Case 119438 CLERK OF THE APPELLATE COURTS Filed 2019 Oct 23 AM 10:25 No. 2018-119438-A IN THE COURT OF APPEALS OF THE STATE OF KANSAS IN THE MATTER OF THE EQUALIZATION APPEAL OF KANSAS STAR CASINO, L.L.C. FOR THE YEAR 2016 IN SUMNER COUNTY, KANSAS IN THE MATTER OF THE EQUALIZATION APPEAL OF KANSAS STAR CASINO, L.L.C. FOR THE YEAR 2017 IN SUMNER COUNTY, KANSAS REPLY BRIEF OF APPELLANT AND BRIEF OF CROSS-APPELLEE APPEAL FROM THE KANSAS BOARD OF TAX APPEALS DOCKET NOS. 2016-2148-EQ, 2016-2149-EQ, 2017-3172-EQ, AND 2017-3173-EQ Jarrod C. Kieffer (#21872) STINSONLLP 1625 N. Waterfront Parkway, Suite 300 Wichita, Kansas 67206-6620 Telephone: (316) 265-8800 Facsimile: (316) 265-1349 iarrodJdeffor(o)stinson.com Attorneys for Appellant, Kansas Star Casino, L.L.C. Oral Argument: 30 minutes CORE/0502372.0062/155465635.1 TABLE OF CONTENTS REPLY TO STATEMENTS OF FACT ....................................................................................... 1 REPLY TO ARGUMENTS AND AUTHORITIES ..................................................................... 6 I. Standard of Review ......................................................................................................... 6 Marriott Corp. v. Bd. of County Commissioners of Johnson County, 25 Kan. App. 2d 840 (1999) ....................................................................................... 6 In re Graham-Michaelis Corp., 27 Kan. App. 2d 467 (2000) ....................................................................................... 6 In re Equalization Proceeding of the Amoco Prod. Co.for the Years 2001 & 2001 from Grant County, 33 Kan. App. 2d 329 (2005) ....................................................................................... 6 In re Tax Refund Application of Affiliated Property Services, Inc., 19 Kan. App. 2d 247 (1993) ....................................................................................... 6 II. BOTA's Depreciation does not comport with USPAP ...................................................... 6 III. Kansas Star's claim that the Arena and conference center amenities are obsolete due to superadequacy is correct, but should be remanded to BOT A for such determination ........ 7 In re Equalization Appeal of Kansas Star Casino, L.L. C. for the Year 2015, No. 116,782 (Kan. Ct. App. July 20, 2018 (unpublished)) .......................................... 7 In re Equalization Appeal of Kansas Entertainment, L.L.C.,for the Tax Year 2015, Case No. 117,406 (Kan. Ct. App. Dec. 21, 2018) ....................................................... 8 a. KELA and the Management Contract Require Appellant (but not a subsequent hypothetical purchaser) to maintain the ancillary facilities .................................... 8 K.S.A. 79-505 ..................................................................................................... 9 K.S.A. 74-8734(m) ............................................................................................ 10 b. KELA and the management contract are not disregarded under a proper highest and best use analysis .......................................................................................... 11 1. KELA does not require an Arena to operate a casino .............................. 11 K.S.A. 74-8734(e) ................................................................................. 11 K.S.A. 74-8702(a) .................................................................................. 11 1 CORE/0502372.0062/155465635.1 K.S.A. 74-8736(b) .................................................................................. 13 In re Equalization Appeal of Kansas Entertainment, L.L. C., for the Tax Year 2015, Case No. 117,406 (Kan. Ct. App. Dec. 21, 2018) .............................. 13 11. Kansas Star's personal contractual obligations are not land use restrictions .............................................................................................. 14 K.S.A. 79-503a ...................................................................................... 14 In re Equalization Appeal of Ottawa Housing Ass'n, L.P., 27 Kan. App. 2d 1008 (Kan. Ct. App. 2000) ............................... 14, 15 K.S.A. 79-503(j) ..................................................................................... 14 K.S.A. 79-503a(j) ............................................................................. 14, 16 In re Equalization Proceeding of the Amoco Prod. Co. for the Years 2001 & 2001 from Grant County, 33 Kan. App. 2d 329 (2005), rev. denied 279 Kan. 1006 ................... 15 In re Tax Protest of Strayer, 239 Kan. 136, (1986) ........................................................................ 15 K.S.A. 79-102 ........................................................................................ 