                                        No. 120,387

             IN THE COURT OF APPEALS OF THE STATE OF KANSAS

                              In the Matter of the Appeal of
                             RIVER ROCK ENERGY COMPANY
               for the Year 2016 in Labette, Neosho, and Wilson Counties.


                              SYLLABUS BY THE COURT


1.
       The Kansas Judicial Review Act (KJRA), K.S.A. 77-601 et seq., governs appellate
review of rulings by the Kansas Board of Tax Appeals.


2.
       Any issues before this court requiring interpretation of administrative regulations
raise questions of law subject to unlimited review. Appellate courts no longer extend
deference to an agency's interpretation of statutes or regulations.


3.
       As a general rule, when construing tax statutes, provisions which impose a tax are
to be construed strictly in favor of the taxpayer.


4.
       K.S.A. 79-501 requires personal property to be appraised at its fair market value in
money.


5.
       K.S.A. 79-503a defines fair market value as the amount in terms of money that a
well-informed buyer is justified in paying and a well-informed seller is justified in


                                              1
accepting for property in an open and competitive market, assuming that the parties are
acting without undue compulsion.


6.
        Statutorily, oil and gas wells and leases are appraised in accordance with K.S.A.
79-331(a) and K.S.A. 79-503a in order to reach the actual fair market value in the
marketplace as opposed to a fictional, unrealistic, or arbitrary determination.


7.
        Substituting the minimum lease value for the working interest subtotal restricts
full consideration of two factors under K.S.A. 79-331(a)—the cost of operation and the
character of the market.


8.
        The requirement to use the greater of the minimum lease value or the working
interest subtotal (actual gross working interest value) strips the appraiser of the ability to
reconcile the two values to determine a reasonable fair market value of the property.


9.
        Filing fees that exceed the reasonable costs of administering an appeal amount to
an unconstitutional tax and revenue-generating measure.


        Appeal from the Kansas Board of Tax Appeals. Opinion filed April 10, 2020. Affirmed in part,
reversed in part, and remanded with directions.


        Keith A. Brock, of Anderson & Byrd, LLP, of Ottawa, for appellant River Rock Energy
Company.


        Jay D. Befort, deputy general counsel, and Shelley M. Woodard, attorney, of Legal Services
Bureau, Kansas Department of Revenue, for appellee Kansas Department of Revenue.

                                                   2
       Trevor C. Wohlford, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Topeka, for
appellees Labette, Neosho, and Wilson Counties.


Before MALONE, P.J., ATCHESON and SCHROEDER, JJ.


       SCHROEDER, J.: River Rock Energy Co. (River Rock) timely appeals asking for
judicial review of the Kansas Board of Tax Appeals' (BOTA) final order using minimum
lease values to value its gas wells and related equipment in Labette, Neosho, and Wilson
Counties (the Counties) for tax year 2016. On appeal, River Rock argues: (1) BOTA
erred in upholding the Counties' valuation of certain wells based on the minimum lease
values set forth in the Kansas Oil and Gas Appraisal Guide (the Guide) promulgated by
the Kansas Department of Revenue's Property Valuation Division (PVD); (2) BOTA's
decision led to an arbitrary and erroneous valuation of its wells; (3) BOTA's
characterization of the effect of the minimum lease value is contrary to the evidence in
the record; (4) BOTA's valuation of the equipment used in the wells was legally and
factually erroneous; and (5) BOTA erred in refusing to grant an abatement of the filing
fee and declining to docket and decide the appeals of 1,945 of River Rock's 2,150 wells.
For the reasons stated below, we affirm in part, reverse in part, and remand to BOTA for
further proceedings consistent with this opinion.


                                                  FACTS

       In June 2016, River Rock acquired a series of producing gas wells, leases, and
related assets and equipment in Kansas and Oklahoma through a bankruptcy sale. River
Rock's purchase allocated $1,716,847 to the 2,150 well properties in the Counties. After
taking possession, River Rock learned the Counties assigned a total appraised value of
$13,522,670 to its wells, most of which had been assigned a minimum lease value in
accordance with the Guide promulgated by PVD. River Rock failed in its attempts to
appeal the valuations with the Counties and timely filed payment under protest


                                                    3
applications with BOTA for all 2,150 wells. But River Rock only paid the applicable
filing fees for 205 of its wells despite BOTA's requirement it pay the full filing fee for
each well appealed—in total, $30,900 for the 205 wells. And two of those appeals were
settled while the matter was pending before BOTA. There are still 1,945 wells in limbo.


