REVENUE CABINET, COMMONWEALTH OF KENTUCKY v. COMCAST CABLEVISION OF THE SOUTH; AND KENTUCKY BOARD OF TAX APPEALS COMCAST CABLEVISION OF THE SOUTH v. REVENUE CABINET, COMMONWEALTH OF KENTUCKY
Annotate this Case
Download PDF
RENDERED:
NOVEMBER 14, 2003; 10:00 a.m.
ORDERED PUBLISHED: December 31, 2003; 2:00 p.m.
Commonwealth Of Kentucky
Court of Appeals
NO. 2002-CA-001524-MR
REVENUE CABINET,
COMMONWEALTH OF KENTUCKY
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 01-CI-00653
COMCAST CABLEVISION OF THE SOUTH; AND
KENTUCKY BOARD OF TAX APPEALS
CROSS APPEAL NO.
2002-CA-001579-MR
COMCAST CABLEVISION OF THE SOUTH
v.
APPELLEES
CROSS-APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE ROGER L. CRITTENDEN, JUDGE
ACTION NO. 01-CI-00653
REVENUE CABINET,
COMMONWEALTH OF KENTUCKY
CROSS-APPELLEE
OPINION
AFFIRMING IN PART, VACATING AND REMANDING
** ** ** ** **
BEFORE: EMBERTON, CHIEF JUDGE; McANULTY, JUDGE; AND HUDDLESTON,
SENIOR JUDGE.1
McANULTY, JUDGE:
The Kentucky Revenue Cabinet (Revenue Cabinet)
appeals from the Franklin Circuit Court’s opinion and order
affirming the decision of the Kentucky Board of Tax Appeals
(KBTA) in favor of Comcast Cablevision of the South (Comcast) on
the issue of its public service corporation property tax
assessment for the years 1996 and 1997.
Comcast cross-appeals
as to the Franklin Circuit Court’s determination that the issues
presented are purely questions of law.
We affirm as to the
proper standard of review and vacate and remand on Comcast’s
property assessment.
Comcast is a cable television company with franchises
to operate in the following areas in Kentucky:
Elizabethtown,
Hodgenville, Campbellsville, Glasgow, Horse Cave, Cave City,
Leitchfield, Clarkson and Greenville.
Comcast also provides
service to Tell City, Indiana and Livingston, Tennessee.
In
Kentucky, Comcast is subject to property taxation as a public
service company under KRS 136.120(1).
Comcast’s parent company acquired Telescripps Cable
Company (Telescripps) when it purchased the cable television
operations of E.W. Scripps Company on November 13, 1996.
1
Thus,
Senior Judge Joseph R. Huddleston sitting as Special Judge by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution
and KRS 21.580. This opinion was prepared and concurred in prior to the
expiration of the Special Judge assignment on November 25, 2003.
2
Comcast is Telescripps’ successor in interest for the 1996 tax
year.
Telescripps filed a public service company property tax
return for the 1996 tax year on April 30, 1996.
Comcast filed
its public service company property tax return for the 1997 tax
year on May 28, 1997.
Comcast is required to obtain a franchise agreement
from each local government prior to providing service in that
area.
The terms of Comcast’s franchises are for a limited
number of years, and renewal of the franchise is not automatic.
Further, the franchises are not exclusive, and the local
government may make demands on Comcast if and when the
franchises are renewed.
As of the 1996 tax year, which ended on
December 31, 1995, the franchises of Comcast’s cable systems had
an average remaining life of 5.0 years.
As of the 1997 tax
year, the franchises had an average remaining life of 4.2 years.
The Revenue Cabinet issued amended tentative property
tax assessments for the purposes of property taxation in the
amounts of $49,851,803 for the 1996 tax year and $50,887,742 for
the 1997 tax year.
Relying upon information provided by Comcast
in its returns, information related to the sale of Telescripps,
and market information reports for cable television and similar
industries, the Revenue Cabinet arrived at the tax assessments
under KRS 136.130(1) by determining the value of Comcast as a
unit everywhere, including its Tennessee and Indiana property,
3
and then apportioning a percentage of that unit value to
Kentucky.
