REVENUE CABINET, COMMONWEALTH OF KENTUCKY v. H. E. O'DANIEL, SR. AND LUCY M. O'DANIEL
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NOVEMBER 9, 2001; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-001162-MR
REVENUE CABINET,
COMMONWEALTH OF KENTUCKY
APPELLANT
APPEAL FROM MARION CIRCUIT COURT
HONORABLE DOUGHLAS M. GEORGE, JUDGE
ACTION NO. 99-CI-00056
v.
H. E. O'DANIEL, SR.
AND LUCY M. O'DANIEL
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
GUIDUGLI, KNOPF AND SCHRODER, JUDGES.
GUIDUGLI, JUDGE.
The Revenue Cabinet appeals from an order of
the Marion Circuit Court that reversed a decision of the Kentucky
Board of Tax Appeals finding the O’Daniels responsible for 1995
property taxes on their automobile purchased in December, 1994.
After reviewing the arguments of counsel and the applicable law,
we affirm.
On December 26, 1994, the O’Daniels purchased a 1994
Lincoln Town Car from a car dealership in Frankfort, Kentucky.
At that time, they took physical possession of the vehicle.
The
O’Daniels’ vehicle was not officially registered until January
19, 1995,1 when the Vehicle Transaction Record (VTR) was filed
with the Marion County Clerk,2 who assessed and collected a $930
usage tax but no ad valorem taxes.
The vehicle was entered into
the Automated Vehicle Identification System (AVIS) upon
registration.
The O’Daniels did not pay a property tax on the
vehicle for 1995.
As part of a compliance program developed by
the Revenue Cabinet to collect allegedly past due ad valorem
property taxes on vehicles purchased before but registered after
January 1, 1995, the Revenue Cabinet sent the O’Daniels a
delinquent tax notice in October 1996, for $314.17.3
The O’Daniels filed a letter of protest of the ad
valorem tangible personal property tax assessment arguing they
were not responsible for the tax because they were not registered
owners until January 19, 1995.
In response, Jesse Alexander, a
field auditor with the Revenue Cabinet stated the Cabinet’s
position was that as equitable owners of the vehicle as of
December 26, 1994, the O’Daniels’ were the owners of the vehicle
for tax purposes on January 1, 1995, and therefore were
responsible for payment of the ad valorem tangible personal
property tax.
Upon failing to pay the tax, the Revenue Cabinet
issued a final ruling in January, 1997, holding the O’Daniels
responsible for 1995 ad valorem personal property tax on the
1
There is some indication in the record that the vehicle was
registered in Virginia on January 1, 1995.
2
The seller/buyer sections of the VTR were completed and
signed on the date of purchase on December 26, 1994.
3
Approximately 6,000 - 8,000 delinquent notices were sent
out as part of the compliance program.
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vehicle.
The O’Daniels filed a complaint with the Kentucky Board
of Tax Appeals appealing the decision.
See KRS 131.340.
The parties submitted the issue to the Kentucky Board
of Tax Appeals by way of separate motions for summary judgment
without a hearing.
In an order dated February 10, 1997, the
Board of Tax Appeals granted the Revenue Cabinet’s summary
judgment motion and found the O’Daniels responsible for the 1995
ad valorem tangible personal property tax assessment of $314.17.
On March 5, 1999, the O’Daniels appealed this decision to the
Marion Circuit Court.
See KRS 13B.140(1) and KRS 131.370(1).
Following the submission of briefs by the parties, the
circuit court held an oral hearing on February 10, 2000.
On
May 1, 2000, the circuit court entered an order reversing the
Board of Tax Appeals.
It stated that the statutes appear to
create a “loophole” excluding taxation for vehicles purchased at
the end of the year but not registered until after January 1 of
the next year.
The court relied on KRS 186A.095, which allows an
owner a 15 day grace period in which to officially register a
vehicle.
It also cited KRS 132.220(1), which provides for
assessment of tangible personal property as of January 1 of each
year.
The court stated that an owner cannot be required to pay
tax on a vehicle that was registered under the laws of the
Commonwealth if the grace period extended the time of
registration beyond the January 1 tax date.
It also held that
the O’Daniels’ vehicle was not omitted property under KRS 32.290
because it was registered before April 15.
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The court held that
the O’Daniels owed no tax on their 1994 Lincoln for the year
1995.
This appeal followed.
The Revenue Cabinet challenges the circuit court’s
interpretation of the relevant statutes alleging that the court’s
finding of a tax “loophole” represents a judicially created
exemption from property tax in contravention of Sections 3, 170,
172, and 174 of the Kentucky Constitution requiring that all
property must be subject to taxation unless specifically exempted
by the Constitution.
It contends that the circuit court’s
opinion ignores the controlling statutory framework for taxation
of vehicles.
