JOHN DAVID PRESTON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED V. JOHNSON COUNTY FISCAL COURT
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RENDERED: SEPTEMBER 28,200O
TO BE PUBLISHED
1999-SC-04 14-DG
JOHN DAVID PRESTON, INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY SITUATED
V.
APPELLANT
ON REVIEW FROM THE COURT OF APPEALS
1998-CA-00 1452
JOHNSON CIRCUIT COURT NO. 97-Cl-00428
JOHNSON COUNTY FISCAL COURT
APPELLEE
OPINION OF THE COURT BY JUSTICE COOPER
AFFIRMING
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(fifteenth) (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 Assembly’ 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
’ 1966 Ky. Acts ch. 263 5s 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.
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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 (I), 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
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%.
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application of both statutes to counties with populations of 30,000 or more. However,
KRS 68.197 has been amended in several significant respects.
4
A 1974 amendment 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.
4 1974 Ky. Acts ch. 113 § 1.
5 1978 Ky. Acts ch. 268 5 1.
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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).
Casev Countv 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
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. Citv of Louisville, KY., 559 S.W.2d 478 (1977).
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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,
I t w a sata27.u e d i n B u r k e t h a t t h e 1 9 8 6 a m e n d m e n t o f K R S 6 8 . 1 9 7 w a s ,
rg
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).
Ill. 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
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taxation in Section 181. Proceedinqs 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 Erlanoer v. KSL Realtv Corp., Inc., Ky., 819 S.W.2d 707,
708 (1991); Jahr v. Citv of Radcliff, Ky., 503 S.W.2d
743 (1973); City of Lexinqton 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. Citv of Radcliff and City of Lexinoton v. Motel Developers, Inc., both
supra, the offended taxpayers were taxed twice for the same privilege by the same
taxino 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
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Appellant’s Section 2 argument, since KRS 68.197(4) does not apply to Johnson
County. Casev Countv 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. Kentuckv, 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.” Citv of Lexinaton 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. Nordlinoer 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 anv reasonablv conceivable state of
facts that could provide a rational basis for the classification.” FCC v. Beach
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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 rational 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,”
Casev Countv 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.
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COUNSEL FOR APPELLANTS:
John David Preston
Perry, Preston & Miller
232 College Street
P.O. Drawer C
Paintsville, KY 41240
COUNSEL FOR APPELLEE:
J. Scott Preston
Preston & Holbrook
P.O. Box 1361
Paintsville, KY 41240
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RENDERED: SEPTEMBER 28,200O
TO BE PUBLISHED
JOHN DAVID PRESTON, INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY SITUATED
V.
APPELLANT
ON REVIEW FROM THE COURT OF APPEALS
1998-CA-1452
JOHNSON CIRCUIT COURT NO. 97-Cl-0428
JOHNSON COUNTY FISCAL COURT
APPELLEE
CONCURRING OPINION BY JUSTICE KELLER
While I agree with the majority’s conclusion regarding the constitutionality of the
City of Paintsville’s occupational license tax and the General Assembly’s legislative
enactments which delegate taxation power to cities and counties, I write separately to
express my opinion that Preston did not follow the notification procedures outlined in
Kentucky’s Declaratory Judgments Act by failing to notify the Attorney General when he
sought appellate review of the Johnson Circuit Court ruling. Accordingly, while I agree
with the majority’s decision to address the merits of Preston’s claim because of the
significance of this issue, I believe it is important to note that either this Court or the
Court of Appeals could properly have declined to review this issue because of Preston’s
failure to follow the notice requirements of KRS 418.075(2).
KRS 418.075 requires that the Attorney General be notified in cases such as the
one before us where the plaintiff seeks declaratory relief:
When declaratory relief is sought, all persons shall be
made parties who have or claim any interest which would be
affected by the declaration, and no declaration shall
prejudice the rights of persons not parties to the proceeding.
(1) In any proceeding which involves the validity of a statute,
the Attorney General of the state shall, before judgment is
entered, be served with a copy of the petition, and shall be
entitled to be heard, and if the ordinance or franchise is
alleged to be unconstitutional, the Attorney General of the
state shall also be served with a copy of the petition and be
entitled to be heard.
