2012-08-30 Special Meeting Kodiak Island Borough
Assembly Special Meeting Agenda
Thursday, August 30, 2012, 7 p.m.
Borough Conference Room
1. ROLL CALL
2. CITIZENS COMMENTS (Limited to Three Minutes per Speaker)
3. CONSIDERATION OF MATTERS IN THE CALL FOR THE SPECIAL MEETING
A. EXECUTIVE SESSION
1. Kodiak Support Services vs. Kodiak Island Borough Board of Equalization.
2. Discussion of Borough Manager Selection Process.
4. ADJOURNMENT
This meeting was called by Mayor Selby.
IN THE SUPERIOR COURT FOR THE STATE OF ALASKA
THIRD JUDICIAL DISTRICT AT ANCHORAGE
KODIAK SUPPORT SERVICES, EV., )
Y
Plaintiff, n i � ,� i 4" Fir
v. ) n1 171)
)
KODIAK ISLAND BOROUGH, ) u
Brecht, Cart;dgc.
BOARD OF EQUALIZATION, ) & Brooking
Defendants. )
) Case No. 3AN- lI- 08022CI
DECISION ON APPEAL
1. Introduction.
Kodiak Support Services, J.V. (KSS) appeals a decision of the
Kodiak Island Borough Board of Equalization (BOF). The Borough Assessor
determined that KSS has a taxable possessory interest in certain personal property
owned by the United States Coast Guard (USCG). The Assessor placed a value on
that possessory interest. KSS objected to the value, but the BOE affirmed the
Assessor's determination.
The Court concludes that the BOB committed two related errors that
require a reversal and remand. First, the BOE allowed the Assessor to use a
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"fundamentally wrong principle of valuation." 1 Second, it allowed the Assessor to
use a valuation that was not supported by a "reasonable basis. "
11. Statutory Framework.
The Court begins by summarizing the statutory Framework of the
parties' dispute. It will then describe the burden placed upon a taxpayer who
objects to a taxing authority's valuation and the shifting burden on the taxing
authority if the taxpayer meets her burden. Finally, it will set out the superior
court's standard of review of the BOE's decision.
Alaska Statute 29.45.010 authorizes a borough to levy a property
tax. Certain property is exempt from taxation, including "property of a political
subdivision, agency, corporation, or other entity of the United States to the extent
required by federal law; except that a private leasehold, contract, or other interest
in the property is taxable to the extent of that interest....n
The Kodiak Island Borough (Borough) has expressly incorporated
into its tax code "laws of the state of Alaska relating to the assessment and levy of
taxes upon real and personal property within the boundaries of first- and second -
Cool Homes v. Fairbanks North Star Borough, 860 P.2d 1248, 1 262
(Alaska 1993) (quoting Twentieth Century Investment Co. v. City of Juneau, 359
P.2d 783, 788 (Alaska 1961)).
2 North Star Alaska Housing Corp. v. Fairbanks North Star Borough Board
of Equalization, 778 P.2d 1140, 1146 (Alaska 1989).
3 AS 29.45.030(a)(8).
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class boroughs. " The Borough instructs its Assessor to assess taxable property
each year as of the first of January. The Assessor is authorized to tax "personal
property which has a tax situs within the borough. " The Borough defines "real
property" to be land and structures "and also possessory rights and privileges
belonging to or in any way appertaining thereto." It defines "personal property"
to "include[] all other property, corporate real and incorporate real, not specifically
included in `real property. "'
When a taxpayer challenges a tax assessment she has the initial
burden of proof. If that burden is met, then the assessor has a burden. The Alaska
Supreme Court summarized the shifting burdens in Cool Homes v. Fairbanks
North Star Borough:
Alaska law provides that the taxpayer bears the burden
of proof before a Board of Equalization. The only grounds for
adjustment of the assessment are proof of unequal, excessive,
improper or under valuation based on the facts that are stated in a
valid, written appeal or proven at the appeal hearing.
A taxpayer contesting an assessment need only prove
that the valuation is improper. The taxpayer does not have to offer
a
KIBC 3.35.010.
5 KIBC 3.35.040.
6 KIBC 3.40.010.
7 KIBC 3.35.030.
8 Id.
9 860 P.2d 1248 (Alaska [993).
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the correct amount, range or method of valuation, as the Borough
repeatedly insisted. The burden then shifts to the taxing authority to
introduce credible evidence which substantiates its assessment.
However, AS 29.45.210(b) still requires that the
taxpayer prove facts at the hearing. ... It is not enough merely to
argue that the valuation was inadequate or demand a justification
from the taxing authority.