       River Rock timely filed a motion requesting consolidation of the appeals and
abatement of the filing fees it had paid for the 205 wells. Its motion further requested
BOTA docket the appeals for its remaining wells, consolidate those appeals, and grant an
abatement of the filing fees for all wells appealed after the first one. BOTA later issued
an order granting the motion for consolidation of the appeals and denying River Rock's
request for partial abatement of the filing fees, but its order was silent on River Rock's
request to docket the additional appeals.


       PVD petitioned for limited intervention—specifically, to defend against River
Rock's challenges to the lawfulness of the valuation methods set forth in the Guide.
BOTA granted PVD's petition. The consolidated appeal was submitted to BOTA without
hearing based on prefiled written testimony, stipulated exhibits, and various briefs and
written filings from River Rock, PVD, and the Counties. BOTA's final order stated the
subject property consisted of 203 gas wells, and the disputed issues presented were: (1)
whether the Counties' application of the Guide's minimum lease values caused an
erroneous valuation of the wells contrary to Kansas law; and (2) whether the evidence
presented warranted a departure from the Guide's valuation tables for certain equipment
in or on the subject wells.


       BOTA upheld the Counties' valuations, finding the use of the Guide's minimum
lease values was legally and factually appropriate, and River Rock failed to show the
evidence warranted a departure from the Guide's prescribed valuation method for each
well and the valuation method for the equipment values on each well.


                                              4
       Additional facts are set forth as necessary below.


                                                ANALYSIS


       The Kansas Judicial Review Act (KJRA), K.S.A. 77-601 et seq., defines the scope
of judicial review of state agency actions unless the agency is specifically exempted from
applying the statute. K.S.A. 77-603(a); Bd. of Cherokee County Comm'rs v. Kansas
Racing & Gaming Comm'n, 306 Kan. 298, 318, 393 P.3d 601 (2017). The KJRA governs
appellate review of BOTA rulings. K.S.A. 74-2426(c); see K.S.A. 77-603(a). On appeal,
"[t]he burden of proving the invalidity of the agency action is on the party asserting
invalidity." K.S.A. 77-621(a)(1); see In re Equalization Appeal of Wagner, 304 Kan. 587,
597, 372 P.3d 1226 (2016).


       Under the KJRA, we may only grant relief if one or more of the enumerated
circumstances in K.S.A. 77-621(c) are present:


               "(1) The agency action, or the statute or rule and regulation on which the agency
       action is based, is unconstitutional on its face or as applied;


               "(2) the agency has acted beyond the jurisdiction conferred by any provision of
       law;


               "(3) the agency has not decided an issue requiring resolution;


               "(4) the agency has erroneously interpreted or applied the law;


               "(5) the agency has engaged in an unlawful procedure or has failed to follow
       prescribed procedure;


               "(6) the persons taking the agency action were improperly constituted as a
       decision-making body or subject to disqualification;

                                                      5
               "(7) the agency action is based on a determination of fact, made or implied by the
       agency, that is not supported to the appropriate standard of proof by evidence that is
       substantial when viewed in light of the record as a whole, which includes the agency
       record for judicial review, supplemented by any additional evidence received by the court
       under this act; or


               "(8) the agency action is otherwise unreasonable, arbitrary or capricious."


       "[I]nterpretation of statutes and administrative regulations presents questions of
law subject to do novo review. . . . And we give no deference to an agency's
interpretation of its regulations." Central Kansas Medical Center v. Hatesohl, 308 Kan.
992, 1002, 425 P.3d 1253 (2018). As a general rule, when construing tax statutes,
provisions which impose a tax "are to be construed strictly in favor of the taxpayer." In re
Tax Exemption Application of Central Illinois Public Services Co., 276 Kan. 612, 616, 78
P.3d 419 (2003).


I.     DID BOTA ERR IN VALUING CERTAIN WELLS BASED ON MINIMUM LEASE
       VALUES?

       River Rock argues BOTA erred in upholding the Counties' valuations of certain
wells based on the use of minimum lease values set forth in the Guide. K.S.A. 79-329
provides:


               "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."


