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23 Kan. App. 2d 496

No. 75,496

In the Matter of the Application of RIVERTON WATER COMPANY, INC., for Exemption From Ad Valorem Taxes in Cherokee County, Kansas.

SYLLABUS BY THE COURT

1. "Rural water district" is a technical term.

2. Technical words and phrases, and other words and phrases that have acquired a peculiar and appropriate meaning in law shall be construed according to their peculiar and appropriate meanings. K.S.A. 1995 Supp. 77-201 Second.

3. Statutes exempting property from ad valorem taxes are to be strictly construed against the party requesting the exemption.

4. In order to receive an ad valorem property tax exemption under K.S.A. 1995 Supp. 79-201a Third, a rural water district must follow the requirements of K.S.A. 82a-612 et seq.

Appeal from the Kansas Board of Tax Appeals. Opinion filed February 14, 1997. Affirmed.

Mark A. Burghart, of Alderson, Alderson & Montgomery, L.L.C., of Topeka, for appellant.

No appearance by appellee.

Before MARQUARDT, P.J., GREEN, J., and CAROL BACON, District Judge, assigned.

MARQUARDT, J.: Riverton Water Company, Inc., (Riverton Water) had requested an exemption from ad valorem property tax, pursuant to K.S.A. 1995 Supp. 79-201a Third, claiming that it held the status of a rural water district. The Board of Tax Appeals (BOTA) found that Riverton Water was not a rural water district until March 13, 1995, when the Cherokee Board of County Commissioners approved Riverton Water's incorporation as Riverton Rural Water District No. 9, and denied an exemption prior to that time. Riverton Water appeals.

Riverton Water provided water services for the city of Riverton, Kansas, in Cherokee County. Riverton Water was organized December 4, 1992, as a private, nonprofit organization, exempt from federal income taxes pursuant to section 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3) [1994]). At that time, Riverton Water filed articles of incorporation with the State of Kansas, stating that its purpose was "to serve the public welfare of the community." However, no petition was presented to the county commissioners to incorporate and organize Riverton Water as a rural water district.

In 1992, Riverton Water's request for a rural water district ad valorem property tax exemption was granted by BOTA. However, the Kansas Division of Property Valuation never received notice of the hearing. Upon application of the Director of Property Valuation, BOTA determined that Riverton Water was not a rural water district organized according to Kansas law, and the exemption was rescinded on November 2, 1994.

On March 13, 1995, Riverton Water was replaced by Riverton Rural Water District # 9, which was incorporated by the Board of Cherokee County Commissioners pursuant to the requirements in K.S.A. 82a-612 et seq.

On April 28, 1995, Riverton Water reapplied for an ad valorem property tax exemption for the years prior to its incorporation as a rural water district. Riverton Water contended that "it was performing the same services before the approval of the Board of [Cherokee] County Commissioners as it was performing after" and should not be treated differently due to a mere formality. Following a hearing on this matter, BOTA held that Riverton Water did not become a rural water district until March 13, 1995, and did not qualify for an exemption until that date.

K.S.A. 1995 Supp. 79-201a provides:

K.S.A. 82a-612 et seq. details the steps that must be followed to organize a rural water district, including the powers, responsibilities, and operational requirements. BOTA held that for Riverton Water to receive an exemption under K.S.A. 1995 Supp. 79-201a Third, it was required to follow the organizational requirements of K.S.A. 82a-612 et seq.

In its October 5, 1995, order, BOTA stated:

Riverton Water argues that strict compliance with K.S.A. 82a-612 et seq. and K.S.A. 19-270 is not required because Riverton Water was a de facto rural water district prior to March 13, 1995. Whether an entity claiming de facto status qualifies for an exemption under K.S.A. 1995 Supp. 79-201a is an issue of first impression in Kansas.

Riverton Water argues that the legislature omitted any cross reference between K.S.A. 82a-612 et seq. and K.S.A. 1995 Supp. 79-201a Third because it did not intend to prevent entities that acted in good faith, but that did not strictly comply with K.S.A. 82a-612 et seq., from receiving the benefit of a property tax exemption.

Under this reasoning, if the legislature had intended to require entities to comply with K.S.A. 82a-612 et seq., then the legislature would have specifically referred to it as was done in numerous other sections of K.S.A. 1995 Supp. 79-201a.

