Preston v. Johnson County Fiscal Court

27 S.W.3d 790, 2000 Ky. LEXIS 119, 2000 WL 1448577

• Court: Kentucky Supreme Court
• Decided: September 28, 2000
• Docket: 1999-SC-0414-DG
• Status: Published

Opinions

COOPER, Justice.

The city of Paintsville is the county seat of Johnson County, Kentucky. Like most Kentucky counties, Johnson County currently has a population of less than 30,000. Since 1981 and pursuant to KRS 92.281, Paintsville has levied an occupational license fee (tax) of one percent (1%) on the gross compensation of all persons employed or self-employed within the city limits. On July 17, 1997 and pursuant to KRS 67.083(2), the Johnson Fiscal Court passed an ordinance levying an identical-occupational license fee on the gross compensation of all persons employed or self-employed within the county. Thus, taxpayers within the city limits of Paintsville, including Appellant John David Preston, are subject to both taxes. Preston filed this class action on behalf of himself and others similarly situated claiming that Johnson County’s ordinance violates Section 2 (no absolute or arbitrary power), Section 3 (equal protection), and Section 59(fiffceenth) (no local or special legislation with respect to taxation) of the Constitution of Kentucky and the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution, because it does not allow him to credit the payment of his city occupational license fee against his county occupational license fee. The Johnson Circuit Court concluded that the ordinance was not unconstitutional and a divided Court of Appeals panel agreed. We granted discretionary review and now affirm.

I. LEGISLATIVE HISTORY: KRS 68.197; KRS 67.083(2).

KRS 68.197 and KRS 67.083(2) were both enacted pursuant to Section 181 of the Constitution of Kentucky, which authorizes the General Assembly to delegate to cities and counties by general statute the power to impose and collect license fees on trades, occupations and professions.

KRS 68.197 and KRS 68.198 both originated in House Bill 553 which was enacted by the 1966 General Assembly¹ and which provided in pertinent part² as follows:

Section 1. (1) The fiscal court” of each county having a population of 50,-000 or more, may by order or resolution impose license fees on franchises, provide for licensing any business, trade, occupation or profession, and the using, holding or exhibiting of any animal, article or other thing. License fees on such business, trade, occupation, or profession for revenue purposes, except those of the common schools, shall be imposed at a percentage rate or rates not to exceed one percent of (a) salaries, wages, commissions and other compensation earned by persons within the county for work done and services performed or rendered in the county, and (b) the net profits of businesses, trades, professions or occupations from activities conducted in the county....

(2) No order or resolution of the fiscal court imposing license fees pursuant to subsection (1) of this Act shall be valid until it is approved by a majority of the voters of the county at an election called by the fiscal court.

Section 2. The election in any county shall be held not less than fifteen nor more than sixty days from the time a resolution calling the election is adopted by the fiscal court....

Section 3. (1) The fiscal court of said counties may provide for the levy, the assessment and the collection of the license fees authorized by section 1 of this Act, provide for the issuance and enforcement of licenses, and specify the county governmental purposes to which the revenue derived from license fees authorized by section 1 of this Act shall be applied.

(2) In making the provisions described in subsection (1), and without limiting them, the fiscal court may, by resolution or order adopt reasonable rules or regulations requiring the preparation and filing of timely, accurate, and truthful returns, accounts, and license applications which will aid in the determination of the amount of the fee.

Sections 1 and 2 were compiled in the Kentucky Revised Statutes as KRS 68.197, entitled: “License fees in counties of 50,-000 or more.” Section 3 was compiled as KRS 68.198, entitled: “Fiscal court powers as to imposition of license tax (counties of 50,000).” Despite the variance in titles, the fact that both statutes originated in House Bill 553 clearly indicates that both were intended to apply only to counties with populations of 50,000 or more.³ The body of KRS 68.198 reads the same today as it did when enacted. The title has been changed to reflect the current application of both statutes to counties with populations of 30,000 or more. However, KRS 68.197 has been amended in several significant respects.

A 1974 amendment⁴ of KRS 68.197 added what is now subsection (2), which prohibits the imposition of an occupational license fee on training pay received by members of the Kentucky National Guard. The statute was amended again in 1978⁵ as follows:

1. Subsection (1) was amended to make the statute applicable to counties with populations of 30,000 or more.

2. Subsection (1) was also amended to authorize such counties to levy an occupational license fee against the net profits of self-employed individuals, partnerships, professional associations, business joint ventures, and business corporations.