       K.S.A. 79-501 requires personal property "shall be appraised at its fair market
value in money." "'Fair market value' means the amount in terms of money that a well

                                                    6
informed buyer is justified in paying and a well informed seller is justified in accepting
for property in an open and competitive market, assuming that the parties are acting
without undue compulsion." K.S.A. 79-503a. "The appraisal process utilized in the
valuation of all real and tangible personal property for ad valorem tax purposes shall
conform to generally accepted appraisal procedures and standards which are consistent
with the definition of fair market value unless otherwise specified by law." K.S.A. 79-
503a. The relevant factors to consider when appraising oil and gas wells and leases for ad
valorem tax purposes include:


       "the age of the wells, the quality of oil or gas being produced therefrom, the nearness of
       the wells to market, the cost of operation, the character, extent and permanency of the
       market, the probable life of the wells, the quantity of oil or gas produced from the lease
       or property, the number of wells being operated, and such other facts as may be known
       by the appraiser to affect the value of the lease or property." K.S.A. 79-331(a).


       Statutorily, oil and gas wells and leases are appraised in accordance with K.S.A.
79-331(a) and K.S.A. 79-503a in order "'to reach the actual fair market value in the
market place as opposed to a fictional, unrealistic, or arbitrary determination.'" Board of
Ness County Commr's v. Bankoff Oil Co., 265 Kan. 525, 540-41, 960 P.2d 1279 (1998).
K.S.A. 79-505(a) provides: "The director of property valuation shall adopt rules and
regulations or appraiser directives prescribing appropriate standards for the performance
of appraisals in connection with ad valorem taxation in this state." Relevant to this issue
is PVD's procedures for oil and gas well and lease appraisals as explained in the Guide—
specifically, the use of minimum lease values as an appraisal method for marginally
producing wells.


       As BOTA acknowledged, the Guide provides for the subtraction of certain
operating costs from the working interest portion of an oil or gas lease. Most pertinent to
the issues on appeal is the Guide's Gas Rendition-Schedule Value Instructions
(Rendition). BOTA characterized the Guide's "'working interest minimum lease value'" as
                                                    7
"[t]he third method of expense allowance." As discussed later, River Rock challenges
BOTA's characterization of the minimum lease value as a method of deducting operating
expenses. However, BOTA correctly noted: "[T]he Guide allows a maximum lease
operating expense allowance of 90% of the working interest value to be deducted." But is
the Guide in compliance with the statutory directive for oil and gas wells to be appraised
at market value? We think not.


       River Rock's argument seems highly persuasive. The effect of Section VI of the
Rendition is to prevent the gross working interest in any producing well from ever
dropping to zero. In fact, that was the express intent of adopting the minimum lease value
when the Guide was developed. If the actual working interest subtotal (working interest
valuation minus allowable expenses) is lower than 10 percent of the working interest
valuation (working interest minimum lease valuation), the minimum lease value applies.
In other words, the use of the minimum lease value on limited-production wells will
always create an assessed value higher than the actual gross working interest value.


       This valuation method arbitrarily substitutes the higher of the two possible values
to determine the gross working interest. It takes no particularly onerous leap of the
imagination to envision a situation in which a gas well could be producing in some
amount, yet the allowable expenses/deductions (operating costs, wellhead compression,
and water expenses) make a zero or negative gross working interest value based on
current market conditions. In fact, the record reflects at least two of River Rock's wells
had negative gross working interest values—one at $-7,930 and another at $-12,790. No
well-informed buyer would be justified in paying for something with zero or negative
value. And no well-informed seller could conscionably entertain accepting payment for
the same. Moreover, substituting the minimum lease value for the working interest
subtotal restricts full consideration of two factors under K.S.A. 79-331(a)—the cost of
operation and the character of the market.


                                              8
       Section VI of the Rendition determines the working interest total market value by
adding the greater of the working interest subtotal or the minimum lease value to the
value of certain equipment used or contained in the well. The assessed value for taxation
purposes is then determined as a percentage of the working interest total market value.
But this valuation is necessarily inconsistent with the fair market value of the property
when the minimum lease value (Section VI, Line 6) is used in place of the actual gross
working interest value (Section VI, Line 5). So the use of the minimum lease value
causes an assessed valuation greater than the fair market value for the subject wells,
which violates the statutory directives of K.S.A. 79-331(a) and K.S.A. 79-503a to
determine the actual fair market value rather than an arbitrary value. See Bankoff, 265
Kan. at 540-41. Thus, BOTA's decision resulted from an erroneous interpretation or
application of the law. River Rock has met its burden to show BOTA improperly applied
the law and is entitled to relief under K.S.A. 77-621(c)(4).


