Children's Psychiatric Hospital of Northern Kentucky, Inc. v. Revenue Cabinet

989 S.W.2d 583, 1999 Ky. LEXIS 43, 1999 WL 236455

• Court: Kentucky Supreme Court
• Decided: April 22, 1999
• Docket: No. 96-SC-1123-TG
• Status: Published

Opinions

Opinion of the Court by

Special Justice RAYMOND OVERSTREET.

Seventeen (17) Hospital Corporations and the Kentucky Hospital Association, representing approximately 120 hospitals in Kentucky, challenge the constitutionality of the 2-k% hospital tax that was enacted by the General Assembly. The Appellants are challenging HB 1 and HB 250 as enacted by the General Assembly and have raised the following grounds as their reason for challenging HB 1 and HB 250: First, the Appellants challenge the constitutionality of the provider tax in stating that it violates Section 170 of the Kentucky Constitution. Secondly, the Appellants challenge HB 1 and HB 250 as constituting special legislation in violation of Section 59 of the Constitution. Thirdly, the Appellants say that HB 250, in particular, violates the equal protection and due process provisions of the State and Federal Constitution. Fourthly, the Appellants challenge HB 250 as being misleading in name and in violation of Section 51 of the Kentucky Constitution. The Franklin Circuit Court granted Summary Judgment for and on behalf of the Appellees and the Appellants appealed to the Court of Appeals. This Court granted appellant’s motion to transfer to consider the constitutional issues raised herein.

In 1993, the General Assembly, in reaction to a public outcry for health care reform, enacted HB 1. HB 1 was codified at KRS 142. It was later repealed. The constitutionality of HB 1 was challenged in an action styled Commonwealth of Kentucky Revenue Cabinet v. Smith, Ky., 875 S.W.2d 873, cert. denied sub nom Yeoman v. Kentucky, 513 U.S. 1000, 115 S.Ct. 509, 130 L.Ed.2d 417 (1994).

In the regular session of 1994, the General Assembly enacted HB 250, which also is the subject of this appeal. HB 250 went through a rocky road, both in the Kentucky House and the Kentucky Senate, before it was adopted formally. Various amendments were added to HB 250 ending up with the House and Senate unable to agree on all the amendments and the original version of HB 250. The General Assembly then pursuant to their rules, appointed a Conference Committee, which was unable to concur on a compromise bill. The General Assembly leadership, pursuant to their authority, then adopted a free Conference Committee, which then was adopted in the Senate and also the House, and constituted the version of HB 250 which currently is being challenged.

DOES THE HOSPITAL PROVIDER TAX VIOLATE

SECTION 170 OF THE KENTUCKY CONSTITUTION?

The Appellants are asserting that the hospital provider tax, as outlined in HB 250, is in violation of Section 170 of the Kentucky Constitution. Section 170 originally provided in pertinent part the following:

“There shall be exempt from taxation public property used for public purposes, places actually used for religious worship with the grounds attached thereto and used and appurtenant to the house of worship, not exceeding one-half acre in cities or towns, and not exceeding two acres in the country; places of burial not held for private or corporate profit, institutions of purely public charity, and institutions of education .... ”

When interpreting the Constitution, the words employed therein should be given the meaning and significance that they possessed at the time they were employed. In looking at the adoption of Section 170 of our Constitution and realizing that as you go through the various Sections relating to taxation, Section 170 and related parts thereto is clearly designated to mean real property and not a carte blanche exemption of taxation. If the Franklin Circuit Court made a factual determination of whether the hospitals in question are institutions of purely public charity, this Court is unable to locate such determination and the record is silent on this particular point. There is no concessions made by the Commonwealth on this particular point. Therefore, this Court is left to make that determination without benefit of prior decisions.

The Appellants would argue that the legislature has no authority to define certain exemptions. We disagree. The legislature has many times in the past defined what exemptions would be allowed in many different categories. Because the provider tax in question is not a property tax, it is not subject to the structure of the language of Section 170. Reynolds Metal Co. v. Martin, 269 Ky. 378, 107 S.W.2d 251, 255, appeal dismissed 302 U.S. 646, 58 S.Ct. 146, 82 L.Ed. 502 (1937).

We rhetorically ask the question, “Could this be a compelling reason to extend the interpretation of Section 170 of the Constitution?” When faced with incidental decisions from the past, this Court must follow the decisions that resonate the sounder of reasoning. Historically, Courts, when construing constitutional provisions, will look to the history of the times to ascertain the intent of the founding fathers. Clearly, Section 170 only exempts property tax according to the constitutional debates. With this in mind, let’s delve back to 1890 when the constitutional convention was debating the provisions of Section 170. The Constitution of 1891 was adopted after vigorous and sometimes rancorous debates. The debates, some of which are contained in 2 Debates, Constitutional Convention, (1890), as it relates to revenue and taxation, clearly refer to ad valorem taxation. As a matter of fact, Convention Delegate Swago explicitly stated that the debate was about the taxation of property when he made the following comments:

The mode of taxation proposed in the report, and not controverted by any, is that the aggregate property of the State should be the means from which the tax should be collected; and the amount in the hands of each individual should be the measure by which the amount he is called upon to contribute should be measured.