3. The election requirements of subsections (3) and (4) were combined into subsection (3) and amended to provide that the license fee would be placed on the ballot at the next general election after it was passed, and, if rejected, would be deemed repealed effective December 31 of that year.

4. A new subsection (4) was created as follows:

Persons who pay a county license fee pursuant to this section and who also pay a license fee to a city contained in the county may upon agreement between the county and the city, credit their city license fee against their county license fee.

Finally, a 1986 amendment⁶ deleted the requirement of a ratification election, renumbered subsection (4) as subsection (3), and added a new subsection (4) as follows:

The provisions of subsection (3) of this section notwithstanding, effective with license fees imposed under the provisions of subsection (1) of this section on or after the effective date of this Act, persons who pay a county license fee and a license fee to a city contained in the county shall be allowed to credit their city license fee against their county license fee.

Of course, it is this new subsection (4) of KRS 68.197 which Appellant seeks to apply to the Johnson County ordinance. However, KRS 68.197 specifically applies only to counties with populations of 30,000 or more and Johnson County has a population of less than 30,000.

KRS 67.083(2) was enacted in 1972 as part of the original “home rule” statute⁷ and reads today substantially as it did when enacted:

The fiscal court of any county is hereby authorized to levy all taxes not in conflict with the Constitution and statutes of this state now or hereafter enacted.

II. APPLICATION: KRS 68.197; KRS 67.083(2).

Casey County Fiscal Court v. Burke, Ky., 743 S.W.2d 26 (1988) was an appeal from a circuit court judgment holding that there was no statutory authority for a legislative body of a county with a population of less than 30,000 to levy an occupational license fee. Though agreeing with the circuit court that KRS 68.197 had no application to such counties, we held, however, that KRS 67.083(2) “expressly relates to a delegation of taxation authority to ‘any county’ without exception.” Burke, supra, at 27. It was argued in Burke that the 1986 amendment of KRS 68.197 was, in fact, a reenactment of that statute with an inferential legislative intent to withhold the power to levy occupational license fees from counties of less than 30,-000. In other words, if the legislature had intended to grant such counties the power to levy occupational license fees, it would have said so when it “readopted” the specific statute relating to such fees rather than in the more general “home rule” statute. Rejecting that argument, Justice Wintersheimer wrote for a unanimous Court:

KRS 68.197 does not apply to counties of less than 30,000. It relates only to counties of 30,000 or more. Any amendments to that statute have no effect on the authority granted to other counties pursuant to KRS 67.083. If the legislature intended to withhold authority from other counties, it would have been necessary to amend KRS 67.083 and not just KRS 68.197.

Burke, supra, at 28.

It is clear from that unambiguous passage that the 1978 and 1986 amendments of KRS 68.197 did not restrict the authority of a county with a population of less than 30,000 to levy an occupational license fee under KRS 67.083(2).

III. CONSTITUTIONAL ISSUES.

The Johnson County ordinance does not constitute an arbitrary exercise of power, thus does not violate Section 2 of our Constitution. The fact that Appellants are being subjected to two taxes on the same privilege is not ipso facto “arbitrariness.” In fact, as pointed out in City of Lexington v. Motel Developers, Inc., Ky., 465 S.W.2d 253, 256 (1971), the delegates to the 1890 Constitutional Convention rejected a proposal to include a specific prohibition against double taxation in Section 181. Proceedings and Debates of the Constitutional Convention of 1890, Vol. 2, at 2372-73, 2793-95. Section 171 of our Constitution requires 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.” What this means in the context of a license fee is 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 are required to bear. City of Erlanger v. KSL Realty Corp., Inc., Ky., 819 S.W.2d 707, 708 (1991); Jahr v. City of Radcliff, Ky., 503 S.W.2d 743 (1973); City of Lexington v. Motel Developers, Inc., supra. Neither of those scenarios exist here. Johnson County’s occupational license fee applies equally to every employed or self-employed person within its territorial limits.