II.    DID BOTA'S USE OF MINIMUM LEASE VALUES LEAD TO ARBITRARY AND
       ERRONEOUS VALUATIONS?

       River Rock argues the valuation of its wells based on the minimum lease value
caused an arbitrary assessment contrary to applicable statutes. River Rock divides its
argument into various subpoints. For the sake of brevity and clarity, we decline to address
fully its arguments on many of these subpoints as they are addressed previously in the
minimum lease section. Even so, River Rock makes a persuasive argument that BOTA
erred in finding the minimum lease value works along with the other valuation methods
prescribed in the Guide. We agree the Guide does not allow for the proper reconciliation
of market values when the working interest values and minimum lease values are so
disparate.


       For the benefit of the parties, we insert at this point a sample copy of the pertinent
sections of the rendition statement:


                                              9
       This form also will be helpful as we discuss the lines involving the proper
methodology for appraising all the equipment used in and on the wells at issue.


       As River Rock points out, the Uniform Standards of Professional Appraisal
Practice (USPAP) guidelines describe reconciliation as a process in which the appraiser
analyzes two different conclusions based on alternative valuation methods and weighs the
appropriateness of each approach to determine the correct value based on the intended
use of the appraisal. River Rock's citation to the USPAP guidelines is persuasive and well
founded as USPAP appraisal methodologies have consistently been cited approvingly by
Kansas appellate courts in the context of other ad valorem tax appraisals. See generally In
re Equalization Appeal of Kansas Star Casino, 52 Kan. App. 2d 50, 65-66, 362 P.3d
1109 (2015).



                                            10
       Line 7 of Section VI of the Guide instructs the appraiser to use "whichever line is
greater" of either Line 5 (working interest subtotal) or Line 6 (minimum lease value) of
Section VI. This renders the two options mutually exclusive. Deductions for actual costs
and other expense allowances are no longer factored into the working interest total
market value when the minimum lease value is used instead of the working interest
subtotal. Instead, this allowance is capped at 90 percent of the unadjusted working
interest value by substituting the minimum lease value, which is contrary to the
proposition a tax statute is to be strictly construed in the favor of the taxpayer. See
Central Illinois Public Service Co., 276 Kan. at 616. Line 7 of Section VI prevents the
appraiser from engaging in a proper reconciliation analysis because it requires the higher
of the two values be used. This does not allow for sufficient consideration and
reconciliation of the two values consistent with the intent of the appraisal—to determine
the fair market value of the property. See K.S.A. 79-331(a); K.S.A. 79-503a. Rather, it
reflects an intent to produce a desired result—always using the higher value, increasing
the assessed value and the resulting ad valorem tax levied.


       Deducting 90 percent of the unadjusted working interest value under the minimum
lease value may seem like a hefty allowance for expenses. Even so, the resulting gross
working interest based on the minimum lease value may still be a significant amount, i.e.,
hundreds or even thousands of dollars. Yet, River Rock presented unrebutted evidence
that actual expenses can and do create wells with zero or negative gross working interest
values. Here, the record reflects the previously mentioned wells with negative gross
working interest values were assigned minimum lease values of $4,908 and $4,422,
respectively. No well-informed buyer would be justified in paying hundreds, much less
thousands, of dollars for something with a zero or negative value. The requirement to use
the greater of the minimum lease value or the working interest subtotal (actual gross
working interest value) strips the appraiser of the ability to reconcile the two values to
determine a reasonable fair market value of the property. BOTA's decision reflects an
erroneous interpretation or application of the law, factual findings unsupported by the

                                              11
record, and/or an otherwise arbitrary action. Thus, River Rock has met its burden to show
it is entitled to relief under K.S.A. 77-621(c)(4), (7), and/or (8).


III.   WAS BOTA'S CHARACTERIZATION OF THE EFFECT OF THE MINIMUM LEASE
       VALUE CONTRARY TO THE EVIDENCE?

       River Rock argues BOTA incorrectly characterized the minimum lease value as a
method of deducting operating expenses. In a very narrow sense, River Rock is partially
correct; however, its argument is ultimately unpersuasive. BOTA's characterization is
perhaps better labeled as an over-simplification of the evidence and the operative effect
of the Guide's use of minimum lease values, which apply when the deductions allowed
for costs and expenses in Lines 3 and 4 of Section VI exceed 90 percent of the unadjusted
working interest value from Line 2. The minimum lease value allows for deduction of
expenses, albeit incidentally. Before assigning the minimum lease value, the appraiser
must calculate the working interest subtotal, which considers the actual expense
allowances. Since the minimum lease value applies when it is greater than the working
interest subtotal, deductions for some, but not all, operating expenses and other
allowances are implicitly considered.


