ass'n of the Heartland, 289 Kan. 1209, 1211, 221 P.3d 580 (2009) ("Whether
certain property is exempt from ad valorem taxation is a question of law if the facts are
not in dispute . . . ."). Accordingly, it appears that this court may only grant the County
relief if it determines that COTA erroneously interpreted or applied the law in reaching
its decision that the wireline equipment is commercial and industrial machinery and
equipment and therefore eligible for the exemption. Issues involving constitutional or
statutory interpretation are questions of law over which an appellate court has unlimited
review. Padron v. Lopez, 289 Kan. 1089, 1097, 220 P.3d 345 (2009).

The touchstone of interpreting or construing statutory language is legislative
intent. Law v. Law Company Building Assocs., 295 Kan. 551, 566, 289 P.3d 1066 (2012).
To determine legislative intent, an appellate court must begin by examining the language
the legislature used in the statute. 295 Kan. at 566. "Only if that language is ambiguous
does a court rely on any revealing legislative history or background considerations that
speak to legislative purpose, as well as the effects of application of canons of statutory
construction." 295 Kan. at 566. As the County notes, however, the general rule is that
statutes imposing a tax must be interpreted strictly in favor of the taxpayer, but "tax
exemption statutes are interpreted strictly in favor of imposing the tax and against
allowing an exemption for one that does not clearly qualify." See In re Tax Exemption
Application of Mental Health Ass'n of the Heartland, 289 Kan. at 1211.

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This case, however, also implicates constitutional language. COTA noted in its
order that the rules governing interpretation of constitutional provisions differ from those
regarding statutory interpretation. The beginning analysis is the same: "'In ascertaining
the meaning of a constitutional provision, the primary duty of the courts is to look to the
intention of the makers and adopters of that provision.' [Citation omitted.]" State ex rel.
Six v. Kansas Lottery, 286 Kan. 557, 562-63, 186 P.3d 183 (2008). The difference
appears in that statutory interpretation looks to the plain language of the statute first,
whereas, "''[i]n interpreting and construing the constitutional amendment, the court must
examine the language used and consider it in connection with the general surrounding
facts and circumstances that cause the amendment to be submitted." [Citation omitted.]'
[Citation omitted.]" (Emphasis added.) In re Tax Exemption Application of Central
Illinois Public Services Co., 276 Kan. 612, 621, 78 P.3d 419 (2003).

The taxpayer maintains that COTA properly held that the subject property is
commercial and industrial machinery and equipment. The Personal Property Valuation
Guide (PPV Guide) promulgated by the PVD defines commercial and industrial
machinery and equipment as "any taxable, tangible personal property [except for state
assessed property and motor vehicles] that is used to produce income or is depreciated or
expensed for IRS purposes." 2008 Personal Property Valuation Guide, § 2.05 at 58. At
the hearing before COTA, the taxpayer showed, by a preponderance of the evidence, that
the wireline equipment met these criteria. McLaughlin and Ofstehage testified that the
assets in dispute are tangible personal property, except State-assessed property or
vehicles, that are used to produce income and are depreciated or expensed for IRS
purposes. Furthermore, Cook provided expert testimony about his extensive experience
with wireline equipment and concluded that the equipment at issue here was schedule 5
property.

Moreover, the evidence established that the assets at issue are not schedule 2
mineral leasehold interests. The PPV Guide states:
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"For purposes of taxation, oil and gas leases, oil and gas wells, all casing, tubing and
other equipment and materials used in operating oil and gas wells are considered personal
property. The Kansas Constitution classifies personal property that qualifies as Mineral
Leasehold Interests (oil and gas) into Class 2, Subclass 2 (2.02) for property tax
purposes." 2008 Personal Property Valuation Guide, § 2.02 at 19.