The superior court has a limited role when reviewing the decision of
a board of equalization. Again, Cool I- -Tomes summarizes the standard:
The recognized standard of review of administrative
decisions involving questions of law or fact requiring agency
expertise is the reasonable basis test. This court has used this
deferential standard before for reviews of tax assessments: Taxing
authorities are to be accorded broad discretion in deciding among
recognized valuation methods. If a reasonable basis for the taxing
agency's method exists, the taxpayer must show fraud or the clear
adoption of a fundamentally wrong principle of valuation.
111. Facts and Proceedings Below.
A. Factual introduction.
KSS and the USCG entered into their Base Operation Support
Services (BOSS) contract. KSS is required to maintain certain equipment and
facilities on and around USCG bases, primarily in Kodiak. USCG allows KSS to
use the equipment that KSS cares for to perform various maintenance functions on
the base. For example, KSS must maintain cranes in operating condition and may
Id. at 1262 -63 (internal citations and footnote omitted).
1 Id. at 1262 (internal citations and quotations omitted).
2 Transcript (Tr.) 10.
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occasionally use them in the maintenance of the USCG facilities. KSS cannot use
USCG equipment for other clients or projects.' KSS also uses its own equipment
to taintain USGC facilities. The USCG alone determines what equipment it
wants KSS to maintain. KSS decides whether to use USCG equipment or other
equipment that KSS owns or rents to maintain USCG facilities.
For some years the Borough has been uncertain of what personal
property, titled 10 the USCG, that KSS and its predecessors have utilized and
perhaps possessed as a result of the work they did for the USCG pursuant to the
BOSS contract. In 2009 the Borough selected KSS for a Personal Property Audit
for 2007 and 2008. It demanded that KSS provide "Detail[cdll asset listings and
depreciation schedules for all operations located within the [B]orough. This list
should also include a list of all assets owned by the USCG and used by Kodiak
Support Services in performance of the contract. " KSS apparently informed the
USCG of this request. The USCG wrote to the Borough seeking confirmation that
13 Tr. 10 and 22.
14 Tr. 12.
15 Tr. 11.
16 Tr. 10 and 12.
17 Record (R.) 64. There are multiple paginations on many of the documents
in the Record on Appeal. When the Court cites to the Record, it is utilizing the
pagination labeled "Appeal Case 3AN -11 -08022 CI Page 'x' of 99."
8 let.
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the Borough "has no intention on taxing the value of Government Property in the
possession of Kodiak Support Scrvices." The record does not reflect whether the
Borough replied to the USCG.
It appears that KSS provided the Borough with lists of personal
property owned by the USCG that KSS was maintaining in 2009. These lists
included valuations of each piece of property, apparently provided by USCG.
In February 2011 the Assessor issued a notice to KSS that it had
determined that KSS has taxable personal property valued at $2,015,000. In
March 2011 KSS appealed the valuation to the BOF. It contended that the proper
19 R. 66.
20 The transcript of the hearing before the BOE does not always identify who
is speaking. For example, this colloquy occurred:
CHAIRMAN: Was the list provided from the Coast Guard or was it
provided from K.SS?
UNIDENTIFIED SPEAKER: Actually 1 don't recall which had [sic] entity
gave it to me. Probably my office, but I honestly don't remember.
UNIDENTIFIED SPEAKER: I believe the auditors got it from KSS. That
was in 2009, right?
UNIDENTIFIED SPEAKER: Yeah.
Tr. 27 -28.
21 R.. 43.
22 R. 4 -5.
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value was $605 . It asserted several related arguments that stemmed from its
basic point that the USCG owned most of the personal property on the tax list and
that KSS had no possessory interest in USCG's property. KSS argued that the
taxation of the property violated the Supremacy Clause of the United States
Constitution and others laws. Alternatively, it argued that `the valuation of
USCG owned personal property fails to adequately take into account contractual
limitations on use of non -owned personal property and reversionary interests. "
B. The Assessor's Report.
The Assessor submitted a report to the BOE prior to the hearing. It
set out the basic premise of the valuation:
The 2011 assessment for Kodiak Support Services
(KSS) was completed using a list of' assets submitted [sic] Kodiak
Support Services of property owned and a list of Government
Furnished Equipment (GFE) in the control and used [sic] by KSS to
complete their contract. The list of GEE equipment was acquired in
2009 as a result of an audit conducted by Altman Rogers for the
Kodiak Island Borough (K113). The GFE assets were assessed
utilizing well established procedures for valuing possessory interest.
Possessory interest is the private interest in public property that
typically is incurred by a lease or use agreement. The premise of the
valuation is that the asset, land or personal property, has a fee value.
This value is split between the lessee that has temporary possession
23 R. 4. This was the value of personal property owned by K.SS. KSS contends
it does not have a possessory interest in the USCG property, thus giving that non -
interest a value of zero.