       Based on the comparison required by Line 7 of Section VI, it appears BOTA
correctly characterized the minimum lease value as a method of deducting operating
expenses equal to 90 percent of the working interest value. This result still leads to an
effective deduction of operating expenses, albeit in a lesser amount than the actual
expenses incurred. River Rock's argument is unavailing because it is essentially a
distinction without a difference. Nevertheless, resolving this issue is unnecessary based
on our holding the use of minimum lease values is legally erroneous.




                                              12
IV.    DID BOTA ERR IN VALUING THE EQUIPMENT IN THE WELLS?


       River Rock argues its wells were incorrectly appraised based on the prescribed
equipment values applied to the wells. River Rock asserts it presented undisputed
evidence that the true fair market value of its equipment was $0.00. Specifically, River
Rock argues the Counties' valuation of the equipment was unsupported by the record.


       To determine the assessment value of the wells for taxation, the working interest
total market value (Line 10) is calculated by adding the greater of the working interest
subtotal or the minimum lease value (Line 7) to the value of certain equipment used as
part of or contained within the well (Lines 8a-c and 9), then multiplying the working
interest total market value by a prescribed percentage. The equipment in the wells valued
in Line 8a consisted of (1) a pumping unit with motor; (2) a gas separator; (3) tubing and
rods situated in the well bore; and (4) an insert pump situated in the well bore. River
Rock relies on the following testimony of its expert witness, Jim Allen: "'As a result of
River Rock's decision to plug and abandon a large number of unprofitable wells, I have
made a very extensive effort . . . to sell the equipment associated with such wells.'"
(Emphasis added.) This testimony is problematic for many reasons. First, the equipment
in question is only that associated with the unprofitable wells. While Allen stated there
were a large number of unprofitable wells, it is unclear how many of River Rock's wells
were unprofitable, and of those unprofitable wells, how many were included in the 203
appeals BOTA actually decided in its order.


       Second, River Rock fails to acknowledge the significance of the reason the wells
were unprofitable. Allen testified:


       "The Subject Wells are very shallow, marginal [coalbed methane] wells and producing
       conditions associated with these wells are very unique to southeast Kansas and northeast
       Oklahoma. . . . In addition, with the low natural gas prices that have been prevalent over


                                                   13
       the last few years, there have been very few, if any, new [coalbed methane] wells drilled
       in this area. . . . [T]he narrow market for this equipment combined with the current
       market conditions has rendered this equipment worthless at this time." (Emphases added.)


Allen also stated the removal and sale of the equipment was typical "[w]hen River Rock
temporarily abandons a well prior to plugging the well." (Emphasis added.)


       Allen's testimony points to several market conditions that are subject to change
and is generally unrelated to the condition or usefulness of the equipment within its
intended application. Mainly, Allen's testimony shows natural gas prices affect the value
of the equipment if it is designed for use in shallow, marginally producing wells. Nothing
in Allen's testimony suggests these wells would be unprofitable if the price of natural gas
went up, much less that the equipment itself is or would be unsuitable for use as market
conditions improved. To the contrary, it seems the equipment is particularly suited to the
unique nature of the subject wells. It is the marginal production capacity of the wells
coupled with the current price of natural gas that renders the wells unprofitable at this
time. But these factors are separately accounted for in Section V (Gross Reserve
Calculation) and Lines 2 through 7 of Section VI of the Rendition.


       River Rock is trying to tie the value of the equipment to variable market
conditions in a manner that could lead to drastic swings in its value from year to year. But
this would largely render meaningless general market principles that the value of
equipment will depreciate over time based on age, wear, and obsolescence. Under River
Rock's proposed valuation, its equipment might be considered more valuable five years
from now than it was five years ago. Moreover, Allen's testimony suggests River Rock
was only temporarily abandoning the wells, supporting a reasonable inference that River
Rock believed the wells' reserves were sufficient to produce in profitable quantities given
an increase in natural gas prices. Allen's testimony that the equipment is specifically
intended for use in shallow coalbed methane wells supports another reasonable inference

                                                   14
that the same or substantially similar equipment could or would be used if the market
price of natural gas improved, thus, making the wells profitable in the future.


