COMMONWEALTH OF KENTUCKY, FINANCE AND ADMINISTRATION, CABINET DEPARTMENT OF REVENUE VS. LEXINGTON-FAYETTE URBAN COUNTY GOVERNMENT
Annotate this Case
Download PDF
RENDERED: OCTOBER 8, 2010; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-002220-MR
COMMONWEALTH OF KENTUCKY
FINANCE AND ADMINISTRATION CABINET
DEPARTMENT OF REVENUE
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 08-CI-01779
LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ACREE AND NICKELL, JUDGES; HARRIS,1 SENIOR JUDGE.
HARRIS, SENIOR JUDGE: In this case of first impression the Commonwealth of
Kentucky, Finance and Administration Cabinet, Department of Revenue
1
Senior Judge William R. Harris sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes
(KRS) 21.580.
(Department) appeals from an opinion and order of the Franklin Circuit Court
entered on October 29, 2009, which affirmed an order of the Kentucky Board of
Tax Appeals rendered on September 23, 2008. In its order the Board reversed a
Final Ruling which the Department had issued on August 24, 2007, denying the
complaint of Lexington-Fayette Urban County Government (LFUCG) seeking an
increase in LFUCG's total historical collections under its former cable television
franchise fee and a corresponding increase in the hold harmless distribution to be
made to it under the provisions of KRS 136.650 and 136.652. In its order, the
Board also directed the Department to re-determine the amount of LFUCG's
distribution utilizing its “base revenue” as the Board determined the meaning of
that term.
On appeal to this Court, the Department's central argument is that the
term “base revenue” in KRS 136.650(3) should be interpreted as set forth in its
final ruling. LFUCG's position is that the Board and Franklin Circuit Court have
correctly defined the term. After carefully reviewing the record, authorities, and
arguments of counsel, we perceive that the interpretation which the Board and
Franklin Circuit Court have applied is correct. Accordingly, we affirm.
The facts pertinent to this appeal are undisputed. The only issue to be
resolved being one of law, to wit, interpretation of the term “base revenue” in KRS
136.650(3), we review the lower court's order de novo. Western Kentucky Coca-
-2-
Cola Bottling Co., Inc. v. Revenue Cabinet, 80 S.W.3d 787, 790-91 (Ky. App.
2001).
Franklin Circuit Court has skillfully and succinctly chronicled the
procedural history and pertinent facts, which we here quote from its opinion and
order:
In 2005, the General Assembly enacted KRS 136.600 et
seq., creating a Telecommunications Tax and removing
the authority of the municipalities to levy a franchise fee
on cable television providers and to levy certain property
taxes on telecommunications companies. The statutes
provide for a 3% tax on the retail purchase of
multichannel video programming (“MVP”) services, a
2.4% tax on all revenues received by providers of such
services, and a 1.3% tax on gross revenues received by
providers of communications services. A fund was
established to hold the receipts of these taxes, which is
administered by the Cabinet. The Cabinet is charged
with the allocation and distribution of funds collected to
various parties, including municipality governments.
These amounts are designated as monthly “hold-harmless
amounts” because they are intended to replace revenue
lost to local governments by the abolition of the prior
local franchise fees and taxes.
LFUCG certified the amounts it historically received
from local franchise fees on or before December 1, 2005,
as required by the statute. The Cabinet computed
LFUCG’s “hold-harmless” payment by determining their
historical collections as a ratio of the total amount
collected by all political subdivision and departments.
This percentage was to be LFUCG’s share of the fund
and the basis for payments made by the Cabinet.
The General Assembly placed a cap on the total amount
to be distributed to the localities, in the amount of
$3,034,000 per month. This amount was projected to be
one-twelfth of the total potential annual collections, or
$36,408,000. However, the amount of historical
-3-
collections was actually determined to be $42,100,000
annually, leaving a shortfall of approximately 15% in the
fund. Thus, each jurisdiction received an amount 15%
lower than its actual historical collection. LFUCG’s
historical collections, as reported by the Cabinet, were
$4,179,999.15 per year.
