Questions arise about inconsistency of property classifications in Kansas
Farm winery owners Bryan Zesiger and Gina Montalbano stirred up a hornet’s nest of property tax controversy by challenging Leavenworth County’s decision to classify a wine tasting room and 1.1 acres at the vineyard as commercial rather than agricultural property.
The issue surfaced when owners of Z&M Twisted Vines learned the Leavenworth County appraiser had decided 85.2 acres of the winery would be classified agricultural in 2022. An 1,860-square-foot implement building with space for wine processing and storage, a tasting room for wine and hard cider sales and an event space would be classified as commercial by the county for tax purposes.
Zesiger said it was unfair because other farm retailers in Leavenworth County hadn’t been hit with commercial labels. He said farm wineries in other counties didn’t receive comparable commercial designations. The inconsistency in taxation was potentially unconstitutional, he said, and threatened agritourism designed to promote rural economic development.
“This has become a playbook that counties use and will use across the state to get new taxes for the big growth of government,” Zesiger said in a letter sent to members of the Kansas Legislature.
He said replication of unjust agricultural-to-commercial property tax decisions could “tax agricultural families out of existence.”
Farm, ranch tourism
In September, Twisted Vines found allies in the Kansas Department of Agriculture and the Kansas Farm Bureau as they prepared to appeal to the Kansas Board of Tax Appeals.
Russell Plaschka, director of agricultural marketing with the state Department of Agriculture, said grapes were recognized as a specialty crop and wine met the definition of an agricultural product under state and federal law.
“It is our belief that, in the context of farm wineries, onsite processing of those grapes into wine is simply the next step of the viniculture process and a continuation of the agricultural activity,” Plaschka said.
Wendee Grady, director of the Kansas Farm Bureau Legal Foundation, said grapes and wine were agricultural products and a building on land contributing to production, storage and marketing of those products “should be classified and taxed as such.” State law specifically excluded farm wineries from the definition of “manufacturer,” Grady said. In addition, farm wineries were exempt from county zoning regulations.
Grady also said Twisted Vines was a registered operator under the Agritourism Promotion Act. Provisions of that law are to be “liberally construed” to promote rural tourism by encouraging farmers and ranchers to welcome the public to historic, cultural and natural attractions for recreational and entertainment purposes, the director said.
An intriguing decision
During a hearing before the state Board of Tax Appeals, Leavenworth County appraiser Robert Weber said the decision to consider the winery’s tasting room as commercial space reflected its “retail character.” He said the tasting room and event space served a food menu.
“We look at actual use. What’s going on,” Weber said. “We do not believe it makes it agricultural simply because the activity is going on on a parcel where they’re growing grapes.”
He said the county’s designation of a portion of the farm as commercial hinged on whether a “specific place” was dedicated to a commercial usage as opposed to an area used occasionally to sell a farm product. The county has authority to separately classify a portion of farm property with a distinct commercial purpose. In these cases, the taxing authority has the burden to provide evidence the classification of the property was proper.
“Events are taking place on the property,” said Roger Marrs, the Leavenworth County attorney. “The fact there’s also agricultural use on it doesn’t just automatically make the whole thing agricultural.”
Zesiger testified at the BOTA proceeding that every building on the property with exception of a residence was “100% devoted to making and selling wine and related products.” He argued for an expansive definition of “production” to include retail sales of farm products.
His testimony was that agricultural and commercial usages of property at Twisted Vines were so intermingled that classification of the property based on its predominant use — agriculture production — was appropriate.
In November, Twisted Vines lost their case before the Kansas Board of Tax Appeals. The decision by BOTA indicated Leavenworth County met its burden of proof to demonstrate the tasting room was properly classified as commercial. The opinion, however, raised questions about whether the county was consistent in determining what properties should be viewed as agricultural for property tax purposes.
BOTA conceded it had no authority within the framework of this case to tackle those wider property tax problems.
Here’s how BOTA put it: “Because the board has no procedural mechanism to address countywide classification decisions more broadly in this matter, the county’s classification of the subject property and corresponding valuation are sustained.”
‘Particularly instructive’
The state Board of Tax Appeals did outline three examples of how Leavenworth County was “not fair and equal” when it declared properties fully agricultural despite evidence of retail businesses at those locations.
The opinion noted Manna Meadows alpaca farm offered tours for a fee, a rent an alpaca program and sold alpaca wool products in a “farm store.” The Pietzsch 2L Farm was designated agricultural despite selling sides of beef and hosting upscale farm-to-table dinners. The Gilliland Next to Nature Farm included an “education center” in which beekeeping and canning classes were taught and products sold. It also featured a “honey tasting bar.”
Leavenworth County, during the taxing period at the root of the legal controversy with Twisted Vines, didn’t classify the three operations as commercial. The county offered no explanation in support of its decision to draw a distinction between those properties and Twisted Vines. BOTA found that “sorely lacking” and a potential violation of the Kansas Constitution, which mandates property classifications for tax purposes to be uniform and equal. BOTA said a valuation deemed contrary to this requirement was “illegal or void.”
“The evidence presented to the board strongly suggests that in this particular instance, where farms are engaged in retail sales and/or other nonproduction activities in designated areas of the farm, the county has failed to fulfill that obligation,” BOTA decision said.
In future years, the debate could be made moot by adoption of a Kansas law, effective July 1, 2022, that declared a farm winery tasting room could fall under the definition of property engaged in an agricultural purpose. That start date of that statute, however, came after the Jan. 1, 2022, effective date of the challenged Leavenworth County property valuation.
“Absent specific direction from the Legislature,” three members of the state Board of Tax Appeals said, “a substantive statutory amendment does not apply retroactively.”
There is bipartisan support in the Legislature for work to bring consistency to classification of agriculture and commercial properties. Sen. Caryn Tyson, a Parker Republican and chairwoman of the Senate Assessment and Taxation Committee, said the failure to guarantee fairness in the process would be examined by lawmakers.
“Consistency should be the case,” said Sen. Jeff Pittman, a Leavenworth Democrat. “It might be time for the Legislature to take action.”
Rep. Ken Corbet, R-Topeka, said one option would be to pass a bill requiring county appraisers to be elected rather than appointed. He said that was the only way to hold people accountable for questionable property tax decisions.
Zesiger said his next step regarding the 2022 property tax assessment could be the Kansas Court of Appeals. His goal remains reversal of the commercial classification attached to his property.
“I’m fighting an uphill battle,” he said. “I’m going to fight it all the way up.”
Kansas Reflector is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Kansas Reflector maintains editorial independence. Contact Editor Sherman Smith for questions: info@kansasreflector.com. Follow Kansas Reflector on Facebook and Twitter.
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