KENTON COUNTY, KENTUCKY v. CITY OF COVINGTON; CORPOREX REALTY & INVESTMENT CORPORATION; REBECCA RETTENMEIER; SECO ELECTRIC, INC.; JOSEPH E. SCHAMER; AND GREATER CINCINNATI BUILDING AND CONSTRUCTION TRADES COUNCIL
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RENDERED:
OCTOBER 25, 2002; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2001-CA-001238-MR
KENTON COUNTY, KENTUCKY
APPELLANT
APPEAL FROM KENTON CIRCUIT COURT
HONORABLE PATRICIA M. SUMME, JUDGE
ACTION NO. 01-CI-00183
v.
CITY OF COVINGTON;
CORPOREX REALTY & INVESTMENT CORPORATION;
REBECCA RETTENMEIER;
SECO ELECTRIC, INC.; JOSEPH E. SCHAMER;
AND GREATER CINCINNATI BUILDING AND
CONSTRUCTION TRADES COUNCIL
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
KNOPF, MILLER, AND TACKETT, JUDGES.
KNOPF, JUDGE:
Section 181 of the Kentucky Constitution permits
the General Assembly to confer upon any county, city, town, or
municipal corporation the authority to impose occupational
license fees.
Pursuant to this mandate, KRS 68.197 authorizes
every county with more than 30,000 inhabitants to enact
occupational license fees at a percentage rate not to exceed one
percent (1%) of an individual’s income or a business’s net
profits.
Kenton County enacted its first occupational license
fee in 1978, and subsequently added additional fees in 1981,
1987, and 1989.
In 2000, Kenton County modified the tax rate of
these fees, increasing some, decreasing others, and leaving the
remaining fees unchanged.
At the same time, Kenton County
substantially increased the base income which is subject to the
license fees.
KRS 92.280(2) also authorizes cities of the second
through the sixth class to impose occupational license fees.
This case involves the effect of a series of amendments to KRS
68.197 regarding mandatory credits against the county-imposed
fees for taxpayers who are subject to the city-imposed fees.
The
City of Covington, the named residents of Covington, and
businesses located in Covington, brought this action for
declaratory judgment claiming a right to offset city occupational
license fees against the increased fees imposed by Kenton County
in 2000.
The trial court in this case found that an increase in
the county fees constitutes the “imposition” of taxes as
contemplated by KRS 68.197(4).
Consequently, the trial court
held that taxpayers of the county who also pay a city license fee
shall be allowed to credit their city fee against their county
fee.
We conclude that KRS 68.197(4) requires an offset only in
counties which initially imposed an occupational license fee
after July 15, 1986, and not for tax increases enacted after that
date.
Hence, we reverse the trial court’s summary judgment in
favor of the appellee-taxpayers, and we remand this matter to the
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trial court with directions to enter a judgment in favor of
Kenton County.
This matter was submitted to the trial court on the
following joint stipulations of fact:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Covington is an incorporated second class city in
Kenton County, Kentucky.
Petitioner Rebecca Rettenmeier is employed by
Petitioner Corporex Realty & Investment Corporation
(“Corporex”) in the City of Covington. Rettenmeier is
subject to Covington and Kenton County’s occupational
license fees
Rebecca Rettenmeier is expected in 2001 to earn income
from her employment with Corporex in excess of
$25,000.00, up to the Social Security maximum.
Corporex employs other taxpayers in Covington who are
expected to earn in excess of $25,000 at Corporex in
2001. Those employees are also subject to Covington
and Kenton County’s occupational license fees.
Corporex has a business situs in Covington, Kenton
County, Kentucky and is subject to the Kenton County
occupational license fees.
Kenton County has had a population in excess of thirty
thousand (30,000) at all times relevant to this
lawsuit.
Seco Electric, Inc. is a corporation that does business
and employs persons in Covington, Kentucky.
Joseph F. Schamer is an employee of Seco and pays
occupational license fees to both Kenton County and the
City of Covington.
The Greater Cincinnati Building and Construction Trades
Council is an employee organization whose members
consist of tradesmen such as carpenters, laborers,
plumbers and related trades. Many of its members pay
an occupational license fee to both Kenton County and
the City of Covington.