Specifically, the Revenue Cabinet apportioned 89.6%
to Kentucky for 1996 and 89.15% for 1997.
The Revenue Cabinet
then rounded each apportioned amount down and subtracted the
assessed value of Comcast’s motor vehicles to arrive at the
final assessments.
Comcast timely protested the assessments.
On January
14, 1999, the Revenue Cabinet issued a final ruling upholding
the assessments.
Comcast filed a timely appeal to the KBTA.
The KBTA held a hearing on September 11 and 12, 2000.
Comcast presented three witnesses at the hearing to
offer testimony in support of Comcast’s contention that in
assessing the property of a cable company under Kentucky’s
statutory scheme, the Revenue Cabinet must determine and value
separately three classes of property:
operating property,
nonoperating tangible property, and nonoperating intangible
property.
Comcast’s first witness was Doug McMillan, former
General Manager of Comcast’s Kentucky operations.
In short,
McMillan testified that Comcast had an antiquated system as of
the lien dates at issue.
Next, John Kane, CFA, ASA, an expert television
appraiser hired by Comcast, testified that he concluded that the
total fair cash value of the business enterprise was $43.1
million for 1996 and $44.5 million for 1997.
4
According to Kane,
“[t]he business enterprise value is the price at which a willing
buyer and a willing seller would buy an entire business as of
the date.”
Included in this business enterprise valuation are
future values associated with future investment and future
property acquisition such as an estimated $15 million cost to
“wreck-out and rebuild” the current system to provide high-speed
data and digital cable services.
Kane termed these future
values and expectations that were included in the business
enterprise valuation “blue sky.”
After setting the business enterprise value, Kane
separated this total into “two buckets,” one being the operating
property and the other the nonoperating intangible property.
Kane’s understanding of operating property was “that property
which is present and employed in the system as of the lien date
or in the business as the lien date” and would include both
tangible and intangible property.
The intangible operating
property includes the franchise.
He determined that the unit
value of Comcast’s operating property as of the lien dates at
issue was $26 million for 1996 and $23.3 million for 1997; the
fair cash value of Comcast’s nonoperating intangible property
was $17.1 million for 1996 and $21.2 million for 1997.
Kane
arrived at his values by performing a discounted cash flow
analysis over the remaining life of the franchises, coupled with
the present value analysis of the assets in place at the end of
5
the franchise.
The following table represents Kane’s
classification of Comcast’s property to comprise the total
business enterprise value (the Kane appraisal):
Property
Classification
Operating Property
Nonoperating
Intangible Property
TOTAL
Fair Cash Value for
1996
$26,000,000
Fair Cash Value for
1997
$23,300,000
$17,100,000
$43,100,000
$21,200,000
$44,500,000
Kane concluded his direct testimony by stating that
the KBTA should not accept the business enterprise value as the
value of Comcast’s operating property for purposes of taxation
under KRS 136.120 because, although it includes values that
investors may be willing to pay for in the marketplace, some of
that value is blue sky or nonoperating intangible value.
Accordingly, the business enterprise value is significantly
greater than the value of the operating property as seen in the
table above.
Comcast’s final witness was Robert Reilly, an
appraisal expert.
He affirmed the Kane appraisal and discounted
the Revenue Cabinet’s assessment because it did not distinguish
between tangible property and intangible values and further
improperly characterized “blue sky” assets as tangible operating
property.
Ultimately, the KBTA set aside the Revenue Cabinet’s
final rulings upholding the 1996 and 1997 assessments against
6
Comcast and determined that the values reached in the Kane
appraisal were proper classifications.
Specifically, the KBTA
concluded that the value as of December 31, 1995 (the 1996
assessment values) of Comcast’s operating property was $26
million, and the value of its nonoperating intangible property
was $17.1 million.
The value as of December 31, 1996 (the 1997
assessment values) of Comcast’s operating property was $23.3
million, and the value of its nonoperating intangible property
was $21.2 million.
In setting aside the Revenue Cabinet’s final rulings,
the KBTA found that the Revenue Cabinet “presented no evidence
to contradict Comcast’s proof in support of characterizing part
of its property as nonoperating intangible property, and did not
contest in any material way the manner of Kane’s identification
and segregation of the property, or the valuations associated
with the operating portion and the non-operating portion.”