       Finally, River Rock fails to point to any record evidence regarding the age of the
equipment; its original value; the general depreciation of its value over time; the most
recent value of the equipment before the decline in natural gas prices; an estimate of the
equipment's value in its present condition without the decline of natural gas prices;
anything suggesting River Rock's wells or similar wells could not produce in paying
quantities despite a potential favorable change in market conditions, i.e., the wells'
reserves were already exhausted; or any evidence on the relative stability of natural gas
prices over time.


       River Rock failed to establish the equipment's current condition coupled with its
remaining economic livelihood and the likely duration of continuing market conditions
would render it valueless to a well-informed buyer or a well-informed seller. Among
other factors, K.S.A. 79-331(a) requires consideration of "the character, extent and
permanency of the market." (Emphasis added.) River Rock fails to account for or
consider the permanency of the market conditions supporting its current proposed
valuation of the equipment.


       Simply put, a well-informed buyer might be justified in declining to purchase
otherwise serviceable equipment for which it has no presently profitable use. Even so, a
well-informed buyer would not be justified in expecting to pay nothing for the same
equipment when its present condition could render its use profitable with reasonably
probable changes in market conditions. Similarly, a well-informed seller would not be
justified in accepting nothing in return for otherwise serviceable equipment with ongoing
economic viability given a favorable change in market conditions.




                                             15
       Here, River Rock failed to show either its equipment was already of minimal value
in its present condition or the existing market conditions rendering its present use
unprofitable were likely to persist so as to render the equipment obsolete or unserviceable
by the time any favorable change in market conditions might occur. BOTA properly
rejected River Rock's valuation on the basis the evidence presented was "scant" and
"insufficient." River Rock has not met it burden to prove BOTA's valuation of the
equipment was improper except as explained below.


       However, River Rock's argument on imputing the values in Line 8b of certain
segments of underground poly flow lines used to connect the gas wells to a separate
saltwater disposal well (SWD) is persuasive. River Rock presented uncontested evidence
the flow lines connected to the SWD could not be physically salvaged without destroying
them. Even if they could be salvaged, the cost to remove the lines would far exceed any
salvage value. And River Rock presented undisputed testimony there exists no market for
used SWD flow line because it is inexpensive to produce in new condition and no
prudent operator would purchase and install used flow line due to the potential for costly
leaks. If the value of the SWD flow lines was included in the working interest total
market value (Line 10), BOTA's decision affirming the Counties' valuations of the
subject wells was based on a finding of fact made or implied without proper support in
the record and/or resulted from an arbitrary failure to consider undisputed evidence.
Thus, whatever value was added for the SWD flow lines must be subtracted out and
River Rock is entitled to relief under K.S.A. 77-621(c)(7) and/or (8) by reducing the total
equipment value.

V.     DID BOTA ERR BY REFUSING TO GRANT FILING FEE ABATEMENTS?

       River Rock argues BOTA erred in refusing to grant an abatement of any portion of
the filing fees paid and refusing to docket the appeals for its remaining wells. The
Counties contend we lack jurisdiction to consider the issue. The Counties first argue we


                                             16
cannot consider the denial of abatement under the KJRA because (1) it is an
administrative order, not an adjudicative order, and (2) BOTA cannot be joined as a party
to this action and therefore cannot properly participate in a matter in which it has a direct
and substantial interest. The plain language of K.S.A. 74-2438a(a) matches our Supreme
Court's guidance in Kansas Bldg. Industry Workers Comp. Fund v. State, 302 Kan. 656,
674-75, 359 P.3d 33 (2015) (regulatory measures intended to reimburse the State for the
costs related to administrative measures and proceedings are valid if such fees are
reasonable in relation to the actual costs involved). The propriety of BOTA's decision
turns on whether it erroneously interpreted or applied the regulation or engaged in an
unlawful procedure or failed to follow prescribed procedures. These questions are
properly within the scope of review under the KJRA. See K.S.A. 77-621(c)(4) and (5).