(2) In anv appeal to the Kentucky Court of Appeals or
Supreme Court or the federal appellate courts in any forum
which involves the constitutional validitv of a statute. the
Attornev General shall. before the filina of the appellant’s
brief, be served with a copy of the pleadina. paper. or other
documents which initiate the appeal in the appellate forum.
This notice shall specify the challenaed statute and the
nature of the alleaed constitutional defect.
(3) The Attorney General shall notify the Legislative
Research Commission of:
(a) The receipt of a petition and the nature of
any proceedings involving the validity of a
statute; and
(b) The entering of a final judgment in those
proceedings, if the Attorney General is a party
to that action.’
Until July 15, 1996, KRS 418.075 required only that the Attorney General be served
with a copy of the petition filed in the trial court, and this requirement is now codified at
at KRS 418.075(l). The 1996 General Assembly, however, added the language now
codified at KRS 41 8.075(2).2
Preston complied with the KRS 418.075(l) notice requirement, but did not serve
upon the Attorney General a copy of the notice of appeal or motion for discretionary
review as required by KRS 418.075(2).
Although Preston purports to challenge the validity of a Paintsville taxation
‘KRS 418.075 (emphasis added).
21996 Ky. Acts, ch. 202, 5 2 (effective July 15, 1996).
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ordinance, his argument quickly blossoms beyond its initial label into a constitutional
criticism of Kentucky’s statutory taxation scheme. The General Assembly
unquestionably granted Paintsville the power to levy an occupational tax in KRS
92.281. Preston’s constitutional challenge argues that KRS 68.197(4) and KRS
67.083(2) 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. Preston thus argues
against the validity of the Paintsville ordinance because the statutory grants of authority
under which Paintsville enacted the ordinance are arbitrary and unconstitutional. As
Preston’s argument against the ordinance is inexorably intertwined with his
constitutional objections to the General Assembly’s delegations of taxation power, the
issue on this appeal certainly “involves the constitutional validity of a statute” and
Preston’s decision to seek appellate review of the decision of the Johnson Circuit Court
triggers the notice requirement within KRS 418.075(2).
Although this Court has not yet had an opportunity to address the effect of a
failure to abide by the procedural notice requirements of this subsection, we have
required strict compliance with respect to the other requirements of KRS 418.075. In
Maney v. Mary Chiles Hospital,3
we recognized the important policy considerations
supporting this requirement! and held: “It is our view that KRS 418.075 is mandatory
‘KY., 785 S.W.2d 480 (1990).
4See, Id. at 481:
[Wje are convinced that there is a compelling public
purpose to be served by the notification rule. The language
of the statute and rule evinces a strong public policy in favor
of notification to the Attorney General whenever the
constitutionality of a statute is placed in issue . . . .
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and that strict enforcement of the statute will eliminate the procedural uncertainty.“5 In
Adventist Health Systems v. Trude,’ this Court relied upon Maney and declined to
consider a constitutional issue on appeal because of the litigant’s failure to abide by the
notice requirements of KRS 418.075:
Dr. Peasley has argued that the provisions of KRS
311.377 violate the Kentucky Constitution. However, Dr.
Peasley failed to give notice to the Attorney General of the
pendency of his constitutional challenge in violation of KRS
418.075 and Civil Rule 24.03 in either the Court of Appeals
or this Court. Since the original action was filed in the Court
of Appeals, it is considered the “trial court” for the purpose of
applying the procedural mandate of Maney v. Mary Chiles
Hosp. In Maney, we held that the requirements of KRS
418.075 are mandatory in order for a court to consider the
constitutionality of a statute and that strict enforcement of
the statute will eliminate procedural uncertainty.
Accordingly, we decline to consider that issue.7
I see no reason for us to interpret KRS 418.075(2) differently from KRS
418.075( 1). The General Assembly has made a policy decision that the Attorney
General be informed when litigants in declaratory judgment actions seek further
appellate review, and this Court may enforce this requirement by declining to consider
Among the purposes underlying this statute is the right of
the people, by the chief law officer, to be heard on matters
affecting the validity of duly enacted statutes. KRS 15.020.