24 R. 5.
25 Icl.
76 R. 97 -99.
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and use and the feu simple owner. The method of computing this
value is the reversionary method. Basically this method says that the
fee simple owner will have the asset returned at the end of the lease
and the present value of the asset at that date is the fee owner's
value. The lessee's value is the remainder less nay loss in value from
restrictions.
The Assessor addressed KSS's objections to valuation.
Lastly, KSS claims that KII3's assessment of USCG
owned property is excessive and unequal compared to other
possessory interest taxpayers, mainly previous DOSS Contractors.
Historically, BOSS contractors have been amiss in
reporting GEE assets as part of' their personal property rendition. The
Assessor has made an estimate of value based upon the best
information available to him.
KIBC 3.40.030 Assessment Return
"In the event of any person failing, refusing, or
neglecting to make or file said personal property return
of property owned by him, as required herein, the
assessor shall make an assessment which shall be as
fair and equitable as he is able to make from the best
information in his possession concerning said
property."
Non - compliance to (sic] the above referenced borough
code, KSS, AMS and BOSS contractors previous to them resulted in
an assignment of an estimate of value on Possessory Interest of GFE
at $100,099. Discovery of heavy equipment was made in 2006 and
included in the roll for tax year 2007. Equipment costs were
27 R. 97.
28 First, the Assessor acknowledged typographical errors in its original
assessment and modified a particular valuation calculation, thus reducing the
assessed value from $2,015,00 to $ 1,990,400. R. 9R -99. The Assessor also noted
that KSS challenged the authority of the Assessor to tax the property, but did not
address that assertion, concluding that the "Board of Equalization is authorized
only to hear issues affecting valuation, not taxation as noted in KIBC
3.35.050(C)(1), and this issue will not be addressed at this hearing." R. 97.
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researched and values were assigned based on the information
available. An audit conducted in 2009 resulted in an actual listing of
GFE used by KSS to complete their BOSS Contract and values were
applied based upon the list. This list came from the original contract
signed in 2006. It did not reflect assets retired or acquired after that.
Depreciation was applied based on two factors, Light Duty at 10
years and Medium Duty at 16 years. 16 year depreciation is typical
for contractor heavy equipment with the KM. TY2011 CG owned
equipment again was not reported and again any new assets were not
picked up. The values force filed from the previous year were rolled
over with additional deprecation applied.
It is noted KIB has not asked KSS for a copy of the
current BOSS contract. KI,B has requested this information of the
BOSS contractors only to be told that they did not have access to
such a list. It is hard to believe a contractor would not have a list of
assets that are being transferred to their care and in fact when
audited in 2009, this list miraculously appeared.
C. Preliminary Arguments.
1. The Supremacy Clause.
Prior to the BOE hearing, KSS submitted a brief outlining its
arguments. At the hearing the BOE pointed out that it had no authority to hear
taxability issues and thus expressed doubt that it could address the Supremacy
Clause argument that KSS had presented in its bricf. KSS orally acknowledged
the B017, had no authority to hear that argument, but noted that the BOE could
29 R. 98.
30 R. 8-22.
31 Tr. 6 -8. KIBC 3.35.050.A.3 defines and limits the BOE's duties, "The
hoard may determine equalizations on properties brought before the board by
appellants. It shall only hear appeals for relief from an alleged error in
valuation....'
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address the related dispute over the existence and valuation of any possessory
interest KSS had in the USGC property.'
The BOE now argues that KSS waived the Supremacy Clause
argument. "Che Court disagrees. Whether or not the BOE has the authority to hear
a Supremacy Clause argument or any other challenge to the taxability of specific
property, there can be no doubt that KSS raised this issue before the BOE. The
BOE's refusal to address that argument, even if a correct interpretation of its
authority, can hardly he construed to be a waiver by KSS.
Even if the BOE, or the superior court in an administrative appeal,
could address the Supremacy Clause challenge, the Court need not do so, given its
decision on non - constitutional grounds. However, it does observe that the
argument seems misplaced. The Supremacy Clause protects federal entities from
being taxed by states or their subdivisions. But the KIB is not attempting to tax the
USCG for it federal property. The KI13 is trying to fax KSS for a possessory
interest KSS has in federal property. That can he done.'''
32 Tr. 8-9.
33 Appellee's Brief at 5 -6.
United States v. Nye County Nevada, 938 F.2d 1040, 1042 (9` Cir. 1991).
The court summarized the characteristics of such a constitutional taxing scheme as
follows:
The unconstitutionality of Nye County's tax is best
understood by comparing it to tax measures that have survived, and
those that have perished, in the face of ad valorem challenges. The
survivors have been tax measures imposed on an isolated possessory
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Kodiak Support Services vs. Kodiak Island Borough
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2. KIB's Statutory Taxing Authority.