Further, the KBTA concluded that Comcast had met its burden of
proof under KRS 13B.090(7).
Finally, the KBTA held that the
Revenue Cabinet’s assessments included the blue sky nonoperating
values.
The Revenue Cabinet appealed the decision in favor of
Comcast to the Franklin Circuit Court.
The Franklin Circuit
Court reviewed the issue de novo and upheld the KBTA.
7
The Revenue Cabinet raises alternative arguments on
appeal.
The preliminary argument is that the KBTA and the
Franklin Circuit Court erred in holding that the future earnings
component, or blue sky, is nonoperating intangible property.
In
the alternative, the Revenue Cabinet contends that the KBTA’s
order should be reversed because it is based on testimony that
lacks probative value, and it is not supported by substantial
evidence in the record.
As relief, the Revenue Cabinet requests
that we reverse the Franklin Circuit Court and remand this case
with directions that the KBTA’s order be reversed and remanded
to the KBTA with directions that the fair cash value of
Comcast’s operating property be set at the total business
enterprise value established in the Kane appraisal -$43,100,000 for 1996 and $44,500,000 for 1997.
In other words,
the Revenue Cabinet has settled on lowering its originally
assessed values; however, the Revenue Cabinet contests the
property classifications reached in the Kane appraisal.
Comcast cross-appeals as to the proper standard of
review.
Comcast argues that this is a case about the proper
assignment of a public service company’s property into three
classifications.
Accordingly, the issue involved is a question
of fact; therefore, the appropriate standard of review is the
substantial evidence standard.
8
We first address the proper standard of review.
Contrary to Comcast’s position, the issue presented by the
Revenue Cabinet is what is the “franchise” value for purposes of
the public service corporation property tax of KRS 136.120?
“Franchise” is an undefined statutory term; its interpretation
is a question of law.
“When the outcome of a case turns on an
issue of law, as in the instant matter, appellate review is de
novo.”
Western Kentucky Coca-Cola Bottling Co., Inc. v. Revenue
Cabinet, Ky. App., 80 S.W.3d 787, 790 (2001).
Moreover, a question of law is also presented where
the relevant facts are undisputed and the issue on appeal
becomes the legal effect of those facts.
See Mill Street Church
of Christ v. Hogan, Ky. App., 785 S.W.2d 263, 266 (1990);
Western Kentucky Coca-Cola, 80 S.W.3d at 788; WDKY-TV, Inc. v.
Revenue Cabinet Commonwealth of Kentucky, Ky. App., 838 S.W.2d
431 (1992)(holding that issue presented was question of law
where the parties agreed as to the value of the property
(broadcast rights), but disagreed on the nature of the property
taxed -- whether it was tangible or intangible).
In this case,
the Revenue Cabinet and Comcast agree on the business enterprise
value reached in the Kane appraisal; however, they disagree on
the legal effect of the value’s compilation considering Kane’s
explanation, the ramifications of which will be developed later
in this opinion.
9
Having concluded that our review is de novo, we move
to the Revenue Cabinet’s primary argument that valuation of a
franchise takes into account future income.
Preliminarily, we
are guided by general principles of statutory interpretation.
First, it is well settled that “[i]n the interpretation and
construction of statutes, the primary rule is to ascertain and
give effect to the intention of the Legislature and that
intention must be determined from the language of the statute
itself if possible.”
S.W.2d 10, 12 (1942).
Moore v. Alsmiller, 289 Ky. 682, 160
Second, “[w]hen there is no specific
statutory definition, words of a statute shall be construed
according to their common and approved usage.”
Kentucky
Unemployment Ins. Comm’n v. Jones, Ky. App., 809 S.W.2d 715, 716
(1991).
Under KRS 136.120(1), “[e]very . . . cable television
company . . . shall annually pay a tax on its operating property
to the state and to the extent the property is liable to
taxation shall pay a local tax thereon to the county,
incorporated city, and taxing district in which its operating
property is located.”
Operating property is defined in KRS
136.115(2) as “both the operating tangible property and the
franchise, and the payment of taxes on the assessment of
operating property shall be deemed the payment of taxes on the
operating tangible property and the franchise.”