       The Counties further argue we lack jurisdiction because River Rock did not seek
judicial review within 30 days of BOTA's order consolidating the docketed appeals. For
consolidation, BOTA's order stated: "The Board . . . finds the Taxpayers' Motion for
Consolidation of Appeals is granted, and the appeals referenced in the motion shall be
consolidated." There is significant ambiguity in the meaning of "the appeals referenced in
the motion." BOTA's order could be interpreted to mean it would docket the additional
appeals but would not grant any abatement of the filing fee already paid. The order also
failed to provide the required notice under K.S.A. 77-613(e).


       The Counties' argument is unpersuasive because BOTA's consolidation order was
unclear on whether it would consider the motion as a notice of appeal for the additional
wells, which River Rock had specifically requested. On its face, the order provided no
definitive indication that BOTA was dismissing any additional appeals for which the
filing fees had not been paid. At best, this could be loosely inferred from the caption of
the order, listing only the originally docketed appeals. There is no clear indication in the
record that BOTA declined to docket and consider the additional appeals outside its final
order. Because BOTA's order on River Rock's motion for consolidation and abatement

                                             17
violated the final order notification provisions of K.S.A. 77-613(e), it did not trigger the
30-day limit to seek judicial review under the KJRA. See Heiland v. Dunnick, 270 Kan.
663, 673, 19 P.3d 103 (2001). But the merits of River Rock's arguments cannot be fully
determined by us at this time. We must remand for further findings.


       Without abatement, the filing fee for all 2,150 wells using the full filing fee in the
amount of $150 per well would have been $322,500. River Rock filed notices of appeal
and paid the full filing fees for 205 of its wells—$30,900—and filed a motion for
consolidation of appeals and abatement of the filing fees for all the wells after payment of
the full filing fee for the first well on appeal. The matter was decided on prefiled written
testimony and stipulated exhibits. No evidentiary hearing took place, and River Rock's
challenge to the valuation of nearly all its wells presented the same legal argument
because nearly all of its wells had been assigned minimum lease values under the Guide.
From this record, we cannot differentiate between those wells with minimum lease values
and those with some other valuation, if any. The 2016 taxes for all of River Rock's wells
were $487,723.75; thus, the full filing fee would have amounted to slightly more than 66
percent of the total taxes; in our opinion, it seems excessive and fiscally unsound to
require a taxpayer to pay such a large amount to exercise the right to appeal.


       Filing fees that exceed the reasonable costs of administering the appeals amount to
an unconstitutional tax and revenue-generating measure. See Kansas Bldg. Industry
Workers Comp. Fund, 302 Kan. at 674-75. K.A.R. 94-5-8(e)(2) provides for abated filing
fees for property comprising a single economic unit. The prescribed abated filing fee
should have been $150 for the most valuable well plus $25 for each additional well.
However, this would have required a filing fee of $53,875 ($150 + [$25 x 2,149]) for all
2,150 wells. Neither BOTA nor River Rock fully complied with the applicable
administrative regulation. Either BOTA potentially overcharged River Rock by up to
$25,650 for the appeals it docketed ($30,900 – [$150 + (204 x $25)]), or River Rock
underpaid by $22,975, making 919 wells for which it failed to pay the abated filing fee

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([$53,875 - $30,900] x [1 well/$25]). But strict adherence to the abated filing fee
provisions under K.A.R. 94-5-8(e)(2) may be still inappropriate if it leads to payment of
filing fees above the reasonable costs of administering the proceedings. See Kansas Bldg.
Industry Workers Comp. Fund, 302 Kan. at 674-75.


       In its motion, River Rock requested BOTA also docket appeals on its remaining
wells, construe the motion as notice of appeal for those wells, consolidate the additional
appeals with those already filed, and grant an abatement of the filing fee for the
additional appeals. River Rock's motion did not state what it believed it should pay as an
abated filing fee for the additional appeals. While BOTA granted the motion to
consolidate the appeals but denied the request for abatement, the order did not reflect
whether BOTA would docket and consider the appeals on the additional wells. It could
reasonably be construed that BOTA would docket the additional appeals but decline to
grant any abatement of the filing fees already paid by River Rock as a result. BOTA's
order provided no meaningful explanation for why it was denying an abatement. It simply
stated it had charged such fees in the past and was allowed to do so under its own
regulations. This does not answer the pertinent question—whether the fee was reasonable
in relation to the actual costs involved.