KSS also argues that KI13 is not authorized by its own code to tax a
possessory interest in personal property. It relies upon what it deems to be a
contrast in the code's definitions of real and personal property. The code defines
taxable real property to include "possessory rights and privileges belonging to or
in any way appertaining thereto. " In contrast, the code's definition ofpersonal
property does not include a reference to possessory rights. KSS argues that this
difference means the KIB is only authorized to tax possessory interest in real, but
not personal, property. The Court disagrees.
The code's definition of personal property is extremely broad,
essentially including all property that is not real property. This construction is
supported by definition of the duty each person has to submit a property return to
interest or on a beneficial use of United States property. The
perished have been tax measures levied on the property itself.
Of the survivors, United States v. County of Fresno, 429 U.S.
452, 97 S.Ct. 699, 50 L.Ed.2d 683 (1977), illustrates a possessory
use tax. There, California taxed possessory interests in federally
owned housing held by federal forest rangers. The Supreme Court
refused to invalidate the tax, holding that, to the extent a state can
isolate a private person's property interest in property owned by the
United States, the state can tax the interest. Id. at 462, 97 S.Ct. at
704 -05.
Id.
35 K.IBC 3.35.030.
36 Id.
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the K113. "Each person with ownership in business personal property shall submit
to the borough assessor a personal property return of any property owned by him
or in which he has an interest and of the property held or controlled by him in a
representative capacity, [annually]. " The duty to report any and all business
personal property extends beyond property that one owns in fee to include
property in which one only has a lesser interest. There would be no reason to
require a taxpayer to report possession of a less- than -fee interest in property if the
K113 did not intend that it could tax that lesser interest.
D. The BOE Hearing.
Some of the arguments that KSS presented to the BOP, could have
been directed at tither the taxability of the personal property or the valuation of
that property. This is because both the test used to determine i a taxpayer has a
right of possession, and thus an interest that may be taxed, and the test used to
adjust the present fair market value of an interest in property to reflect any
restrictions placed by the owner on the taxpayer's possession of the property take
into account the exclusivity of use of the property that the taxpayer has.
The parties agreed to the following expression of the test for the
existence of a taxable possessory interest of a taxpayer in personal property owned
by the United States:
[P]ossessory rights in federal land, and improvements
made there by an individual for his or her own use and benefit, may
37 KII3C 3.40.030 (italics supplied).
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be taxed, as may personal property belonging to the United States,
which is in the possession of a private party who is using or
processing such property in the course of business. To give rise to a
taxable possessory interest, the right of' possession or occupancy
must he more than a naked possession or use. it must carry with it,
either by express agreement or tacit understanding of the parties, the
degree of exclusiveness necessary to give the occupier or user
something more than a right in common with others... so that
realistically, the occupancy or use substantially subserves an
independent, private use of the user or occupier.
This test requires consideration of many of the sane facts as does
the Assessor's determination the value of KSS's possessory interest in USCG
property. The Assessor adjusted the present fair market value of items of property
to reflect the restriction on the use of the personal property that was imposed on
KSS by USCG. The Assessor adjusted the present fair market value of the
personal property by 20% to reflect the BOSS contract restrictions. The Assessor
explained:
The Possessory interest calculation for contract
restrictions based on a 20% for long term and 25% short term is
unequal. The Appellant takes exception with using two different
restrictions and the Assessor's office is in agreement with this and
proposes to change the short term asset contract restriction to 20% to
be in line with the contract restriction allowance applied to the long
term assets.
8 16 EUGENE MCQUILLAN, MUNICIPAL CORPORATIONS (3d ed. Revised
2003) § 44.53, at 225 -26 (footnotes omitted) .
39 The starting point for the Assessor was a list of USCG owned property that
included a valuation for each item of property. K SS did not dispute the fair market
values of the property contained in the list. Tr. 22.
40 R. 98 -99.
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At the scant time allowed KSS at the hearing, 41 it focused on its
assertion that the Assessor had overvalued the value of its possessory interest in
the USCG property because the Assessor did not have adequate knowledge of the
restrictions imposed by the BOSS contract on the use by KSS of USCG property.
KSS argued that the restrictions were so stringent that KSS had no possessory
interest and thus the value of that (non - existent) was zero.