10
“Franchise” is
not a defined term.
Moreover, the public service company’s
property shall be further classified under KRS 136.120(2) as
“operating property, nonoperating tangible property, and
nonoperating intangible property.”
Like “franchise,”
“nonoperating intangible property” is also not a defined term.
Once classified, operating and nonoperating tangible
property are subject to both state and local taxes; however,
nonoperating intangible property is subject to a state tax rate
only at the “same rate as the intangible property of other
taxpayers not performing public services[.]”
KRS 136.120(2).
This equates to a difference in rates of 45¢ per $100 of
assessed value for operating and nonoperating tangible property,
to a rate which varies between 25¢ per $100 of assessed value
and 1½¢ per $100 of assessed value for nonoperating intangible
property.
Each public service corporation shall annually make
and deliver to the Revenue Cabinet a report showing facts as
requested by the Revenue Cabinet.
See KRS 136.130.
In KRS
136.130(1), the Legislature sets out some general facts that may
be requested by the Revenue Cabinet in proceeding to determine
the value of the operating property.
Such facts include:
The name and principal place of business of
the corporation; the kind of business
engaged in; the amount of capital stock,
preferred and common, and the number of
shares of each; the amount of stock paid up;
11
the par and fair cash value of the stock;
the highest price at which the stock was
sold at a bona fide sale within twelve (12)
months next before December 31 of the year
for which the report is required to be made;
the amount of surplus funds and undivided
profits; the total amount of indebtedness as
principal; the cost and year acquired of all
operating property owned, operated, or
leased, including property under
construction, property held for future use,
and the depreciation attributable thereto as
of December 31, the cost and year acquired
of all nonoperating tangible property and
the depreciation attributable thereto; the
cost and market value as of December 31 of
all intangible property; the value of all
other assets; the operating and nonoperating
revenues, the net utility operating income
before and after depreciation and before and
after income taxes, the net income from
operations, the net income including income
from investments, and income from all other
sources for twelve (12) months next
preceding December 31 of the year for which
the report is required; the amount and kind
of operating property in this state, and
where situated in each county, city, and
taxing district, assessed or liable to
assessment in this state, and the fair cash
value thereof, the length and description of
all the lines operated, owned, or leased in
this state and in each county, city, and
taxing district; and such other facts as the
cabinet may require.
In addition to the above, the instructions given to
the public service company by the Revenue Cabinet for completion
of its property tax return provide additional guidance on that
which comprises nonoperating intangible property:
All nonoperating intangibles of public
service companies organized outside Kentucky
whose nonoperating intangibles may have a
12
commercial or business situs in Kentucky
must be listed...
(A) Give name of company and type of
security, such as X Company Pfd. Stock
or Y Company 1st Mortgage Bonds due 1999
-- Include any nonoperating copyrights
and patent rights so that their
taxability can be determined.
(B) Give the market value of each item.
Use established market value when
available. When there is no
established market value, the actual
market value should be estimated by the
taxpayer and an explanation must be
given stating the basis of the
estimate.
Once the public service corporation has submitted the
requested information, under KRS 136.120(3), the Revenue Cabinet
has the “sole power to value and assess all of the property” of
the public service corporation.
As to the valuation and
assessment, “[t]he Revenue Cabinet shall determine the fair cash
value of the operating property of a domestic public service
corporation as a unit.”
See KRS 136.160(1).
Under Ky. Const. §
172, “fair cash value” is “estimated at the price [the property]
would bring at a fair voluntary sale[.]”
The crux of the Revenue Cabinet’s argument is that the
nonoperating intangible property identified in the Kane
appraisal is actually operating property because it comprises
the “franchise.”
statutory term.
As noted above, “franchise” is not a defined
Moreover, the particular property
classifications designated by our legislature in KRS 136.120(2)
13
are operating property, nonoperating tangible property, and
nonoperating intangible property.
In other words, “operating
property” is not further broken down to the classifications of
“operating tangible property” and “operating intangible
property.”
Although “franchise” is not a defined statutory term,
Kentucky cases interpreting Kentucky Statutes (KS) 4077 and
4079, the predecessors to KRS 136.120 and KRS 136.160,
respectively, aid our understanding of that which a “franchise”
encompasses and how its valuation is determined.