Debates at 2539.

Delegate Maekoy further, by his comments, indicates that the debate was centered on and perhaps limited to ad valorem real property taxes, when he said:

Every particle of property, real or personal, owned by any individual or a corporation, should be subjected to its burden, in order that the individual may be compelled to contribute for the protection which he receives as a member of society.

Debates at 2427.

Following the constitutional debate’s pointed discussion of Section 170 and then looking at the first Kentucky Statutes that were published after the adoption of the 1891 Constitution, The Kentucky Statutes, Barbour and Carroll, 1894, we find it interesting to note that they reported the title for Section 170 as “Property exempt — cities may exempt manufactories.” This following immediately upon the adoption of the 1891 Constitution is strong evidence that Section 170 applies only to ad valorem taxes.

This Court cannot ignore that the Appellants have raised an interesting question of this Court’s interpretation regarding Section 170 in the case of Corbin YMCA v. Commonwealth, 181 Ky. 384, 205 S.W. 388 (1918). In Corbin, the question was on an occupational tax, and it was undisputed that the occupational tax in question was not an ad valorem or property tax, but was a revenue raising measure. In reviewing Corbin, this Court noted that other Section 170 exemptions for public purposes, religious worship, or for cemeteries applied only to designated “property,” and that the Section 170 charitable exemption was to “institutions” themselves. We believe that the Corbin decision was an aberration, and hence, is not applicable as it relates to the hospital provider tax. We would go one step further to say that traditionally, and this Court still believes, that exemptions from taxation have been in the past and are now disfavored in law and cannot be presumed or implied. That further, they must be strictly construed and any and all doubts resolved against their application.

For the Kentucky General Assembly to define classes that coexist with the federal law is prudent; it is sound; and it is a viable rationale of public policy. In the creation of the 2-'/¿% tax on hospitals, the General Assembly was looking at the overall health picture and health delivery systems in Kentucky. For this Court now to question whether or not that the General Assembly, in their wisdom, may define particular classes for exemptions or non-exemptions and to say that the General Assembly erred in carrying out their responsibilities would be an irresponsible act for this Court.

DOES HB 1 AND HB 250 CONSTITUTE SPECIAL LEGISLATION

IN VIOLATION OF SECTION 59 OF THE KENTUCKY CONSTITUTION?

The Appellants complain that HB 250 as enacted extended the provider taxes that is only on hospitals, prescription drugs, and a few other health care services, thereby emasculating this Court’s decision in Commonwealth Revenue Cabinet v. Smith, Ky., 875 S.W.2d 873 (1994). This Court determined in Smith that a provider tax could be imposed on physicians because provider taxes had been imposed upon a natural class consisting of the health care industry as a whole and as circumscribed by federal law. We affirm the language in Smith because HB 250 complied with federal guidelines because they are broad-based, uniform, and do not hold the taxpayer harmless for the tax. Commonwealth Revenue Cabinet vs. Smith, Ky., 875 S.W.2d 873 (1994). Doctors are a part, and we emphasize a vital part, of the health care industry in Kentucky. To allow doctors, as providers, to be taxed and not the hospitals is unrealistic and is not good public policy and to do otherwise would be misconstruing the federal law. 42 U.S.C. Section 1396(1)(A); 42 C .F.R. 43356. We believe the Court in the Smith case clearly made the right decision and refer herein to Smith as a rational basis for stating that HB 1 and HB 250 do not violate Section 59 of the Kentucky Constitution. Since HB 250 is substantially the same as HB 1, we believe that Smith controls and that HB 250 is constitutional.

DOES HB 250 VIOLATE THE EQUAL PROTECTION AND DUE

PROCESS PROVISIONS OF THE STATE AND FEDERAL CONSTITUTIONS?