       We have jurisdiction to consider the abatement issue, generally, pursuant to
K.S.A. 77-621. Even so, the record appears insufficient to determine how much, if any,
the filing fees should have been abated, although it seems extremely unlikely the costs for
deciding this consolidated appeal reached or exceeded $30,900. When it moved for
consolidation and abatement, River Rock was still within the time limit for filing notices
of appeal on its remaining wells. BOTA's final order fails to explain why it refused to
docket the remaining appeals. BOTA cited no regulation(s) about the form of the notice
of appeal as a basis for dismissing any additional appeals. Strictly following K.A.R. 94-5-
8(e)(2), the filing fees River Rock paid could have covered appeals for some, but not all,
of its additional wells. But it is unclear what the actual administrative costs were for the

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docketed appeals and what additional costs, if any, BOTA would have incurred if it
docketed all of the well appeals with an abated fee of $25.00 after the first and most
valuable well. BOTA's own regulation provides for the abatement, and the facts of this
appeal seem to fit the reason abatement is provided for in BOTA's regulations. The issues
on appeal appear to be identical or nearly identical for each well—the proper appraisal
method for the wells and related equipment.


       At this point, the issue need not be fully decided on the merits. We remand for
BOTA to explain its decision. BOTA's reasoning for denying abatement was simply:
"The Board further finds it has consistently charged filing fees in the past, as it has in this
matter, and as allowed by its regulations."


       Further explanation on remand allows BOTA to elaborate on the basis for its
decision. It cannot simply prescribe and enforce regulations related to filing fees to
generate revenue or because it has imposed them in the past. BOTA does not have a
substantial and direct interest in the collection of filing fees simply to charge and collect
whatever amount it deems appropriate. BOTA's regulatory authority is not unlimited.
Rather, it is constrained by K.S.A. 74-2438a(a), which authorizes the director of BOTA
to charge and collect a filing fee "to recover all or part of the costs of processing such
actions incurred by the state board of tax appeals."


       If BOTA's decision turned on a conclusion that it lacked jurisdiction to consider
River Rock's additional appeals, then we have subject matter jurisdiction to review
BOTA's conclusion as to its own jurisdiction. See Wall v. Kansas Dept. of Revenue, 54
Kan. App. 2d 512, 514, 401 P.3d 670 (2017). But BOTA's findings in its consolidation
order and its final opinion are insufficient to determine whether its decision hinged on a
jurisdictional determination. Thus, we remand for more findings before BOTA for what
remedy, if any, BOTA has to address River Rock's request for abatement.


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                                        CONCLUSION

       Based on our findings, we affirm BOTA's valuation of the equipment used on and
in the wells, except the value of the poly pipe as explained below to determine the
working interest value, but we reverse and remand for BOTA to make the following
determinations:


             Whether the request to docket and consolidate the additional appeals was
              denied because of: (1) the form of the notice of appeal used by River Rock;
              (2) River Rock's failure to pay the filing fees in full for all 2,150 wells; or
              (3) River Rock's failure to pay the correct amount assuming the full filing
              fee had only been assessed for the first most valuable well and abated for
              each of the other 2,149 wells under K.A.R. 94-5-8(e)(2).


             Whether: (1) abatement is feasible under these facts; (2) BOTA should
              have allowed abatement of the filing fee for the docketed appeals to $25.00
              per well after payment of the full filing fee for the first most valuable well;
              and (3) the request by River Rock to docket the additional appeals in its
              motion for consolidation and abatement sufficiently preserved the issue for
              all wells not contained in the initial order of consolidation.


             If BOTA determines abatement is not feasible, it must explain what
              additional administrative costs, if any, were incurred to support denial of
              the request to abate.


             What additional filing fee, if any, River Rock must pay to docket appeals
              for any wells not docketed in the order of consolidation, explaining what
              additional administrative costs, if any, will be incurred.



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             Reassessment of all wells subject to this appeal without the use of the
              minimum lease value because the current valuation deviates from
              applicable law.


             Remove the valuation for the poly pipe used in the SWD flow lines in each
              of the wells subject to this appeal because it has no economic life left and
              is, therefore, worth nothing when considering the individual well values.


             Follow the previous valuation used for the other equipment in and on each
              of the wells subject to this appeal as reflected on line 8a of Section VI.


       Without BOTA's determination of whether abatement should have been allowed
under these facts and whether the actions of River Rock sufficiently preserved its right to
appeal on all 2,150 wells, we cannot fashion what, if any, other remedy is available to
River Rock.


       Affirmed in part, reversed in part, and remanded with directions.




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