In 1949, the predecessor statute to 79-201a did not mention rural water districts, but instead allowed an exemption for "[a]ll works, machinery and fixtures belonging to and owned by any town, city or village, and used exclusively for conveying water to such town, city or village." G.S. 1949, 79-201 Seventh. In 1965, the statute was amended to exempt property "belonging to and owned by any rural water district, township water district, town, city or village." L. 1965, ch. 509, § 1. Under this amendment, the entity conveying water had to be either a governmental unit or a rural water district in order to qualify for the exemption.

"Rural water district" is not a common term, it is a technical one. "'[T]echnical words and phrases, and other words and phrases that have acquired a peculiar and appropriate meaning in law, shall be construed according to their peculiar and appropriate meanings.' [K.S.A. 1995 Supp. 77-201 Second.]" Hudgens v. CNA/Continental Cas. Co., 252 Kan. 478, 483, 845 P.2d 694 (1993). The term "rural water district" is not defined in Chapter 79 of the Kansas statutes. Under K.S.A. 82a-612(a), "district" is defined as "a rural water district organized pursuant to this act." BOTA relied on the provisions of K.S.A. 82a-613, K.S.A. 82a-614, K.S.A. 82a-616, and K.S.A. 19-270 to support its position that a rural water district must be incorporated and organized by a board of county commissioners before it attains the legal status of a rural water district.

"Subject to the provisions of K.S.A. 1986 Supp. 19-270, the board of county commissioners of each county in this state shall have power and it shall be their duty, upon a proper petition being presented, to incorporate and organize rural water districts in the manner hereinafter provided." (Emphasis added.) K.S.A. 82a-613.

K.S.A. 82a-616(b) provides: "Any district heretofore declared and incorporated by the board of county commissioners pursuant to a petition presented under this section, . . . is hereby ratified and declared to be a lawfully incorporated and existing district." (Emphasis added.)

K.S.A. 19-270 provides in pertinent part:

When read together, these statutes clearly establish that action by the board of county commissioners is essential in order to create a lawfully incorporated rural water district. Because "rural water district" is not a term that connotes a general meaning, it is reasonable to conclude that the legislature intended and expected parties wishing to utilize K.S.A. 1995 Supp. 79-201a Third to look for the definition and organizational requirements of a rural water district elsewhere in the statutes.

Riverton Water argues that its status prior to March 1995 is comparable to that of a de facto corporation which failed to meet all the statutory requirements of incorporation. Even though Riverton Water did not meet the statutory requirements for the formation of a rural water district, it argues that it did attempt to organize itself as a rural water district and that it proceeded in good faith upon the belief that it was a rural water district. Because a de facto corporation is a legal entity, Riverton Water argues that it should be treated as though it had met the statutory requirements for a rural water district.

For de facto corporation status, a corporation must prove that: (1) there is a statute under which incorporation is permitted; (2) a good faith attempt was made to comply with the statute; and (3) there was some use or exercise of corporate privileges. See In re Armed Forces Cooperative Insuring Ass'n, 5 Kan. App. 2d 787, 792, 625 P.2d 11 (1981). Riverton Water argues that it has met these three elements; however, Riverton Water did not attempt to comply with the organizational statutes.

Statutory references to the board of county commissioners' role in incorporating rural water districts are contained in K.S.A. 82a-601, K.S.A. 82a-604, K.S.A. 82a-605, K.S.A. 82a-613, K.S.A. 82a-614, K.S.A. 82a-616(b), and K.S.A. 19-270. We believe these statutes are indicative of the legislature's intent to require the approval of a rural water district by a board of county commissioners, thereby alleviating any doubt as to its formation and serving as notice to third parties. Riverton Water did not present a petition to the board of county commissioners. Hence, there was no evidence of a good faith attempt to comply with the statute.

Finally, during the period of time between November 2, 1994, (the date that Riverton Water's exemption was rescinded) and March 13, 1995, there is no evidence that Riverton Water was acting under a good faith belief that it was, in fact, a rural water district.

In order to receive an ad valorem property tax exemption under K.S.A. 1995 Supp. 79-201a Third, a rural water district must follow the requirements of K.S.A. 82a-612 et seq.

Affirmed.