Opinion
NO. 2013-CA-000984-MR NO. 2013-CA-001090-MR
05-23-2014
CITY OF CORBIN AND JOE WHITE APPELLANTS/CROSS-APPELLEES v. KNOX COUNTY APPELLEE/CROSS-APPELLANT
BRIEFS FOR APPELLANTS/CROSS-APPELLEES: Patrick R. Hughes Nicholas C. Birkenhauer Crestview Hills, Kentucky ORAL ARGUMENT FOR APPELLANTS/CROSS-APPELLEES: Nicholas Birkenhauer Crestview Hills, Kentucky BRIEFS FOR APPELLEE/CROSS-APPELLANT: Douglas L. McSwain Leila G. O'Carra Courtney R. Samfort Lexington, Kentucky ORAL ARGUMENT FOR APPELLEE/CROSS-APPELLANT: Douglas L. McSwain Lexington, Kentucky
NOT TO BE PUBLISHED
APPEAL AND CROSS-APPEAL FROM KNOX CIRCUIT COURT
HONORABLE GREGORY A. LAY, JUDGE
ACTION NO. 12-CI-00300
OPINION
AFFIRMING AS TO THE APPEAL
AND AS TO THE CROSS-APPEAL
BEFORE: CLAYTON, COMBS, AND STUMBO, JUDGES. COMBS, JUDGE: The City of Corbin and Joe White, petitioners below, appeal; and Knox County, respondent below, cross-appeals an order of the Knox Circuit Court that granted Knox County's motion for summary judgment and denied the motion for summary judgment filed by White and the City of Corbin. The trial court's judgment upheld the provisions of Kentucky Revised Statute[s] (KRS) 68.197(8) against the constitutional challenge asserted by White and the City of Corbin. After our review, we affirm both as to the appeal and as to the cross-appeal.
On October 8, 1999, pursuant to the provisions of KRS 67.083(2), the Knox County Fiscal Court established and began to collect an occupational license tax on trades, occupations, and professions within Knox County. On August 11, 2005, Corbin, a city partially situated within Knox County, established a similar occupational license tax.
The City of Corbin has never attempted to collect its occupational license tax. Nevertheless, in 2008, the City of Corbin, and White, a business owner and resident of Corbin and Knox County, filed a declaratory judgment action in Knox Circuit Court requesting the court to declare that Knox County is required to credit against its occupational license tax any amounts paid to the City of Corbin for the same privilege during the same period.
The Knox Circuit Court had entertained a similar action in 1999 involving the Knox County Fiscal Court and the City of Barbourville. See City of Barbourville v. Knox County Fiscal Court, 80 S.W.3d 765 (Ky. App. 2001), discretionary review denied (Ky. 2002). The dispute between the parties in that case also involved the application of the provisions of KRS 68.197 that require a credit against the county occupational license tax to anyone who pays a city occupational license tax as well. However, the statute specifically applies only to counties with populations of 30,000 or more, and the parties in the Barbourville case had disagreed as to the proper means by which the county's population could be established.
In Preston v. Johnson County Fiscal Court, 27 S.W.3d 790 (Ky. 2000), the Supreme Court of Kentucky held that the statute's population classification was based on a rational basis and did not violate the Equal Protection Clauses of the United States or Kentucky Constitutions.
In the 1999 Barbourville litigation, the circuit court concluded that the population requirement should be determined by reference to the most recent federal decennial census. Since those data indicated that Knox County had a population of 29,676 at the time that its occupational license tax was imposed, the circuit court concluded that the credit mandated under the provisions of the statute was unavailable - albeit by a tiny margin. Therefore, it dismissed the proceedings.
On appeal, we held that while census data were presumptive evidence of a county's population, those data could be rebutted by other competent evidence. City of Barbourville, 80 S.W.3d at 770. We remanded the matter for further proceedings. The Supreme Court of Kentucky denied discretionary review.
On remand, the Knox Circuit Court concluded that the population of Knox County at the time the tax ordinance was established exceeded 30,000. It reasoned that the 1990 decennial census had found the population to be just twenty-four persons shy of the 30,000 figure and that the 2000 decennial census revealed a population of 31,700. Therefore, by the time of the 1999 litigation, the population had to have met the threshold of 30,000.