Based on the PPV Guide, the PVD has historically classified drilling rigs, casing,
tubing, and other equipment as schedule 2 mineral leasehold interest property when the
equipment is actually used in extracting oil and gas from the ground. But as Kent
acknowledged in her testimony, no other county but Ellis County is classifying wireline
equipment as schedule 2 mineral leasehold interest property. Furthermore, Kent testified
that the PPV Guide, which is the only source for classifying any equipment under
schedule 2, has never listed wireline equipment as itemized equipment under schedule 2.
Instead, she testified that "currently the [PVD] takes the positions that wireline equipment
is [machinery] and [equipment]."

In its appellate brief, as it did in its posthearing briefs, the County relies heavily on
COTA's analysis and order in In the Matter of the Application of McPherson Drilling for
Exemption from Ad Valorem Taxation in Montgomery County, Kansas, Docket No. 2009-
156-TX. This case concerned a request for exemption under K.S.A. 2008 Supp. 79-223
for two drilling rigs used for "'drilling oil and gas wells.'" Docket No. 2009-156-TX, slip
op. at 1. The taxpayer asserted that the rigs fell within the definition of commercial and
industrial machinery and equipment and were therefore exempt. Docket No. 2009-156-
TX, slip op. at 2. At the hearing before COTA, Lynn Kent gave undisputed testimony
that the Kansas Oil and Gas Appraisal Guide instructed that drilling rigs should be valued
as part of an oil and gas leasehold interest and that such rigs had been classified and taxed
in that manner since 1965. Docket No. 2009-156-TX, slip op. at 5. After reciting the
applicable law, COTA denied the application for exemption from taxation for the drilling
rigs. Docket No. 2009-156-TX, slip op. at 6.

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The facts herein are clearly distinguishable from the facts in McPherson Drilling.
In that case, the subject property was two drilling rigs which were clearly used to extract
oil and gas from the ground. By contrast, the wireline equipment which is the subject
property herein is diagnostic in nature. The wireline tools are never attached to the well,
and the equipment is not owned by the well operator. In fact, the evidence herein
established that in order to use wireline equipment, production from a well must be
stopped and the production equipment removed. Also, in McPherson Drilling, Kent
testified that the Oil and Gas Appraisal Guide instructed that drilling rigs should be
valued as part of an oil and gas leasehold interest and that such rigs had been classified
and taxed in that manner since 1965. In her testimony herein, Kent acknowledged the
opposite fact, i.e., that the Oil and Gas Appraisal Guide has never listed wireline
equipment as itemized equipment under schedule 2.

The County argues that wireline equipment is so intrinsically related to the oil and
gas industry that the equipment should be classified with mineral leasehold interests for
tax purposes. But the County provides no statutory or constitutional authority for the
proposition that any equipment that is intrinsically related to the oil and gas industry—a
vague standard at best—should be assessed and taxed as a mineral leasehold interest. At
the COTA hearing, Kent seemed to state that authority could be found in K.S.A. 79-329,
which states:

"For the purpose of valuation and taxation, all oil and gas leases and all oil and
gas wells, producing or capable of producing oil or gas in paying quantities, together with
all casing, tubing or other material therein, and all other equipment and material used in
operating the oil or gas wells are hereby declared to be personal property and shall be
assessed and taxed as such." (Emphasis added.)

As the taxpayer points out, however, this statute does not state that "all other
equipment and material used in operating the oil or gas wells" shall be declared personal
property assessed and taxed as a mineral leasehold interest under subclass 2 of class 2 of
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§ 1(a) of Article 11 of the Kansas Constitution. The statute only mandates that such
equipment be assessed and taxed as personal property. Class 2 of § 1(a) of Article 11 of
the Kansas Constitution lists six subclasses of tangible personal property; both mineral
leasehold interests and commercial and industrial machinery and equipment are
classifications of personal property that would satisfy K.S.A. 79-329.