Likewise, the prevention of collusive, non-adversarial
proceedings between or among litigants which might result
in the invalidation of state law is a matter of public interest.
It is in the interest of the people to afford the Attorney
General an opportunity to participate on their behalf,
whether it is to argue for or against the validity of a statute.
‘ld. at 482.
6Ky., 880 S.W.2d 539 (1994).
‘1d. at 542 (citations deleted and emphasis added).
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constitutional issues presented without proper notice. While the Attorney General may
exercise discretion to intervene only in those cases involving questions of statewide
concern, the full extent of a constitutional claim may not be apparent from the face of a
petition. In this case, a purported challenge to a local ordinance actually questions the
constitutionality of a number of statutes delegating taxation power to cities and
counties. KRS 418.075(2) allows the office of the Attorney General an opportunity to
reassess, with more complete knowledge of the issues involved on appeal, its prior
determination regarding involvement in a lawsuit. If, after reviewing a notice of appeal,
the office of the Attorney General wishes to represent the interests of the citizens of
Kentucky, it may seek to file a brief as amicus curiae.8 As Preston failed to meet the
notice requirements of KRS 418.075(2), either this Court or the Court of Appeals could
have dismissed this appeal and declined to address the issue involved.
As stated previously, I agree with the majority’s decision to address the merits of
the constitutional issue in this case, and I believe counsel for the appellee in this case
aptly defended the constitutionality of both the Paintsville ordinance and the General
Assembly’s taxation delegation statutes. I write separately in concurrence primarily to
remind the bench and bar of the 1996 amendment to KRS 418.075, and to suggest that
future failures to comply with the notice requirement in KRS 418.075(2) may bar review
of constitutional challenges to Kentucky statutes.
Graves and Johnstone, JJ., join this concurring opinion.
‘See CR 76.12(7).
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’
RENDERED: SEPTEMBER 28,200O
TO BE PUBLISHED
1999-SC-0414-DG
JOHN DAVID PRESTON, INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY SITUATED
V.
APPELLANT
ON REVIEW FROM THE COURT OF APPEALS
NO. 1998-CA-1452-MR
JOHNSON CIRCUIT COURT NO. 97-Cl-0428
JOHNSON COUNTY FISCAL COURT
APPELLEE
DISSENTING OPINION BY JUSTICE STUMBO
I respectfully dissent from the majority opinion and would hold the ordinance to
be unconstitutional as it creates an irrational and arbitrary classification among counties
having a population greater than 30,000 versus those with fewer than 30,000 as to their
taxation of citizens similarly situated. In counties having a population of 30,000 or more
plus a city, citizens living in the city are entitled to an offset on their county occupational
tax bill for the occupational tax paid to that city. However, in counties having a
population of fewer than 30,000 plus a city, citizens living in the city have no entitlement
to such an offset. There simply is no rational basis for such a distinction.
Both the statutory provisions and case law on point dictates that this ordinance
be held unconstitutional. KRS 68.197, as enacted in 1966, granted counties with a
population of 30,000 or more the power to impose an occupational tax at a maximum of
one percent (1%). Subsection three provided, in precatory language, that where a city
located in such a county also had an occupational tax, the city and county “may” reach
an agreement to allow a credit for city tax paid as an offset against county tax owed.
Subsection four was later enacted to amend that precatory language, substituting a
mandatory provision that after July 15, 1986, city occupational taxpayers became
entitled to such a credit against a county occupational tax.
Appellant correctly points out that counties with populations of fewer than 30,000
were granted that power to assess an occupational tax not by virtue of statutory
enactment but by interpretation of the existing statute by case law-namely, Casey
County Fiscal Court v. Burke, Ky., 743 S.W.2d 26 (1988). It therefore follows as a
logical conclusion as well as a constitutional necessity that this Court extend the same
reasoning (by corollary to the statutory enactment of § 4 of KRS 68.197) to permit
taxpayers of cities located in counties of fewer that 30,000 to offset city occupational
taxes against the county counterpart.
I would, therefore, hold the ordinance at issue to be unconstitutional as violative
of $j 2 and 3 of the Constitution of Kentucky and of § 1 of the 14th Amendment to the
Constitution of the United States.
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