FINANCE AND ADMINISTRATION CABINET VS. SLAGEL (PETER S.), ET AL.
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RENDERED: APRIL 25, 2008; 2:00 P.M.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2007-CA-000495-MR
FINANCE AND ADMINISTRATION CABINET,
DEPARTMENT OF REVENUE
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 05-CI-01538
PETER S. SLAGEL AND LINDA SLAGEL
APPELLEES
OPINION
REVERSING & REMANDING
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BEFORE: CAPERTON, LAMBERT, AND THOMPSON, JUDGES.
LAMBERT, JUDGE: The Department of Revenue (hereinafter “the Department”)
appeals from an order of the Franklin Circuit Court reversing the decision of the
Kentucky Board of Tax Appeals’ (hereinafter “the Board”) determination of Kentucky
domicile. For the reasons set forth herein, we reverse the order of the Franklin Circuit
Court.
The Department adjusted the individual income tax returns of Peter and
Linda Slagel for the tax years 1996 through 2000 to include wages earned by Peter
while working in Venezuela. The total amount of the resulting assessment of additional
tax, including fees, penalties, and interest, is $72,731.50. The Slagels protested the
assessment, but the Department issued a final ruling upholding the adjustment. The
Slagels appealed to the Board, which affirmed the Department’s adjustment. The
Slagels then appealed to the Franklin Circuit Court, which reversed the Board, finding
that the Department failed to show with substantial evidence that Peter established
domicile in Kentucky. This appeal followed.
Judicial review of an administrative agency's action is concerned with the
question of arbitrariness. American Beauty Homes Corporation v. Louisville and
Jefferson County Planning and Zoning Commission, 379 S.W.2d 450, 456 (Ky. 1964).
In determining whether an agency's action was arbitrary, the
reviewing court should look at three primary factors. The
court should first determine whether the agency acted within
the constraints of its statutory powers or whether it exceeded
them. Second, the court should examine the agency's
procedures to see if a party to be affected by an
administrative order was afforded his procedural due
process. The individual must have been given an
opportunity to be heard. Finally, the reviewing court must
determine whether the agency's action is supported by
substantial evidence. If any of these three tests are failed,
the reviewing court may find that the agency's action was
arbitrary.
Transportation Cabinet Dept. of Vehicle Regulation v. Cornell, 796 S.W.2d 591, 594
(Ky.App. 1990)(internal citations omitted). The trial court determined that the first two
factors were fulfilled by the Department’s decision, but they reversed the Department’s
holding under the third factor. Therefore, our question is whether the trial court was
correct in determining that the Department’s decision was not supported by substantial
evidence. Whether a decision or action of the Department is unreasonable, arbitrary
and capricious, because it is not based upon substantial evidence, is one of law, thus
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our review is de novo. See Camera Center, Inc. v. Revenue Cabinet, 34 S.W.3d 39, 41
(Ky. 2000).
Where an administrative agency's decision is to deny relief to the party
with the burden of proof or persuasion, as was the case here, the issue on appeal is
whether the evidence in that party's favor is so compelling that no reasonable person
could have failed to be persuaded by it. See Carnes v. Tremco Mfg. Co., 30 S.W.3d
172, 176 (Ky. 2000)(workers' compensation case); Morgan v. Nat'l Resources & Envtl.
Protection Cabinet, 6 S.W.3d 833, 837 (Ky.App. 1999)(emphasis added). “In its role as
a finder of fact, an administrative agency is afforded great latitude in its evaluation of the
evidence heard and the credibility of witnesses, including its findings and conclusions of
fact.” Aubrey v. Office of Attorney General, 994 S.W.2d 516, 519 (Ky.App. 1998)(citing
Kentucky State Racing Commission v. Fuller, 481 S.W.2d 298, 309 (Ky. 1972)).
After careful review, we cannot say that the evidence was so compellingly
in favor of the Slagels that no reasonable person could have failed to be persuaded by
it. First, Peter was registered to vote in Kentucky in 1992 and exercised his right to vote
in 1999 and 2000. He additionally held driver’s licenses in both Kentucky and
Venezuela. He owns property in Kentucky, maintains bank accounts in Kentucky, and
has an incorporated business in Kentucky. His passport lists Kentucky as his “abode,”
and his last will and testament and power of attorney assert that he is “of Fayette
County Kentucky.” Finally, Linda and their children live in Lexington, Kentucky. In light
of this fact alone, it seems likely that Peter has “the intention of returning” to but “no
present intention of moving” from Lexington as required by Kentucky’s definition of
domicile. See St. John v. St. John, 163 S.W.2d 820, 822 (Ky. 1942). In light of the
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totality of the evidence, we simply cannot find that the Department’s decision was
arbitrary or capricious.
Accordingly, we find that the trial court erred in substituting its judgment
for the judgment of the Department on this factual determination. Therefore, we reverse
the order of the Franklin Circuit Court and remand for proceedings consistent with this
opinion.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Bethany A. Rice
Office of General Counsel
Frankfort, Kentucky
Stephen W. Atwood
Lexington, Kentucky
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