The earliest
case to discuss the valuation of a “franchise” is Henderson
Bridge Co. v. Commonwealth, 99 Ky. 623, 31 S.W. 486 (1895).
Indeed, the court noted that it went into the merits of the case
at some length, “knowing the importance of a correct
interpretation of our existing revenue laws with reference to
the taxation of the franchise of all corporations, companies,
and associations operating under and enjoying the benefits of
the same conferred by this state.”
Id. at 492.
In Henderson
Bridge, the state of Kentucky brought suit against Henderson
Bridge seeking to recover taxes under KS 4077 on the assessed
value of its franchise.
Henderson Bridge defended on the ground
that it did not owe any tax in Kentucky because its Kentucky
franchise was of little or no value without the rights,
privileges and franchises granted by Indiana, the state to which
14
the bridge connected.
The lower court ordered Henderson Bridge
to pay the tax; however, it disregarded the finding of the board
of valuation and assessment and lowered the property’s assessed
value.
From this decision, both parties appealed.
After deciding that Henderson Bridge did owe the tax,
the court turned its focus to the value of the franchise and the
mode and manner in which it should be assessed.
See id. at 489.
First, the court analyzed KS 4079, which established how the
valuation of a franchise was to be determined by the board.
KS
4079 was as follows:
That said board from said statement
[referring to a sworn statement required to
be made by the president of the company] and
from such other evidence as said board may
have if such corporation, company or
association be organized under the laws of
this state, shall fix the value of the
capital stock of the corporation, company or
association as provided in the next
succeeding section, and from the amount thus
fixed shall deduct the assessed value of all
tangible property assessed, in this state or
in the counties where situated. The
remainder thus found, shall be the value of
its corporate franchise, subject to taxation
as aforesaid.
Id. at 489.
Borrowing language from a New York appellate opinion,
the court then deemed the franchise to be a company’s “business
opportunity and capacity.”
Id. at 489.
With this in mind and
after the court considered other applicable constitutional
15
provisions and the current statutory scheme, the court held that
the value of a franchise is determined by subtracting the
assessed value of the tangible property from the “capital
stock,” which the court had previously concluded to be “the
entire property, real and personal, tangible and intangible,
assets on hand, and its franchise as well.”
Id. at 491.
Ultimately, the court reversed as to the lower court’s
valuation, finding that the original assessed value was proper.
In Cumberland Telephone & Telegraph Co. v. Hopkins,
121 Ky. 850, 90 S.W. 594 (1906), the court analyzed the many
aspects of a company’s franchise.
Although lengthy, we set out
the court’s discussion in its entirety as we believe it is the
seminal case on the issues before us, and both the Revenue
Cabinet and Comcast have selected portions of it to support
their positions:
The main point of contention is, what is the
franchise upon which these taxes are
imposed? A corporation's franchise may be
one thing or another. The word is not
always used with reference to the same
meaning. It is sometimes regarded as the
mere right to be a corporation. Again, it
is treated as the right to do the particular
and peculiar business for which the
corporation was created. It is also spoken
of as the right to do its business in a
certain locality, as, for example, where the
Constitution requires certain franchises to
be sold by cities and towns. Section 164,
Const. The other two qualities of a
corporate franchise may have existed before
the acquisition of the latter, and are
16
therefore in a sense quite distinct from it.
For the purposes of taxation, it may be all
of them and more. Henderson Bridge Co. v.