15 In the Matter of the Protest of Premier Petroleum, Inc., Docket No. 2006-8559-PR, at * 10-11 (Kan. Ct. Tax App. August 28, 2009) ............................................................... 15 In re Prieb Properties, L.L. C., 47 Kan. App. 2d 122, (2012) ............................................................. 16 c. The subject property suffers from substantial superadequacy as a matter of fact. .......................................................................................................................... 17 K.S.A. 79-505(b) ............................................................................................... 17 Marriott Corp. v. Bd. of County Commissioners of Johnson County, 25 Kan. App. 2d 840 (1999) ................................................................... 17, 18 In re Tax Appeal of Boeing Co., 261 Kan. 508, (1997) .................................................................................... 17 Kaufman v. Kansas Dept. of SRS, 248 Kan. 951 (1991) ..................................................................................... 18 11 CORE/0502372.0062/155465635.1 In re Equalization Appeal of Kansas Star Casino, L.L. C. for the Year 2015, No. 116,782 (Kan. Ct. App. July 20, 2018 (unpublished)) ............................ 18 CONCLUSION ......................................................................................................................... 19 11 CORE/0502372.0062/155465635.1 REPLY TO STATEMENTS OF FACT Appellant ("Kansas Star" or "Taxpayer") incorporates by reference its Statement of Facts from Brief of Appellant in this matter. In further reply to Appellee's (the "County") Statement of Facts, Kansas Star states as follows: At page 3 of its Brief of Appellee, the County discusses the details of various proposals through the three rounds of bidding in the south central gaming zone. The projects discussed in the first round of bidding (Harrah's, Penn National, and Marvel) were made before the Great Recession at the end of 2008. Harrah's, the presumptive winning bidder, withdrew its bid after the recession began. R. Vol. 1, part 1, pp. 157-158, Jr 14. Development proposals in subsequent rounds of bidding were much less expensive with fewer and smaller amenities. At page 4 of its Brief of Appellee, the County notes that Crossroads Consulting projected before the opening of the Kansas Star Casino that the arena would host 26 to 31 events per year and that Cory Morowitz prepared a market study, indicating that such events would generate $9 to 10 million in additional gaming revenue per year. The County leaves out that Morowitz prepared an earlier report in which he projected that the arena would host just 12 equine events per year and obtain just $2.152 million in additional gaming revenue from such events. R. Vol. 16, Ex. 648, p. 8656. He revised that report at the request of Peninsula Gaming (the original developer of the Casino) with the assumption of increased events as posited by Crossroads. Id. Of further note, the County, at page 8 of its Brief of Appellee, provides a quote from Tim Lanier, Kanas Star's former arena director, from a November 2014 issue of the Wichita Eagle. In that article, Lanier is quoted as saying that he expected only 10 to 12 equine events per year. The County also fails to note that neither projection came to fruition. Kansas Star has little success attracting equine events, and they do not generate revenue at or near the pre-opening projections. R. Vol. 61, pp. 172-174, 208-209, 272-276. As discussed at length in Kansas Star's CORE/0502372.0062/155465635.1 Brief of Appellant, the arena loses money and does not drive higher gaming revenues to offset such losses. At page 5 of its Brief of Appellee, the County notes Macomber's opinion that the arena was always understood to be a "loss leader," which would not make money on its own. While that narrow quote is accurate, it ignores the fact that the relevant consultants did expect the arena to drive gaming revenues, which would result in higher profitability for the overall project. R. Vol. 10, Ex. 616, pp. 70-71. Specifically, Peninsula Gaming originally projected that tourist visitation would increase nearly 250% from 99,911 in 2012 (Phase la, temporary casino only) to 240,461 by full build-out in 2016. Id. at p. 71. Peninsula further projected that the arena would increase gaming spend (i.e., revenue) from tourists by nearly 500% from $6,007,106 to $28,237,904 over that time period. Id. Finally, Peninsula believed that the addition of the arena amenities would increase overall profit (stated as net income, rather than EBITDA, in the projections) from $13 million in 2012 to over $43 million in 2016. R. Vol. 10, Ex. 616, p. 83. Thus, the value of the arena was not