Under both state and federal law, the Kentucky General Assembly, when enacting a statute, may create classifications. Madden v. Kentucky, 309 U.S. 83, 60 S.Ct. 406, 84 L.Ed. 590 (1940). The same standards apply in creating classifications under the Kentucky Constitution are the same as those under the Fourteenth Amendment to the United States Constitution. Reynolds Metal Co., supra; Delta Air Lines, Inc. [v. Commonwealth Revenue Cabinet, Ky., 689 S.W.2d 14 (1985)7; Smith, supra. In looking at the equal protection standard that we find applicable here, “a statute will be sustained if the legislature could have reasonably concluded that the challenged classification would promote a legitimate state purpose.” Exxon Corp. v. Eagerton, 462 U.S. 176, 196, 103 S.Ct. 2296, 76 L.Ed.2d 497 (1983). See also New Orleans v. Dukes, 427 U.S. 297, 96 S.Ct. 2513, 49 L.Ed.2d 511 (1976). These cases have adopted and the common thread running throughout them is that a state may impose different specific taxes upon different trades and professions and may vary the rate of excise upon the various products. If the selection or classification is neither capricious nor arbitrary, and rests upon some reasonable considerations of difference or policy, there is no denial of the equal protection of the law. In looking at the equal protection clause, the exacting equality is not as rigid in the field of taxation as it is in many other areas of the law. Revenue Cabinet v. Estate of Marshall, Ky.App., 746 S.W.2d 408, 411 (1988). In looking at these cases, one can recognize that the rational basis standard is easily satisfied in challenges to taxing statutes. In reviewing 42 U.S.C. § 1396b and Smith, this Court finds that health care related taxes should be uniformly imposed only within the classes enumerated. Thus, federal law does not require uniform treatment between hospital services and physician services, but federal law does require uniform treatment of all hospitals providing inpatient hospital services.

In Hayes v. State Property and Buildings Commission, Ky., 731 S.W.2d 797 (1987), the Court wrote:

The Constitution is to protect the people from their government and not to deprive them of legitimate activities of government intended to provide public benefit and public service. The definition of public purpose when made by the legislature should be upheld by the Court as long as it has some reasonable basis. Hayes at 802.

We believe the public purpose behind HB 1 and HB 250 is obvious. It is to provide medical care for the indigent, and the General Assembly based on their classifications in 42 U.S.C. § 1396b. Thus, the classification, which we believe to be grounded in public interest, is not arbitrary, unreasonable, or in violation of the State Constitution.

HB 250 does not constitute special legislation that is unconstitutional under Section 59 of the Kentucky State Constitution, because the health delivery system in Kentucky is in tandem with federal guidelines. Directly, it is connected to doctors, and there is no distinguishing factor between the individual who delivers health care and the establishment that provides the health care to Kentuckians.

WAS HB 250 MISLEADING AS NAMED IN VIOLATION OF SECTION 51 OF THE STATE CONSTITUTION?

The title of HB 250, “An Act relating to health care reform and providing funding therefor,” in and of itself suggests to any and all interested parties that it is a fair and reasonable notice of the bill’s content, including the extension of the provider tax. We believe that the title follows the opinion in Anderson v. Wayne County, 310 Ky. 597, 221 S.W.2d 429 (1949), in that the title must be a fair and reasonable notice of the provisions of the act. This issue also was addressed in Smith when the Court said:

Violation of Section 51 of the Kentucky Constitution was raised in that “no law enacted by the General Assembly shall relate to more than one subject, and that shall be expressed in the title ...” Construction of this section has found a liberal course with all doubts as to compliance resolved in favor of the validity of the legislation action. Commonwealth ex rel. Armstrong v. Collins, Ky., 709 S.W.2d 437 (1986). Continuing, if the title furnishes a “clue” to the act’s contents, it may pass constitutional muster. See Talbott, Auditor of Public Accounts v. Laffoon, 257 Ky. 773, 79 S.W.2d 244 (1934).

The Court further found a title sufficient to put the General Assembly and all interested parties on notice in Lamar v. Board of Education of Hancock County School District, Ky., 467 S.W.2d 143 at 145-46 (1971). In this particular ease, it was an “Act relating to education, and the financing thereof,” and it too was challenged under the provisions of § 51 of the Constitution. That act consisted of five parts, including the classification and compensation of teachers, three optional school taxes and the establishment of a commission to help education. The Court found this title sufficient to pass the constitutional muster. The tax imposed by HB 250 and its various provisions contained therein are not dissimilar to the subject expressed in the title of HB 250. Any individual capable of reading the English language and understanding the meaning thereof would have a clue as to what the contents of HB 250 were by its title. Therefore, we have concluded that the title and subject matter included in HB 250 do not violate Section 51 of the Kentucky Constitution.

CONCLUSION

For the reasons stated above, HB 1 and HB 250 are held to be constitutionally valid and the Judgment of the Franklin Circuit Court is hereby affirmed.

JOHNSTONE, STEPHENS and STUMBO, JJ., and Special Justice PAUL H. TWEHUES, Jr., concur. COOPER, J., concurs in part and dissents in part in a separate opinion in which GRAVES, J., joins. LAMBERT, C.J., and WINTERSHEIMER, J., not sitting.