Commonwealth, 99 Ky. 623, 31 S. W. 486, 29
L. R. A. 73. While corporate franchises
have long been recognized factors of
incorporated beings, they have only recently
come to be regarded as separate subjects of
taxation. In the rapid development of these
artificial creatures of the law
(corporations) as means of holding and using
property in active business, the corporate
franchise has come to have a recognized
value of enormous magnitude, when viewed in
the aggregate. It is not the least--indeed,
frequently is the greater--element of the
corporation's wealth. That it should be
taxed, should be made to bear its share of
the public burden together with all other
wealth, is fundamentally true in justice and
in political economy. So far, no exact
definition of it has been given upon which
the courts have felt willing to finally rest
the matter. And perhaps it is well enough
for the present that this is so. Still
certain qualities of the corporate franchise
are so well known and classified as to be
beyond dispute as being elements of its
taxable value. The mere right to be a
corporation is taxed, in the exacting of the
organization tax upon its creation. This is
collected once, and absolutely without
reference to its property or whether it ever
engages in the business contemplated by its
articles. Section 4226, Ky. St. 1903. The
right of certain corporations to do business
in a city, which it must acquire (if
acquired since the present Constitution) by
purchase of the franchise from the city,
includes the compensation for occupying the
public thoroughfares of the city. But it
also may include more than that, which will
be further noticed in this opinion. Each of
these are qualities of the general corporate
franchise. Yet, as used in the taxing
statute of this state, the word has a more
comprehensive meaning. It is treated as
17
property. It is property. It adds
materially to the value of the tangible
property of the corporation. The right to
exercise the powers allowed to the
corporation by law, the peculiar and
exceptional privileges it enjoys, partaking
partially of the quality of sovereignty,
give to its use of its tangible property, as
well as to its intangible property comprised
within its capital stock, a value which
otherwise could not attach to them, so that
this privileged use becomes to the visible
assets of the corporation what the leaven is
to the loaf. While it may not be laid hold
of separately, it is quite capable of being
conceived and valued as a thing worth so
much money. This value will depend largely
upon its money-earning capacity as it may be
employed, and depends at last upon its being
exercised. Unless used substantially as
outlined in the articles under which it is
created, it could scarcely be said to have a
money value at all. For, unlike tangible
property, or even choses in action, it
cannot be sold and trafficked in, nor
consumed, nor otherwise enjoyed than in the
corporate use of it. It is true that by
statute, as construed by this court in
Henderson Bridge Co. v. Commonwealth, supra,
when treating of railroad corporations, the
franchise is deemed to include so much of
the capital of the corporation and of its
other intangible assets as is represented by
the difference between the total value of
its money-earning capacity and the separate
value of its tangible property. The
franchise of a railroad company may then be
accepted for purposes of taxation as the
earning value ascribed to its capital by
reason of its operation as a common carrier
of freight and passengers. Further than
that the legislation in this state on that
subject has not gone.
Id. at 595-96.
18
Comcast relies on James v. Kentucky Refining Co., 132
Ky. 353, 113 S.W. 468 (1908) and Louisville Tobacco Warehouse
Co. v. Commonwealth, 106 Ky. 165, 49 S.W. 1069 (1899), for the
contention that the franchise represents the added value of
property that is actually employed in the public service
corporation when the tax is levied.
In accord, Comcast argues
that the franchise value is not based upon some speculative
stock or investment price, but instead must be based on the
property in use on the lien date and the earnings generated from
that property.
While there may be language in James to support
Comcast’s contention, the issue in this case was whether
Kentucky Refining Co., a seller and manufacturer of cottonseed
oil that also operated tank cars to transport the oil, was
liable for the tax.
Kentucky Refining Company argued that it
should not have to pay the tax because owning and using the tank
cars was a mere incident to its business.
Upon reading James in
its entirety, we are not persuaded that James stands for the
proper valuation of a franchise in light of the aforementioned
statutory language and cases that directly provide for the
determination of the value of a corporate franchise.
Moreover, in Louisville Tobacco Warehouse Co, 49 S.W.
at 1070, another case cited by Comcast in support of its
contention, after considering the language of KS 4077, 4078, and
4079, the court held: “it is manifest that the so-called
19
franchise tax is in reality a property tax upon all the
intangible property of the corporations named in the act.”
Id.
at 1070.
After considering the statutory scheme pertaining to
the public service corporation property tax, Ky. Const. § 172,
and Kentucky case law, we conclude that for the purposes of
taxation under KRS 136.120, a “franchise” is the earning value
ascribed to the capital of a domestic public service corporation
by reason of its operation as a domestic public service
corporation.
It comprises the operating property and is
assessed by the Revenue Cabinet by its fair cash value as a
unit.
In this case, the franchise is the earning value ascribed
to Comcast’s capital by reason of its operation as a cable
television provider.