Meanwhile, in the midst of the litigation, the General Assembly had enacted KRS 68.199(4), directing that for purposes of a license fee credit, the most recent decennial census prior to enactment of the ordinance determined the population. Nonetheless, the court determined that KRS 68.199(4) did not apply and granted summary judgment in favor of the City of Barbourville. That order was entered on October 14, 2003.
When the similar declaratory judgment action of White and the City of Corbin against Knox County was filed in 2008, the court concluded that the 2003 determination of Knox County's population (from the Barbourville final order) was binding for purposes of the statute requiring a county license tax credit for those who pay a city license tax. Knox County appealed; White and the City of Corbin cross-appealed.
Knox County argued that the matter was not yet justiciable and that neither White nor the City of Corbin had standing since no tax had been collected as yet. It argued that the doctrine of collateral estoppel should not apply to bind the parties to the 2003 determination that Knox County's population exceeded 30,000 in late 1999, arguing that the statutory amendment (KRS 68.199(4) enacted in 2002) should be applied retroactively so that the 1990 census would be conclusive evidence of Knox County's population at the time its tax ordinance was enacted. Upon our prior review, this Court concluded that White had standing and that a justiciable issue had been presented. It dismissed the City of Corbin because it had no standing - no tax having been collected. We concluded that the parties were not bound by the court's 2003 population determination, but we also held that the provisions of KRS 68.199(4) (limiting evidence of a county's population to the official decennial census) were not to be applied retroactively. In an opinion rendered October 8, 2010, we remanded the matter for a determination of Knox County's population based upon the law established in City of Barbourville v. Knox County Fiscal Court, 80 S.W.3d 765 (Ky. App. 2001), discretionary review denied (Ky. 2002). Discretionary review of our decision was denied by the Supreme Court of Kentucky in February 2012. That matter remains pending before the Knox Circuit Court.
In 2012, the General Assembly enacted House Bill 499. The bill was signed into law by Governor Beshear on March 30, 2012, and it is codified at KRS 68.197(8). This provision is the focus of the litigation now before us. The statute provides as follows:
Notwithstanding any statute to the contrary, the provisions of subsection (7) [providing for a credit against the county occupational license tax for a city occupational license tax] of this section shall apply as follows from March 14, 2012 through July 15, 2014:Since the City of Corbin has never collected its license tax, this statutory provision meant that the statutory credit would be unavailable to its citizens through July 15, 2014, as a matter of law. White and the City of Corbin filed a petition for declaratory relief on June 22, 2012. They asked the court to declare the provisions of KRS 68.197(8) unconstitutional.
(a) Any set-off or credit of city license fees against county license fees that exists between a city and county as of March 15, 2012, shall remain in effect as it is on March 15, 2012; and
(b) The provisions of subsection (7) of this section shall not apply to a city and county unless both the city and the county have both levied and are collecting license fees on March 15, 2012. (Emphases added.)
The Attorney General has declined to participate in the action.
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In August 2012, Corbin and White filed a motion for summary judgment. Knox County responded by filing its own motion for summary judgment seeking dismissal of the case. The court heard oral arguments.
In an order entered May 12, 2013, the circuit court denied the motion for summary judgment filed by Corbin and White and granted the motion of Knox County. The circuit court determined that the City of Corbin lacked standing in the proceeding since the challenged provision did not affect its ability to impose and/or to collect occupational license fees. Relying upon our conclusions in Knox County v. City of Corbin, the trial court determined that White, a taxpayer, had established some uncertainty as to his rights and duties and that he had, thereby, established his standing. It also concluded (based upon our reasoning in the prior litigation) that White had presented a justiciable issue. However, with respect to the substantive issue, the circuit court concluded that the challenged provision was not unconstitutional. This appeal and protective cross-appeal followed.
The parties agree that there are no genuine issues as to any material fact and that the only question on appeal is whether the trial court erred by concluding that Knox County is entitled to judgment as a matter of law. The parties agree that our review of the legal questions presented is de novo.
White and the City of Corbin contend that the provisions of KRS 68.197(8) are unconstitutional for several reasons. First, they argue that the provisions are not germane to the subject matter of the Kentucky Tax Amnesty Act and that, therefore, they violate Section 51 of the Kentucky Constitution. Next, they contend that the provision violates our Constitution's prohibition of "special legislation." Finally, White and the City of Corbin argue that the provision violates Section 2 and Section 3 of the Kentucky Constitution because it is arbitrary, unreasonable, and discriminatory. While these arguments are somewhat interwoven, we have tried to fashion our analysis to mirror the presentations made in the parties' briefs, keeping in mind that a statute is presumed to be constitutional unless it clearly offends the limitations and prohibitions of the Constitution. Fox v. Grayson, 317 S.W.3d 1 (Ky. 2010).