It is undisputed that KIB and the Assessor did not have a copy of the
BOSS contract when the Assessor determined the impact the contract restrictions
had on valuation. At the hearing the Assessor explained "The 20 per cent
possessory interest lease restrictions were based on the fact we didn't have a copy
of the contract. They are right; it was never provided us. " However, the Assessor
acknowledged in his pre - hearing report that "KIB has not asked KSS for a copy of
the current BOSS contract. "
4l At the outset of the hearing the BOE restricted KSS to a five minute
presentation, subject to an extension at the conclusion of the five minutes. Tr. 9.
The BOE gave KSS an extension of an unspecified duration. Tr. 13.
42 This argument that the valuation was not merely erroneous but should have
been zero, played a determinative role in the BOE's decision. The BOE focused
on what it believed to be a taxability challenge when it should have understood the
argument to also be a valuation challenge. See Tr. 33 -36.
43 Tr. 17.
ml R. 98. At the hearing the attorney for KSS was asked if KSS had
"provide[di a copy of your base contract with the Coast Guard ?" She replied, "To
our knowledge, they never requested it." Tr. 25.
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In order to meet its initial burden KSS asserted that the valuation of
the alleged possessory interest was excessive and improper. In support of that
allegation, it presented the testimony of Mr. Nugent.' He explained what KSS did
for the USCG.
MR. NUGENT: Anyway, the history of the BOSS
contract is we maintain and operate parts of the base. We do it with a
mix of our equipment and once in a while, their equipment. They
have equipment that they own that he allow contractors, not just us,
other contractors to use.
CHAIRMAN: When you say they —
MR. NUGENT: The U.S. Coast Guard. We are
allowed to use their equipment at intervals or when necessary when
our equipment is too much for what we have.
We maintain it. "There are three lists of equipment that
we maintain for the Coast Guard. We can't use it anywhere but the
base or for their purposes. For instance, we refer to when there is
flooding over on Salcep (phonetic), somebody in the Borough called
our guys and said "!-Iev w e need a pump. You got a pump we can
use ?" We said, "Yeah, we do, but you have to go to your guys, your
guys have to call the Coast Guard and the Coast Guard has to call us
to bring the thing down," which we did.
The government provides equipment. It's there. We
maintain it to do whatever we have to do. Every year equipment
shows up, literally shows up. We didn't ask for it. We don't know
what they want us to use it for. We don't know why they bought it in
some cases.
Basically it's a matter of who controls what and how
much we can use it. Some stuff that they buy, we might use at her
as
If KSS expressly identified Nugent's relationship with KSS at the hearing,
the transcript does not contain that portion of the hearing. From his testimony one
may infer that Nugent was familiar with the operations of KSS in its fulfillment of
the BOSS obligations. Tr. 10 -13.
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■
request maybe four times a year, but yet it shows on the list at full
value (indiscernible).
There is no difference in restrictions to us whether it's
a hammer the government provides or whether it's a crane or a
lowboy or a truck or a lawnmower or anything else. It has to be used
there for that purpose. You can't bring it in here. We couldn't bring
it in this winter to help you remove the snow pile out here in the
parking lot, we couldn't do it.
The other question that's always asked is: Well it's
leased. If you didn't have it, you would have to buy it. No, that's not
the case. We would get by with what we have, or we would go down
the street to Lash and rent a crane or we could come over to Bieck
and rent a loader. When we're done with it, we're done with it.
Since the government owns it, it sits there. Some of it
might sit there a year, two years. It might never move while we're
there, but yet it's on the list. So it's hard to value. With that, nobody
ever asked us for a copy of the contract, which over the years as
morphed from 700 pages to now about 1550, before you start adding
all the add -ons like maps and lists of buildings and things like that.
In response to Nugent's testimony the Assessor explained his
reasoning:
MR ROBERTS: Possessory interest, they have a
preferential use for this equipment to fulfill a contract to snake
money. The Coast Guard has to notify them two days before they
can take the equipment. 1 think that's pretty liberal.
The 20 percent possessory interest lease restrictions
were based on the fact we didn't have a copy of the contract. They
are right; it was never provided.
46 Tr. 10 -12.
ar
Tr. 17.
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Members of the 130E had questions for the Assessor about
the genesis of the adjustment in valuation for the contract restrictions.
UNIDENTIFED SPEAKER: What do you feel —I
have a question about, myself, as I read through this, I looked at this
and I though where does the 20 percent come from.
What do you think is a realistic percentage of use? I
mean, is that —maybe this question should be pointed to Bill.
Bill, could you explain exactly, for my benefit, what
this 20 percent issue is? As I understand it, it Looks to me like you're
discounting the value of this equipment 20 percent, because it has
some sort of restricted use. Is that accurate?
MR ROBERTS: That's true. The equipment can only
be used by KSS on the base to perform their contract on the base
which I would probably argue is the highest use of that equipment.