The Kenton County Fiscal Court,, in Ordinance No. 78-61 adopted an occupational license fee that was
effective July 1, 1978. Ordinance 78-6-1 set a license
fee rate of four tenths of one percent (0.4%) of (i)
all salaries, wages, commissions, or other compensation
earned by every person in Kenton County for work done
or services performed or rendered in the County
(hereinafter referred to as “an individual’s income”);
and (ii) the net profits of all businesses,
professions, or occupations from activities conducted
in Kenton County, except those exempted under state law
(hereinafter referred to as “a business’s net
profits.”). Ordinance 78-6-1 further provided that no
more than $100 would be withheld from an individual’s
income in a one-year period, and no business would pay
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11.
12.
13.
14.
more than $150 in tax on a business’s net profits in a
one-year period. Thus, the first $25,000 of an
individual’s income, and the first $37,500 of a
business’s net profits are subject to the occupational
license fee established by Ordinance No 78-6-1.
Ordinance No. 78-6-1 was adopted pursuant to KRS
68.197.
The Kenton County Fiscal Court in Ordinance No 220.8,
adopted another occupational license fee that was
effective January 1, 1981. Ordinance No. 220.8 set a
license fee rate of one-tenth of one percent (0.1%) of
(i) an individual’s income; and (ii) a business’s net
profit. Ordinance No 220.8 further provided that as to
this additional license fee of 0.1%, no more than
$25.00 would be withheld from an individual’s income in
a one-year period, and no business would pay more than
$37.50 in tax on a business’s net profits in a one-year
period. Thus, the first $25,000 of an individual’s
income, and the first $37,500 of a business’s net
profits are subject to the occupational license fee
established by Ordinance No. 220.8.
The Kenton County Fiscal Court, in Ordinance No. 223.0,
adopted another occupational license fee effective
April 1, 1987. Ordinance No. 223.0 set a rate of onetwentieth of one percent (0.05%) of (i) an individual’s
income; and (ii) a business’s net profits. Ordinance
No. 223.0 further provided that as to the additional
license fee of .05%, no more than $12.50 would be
withheld from an individual’s income in a one-year
period, and no business would pay more than $18.75 in
tax on a business’s net profits in a one-year period.
Thus, the first $25,000 of an individual’s income, and
the first $37,500 of a business’s net profits were
subject to the occupational license fee established by
Ordinance No. 223.0
The Kenton County Fiscal Court, in Ordinance No. 223.7,
adopted another occupational license fee effective
January 1, 1989. Ordinance No. 223.7 set a rate of
three-tenths of one percent (.3%) of: (i) an
individual’s income; and (ii) a business’s net profits.
Ordinance No. 223.7 further provided that as to this
additional license fee of .3%, no more than $75.00
would be withheld from an individual’s income in a oneyear period, and no business would pay more than
$112.50 in tax on a business’s net profits in a oneyear period. Thus, the first $25,000 of an
individual’s income, and the first $37,500 of a
business’s net profits were subject to the occupational
license fee established by Ordinance No 223.7
On June 6, 2000, the Kenton County Fiscal Court passed,
and the Kenton County Judge/Executive approved,
Ordinance No. 225.19 relating to the County’s
occupational license tax. Ordinance No. 225.19 amended
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15.
16.
Ordinance Nos. 78-6-1, 220.8, 223.0 and 223.7 in the
following ways:
(a) the licence tax rate in Ordinance No. 78-6-1 was
changed from 0.4% to 0.85%;
(b) the licence tax rate in Ordinance No. 223.7 was
changed from 0.3% to 0%;
(c) the licence tax rates in Ordinance Nos. 223.0 and
220.8 were unchanged;
(d) the maximum individual’s income and business net
profits subject to an occupational license fee in each
of the four Ordinances was changed from a maximum of
the first $25,000 of an individual’s income and the
first $37,500 of a business’s net profits, to the
Social Security Maximum as defined by the Federal
Government for all taxpayers.