As an initial matter, we note that judicial review of
administrative decisions by the Board of Tax Appeals is somewhat
limited.
See generally, Revenue Cabinet v. Kentucky-American
Water Co., Ky., 997 S.W.2d 2 (1999).
Aggrieved parties may
appeal from the final order of the Kentucky Board of Tax Appeals
in accordance with KRS Chapter 13B.
See KRS 131.370(1).
Although a court cannot substitute its judgment for that of the
agency as to the weight of the evidence on factual questions, it
may review legal issues de novo to determine if the agency’s
decision is: (1) in violation of constitutional or statutory
provisions; (2) in excess of statutory authority; (3) without
support of substantial evidence; (4) arbitrary, capricious, or an
abuse of discretion; or (5) based on improper ex parte
communications.
See KRS 13B.150.
“An erroneous application of
the law by an administrative board or by the circuit court is
clearly reviewable by this Court.
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Also, where an administrative
body has misapplied the legal effect of the facts, courts are not
bound to accept the legal conclusions of the administrative
body.”
Epsilon Trading Co., Inc. v. Revenue Cabinet, Ky. App.,
775 S.W.2d 937, 940 (1989) (citation omitted).
See also Revenue
Cabinet v. Joy Technologies, Inc., Ky. App., 838 S.W.2d 406
(1992) (appellate court’s role is reviewing whether the Board’s
order is in conformity with the law).
In the current case, the facts are not in dispute, and
resolution of the appeal involves solely legal issues based on
interpretation of the constitution and statutes.
Although courts
give some deference to an agency’s interpretation of statutes and
regulations administered by the agency, that deference is limited
where the interpretation is not derived from an adversarial
proceeding.
See White v. Checkholders, Inc., Ky., 996 S.W.2d
496, 498 (1999); Delta Airlines, Inc. v. Commonwealth, Revenue
Cabinet, Ky., 689 S.W.2d 14, 20 (1985).
Statutory construction
is ultimately a legal issue for the courts and a reviewing court
is not bound by an administrative agency’s interpretation of a
statute.
Delta Airlines, 689 S.W.2d at 20; Commonwealth, Cabinet
for Human Resources, Interim Office of Health Planning and
Certification v. Jewish Hospital Healthcare Services, Inc., Ky.
App., 832 S.W.2d 388, 390 (1996).
KRS 46.080(4) requires this
Court to give statutory language its plain, ordinary meaning.
See also Revenue Cabinet v. Kentucky American Water Co., 997
S.W.2d 27 (1999); Commonwealth v. Harrelson, Ky., 14 S.W.3d 541
(2000).
In interpreting a statute, the courts are not at liberty
to add or subtract from the statute or discover meanings not
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reasonably ascertainable from the language used.
Harrelson, 14
S.W.3d at 546; Commonwealth v. Frodge, Ky., 962 S.W.2d 864, 866
(1998).
Generally, tax statutes must be strictly construed and
any ambiguities resolved in favor of the taxpayer.
George
Wohrley, Inc. v. Commonwealth, Dept. Of Revenue, Ky., 495 S.W.2d
173, 175 (1973); Square D. Co. v. Kentucky Board of Tax Appeals,
Ky., 415 S.W.2d 594, 602 (1967); Barnes v. Dept. Of Revenue, Ky.
App., 575 S.W.2d 169, 172 (1978).
The major issue in this case involves when the
O’Daniels became owners of the 1994 Lincoln Continental for
purposes of assessing an ad valorem tax.
The O’Daniels maintain
that under the property tax laws in KRS Chapter 132, the relevant
date is the date a vehicle is officially registered with the
county clerk.
They rely primarily on KRS 132.485(2), which
provides:
The registration of a motor vehicle on
or before the date that the registration of
such vehicle is required is prima facie
evidence of ownership on January 1.
Pursuant to KRS 132.220(1), tangible personal property for
purposes of ad valorem taxes are valued and assessed as of
January 1 of each year.
The O’Daniels do not dispute the
principle that the property owner is responsible for the taxes,
but they argue that because the vehicle was not officially
registered by the filing and issuance of the VTR by the county
clerk until January 19, 1995, they were not the “owners” for
purposes of paying the ad valorem tax on property assessed as of
January 1.
They also point to the AVIS system, which was
developed by the Transportation Cabinet but is utilized by the
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Revenue Cabinet to identify, prepare, and maintain the tax rolls
of motor vehicles, as evidence that the date of registration is
the relevant date when vehicles are included on the tax rolls for
ad valorem taxation.
See KRS 132.487 and KRS 186.025.
On the other hand, the Revenue Cabinet contends that
the relevant date of ownership for taxation purposes is the date
a buyer takes physical possession of a vehicle in a bona fide
sale.