I assume it's a pretty lucrative contract, but the Coast
Guard can take that stuff way, can say, "We need that backhoe and
we'll give you two days' notice, we're going to use it for a week."
So that was the 20 percent. I don't actually know how
many times the Coast Guard have done that, because it's never been
discussed actually.
UNIDENTIFIED SPEAKER: But that's the premise
of this issue of 20 percent and 25 percent, was the idea that the 25
percent was maybe for smaller items and at first and then we change
tat to 20 percent across the board?
MR. ROBERTS: Yes. Originally, when we did this,
we discussed it and said probably the heavy equipment is not used as
much. It's probably actually the other way around, but I don't know
that for a fact.
UNIDNEIFED SPEAKER: Where did we come up
with the 20 percent? I mean, why not 10, why not 30, why not 50? 1
mean, where did we come up with the 20?
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MR ROBERTS: It's an estimate, and it's basically an
educated guess based on the fact how often do I think the Coast
Guard takes this equipment. Again, nobody wanted to talk to us
about the possessory interest on this up front.
After hearing from KSS and the Assessor, the BOE discussed the
parameters of the decision before it.
UNIDENTIFIED SPEAKER: You totally understand
that we cannot determine whether it is or isn't taxable, strictly
whether the value of the Coast Guard property is within line of what
the appraiser says, correct?
MS. DALRYMPLE: The facts are related, but the
decision is different. If there is a possessory interest valuation based
purely on control and exclusivity, 1 think that's well within this
tribunal to decide.
I understand that we're not deciding whether or not the
actions themselves violate the supremacy clause.
UNIDENTIFIED SPEAKER: That's not the way I see
it. If they are trying to say it hasn't —I don't see it that way. She is
saying we don't want it taxed, therefore they are disputing whether
it's taxable.
1 don't think that's within our perusal. We cannot
make the decision as to whether it's taxable.
UNIDENTIFIED SPEAKER: They don't want to
admit that they may have to pay the tax.
UNIDENTIFIED SPEAKER: ']'hat's the way I see it.
UNIDENTIFIED SPEAKER: That's the way I
understand that, but that's not the purpose of this board.
48 Tr. 23-24.
49 Tr. 34 -35.
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The BOE voted three to one to deny the challenge brought by KSS
and to uphold the valuation of the Assessor.
IV. Discussion
When reviewing taxing authority's decision regarding a tax
assessment. the Court must be deferential to the agency's findings of fact and
conclusions of law. It may reverse the agency only if the findings or conclusions
are not supported by a reasonable basis or the taxpayer shows that the assessment
is based upon a `fundamentally wrong principle ofvaluation." sl The Court must
evaluate the agency's actions in light of the shifting burdens placed upon the tax
payer and taxing authority when the taxpayer challenges a tax assessment.
A. KSS Met Its Burden.
The first question is whether KSS proved facts at the hearing so as to
prove that the valuation was iinproper. A major component of the valuation
calculation was the Assessor's use of the 20 percent adjustment of the current fair
market value of the personal property owned by the USCG, but being maintained
and possibly utilized by KSS. The A.ssessor assumed that KSS had significant use
of the USCG property, but acknowledged that the BOSS contract placed some
50 Tr. 36 -37.
Cool Homes, 860 P.2d at 1262.
52 Id. at 1163.
53 Id
3AN- I I- 08022C I 19
Kodiak Support Services vs. Kodiak Island Borough
Decision
restrictions on the use by KSS. The fewer the restrictions, the greater the value of
the possessory interest that KSS had in the USCG property. The greater the
restrictions; the lower the value.
Both aspects of these assumptions -- first, that KSS's responsibility
to USCG allowed it to use the property for its benefit, and second, that the
restrictions on that use were minimal -- were flawed. The BOSS contract defined
both the responsibility and the restrictions. Without knowing the terms of the
BOSS contract the Assessor could not and did not know what KSS did for the
USCG. The Assessor did not know what responsibility KSS had for the property
or how, if at all, KSS could use the property. The simple admission that the
Assessor did not have the BOSS contract, but nonetheless made critical
assumptions about the contract and its terms undercuts nearly every premise and
assumption of the valuation.