White and the City of Corbin contend that the provisions of KRS 68.197(8) were enacted in violation of the title or notice requirement of Section 51 of the Kentucky Constitution. Section 51 provides, in part, that "[n]o law enacted by the General Assembly shall relate to more than one subject, and that shall be expressed in the title."
The purpose of the title or notice requirement of Section 51 of the Kentucky Constitution is "[t]o prevent surprise or fraud upon the Legislature by means of provisions in bills of which the titles gave no intimation, and which might, therefore, be overlooked and carelessly or unintentionally adopted." Beshear v. Haydon Bridge Co., Inc., 304 S.W.3d 682, 694 (Ky. 2010)(quoting Bowman v. Hamlett, 159 Ky. 184, 166 S.W. 1008, 1009 (1914)). "Where the title adequately expresses a general subject, any provision in the Act that is germane to or reasonably embraced within that general subject must be considered to be within the scope of the notice of subject given by the title." Id. (quoting Board of Trustees of Policemen's and Firemen's Retirement Fund of City of Paducah v. City of Paducah, 333 S.W.2d 515, 520 (Ky. 1960)). "The title need only furnish general notification of the general subject in the act. If the title furnishes a 'clue' to the act's contents, it passes constitutional muster." Id. (quoting Talbott v. Laffoon, 257 Ky. 773, 79 S.W.2d 244 (1935)).
When evaluated pursuant to the title or notice requirement of Section 51, the challenged statutory provision passes muster. The bill providing for the challenged enactment was entitled, "AN ACT relating to fiscal matters and declaring an emergency." HB 499. The title does not specifically indicate that the General Assembly was addressing the availability of set-offs and credits of city occupational license taxes against county license taxes (and a moratorium thereon within certain political subdivisions). However, these issues are logically subsumed within the broad category of "fiscal matters" where fiscal is generally understood to relate to public revenue. Consequently, we are persuaded that the title of the act gives fair and reasonable notice of its provisions to the General Assembly and to all interested parties. We conclude that the title and subject matter included in HB 499 do not violate Section 51 of the Kentucky Constitution.
Next, White and the City of Corbin contend that the challenged provision violates Sections 59 and 60 of the Kentucky Constitution. Because KRS 68.199(8) distinguishes between cities that levied and collected occupational license taxes as of March 15, 2012, versus those that did not, they argue that the statute violates our constitutional prohibition against "special legislation."
Section 59 of our Constitution prohibits "local or special acts" for the purpose of "legaliz[ing] . . . the unauthorized or invalid act of any . . . county." Section 60 of our Constitution prohibits the General Assembly from "indirectly enact[ing] any special or local act by the repeal in part of a general act, or by exempting from the operation of a general act any city, town, district or county. . . ." The Constitution forbids special legislation because it can arbitrarily serve as a means to oppress some and to favor others. King v. Campbell County, 217 S.W.3d 862 (Ky.App. 2006).
Our Constitution requires that laws must pertain to everyone or everything similarly situated in an equitable manner. However, classifications of groups that are based upon reasonable and natural distinctions that relate to the purpose of an act do not violate constitutional provisions. Waggoner v. Waggoner, 846 S.W.2d 704 (Ky. 1992). In order to pass constitutional muster, a legislative classification setting some cities and counties apart from others must be based upon some reasonable and natural distinction.
The provisions of KRS 68.197(8) define how the credit against a county occupational license tax for any city occupational license tax applies for the period March 14, 2012, through July 15, 2012. KRS 68.197(8)(a) serves to preserve any revenue-sharing agreements entered into by cities and counties as of March 15, 2012; KRS 68.197(8)(b) prohibits the imposition of the otherwise mandatory credit against a county occupational license tax for any city occupational license tax unless both the city and the county have both levied and collected the taxes as of March 15, 2012.