LFUCG filed a formal complaint, making two arguments.
First, it argued that the fifteen percent shortfall had
amounted to a $613,633.71 yearly loss in revenue, which
had resulted in harm to the city. Second, LFUCG argued
that the Cabinet should increase its historical collections
in the amount of $430,342 per year, based upon a change
made to their base revenue in 2005. Such a change is
contemplated by the statute where there is a substantial
change in base revenue from historical collection figures
due to the enactment or modification of a local franchise
fee prior to June 30, 2005. LFUCG increased the
franchise fee imposed on cable television providers from
three percent to five percent, which change became
effective on February 1, 2005.
On January 29, 2007, an administrative hearing was held
by the Cabinet, and the hearing officer recommended that
the Cabinet deny any additional distribution to LFUCG.
The Oversight Committee approved and adopted the
hearing officer’s report of June 20, 2007, issuing its final
ruling on August 24, 2007. LFUCG appealed this ruling
to the KBTA. The KBTA affirmed the Cabinet’s ruling
in denying LFUCG’s request for an increase to cover the
fifteen percent shortfall, but reversed the Cabinet’s denial
of LFUCG’s request to increase its annual distributions
by $430,342, attributable to the increase in its local
franchise fee. The Cabinet now appeals the ruling of the
KBTA. . . .
A cardinal rule of statutory construction is that if the statute is not
ambiguous, and if applying the plain meaning of the words of the statute would not
lead to an absurd result, then it is our duty to determine and effectuate the
legislature's intent from the words used and further interpretation is not warranted.
-4-
Gilbert v. Commonwealth, Cabinet for Health and Family Services, 291 S.W.3d
712, 715-16 (Ky. App. 2008). Consequently, our first inquiry is whether the term
“base revenue” is ambiguous. This Court in Gilbert noted that an ambiguity exists
when an undefined term contained in a statute admits of two mutually exclusive
yet reasonable interpretations. Id. at 716. This Court in Gilbert also quoted recent
editions of BLACK'S LAW DICTIONARY defining “ambiguous” as being “reasonably
capable of being understood in more than one sense.” Id.
Applying these tests, we are persuaded that the term “base revenue” is not
ambiguous when it is read in the context of the entire telecommunications tax
legislation enacted in 2005. Clearly, the purpose of KRS 136.650 is to provide a
method for compensating local governmental units for their loss of franchise fees
which they would have been entitled to continue to receive had the 2005 legislation
not been enacted. More specifically, the provisions of KRS 136.650(3) allow a
political subdivision to seek an increase in the amount of its hold harmless
distribution in the event that political subdivision's collection of franchise fees
increased from June 30, 2005, to December 31, 2005, because of an increase in the
franchise fee effectuated before June 30, 2005. Absent subsection (3), the political
subdivision's distribution would be based on the franchise fees which it collected
from July 1, 2004, to June 30, 2005. Since subsection (3) serves to give the
political subdivision an avenue to seek a larger distribution if it collected more
franchise fees during the last six (6) months of 2005, the only reasonable
interpretation of the term “base revenue” is revenue resulting from the franchise
-5-
fee, and from no other source. Because this is the only reasonable interpretation of
the term in question, we conclude that there is no ambiguity.
Interpreting the term “base revenue” in KRS 136.560(3) using what
we find to be the plain meaning of the words chosen by the General Assembly, we
conclude that the Board of Tax Appeals and the Franklin Circuit Court have not
erred.
Consequently, we affirm the Franklin Circuit Court's opinion and
order.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Bethany Atkins Rice
Office of Legal Services for Revenue
Frankfort, Kentucky
David J. Barberie
Leslye M. Bowman
Lexington-Fayette Urban County
Government
Lexington, Kentucky
-6-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.