Even if this court adopted the County's assertion that all equipment intrinsically
related to the oil and gas industry should be taxed under schedule 2, the evidence fails to
establish that the taxpayer's wireline equipment satisfies this test. In its brief, the County
states that "[a]ll six witnesses testified that 'but for' the oil and gas industry, the wireline
industry would not exist." As the taxpayer points out in its brief, however, this statement
is not accurate. None of the taxpayer's three witnesses (McLaughlin, Ofstehage, and
Cook) testified that the wireline industry would not exist but for the oil and gas industry.
Although McLaughlin testified that the taxpayer would not operate in Ellis County if
there were no oil and gas producers there, McLaughlin also testified that the taxpayer
provided services for industries other than oil and gas. Specifically, McLaughlin testified
that the taxpayer provided services for water wells, salt mines, and disposal wells.

Beyond the fact that the County fails to provide any authority for this court to
adopt its asserted test for classifying property as schedule 2 mineral leasehold interests,
K.S.A. 2012 Supp. 79-223(c) expressly prohibits reclassification of schedule 5 property
for the purpose of avoiding the tax exemption provided by the statute. K.S.A. 2012 Supp.
79-223(c) provides, in pertinent part: "The county appraiser shall not reclassify any
property that is properly classified for property tax purposes within subclass (5) of class 2
of section 1 of article 11 of the constitution of the state of Kansas." As Kent confirmed in
her testimony, this provision was specifically added to the statute by the legislature in
2008 to prevent county appraiser's offices throughout the state from reclassifying
property to avoid the exemption that the legislature intended.

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Simply put, the legislature has prohibited the County from doing what it is now
trying to do—reclassify the taxpayer's property to deny the exemption that the legislature
intended. Denning, the county appraiser, acknowledged that prior to 2008, the County
classified the subject property as commercial and industrial machinery and equipment.
But Denning admitted, under questioning from his own counsel, that he reclassified the
wireline equipment in 2008 "to keep [the property] from being exempt." By doing so, the
County violated the express directive of K.S.A. 2012 Supp. 79-223(c).

Finally, the County challenges COTA's statement that it is the role of the
legislature, not COTA, to implement a shift in ad valorem tax policy in Kansas. In its
order, COTA reiterated Kent's testimony, when she was asked the PVD's position on how
wireline equipment should be classified, where she stated that the PVD was waiting for
COTA to rule on the correct classification. COTA then stated:

"We respectfully disagree with PVD's decision to rely on the adjudication
process to redefine the parameters of tax classification for standard items of equipment
used in the oil and gas industry. Granted, an important role of this court is to help define
the law through adjudication, particularly where proper application of the law is uncertain
under a given set of circumstances. But in order for adjudication to be a legitimate means
of ordering the rights and obligations of litigants, there must exist authoritative rules that
can be applied. In contrast to administrative orders, which are ad hoc decisions driven by
the facts of a particular case, actions by administrative agencies which create standards of
general application should be adopted by rule. [Citation omitted.] This court believes that
rulemaking, not adjudication, is the proper vehicle for implementing a shift in tax policy
with such broad application and wide-ranging impact as that proposed here by Ellis
County."

We agree with COTA that it is the role of the legislature, not COTA or this court,
to implement a shift in ad valorem tax policy in Kansas. The PVD has historically
classified wireline equipment as schedule 5 commercial and industrial machinery and
equipment. If the County desires to change the historical classification of wireline
16

equipment from schedule 5 property to schedule 2 property, the proper avenue is either
promulgation of the change through the appropriate PVD guides or through statutory
changes made by the legislature. See O'Brien v. Leegin Creative Leather Products, Inc.,
294 Kan. 318, 348, 277 P.3d 1062 (2012) ("the legislature, unlike the judiciary, is one of
the branches of government charged with development of public policy on behalf of the
electorate"). Under the current constitutional and statutory scheme in Kansas, we
conclude that COTA properly classified the taxpayer's wireline equipment as commercial
and industrial machinery and equipment, thereby making the property exempt from ad
valorem taxation pursuant to K.S.A. 2012 Supp. 79-223(b).

Affirmed.