In Jahr v. City of Radcliff and City of Lexington v. Motel Developers, Inc., both supra, the offended taxpayers were taxed twice for the same privilege by the same taxing authority. The absence of uniformity perceived by Appellant in this case arises from the fact that he is being taxed for the same privilege by two different taxing authorities pursuant to two different enabling statutes. That does not mean that either taxing authority is acting arbitrarily. Each is simply imposing an occupational license fee which each has been authorized by statute to impose. Nor does the Johnson Fiscal Court’s refusal to allow Appellant to credit his city fee against his county fee constitute arbitrariness. To allow such a credit would mean that those paying the city fee would pay a lesser county fee (or no county fee at all) than is being paid by other citizens of Johnson County. Thus viewed, the credit, itself, might violate the uniformity requirement of Section 171. The fact that KRS 68.197(4) mandates a credit in counties with a population of 30,000 or more is immaterial to Appellant’s Section 2 argument, since KRS 68.197(4) does not apply to Johnson County. Casey County Fiscal Court v. Burke, supra.

Closely related to Appellant’s claim of arbitrariness is his claim that KRS 68.197(4), KRS 67.083(2) and the Johnson County ordinance violate his right to equal protection under the law, since he, as a citizen of a county having a population of less than 30,000, is denied a tax credit which is granted to citizens of counties having populations of 30,000 or more. However, legislative bodies are allowed greater freedom in establishing classifications for tax purposes than in any other area of legislation. Madden v. Kentucky, 309 U.S. 83, 88, 60 S.Ct. 406, 408, 84 L.Ed. 590 (1940). Since no fundamental right is at stake here and taxpayers as a group are not a “suspect classification,” the statutes and the ordinance at issue in this case are not subjected to “strict scrutiny,” but are analyzed for equal protection purposes only to determine if there is a “rational basis” for the classification. General Motors Corp. v. Tracy, 519 U.S. 278, 311, 117 S.Ct. 811, 830, 136 L.Ed.2d 761 (1997). The law of Kentucky is the same. “[A] legislative body may not, without some rational basis, select a certain type of business enterprise and impose upon it a substantially heavier tax than that imposed upon other businesses which fall within the same general classification.” City of Lexington v. Motel Developers, Inc., supra, at 257 (emphasis added).

Under rational basis analysis, a legislative body is not required to articulate the purpose or rationale supporting its classification. Nordlinger v. Hahn, 505 U.S. 1, 15, 112 S.Ct. 2326, 2334, 120 L.Ed.2d 1 (1992). Rather, 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.” FCC v. Beach Communications, Inc., 508 U.S. 307, 313, 113 S.Ct. 2096, 2101, 124 L.Ed.2d 211 (1993) (emphasis added). The Johnson Circuit Court found that a ratiohal basis for not requiring that a city occupational license fee be credited against a similar county fee in counties with populations of less than 30,000 is that such counties typically have only one major city in which most or all of its businesses and professions are located; thus, to mandate a credit in those counties would essentially nullify the county’s power to tax. We, too, view this as a “reasonably conceivable state of facts that could provide a rational basis for the classification.” Id. Thus, the Johnson County ordinance does not violate the Equal Protection Clauses of the United States and/or Kentucky Constitutions.

Finally, neither the enabling statute nor the ordinance enacted pursuant thereto constitutes local or special legislation in violation of Section 59(fifteenth) of the Kentucky Constitution. KRS 67.083(2) applies to “‘any county’ without exception,” Casey County Fiscal Court v. Burke, supra, at 27; and Johnson County’s occupational license fee applies to every employed or self-employed entity in that county.

Accordingly, the judgment of the Johnson Circuit Court and the opinion of the Court of Appeals are both affirmed.

LAMBERT, C.J.; GRAVES, JOHNSTONE, KELLER and WINTERSHEIMER, JJ., concur. KELLER, J., also files a separate concurring opinion in which GRAVES and JOHNSTONE, JJ., join. STUMBO, J., dissents by separate opinion.

1 . 1966 Ky. Acts ch. 263 §§ 1, 2, 3.

2 . Section 4 of House Bill 553 has disappeared from the Kentucky Revised Statutes (if it was ever compiled therein). That section was irrelevant to the issues in this case.

3 . KRS 68.180, which was enacted in 1960, authorizes counties with populations of 300,-000 or more to levy occupational license taxes at a rate not to exceed 1.25%.

4 . 1974 Ky. Acts ch. 113 § 1.

5 . 1978 Ky. Acts ch. 268 § 1.

6 . 1986 Ky. Acts ch. 131 § 1.

7 .1972 Ky. Acts ch. 384 § 1. Although most of the original "home rule” statute was subsequently held unconstitutional as a delegation of powers not enumerated in Section 181 of the Constitution, subsection (2) was upheld as valid. Fiscal Court of Jefferson County v. City of Louisville, Ky., 559 S.W.2d 478 (1977).