The lack of understanding of the BOSS contract also made it
impossible for the Assessor to reasonably evaluate the nature of the restrictions, in
the contract, if any, on the use of the equipment by KSS. When asked how he
came up with the 20 percent adjustment, rather than 10 or 50. percent, the Assessor
stated it was an "estimate... an educated guess." 54 But it was not even that. It was
pure speculation. Again, this admission is adequate proof that the Assessor's
54 Tr. 24.
3AN -I I- 08022C! 20
Kodiak Support Services vs. Kodiak Island Borough
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evaluation was improper. The BOIS should have shifted the burden to the KIB to
"introduce credible evidence which substantiates is assessment. "
KSS provided even more evidence at the hearing. It presented
uncontradicted evidence of the nature of its obligations to the USCG. KSS is
obligated to maintain certain physical facilities on the bases and certain equipment
designated by the USCG to the care of KSS. KSS did not use all of the USCG
equipment to maintain the physical facilities. It did use some. But a good deal of
the equipment was not used by KSS; instead KSS only maintained it in suitable
operating condition in ease the USCG needed it. Nugent testified that some of the
heavier equipment sat in place for more than year without being used by anyonc.
Some equipment was used only a handful of times annually. During the period of
inactivity KSS had to make sure the equipment ran.
KSS met its burden of showing fact that proved the valuation was
improper. The burden of proof thus shifted to the KIB to "introduce credible
evidence which substantiates its assessment.i
ss Cool Homes, 860 P.2d at 1263.
56 1R.. 12.
57 Tr. l l and 12.
58 Id.
3AN-1 I -08022C1 21
Kodiak Support Services vs. Kodiak Island Borough
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13. The KIB Did Not Meet Its Burden.
All that KIB offered to substantiate its assessment were the
explanations of the Assessor. Both his pre - hearing report (which the Court accepts
can be used to meet the shifted burden) and his comments at the hearing reveal
that the assessment was more the product of frustration with the perceived
recalcitrance of KSS (and its predecessors) than it was the product of a rational,
evidence based evaluation.
The Court is sympathetic with the Assessor's perception that KSS
was not being forthcoming about the USCG property that KSS may have used
enough to form a taxable possessory interest. The Court also appreciates that
KIB code permits the Assessor, when a "person has fail[ed], refuse[edj, or
neglect[edl to make or file said personal property return of properly owned by
him," to make an assessment using the "best information in his possession
concerning said property." G0 However, frustration cannot justify the reliance on
pure speculation. Nor does speculation in response to inadequate information
constitute a reasonable basis for specific valuations. Once the burden was shifted
59 The Court is not finding that KSS acted improperly in not filing a return
that identified the USCG property over which it had responsibility. The Court
appreciates that KSS could have determined in good faith that it had no possessory
interest in USCG property and thus need not identi fy that property on its return.
But KSS also could have avoided much of this controversy by providing the
Assessor with information about the BOSS contract and its relation with the
USCG either with a return or after the notice of the assessment.
G0 K113C 3.40.030.
3.AN- I 1- 08022CI 22
Kodiak Support Services vs. Kodiak Island Borough
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to K1I3, it failed to provide credible evidence that substantiated its assessment. The
BOE did not have a reasonable basis to accept the Assessor's evaluation.
C. Alternate Grounds for Reversal.
The BOE may have made a more fundamental error. The comments
of two or more of the BOE members strongly suggest that they understood KSS to
be making only a taxability argument rather than also a challenge to the valuation.
It appears the BOE rejected the arguments made by KSS because it deemed them
to be asking the BOE to act beyond its authority. The Court appreciates that in the
current factual context the line between a taxability challenge and one that attacks
the valuation (and argues it should be zero) is a fine one. Nonetheless there is a
difference.
The BOE may not have the authority to address taxability, but it
does have the authority to address challenges to valuation. KSS made such a
challenge. To the extent that the BOE did not address that challenge, it abused its
discretion because it failed to exercise its discretion.
V. Remedy.
At oral argument the Court asked the parties what should be the
remedy if the Court concluded that the BOE's decision should be reversed. The
parties were not sure.
The Court concludes that it should remand the case to the BOE for it
to remand the case to the Assessor for a new assessment. The Court concludes that
the best course of action is to permit both parties, KSS and KIB, to explore the
3AN- I 1-08022C1 23
Kodiak Support Services vs. Kodiak tsland Borough
Decision
complicated factual questions that this case raises. Both would benefit from a
thorough exploration of the responsibilities and abilities that KSS has under the
BOSS contract. It appears that KSS may well have a possessory interest in some
of the USCG equipment, but likely did not have such an interest in much of the
property it maintained for the USCG. Both parties have a significant financial
interest in the outcome of this case for the tax year 2011 and for subsequent years.
It would benefit the parties to have a more detailed and informed development of
the facts of the case so that the Assessor and then the BOB (and perhaps the
superior court in either or both an administrative appeal and direct challenge to
taxability) may exercise their duties to both KSS and KIB.
Both parties stated at oral argument (but without committing) that
they would be interested in beginning the informal interaction between taxpayer
and Assessor that often occurs before the notice of an assessment but which did
not occur here. That is what should occur on remand.
