Request By:
Honorable Frederick G. Neikirk
Pulaski County Attorney
104 West Columbia Street
Somerset, Kentucky 42501
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Pulaski County, you have written, is plagued by road-side dumps. Garbage is being indiscriminately dumped in unauthorized locations by unknown dumpers.
A recent survy in your county reveals a substantial interest in a tax to finance a garbage collection system. In the meantime, the county has been divided into four sections, and franchises have been granted to private companies for garbage collection. They only make pickups on a regular basis if there are so many houses within a certain mileage range, or they will make special pickups, but at extra cost to the property owner. You ask whether the county can go into business in competition with the franchise operators, or can the county pick up customers not reached by the franchise operators. You also ask if the county could levy a utility tax to finance such collection service.
The fiscal court may establish a garbage collection and disposal system in the county (unincorporated areas) pursuant to KRS 109.010 et seq. Such a district could embrace cities in the county if they approve. Such a district is a separate taxing district under § 157 of the Constitution. Under KRS 109.180 the district could levy an annual tax, to finance the system, not to exceed ten cents (10 ) on each $100 of assessed valuation of property within the district subject to taxation for county purposes. Revenue bonds could be issued by the district to acquire, create, and maintain such a system. KRS 109.170. The district in lieu of the tax could finance the system by service charges collectible from users. KRS 109.180.
The fiscal court could establish a garbage collection and disposal system without creating a garbage district under the powers contained in KRS 67.083, 67.080, 58.010 et seq., and 58.130. See Fayette County Fiscal Court v. Fayette County, 314 Ky. 595, 236 S.W.2d 455 (1951). Thus, even in the absence of a formal garbage district, the county may establish a garbage system and fund it from taxes or other available revenue, including revenue bonds issued under KRS Chapter 58.
An important item is that the use of the "district tax" or revenue bonds under Chapter 109 or Chapter 58 will not involve the county ad valorem tax or a county obligation.
Regardless of whether the county uses the Chapter 109 district or the Chapter 58 approach, the fiscal court could let out franchises for the collection and disposal of garbage, subject to the district's or county's overall supervision. The law does not require the letting of exclusive franchises. See § 164, Kentucky Constitution.
The fiscal court has no authority to levy a utility tax to finance a garbage system. Cf. KRS 160.613 [utility gross receipts license tax for schools]. A fiscal court can levy only two kinds of taxes: (1) ad valorem taxes and (2) occupational or license taxes. Driver v. Sawyer, Ky., 392 S.W.2d 52 (1965); and § 171 and § 181, Constitution.
The utility gross receipts tax for schools was upheld constitutionally in Lamar v. Board of Education of Hancock Co. Sch. Dist., Ky., 467 S.W.2d 143 (1971) as being a tax levied for "state purposes." Thus it rejected the argument that the county levy of such tax for schools violated § 181 of the Constitution. For this reason the court refused to say whether the utility gross receipts tax is an excise tax or not. Note that the special taxes for schools are: (1) an occupation tax; (2) a utility gross receipts tax; and (3) an excise tax on a county resident's state individual income tax liability.
In upholding the utility gross receipts tax as not being an impermissible burden on interstate commerce, the court, in Texas Gas Trans. Corp. v. Board of Ed. of Ballard Cty., Ky., 502 S.W.2d 82 (1973) 86, emphasized that "under KRS 160.613, the taxable event is the furnishing within the county of gas." (Emphasis added). The court held that the gross receipts from sales of gas which has moved in interstate commerce but which is delivered to a Kentucky direct consumer are taxable by the state. But in reaching this conclusion the court reveals the nature of the tax, i.e., a tax on gas sold in Kentucky. The court repeated on page 88 that the taxable incident, which insulates the statute from a claim of impermissible infringement of the commerce clause of the federal constitution, is the furnishing of gas within the county.
Thus the school utility tax is basically a tax measured by gas sold in Kentucky. Justice Reed, for the court, stresses the importance of the merchandise or property which is, upon being sold, subject to the tax. See Panhandle Eastern Pipeline Company v. Michigan Public Service Commission, 341 U.S. 329, 71 S. Ct. 777, 95 L. Ed. 993 (1951); and McGoldrich v. Berwind-White Coal Mining Co., 309 U.S. 33, 60 S. Ct. 388, 84 L. Ed. 565 (1940). The two supreme court cases stress the "tax on property" aspect in holding that such taxes are permissible, though the property is shipped interstate, before its movement begins or after it ends.
It is written in 84 C.J.S., Taxation, § 3b, p.p. 40-41, in connection with the character of a tax, that "the substance of the statute, the natural and legal effect of the language employed, and the incidents and attributes of the tax control." An excise tax includes every form of charge imposed by public authority for the purpose of raising revenue upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation. See State Tax Commission v. Hughes Drug Co., 219 Ky. 432, 293 S.W. 944 (1927) 945.
It is our view that the utility gross receipts tax is not an occupational or license tax, and it is not an ad valorem tax, since the tax is not directly on the gas. The tax is measured by the receipts from the sale of the gas. Thus we conclude it is an excise tax, which cannot, as we said above, be levied for county purposes. See also City of Louisville v. Churchhill Downs, 267 Ky. 339, 102 S.W.2d 10 (1937) 13; and 84 C.J.S., Taxation, § 121, p. 245.
Finally, you ask whether the county can go into business in competition with its franchise operators, or can the fiscal court pick up the customers not reached by the franchise operators.
We assume the franchises were let under § 164, Kentucky Constitution. While a fiscal court does not have to grant an exclusive garbage franchise, it will have to honor the terms of those franchises in existence. A government should honor its contractual obligations as do private persons and corporations. There should be no dual standards. However, to the extent that such is not in conflict with the existing franchises, the fiscal court can provide for garbage service to those persons not reached under the existing franchises.