As a result of Ordinance No. 225.19, the aggregate rate
of the Kenton County occupational tax rate was
increased from eight and one-half tenths of one percent
(.85%) to one percent (1%). Ordinance No. 225.19 was
to take effect on January 1, 2001.
On November 8, 2000, prior to the effective date of
Ordinance No. 225.19, the Kenton County Fiscal Court
passed, and the Kenton County Judge/Executive approved,
Ordinance No. 225.25, which amended Ordinance No.
225.19 in the following ways:
(a) it changed the rate under Ordinance No. 78-6-1
from .85% to .7403%;
(b) it changed the rate under Ordinance No. 220.8 from
.1% to .0731%;
(c) it changed the rate under Ordinance No. 223.0 from
.05% to .0366%[;]
(d) it made no changes to the maximum individual’s
income and business’s net profits subject to an
occupational license fee under each of the foregoing
Ordinances, defined in Ordinance No 225.19 as the
Social Security Maximum.
Ordinance No. 225.25 took effect January 1, 2001.
17.
18.
19.
The Social Security Maximum is determined pursuant to
42 U.S.C. § 403. The Social Security Maximum for the
past five years is as follows:
1997
1998
1999
2000
2001
$65,400
$68,400
$72,600
$76,200
$80,400
The aggregate change in Kenton County’s occupational
license fees since January 1, 2001, is from a rate of
.85%, with the maximum income and net profits subject
to the tax of approximately $25,000 of an individual’s
income and $37,500 of a business’s net profits, to a
rate of .85% of income up to the Social Security
Maximum for all taxpayers.
The City of Covington has enacted an occupational
license fee of two and one-half percent (2.5%) of (i)
all salaries, wages, commissions, or other compensation
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earned by every person in Covington for work done or
services rendered in Covington; and [(ii)] the net
profits of all businesses, professions, or occupations
from activities conducted in the city not specifically
taxed under the general occupational tax ordinance.
Under this ordinance, an individual pays 2-1/2% of his
income up to the FICA maximum established for that
year. A business’s liability is limited to a maximum
of $40,000 with the exception of the following
businesses, which pay the following flat occupational
license fees:
Chattel loan companies
$800
Telephone solicitors
$100
Mining Operations
$50,000
Barge Loading facilities $50,000
Coal Yard facilities
$50,000
The FICA maximum as used in Covington’s ordinance and
the Social Security maximum as used in Kenton County’s
ordinance are the same number. Thus, for the year
2001, those individuals subject to the Covington
occupational license fee will pay 2-1/2% of their
income with a maximum income subject to the tax of
$80,400 to the City of Covington. Said individuals are
also subject to occupational licenses fees as provided
in Kenton County Ordinance No. 225.25 and, therefore,
for the year 2001, will pay .85% of their income with a
maximum income subject to the tax of $80,400 to Kenton
County, unless Petitioners and Intervening Petitioners
are successful in obtaining a declaration of law that
such individuals are entitled to credit city
occupational license fees against county occupational
fees.
20.
As originally adopted in 1966, KRS 68.197 permitted
counties of 30,000 or more, after approval by the voters, to
enact the occupational license tax.1
In 1978, the General
Assembly added subsection (3) to the statute, which permitted
city license fees to be offset against county license fees.2
The
General Assembly amended KRS 68.197 again in 1986, adding
1
See Casey County Fiscal Court v. Burke, Ky., 743 S.W.2d 26, 27 (1988).
2
In its entirety, KRS 68.197(3) provides: “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”.
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subsection (4) which made the tax credit provision mandatory.
However, this amendment applied only to license fees “imposed . .
. on or after July 15, 1986."3
In addition, the 1986 amendment
eliminated the requirement of voter approval for adoption of an
occupational license fee.
In 2000, the General Assembly imposed
a two-year moratorium on the mandatory offset required by KRS
68.197(4).
However, the legislature specifically excepted
“county licence fees enacted for the first time, or increased, on
or after January 1, 2000."4
This case comes down to the meaning of the word
“imposed” as used in KRS 68.197(4).