The provisions of KRS 68.197(8) create a classification that sets apart those cities and counties that share occupational license taxes through an agreement reached as of March 15, 2012. The provisions also create a classification that sets apart those cities and counties that had already begun to levy and collect occupational license taxes by March 15, 2012. White and the City of Corbin contend that there are no valid reasons to justify differentiating between cities and counties based upon whether they were levying and collecting occupational license taxes on March 15, 2012. We disagree.
The General Assembly enjoys greater latitude in establishing classifications for tax purpose than in any other area of legislation. Preston v. Johnson County Fiscal Court, 27 S.W.3d 790 (Ky. 2000)(citing Madden v. Kentucky, 309 U.S. 83, 60 S.Ct. 406, 84 L.Ed. 590 (1940)). The challenged provision passes constitutional muster since the classification is based upon a reasonable and natural distinction.
The provisions of KRS 68.197(8)(b) effectively placed a moratorium on any new mandatory occupational license tax set-offs or credits unless the county and city had each begun to levy and to collect those taxes by March 15, 2012. Thus, the provisions preserved the existing division of occupational license taxes and prevented the operation of new and (potentially) fiscally disruptive divisions of revenue. The statutory distinction rationally supported the settled fiscal interests of local governments that had come to rely on a level of occupational license tax revenue -- with no mandatory set-offs and credits having been imposed. The moratorium preserved the fiscal status quo for a period of 28 months during which the Commonwealth's struggling economy could have been expected to recover. A legitimate legislative purpose was plainly served by maintaining the status quo during a period of fiscal turbulence. Moreover, we agree with the trial court that the statute allowed the General Assembly "time to reassess the validity of the credit and determine whether and how said credit should be altered in light of the most recent census data." Judgment at 24. Accordingly, we agree that the challenged provision does not violate Section 59 or Section 60 of our Constitution.
Finally, in a related argument, White and the City of Corbin argue that the challenged provision is arbitrary, unreasonable, and discriminatory. We disagree with both of these contentions.
Section 2 of the Kentucky Constitution prohibits the arbitrary or unreasonable exercise of power by the General Assembly. Section 171 specifically provides that taxes "shall be uniform upon all property of the same class subject to taxation within the territorial limits of the authority levying the tax." In the context of an occupational license fee, this provision means that a taxing authority cannot single out a particular entity for special licensing and/or require that entity to bear a heavier burden than other entities. See Preston v. Johnson County Fiscal Court, 27 S.W.3d at 794 (citing City of Erlanger v. KSL Realty Corp ., Inc., 819 S.W.2d 707, 708 (Ky. 1991)). The provision challenged in this matter did not single out any particular entity for special taxation.
Furthermore, we disagree with the contention that the time-frame imposed by the provision violates constitutional principles. The General Assembly is not required to articulate the purpose or rationale supporting its classification. Preston, supra, at 795 (citing Nordlinger v. Hahn, 505 U.S. 1, 112 S.Ct. 2326, 120 L.Ed.2d 1 (1992)). Instead, a classification "must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification." Id. (citing FCC v. Beach Communications, Inc., 508 U.S. 307, 313, 112 S.Ct. 2096, 2101, 124 L.Ed.2d 211 (1993)). As mentioned above, the prescribed period commenced near the time of the legislation's enactment and continued through a period sufficient to permit the General Assembly to consider the efficacy of the tax credit and to quell any turbulent effects that it might have had during a time of fiscal uncertainty. The Knox Circuit Court concluded that the statutory provision was rationally related to legitimate state objectives and that there was a rational basis to justify the chosen time-frame. We agree. Thus, the challenged provision does not run afoul of constitutional provisions guaranteeing equal protection under the law.
We affirm the judgment of the Knox Circuit Court both as to the appeal and as to the cross-appeal.
ALL CONCUR. BRIEFS FOR
APPELLANTS/CROSS-
APPELLEES:
Patrick R. Hughes
Nicholas C. Birkenhauer
Crestview Hills, Kentucky
ORAL ARGUMENT FOR
APPELLANTS/CROSS-
APPELLEES:
Nicholas Birkenhauer
Crestview Hills, Kentucky
BRIEFS FOR APPELLEE/CROSS-
APPELLANT:
Douglas L. McSwain
Leila G. O'Carra
Courtney R. Samfort
Lexington, Kentucky
ORAL ARGUMENT FOR
APPELLEE/CROSS-APPELLANT:
Douglas L. McSwain
Lexington, Kentucky