The Cabinet relies on several statutory provisions
including KRS 186.010(7)(a) and (c) which state:
(a) “Owner” means a person who holds the
legal title of a vehicle or a person who
pursuant to a bona fide sale has received
possession of the vehicle subject to any
applicable security interest.
. . . .
(c) A licensed motor vehicle dealer who
transfers physical possession of a motor
vehicle to a purchaser pursuant to a bona
fide sale, and complies with the requirements
of KRS 186A.220, shall not be deemed the
owner of that motor vehicle solely due to an
assignment to his dealership or a certificate
of title in the dealership’s name. Rather,
under these circumstances, ownership shall
transfer upon delivery of the vehicle to the
purchaser, subject to any applicable security
interest. (Emphasis added).
The Revenue Cabinet also asserts that the O’Daniels were
equitable title holders of the vehicle as of the date of purchase
in December, 1994, and therefore, had a superior obligation for
payment of taxes as opposed to a legal title holder pursuant to
KRS 134.060, which provides:
Except as provided in subsection (5) of
KRS 132.190, the holder of the legal title,
the holder of the equitable title, and the
claimant or bailee in possession of the
property on the assessment date provided by
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law shall be liable for taxes thereon; but,
as between themselves, the holder of the
equitable title shall list the property and
pay the taxes thereon, whether the property
is in possession or not at the time of the
payment.
The Board of Tax Appeals adopted the Revenue Cabinet’s position
by finding that the O’Daniels were “owners” of the vehicle as of
December 26, 1994, and as equitable titleholders, they were
primarily responsible for payment of the ad valorem property tax.
The trial court held that because KRS 186A.095 provides
a 15 day grace period before a new owner is required to file for
registration of a vehicle, the purchaser cannot be required to
pay taxes on a vehicle that has not been registered to the new
owner as of the assessment date of January 1 where the assessment
date occurs prior to the end of the grace period.
Although the
court did not specifically address the Revenue Cabinet’s
arguments, it effectively rejected its view that ownership for
tax purposes transferred in December, 1994.
After reviewing the statutory law, we believe that the
statutes cited and relied upon by the parties and the trial court
fail to provide sufficient support for their positions.
However,
there are other statutory provisions that support the circuit
court’s decision that the O’Daniels were not responsible for the
1995 ad valorem taxes.
As noted earlier, under KRS 132.220, motor vehicles are
“listed, assessed, and valued as of January 1 of each year” for
purposes of imposing an ad valorem tax.
follows:
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KRS 186.021(2) states as
Pursuant to KRS 134.810(4), the owner of
record on January 1 of any year shall be
liable for taxes due on a motor vehicle. A
person other than the owner of record who
applies to a county clerk to transfer the
registration of a motor vehicle may pay any
delinquent ad valorem taxes due on the motor
vehicle to facilitate the county clerk’s
transferring registration of the motor
vehicle. The person applying shall not be
required to pay delinquent ad valorem taxes
due on any other motor vehicle owned by the
owner of record from which he is purchasing
his motor vehicle as a condition of
registration.
Correspondingly, KRS 134.810(4) and (5) provide as follows:
(4) When a motor vehicle has been transferred
before registration renewal or before taxes
due have been paid, the owner of record on
January 1 of any year shall be liable for the
taxes on the motor vehicle, except as
hereinafter provided.
(5) If an owner obtains a certificate of
registration for a motor vehicle valid
through the last day of his second birth
month following the month and year in which
he applied for a certificate of registration,
all state, county, city, urban-county
government, school, and special tax district
ad valorem liabilities arising from the
assessment date following initial
registration shall be due and payable on or
before the last day of the first birth month
following the assessment date or date of
transfer, whichever is earlier. Any taxes
due under the provisions of this subsection
and not paid as set forth above shall be
considered delinquent and subject to the same
penalties found in subsection (3) of this
section. (Emphasis added).
These statutes indicate that the “owner of record” on
January 1 of each year is the party responsible for paying the ad
valorem taxes for the year on vehicles assessed on that date.
In
fact, KRS 186.025(2) distinguishes between the “owner of record”
and a purchaser of a vehicle who applies for a transfer of
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registration and places the tax obligation on the former.
Similarly, KRS 134.810(4) indicates that the “owner of record on
January 1" is liable for the taxes when a vehicle is transferred
before the registered owner renews the registration or before
taxes due have been paid.
In addition, KRS 134.805(5)(a)
requires county clerks to send notice to the “January 1 owner of
record” of ad valorem taxes due one month prior to registration
renewal.
Because these statutes are more specific in dealing
with taxation of motor vehicles and ad valorem taxes, the Revenue
Cabinet’s reliance on the definition of an “owner” in KRS
186.010(7)(a) and (c), as well as the general division of
liability between a legal title holder and an equitable title
holder expressed in KRS 134.060, is misplaced.