The trial court concluded
that the purpose of KRS 68.197(4) was “to protect the established
revenue stream of counties and cities as it existed prior to July
15, 1986."
Thus, the court reasoned that any fees imposed or
increased by the county after that date are subject to an offset
for license fees paid to cities within the counties.
The trial
court also implied that the increase in the tax base is also
subject to the mandatory offset.
The appellees agree with the
3
In its entirety, KRS 68.197(4) provides: “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 July 15, 1986, 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.”
4
In its entirety, KRS 68.197(5) provides: “On July 14, 2000, the provisions of subsection
(4) of this section notwithstanding, city license fees not credited against county license fees
enacted under this section or KRS 67.083 as of January 1, 2000, shall not be credited against
county license fees. However, this exception shall not apply to county license fees enacted for
the first time, or increased, on or after January 1, 2000. This provision shall expire July 15,
2002, unless otherwise extended by the General Assembly.”
-7-
trial court that the word “imposed” as used in KRS 68.197(4)
embraces license fees that are increased or enacted after 1986.
Kenton County argues that this interpretation conflicts
with the legislative history of KRS 68.197.
As noted in the
stipulations of fact, Kenton County adopted an occupational
licence fee in 1978.
Kenton County takes the position that the
1986 amendments to KRS 68.197 envisioned a trade-off: eliminating
the requirement of voter approval for adoption of an occupational
license fee, but requiring an offset against city fees in
counties which adopt license fees after 1986.
Consequently,
Kenton County contends that the mandatory offset provision of KRS
68.197(4) applies only to license fees which were originally
imposed after July 15, 1986, and not to fees which were imposed
prior to that date but subsequently increased.
In its brief, the County further argues that the
provisions of KRS 68.197(5) apply only to license fees which were
subject to the mandatory offset provision of KRS 68.197(4).
Because it was never required to allow city license fees to be
offset against county fees, Kenton County asserts that the
exception from the offset moratorium for fees “adopted for the
first time, or increased, on or after January 1, 2000", likewise
does not apply to the tax fee and tax base increases enacted in
2000.
However, all parties concede that KRS 68.197(5) has now
expired by its own terms and is no longer applicable to this
dispute.
Therefore, we need not consider that section further.
-8-
This Court's duty in construing statutes is to
ascertain and give effect to the intent of the General Assembly.5
Further, statutes are to be liberally construed to give effect to
that intent.6
A word that has acquired a peculiar and
appropriate meaning in the law shall be construed according to
such meaning.7
When the words of a statute are clear and
unambiguous and express the legislative intent, there is no room
for construction or interpretation and the statute must be given
its effect as written.8
Also, as general propositions, taxing
statutes must be strictly construed, and doubts about their
meaning must be resolved in favor of the taxpayer.9
With these principles in mind, we find that Kenton
County’s interpretation of KRS 68.197(4) is more consistent with
the intent of the entire statute than is the trial court’s
reading.
Subsection (4) refers to “license fees imposed under
the provisions of subsection (1) of this section on or after July
15, 1986, .
.
.
.”
As Kenton County correctly states, KRS
68.197(1) grants to counties having a population of 30,000 or
more the authority to adopt occupational license fees.
But that
section also permits such counties to impose thereafter
5
Beckham v. Board of Education, Ky., 873 S.W.2d 575, 577 (1994).
6
KRS 446.080(1).
7
KRS 446.080(4); Revenue Cabinet v. JRS Data Systems, Inc., Ky. App., 738 S.W.2d
828, 829 (1987).
8
White v. Check Holders, Inc., Ky., 996 S.W.2d 496, 497 (1999); McCracken County
Fiscal Court v. Graves, Ky., 885 S.W.2d 307, 309 (1994).
9
Tennessee Gas & Transmission Co. v. Commonwealth, 308 Ky. 571, 215 S.W.2d 102
(1948).
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additional fees up to one percent of an individual’s income or a
business’s net profits.
The use of the word “imposed” in KRS
68.197(4) could refer both to a county’s initial adoption of an
occupational license fee and to a county’s adoption of additional
or increased fees.
However, the history of KRS 68.197 resolves this
apparent ambiguity.
