If Kansas environmental rules force my fertilizer or chemical facility to build a containment dike and concrete loading pad, do I get taxed on them?

Plain-English summary

In 1989 the Kansas legislature enacted K.S.A. 2-1227, authorizing the State Board of Agriculture to write rules "for the safe handling and storage of commercial fertilizers, fertilizer materials, and chemicals to protect ground and surface waters." Those regulations (K.A.R. 4-4-1 through K.A.R. 4-4-954) took effect January 14, 1991. Facilities had to file a compliance plan within a year, and once a plan was approved they got "two years to complete the requirement for a concrete loading pad and three years to construct a dike around their storage area."

That left county appraisers with a question: a facility now has a concrete pad and an earthen dike it did not have before, and did not want. Are those new taxable value?

The Division's answer separates two things that are easy to conflate — listing and valuing.

• Listing: "Under Kansas property tax laws, the loading pads and dikes must be listed for taxation." They go on the roll with the storage facility. There is no exemption here.
• Valuing: Whether they carry any value is a separate question, and the directive tells appraisers not to assume they do. "It is arbitrary to claim property has value because it exists, particularly where the property exists solely because of government regulations. The market establishes value, not government regulations."

The test the Division gives appraisers is an economic one: "the appraiser should ascertain whether these loading pads and dikes are an expense, or, in fact, an investment which produces value." A cost you were compelled to incur is not automatically an asset.

The operative instruction is the emphasized closing line: appraisers "should list these loading pads and dikes with the storage facilities; however, they should be valued only if the market establishes that they contribute value to the facility."

What this means for you

Fertilizer and agricultural chemical dealers

Expect to see the pad and dike on your property record — that much is required. But do not accept a valuation just because the structures physically exist and cost real money to build. The directive puts the burden on market evidence: does a buyer of your facility pay more because the containment is there? If the honest answer is that compliance was pure cost, that is exactly the situation the directive addresses.

Appraisers and anyone reading a property record

The directive is a caution against the cost approach on its own. Construction cost is not the measure here; contribution to the facility's value is. A structure can be expensive, mandatory, and still add nothing a buyer will pay for.

If you are challenging an assessment

The language to point to is that valuation must be driven by whether the improvement "contribute[s] value to the facility," and that it is "arbitrary to claim property has value because it exists." Useful evidence is market evidence: comparable sales of similar facilities with and without containment, or an income analysis showing no rent or margin attributable to the pad and dike.

Accountants and tax professionals

Note the structural point, because it recurs across property tax: an item being non-exempt and listed does not settle its value. Clients often assume that a compliance-driven capital expenditure automatically raises their assessment. Under this directive it does not, unless the market supports it. Worth checking on any client that built containment under the K.A.R. 4-4 series — and worth confirming the current Division guidance, since this directive dates from 1994.

Common questions

Q: Are mandated containment dikes and loading pads exempt from Kansas property tax?
A: No. The directive says they "must be listed for taxation." The question it answers is valuation, not exemption.

Q: So will I be taxed on what the dike cost me to build?
A: Not necessarily. The directive instructs that they "should be valued only if the market establishes that they contribute value to the facility," and warns that the market, not a regulation, establishes value.

Q: What is the appraiser supposed to decide?
A: "[W]hether these loading pads and dikes are an expense, or, in fact, an investment which produces value."

Q: Where did the requirement to build them come from?
A: K.S.A. 2-1227, enacted in 1989, authorized the State Board of Agriculture to adopt rules for safe handling and storage of commercial fertilizers, fertilizer materials, and chemicals to protect ground and surface waters. The resulting regulations became effective January 14, 1991.

Q: What were the deadlines?
A: Each facility had to submit a compliance plan to the State Board of Agriculture within one year of the regulations' effective date -- by January 14, 1992. After plan approval, two years to complete the concrete loading pad and three years to build the storage-area dike.

Q: Does this apply to other kinds of pollution control property?
A: The directive's subject is "Appraisal of Pollution Control Structures," but its text discusses only the fertilizer and chemical containment dikes and loading pads required under the K.A.R. 4-4 regulations. It does not decide the treatment of other pollution control property.

Citations and references

Kansas statutes and regulations:

• K.S.A. 1993 Supp. 79-505 (authority for the directive)
• K.S.A. 2-1227 (1989; State Board of Agriculture rulemaking for safe handling and storage of commercial fertilizers, fertilizer materials and chemicals)
• K.A.R. 4-4-1 to K.A.R. 4-4-954, inclusive (containment regulations; effective January 14, 1991)

Key holding, verbatim: "Appraisers should list these loading pads and dikes with the storage facilities; however, they should be valued only if the market establishes that they contribute value to the facility."

Source

• Landing page: Kansas Property Tax Directives
• Original PDF: PVD Directive 94-029

Original ruling text

DIRECTIVE #94-029

TO: County Appraisers

SUBJECT: Appraisal of Pollution Control Structures

This directive is adopted pursuant to the provisions of K.S.A. 1993 Supp. 79-505, and shall be in
force and effect from and after the Director’s approval date.

K.S.A. 2-1227 was enacted in 1989 authorizing the State Board of Agriculture to adopt rules and
regulations for the safe handling and storage of commercial fertilizers, fertilizer materials, and
chemicals to protect ground and surface waters. These regulations (K.A.R. 4-4-1 to K.A.R. 4-4-
954, inclusive) became effective January 14, 1991, and required each facility to submit a
compliance plan to the State Board of Agriculture within one year of the regulation’s effective
date, i.e., by January 14, 1992. Once the prescribed plan is approved, the facility has two years
to complete the requirement for a concrete loading pad and three years to construct a dike around
their storage area. Many facilities have completed the construction of these fertilizer/chemical
containment dikes and loading pads.

Under Kansas property tax laws, the loading pads and dikes must be listed for taxation.
However, in valuing such loading pads and dikes, the appraiser must be careful to ascertain
whether they contribute to the facility’s value. It is arbitrary to claim property has value because
it exists, particularly where the property exists solely because of government regulations. The
market establishes value, not government regulations. In summary, the appraiser should
ascertain whether these loading pads and dikes are an expense, or, in fact, an investment which
produces value.

Appraisers should list these loading pads and dikes with the storage facilities; however,
they should be valued only if the market establishes that they contribute value to the
facility.

APPROVED: June 22, 1994 _________
David C. Cunningham
Director of Property Valuation