See e.g.,
Commonwealth v. Phon, Ky., 17 S.W.3d 106, 107 (2000) (specific
provisions take precedence over general provisions); DeStock #14,
Inc. v. Logsdon, Ky., 993 S.W.2d 952, 959 (1999) (same).
The
Revenue Cabinet’s suggestion that the O’Daniels should be
considered the owners of record as of December, 1994, because the
VTR indicated they purchased the vehicle at that time is
inconsistent with the ordinary meaning of the statutory language,
the title registration process, and the rule of strict
construction in favor of the taxpayer.
In the case sub judice, the O’Daniels applied for
registration of their 1994 Lincoln Town Car on January 19, 1995.
They became owners of record on that date.
In addition, the
Marion County Clerk issued a certificate of registration that
expired in June 1996.
Under KRS 186.025(2) and KRS 134.810(4),
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the O’Daniels were not liable for the taxes due for 1995 because
they were not the owners of record on January 1, 1995.
Furthermore, KRS 134.810(5) indicates that the only ad valorem
taxes due and payable under the extended registration process
involved the 1996 property tax to be paid in June, 1996.
Our interpretation of the statutory scheme is further
supported by the legislative history of KRS 134.810(4).
Prior to
1988, KRS 134.180(4) read as follows: “When a motor vehicle has
been transferred before registration renewal or before taxes due
have been paid, the purchaser shall become liable for the taxes
on said motor vehicle.”
Effective December 31, 1988, the General
Assembly amended this provision to place responsibility for ad
valorem taxes on the “owner of record on January 1 of any year,”
rather than the purchaser of a vehicle.
Section 4.
See 1988 Ky. Acts 113,
This amendment indicates an intent to assign
liability for ad valorem property taxes for vehicles on the
registered owner of record as of January 1.
Having determined that the “owner of record” on January
1 of each year is the party responsible for paying the ad valorem
taxes for that year on vehicles assessed on that date, we now
turn to the Revenue Cabinet’s next argument that such a
determination violates the Kentucky Constitution.
The Revenue
Cabinet argues on page 12 of its brief, that:
Property tax in Kentucy is a matter of
constitutional law. The Circuit Court’s
Order violates the express requirements of
Sections 3, 170, 172 and 174 of the Kentucky
Constitution. Section 172 of the Kentucky
Constitution provides in relevant part as
follows:
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All property, not exempted from
taxation by this Constitution,
shall be assessed for taxation at
its fair cash value, estimated at
the price it would bring at a fair
voluntary sale...(Emphasis added).
In addition to Section 172, Section 3 of the
Constitution also requires that “no property
shall be exempt from taxation except as
provided in this Constitution...” Section
174 provides that all property shall be taxed
in proportion to its value, “unless exempted
by this Constitution...”
The property which the Kentucky
Constitution specifically exempts is listed
in Section 170. Section 170 has never
included a separate exemption for motor
vehicles among the properties that are
expressly exempt from property tax, unless
the motor vehicle is owned by one of the
enumerated exempt entities.
We do not agree with the Revenue Cabinet’s contention.
However,
as we have previously expressed, it is the owner of record on
January 1 who is responsible for the tax.
In the context of this
appeal, the O’Daniels were not the owner of record as of January
1, 1995, and as such, are not responsible for or legally liable
for the ad valorem taxes assessed on the vehicle in question as
of that date.
Whether or not another entity is liable for the
tax or whether statutory law exempts that entity from paying the
tax has not been addressed in this matter and was not presented
to the Marion Circuit Court and it is not properly before this
court.
As such, we will not address potential parties not joined
in this case, issues not raised or addressed by the lower court,
and facts merely alleged or speculated upon which may give rise
to a constitution issue.
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As to the Revenue Cabinet’s argument that the
O’Daniels’ failure to pay their 1995 motor vehicle property taxes
was correctly billed as omitted property, we find such contention
to be meritless.
Omitted personal property is defined by KRS
132.290(1) as:
Any real property which has not been listed
for taxation, for any year in which it is
taxable, by the time the board of assessment
appeals completes its work for that year
shall be deemed omitted property. Any
personal property which has not been listed
for taxation, for any year in which it is
taxable, by April 15 of that year shall be
deemed omitted property.
The evidence presented clearly indicated that the O’Daniels’
vehicle was properly and completely listed for taxation on
January 19, 1995, and was so certified by the county clerk.
The
registration of the vehicle complied with all statutory
provisions and the vehicle was properly listed for taxation and
placed on the AVIS system which is now used to insure tax
compliance.
We find no merit to the Revenue Cabinet’s argument
to the contrary.
For the forgoing reasons, the order of the Marion
Circuit Court is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEES:
Michael D. Kalinyak
Frankfort, KY
Phillip J. Shepherd
Frankfort, KY
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