As originally enacted, KRS 68.197(2)
provided that “[n]o order or resolution of the fiscal court
imposing license fees pursuant to subsection (1) of this section
shall be valid until it is approved by a majority of the voters
of the county at an election called by the fiscal court.”
This
section clearly required voter approval for the initial adoption
of an occupational license fee, but not for any subsequent
modification of the tax rates.
Although the General Assembly
eliminated the requirement for voter approval in the 1986
amendment, subsection (4) uses the similar phrase, “imposed under
the provisions of subsection (1)” in the same manner as it was
used in the prior version of KRS 68.197(2).
Furthermore, we agree with the trial court that one of
the effects of KRS 68.197(4) was to protect the established
revenue stream of counties and cities as it existed prior to July
15, 1986.
However, the primary intent of the amendment was to
preserve the authority of counties which had adopted occupational
license fees prior to July 15, 1986.10
10
KRS 68.197 specifies how
Indeed, it seems unlikely that the six counties which had adopted occupational licence
fees prior to 1986 would have supported the amendment if they had understood it to be a
limitation on their authority to raise taxes which they were already authorized to impose.
-10-
a county with more than 30,000 inhabitants may adopt an
occupational license fee.
While the continuing power to modify
the tax rates flows necessarily from the grant of authority to
impose license fees for the first time, it does not exist
independently of that authority.
Consequently, the word “impose”
as used in both KRS 67.197(1) and (4) refers to the fiscal
court’s initial adoption of an occupational license fee.
We
conclude, therefore, that the General Assembly intended to exempt
counties which had already adopted occupational license fees as
of July 15, 1986 from the mandatory offset provisions of KRS
68.197(4).
Therefore, we conclude that the trial court erred in
finding that the taxpayers who pay license fees to a city within
Kenton County must be allowed to credit their city fee against
their county fee.
They may do so only if there is an agreement
between the cities and the county which allows for such an
offset.
In so finding, we recognize that the tax rate and tax
base increases imposed by the Fiscal Court in 2000 require all
residents of Kenton County to pay substantially more in taxes
than they paid previously.
In addition, city residents may be
subject to the full amount of both city and county license fees.
Nevertheless, KRS 68.197 does not require Kenton County to allow
an offset.
The appellees’ sole remedy is to seek relief through
the political process.
Accordingly, the judgment of the Kenton Circuit Court
is reversed, and this matter is remanded to the trial court with
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directions to enter a judgment in favor of Kenton County as set
out in this opinion.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEES CITY OF
COVINGTON, CORPOREX REALTY &
INVESTMENT CORPORATION,
REBECCA RETTENMEIER, SECO
ELECTRIC, INC., JOSEPH E.
SCHAMER AND GREATER CINCINNATI
BUILDING AND CONSTRUCTION
TRADES COUNCIL.
Sheryl G. Snyder
H. Lawson Walker, II
David S. Kaplan
Frost Brown Todd LLC
Louisville, Kentucky
ORAL ARGUMENT FOR APPELLANT:
COUNSEL FOR CORPOREX REALTY &
INVESTMENT CORPORPORATION AND
REBECCA RETTENMEIER:
Sheryl G. Snyder
Louisville, Kentucky
John E. Lange, III
Lange, Quill & Powers, PSC
Newport, Kentucky
COUNSEL FOR SECO ELECTRIC,
INC.; JOSEPH F. SCHAMER; AND
GREATER CINCINNATI BUILDING
AND CONSTRUCTION TRADES
COUNCIL:
Mark D. Guilfoyle
Patrick R. Hughes
Deters, Benzinger & LeVelle,
PSC
Covington, Kentucky
COUNSEL FOR CITY OF COVINGTON:
Frank F. Chuppe
Virginia H. Snell
Angela C. McCorkle
Wyatt, Tarrant & Combs, LLP
Louisville, Kentucky
Stephen T. McMurtry
McMurtry Law Firm
Fort Mitchell, Kentucky
ORAL ARGUMENT FOR APPELLEES:
Frank F. Chuppe
Louisville, Kentucky
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