Said another way, the value of the
franchise is determined by subtracting the assessed value of the
tangible operating property from the “capital stock,” which is
the “entire property, real and personal, tangible and
intangible, assets on hand, and its franchise as well.”
Henderson Bridge, 31 S.W. at 491.
See
Thus, the business enterprise
value reached in the Kane appraisal is the total of Comcast’s
operating property -- the operating tangible property and the
franchise.
As assessed by Kane and agreed to by the Revenue
Cabinet, it is the price at which a willing buyer would buy and
a willing seller would sell an entire business as of the lien
20
date.
The fair cash value of Comcast’s operating property is
$43,100,000 for 1996 and $44,500,000 for 1997.
As to the other two classifications, the Revenue
Cabinet relied on Comcast to inform it of any nonoperating
tangible property and nonoperating intangible property that it
had.
Comcast concedes that it did not have any nonoperating
tangible property.
Accordingly, where applicable, it listed
“N/A” in the space provided for nonoperating tangible property
on its 1996 and 1997 tax returns.
Comcast listed no property in
the space provided under the “Nonoperating Intangible Property
Summary.”
In other words, on both its 1996 and 1997 tax
returns, Comcast left this provision blank, indicating it had no
nonoperating intangible property.
So, if Comcast’s blue sky is not nonoperating
intangible property, what is nonoperating intangible property?
In plain terms, it is intangible property, such as certificates
of stock, bonds, or copyrights, that Comcast does not use in the
provision of its cable television services.
In holding as we do, we acknowledge that courts in
other states have held as Comcast urges us to hold today – “that
an assessment of tangible property may properly include or
reflect the values of intangibles that are deemed to be directly
related to the tangible property, but not the values of
intangibles that are deemed to be related to the operation of
21
the business enterprise in which the tangible property is used.”
James A. Amdur, Annotation, Inclusion of Intangible Asset Values
in Tangible Property Tax Assessments, 90 A.L.R.5th 547 (2001).
However, our task is to ascertain and give effect to the
intention of our Legislature in enacting Kentucky’s statutory
scheme.
While cases from other jurisdictions help aid our
understanding of the issues in this appeal, they are not
dispositive.
Having concluded that our review is de novo, we need
not address Comcast’s position that its classification is
supported by substantial evidence in the record.
Since we are essentially upholding the Revenue
Cabinet’s assessment, we turn to Comcast’s final argument that
the assessment is unconstitutional because the Revenue Cabinet’s
assessment methodology is arbitrary, unreasonable, inequitable
and without rational basis.
“[I]n a taxation case, unless a
rational basis for such law can be completely refuted, then the
law may stand as constitutional.
Notably, the burden on the
ones attacking the legislative tax arrangement is the negation
of every conceivable basis which might support it.”
Cabinet v. Smith, Ky., 875 S.W.2d 873, 875 (1994).
Revenue
On this
issue, we hold that Comcast has not met its burden of negating
every conceivable basis that supports the tax under KRS 136.120.
22
Comcast’s franchises give Comcast the right to occupy
the public thoroughfares of the cities in which it operates.
Other domestic public service corporations also enjoying this
privilege are taxed under KRS 136.120 in the same manner, thus
ensuring equal application.
We perceive a rational basis for
the tax treatment of Comcast and other public service
corporations, and Comcast has not completely refuted that basis.
See Cooksey Brothers Disposal Co., Inc. v. Boyd County, Ky.
App., 973 S.W.2d 64, 68-69 (1997).
For the foregoing reasons, the Franklin Circuit
Court’s order affirming the Kentucky Board of Tax Appeals is
vacated and this matter is remanded for further proceedings
consistent with this opinion.
ALL CONCUR.
23
BRIEF AND ORAL ARGUMENT FOR
APPELLANT/CROSS-APPELLEE:
BRIEF FOR APPELLEE/CROSSAPPELLANT:
Stewart Douglas Hendrix
Frankfort, Kentucky
Bruce F. Clark
Judith A. Villines
Stites & Harbison PLLC
Frankfort, Kentucky
ORAL ARGUMENT FOR APPELLEE/
CROSS-APPELLANT:
Bruce F. Clark
Frankfort, Kentucky
24
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.