DONE this 20th clay of August 2012, at Ar cf hmi age, Alaska,
William F. Morse
Superior Court Judge
3AN -11- 0802201 24
Kodiak Support Services vs. Kodiak Island Borough
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Kodiak Island Borough
Assembly Special Meeting Guidelines
August 30, 2012, 7 p.m., Borough Conference Room
1. ROLL CALL
KIBC 2.16.070.... the Chair shall cause the record to reflect the absence of the member,
the REASON for the absence, and whether the absence is excused by the Assembly.
Recommended motion: Move to excuse Assembly Member Bonney who is absent
due to personal leave.
VOICE VOTE ON MOTION.
2. CITIZENS' COMMENTS (These are limited to three minutes per speaker.)
A. Agenda Items not scheduled for public hearing and general comments.
ASK SPEAKERS TO SIGN IN AND STATE THEIR NAME FOR THE RECORD.
3. CONSIDERATION OF MATTERS IN THE CALL FOR THE SPECIAL MEETING
A. EXECUTIVE SESSION
1. Kodiak Support Services vs. Kodiak Island Borough Board of Equalization.
Recommended motion: Move to convene into executive session to
discuss Kodiak Support Services vs. Kodiak Island Borough Board of
Equalization which qualifies for executive session under pending
litigation and attorney - client privileged communications.
ROLL CALL VOTE ON MOTION.
Please invite the Borough Assembly, Borough Attorney, Administrative Official,
Borough Assessor, and Clerk's Office Staff into executive session.
After the vote, Mayor Selby recesses the regular meeting and convenes the
executive session.
Upon returning from the executive session, Mayor Selby reconvenes the
regular meeting and announces no action is to be taken as a result of the
executive session
OR,the Assembly may make a motion if necessary.
ROLL CALL VOTE ON ANY MOTION.
Continued on next page...
Kodiak Island Borough Assembly Guidelines
August 30, 2012 Page 1
2. Discussion of the Borough Manager Selection Process.
Recommended motion: Move to convene into executive session to
discuss the Borough Manager selection process which qualifies for
executive session as a matter which would tend to defame or prejudice
the character or reputation of any person.
ROLL CALL VOTE ON MOTION.
Please invite the Borough Assembly, Borough Attorney, Administrative Official,
and Clerk's Office Staff into executive session.
After the vote, Mayor Selby recesses the regular meeting and convenes the
executive session.
Upon returning from the executive session, Mayor Selby reconvenes the
regular meeting and announces no action is to be taken as a result of the
executive session
OR the Assembly may make a motion if necessary.
ROLL CALL VOTE ON ANY MOTION.
15. ADJOURNMENT
Recommended motion: Move to adjourn the meeting.
ROLL CALL VOTE ON MOTION.
Kodiak Island Borough Assembly Guidelines
August 30, 2012 Page 2
SS. KODIAK ISLAND BOROUGH ASSEMBLY ROLL CALL SHEET I / 3v , ,
Regular Special Date:` &O I
Convened: Recessed: Reconvened: Adjourned: •, I
BY: BY: N BY: BY: wi BY:
SECOND: SECON�ji SECOND: SECOND: SECOND:
‘ 0, 04 4
ce
0 \ ff\Cli
YE NO .YES NO _ YES NO YES NO YES -NO
Ms. Austerman Ms. Austerman Ms. Austerma Ms. Austerman Ms. Austerman
Mr. Bonney y"Mr. Bonney _ 'r.:onney vr.:onne
Mr. Friend V/ Mr. Friend Mr. Friend V Mr. Friend Mr. Friend
Mr. Kaplan V Mr. Kaplan Mr. Kaplan ✓ Mr. Kaplan /1/ Mr. Kaplan
Ms. Lynch Ms. Lynch Ms. Lynch V Ms. Lynch / V Ms. Lynch
Mr. Stephens / Mr. Stephens Mr. Stephens Mr. Stephens Mr. Stephens
Ms. Stutes Ms. Stutes Ms. Stutes ✓ Ms. Stutes t / Ms. Stutes
CHANGE OF VOTE? HANGE OF VOTE? CHANGE OF VOTE? CHANGE OF VOTE? CHANGE OF VOTE?' HANGE OF VOTE?f .
TOTAL: TOTAL: TOTAL: ( D TOTAL: TOTAL:
The mayor may t vote except in the case where only six members of the assembly are present and there is a three /three tie vote of the assembly.
Mayor Selby Mayor Selby Mayor Selby Mayor Selby Mayor Selby
KODIAK ISLAND BOROUGH
WORK SESSION /SPEC/Pt /vIr✓ 71Nq
Work Session of: � (g0,070 /2
Please PRINT your name Please PRINT your, a e
< C \ C
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