Request By:
Mr. John R. Cummins
Attorney at Law
3300 First National Tower
Louisville, Kentucky 40202
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
As counsel for the Harrods Creek Fire Protection District, you seek our opinion as to whether or not it is a political subdivision. The question arises out of your request for a ruling from the Internal Revenue Service as to whether interest paid by the district on funds borrowed to construct new fire stations is excludable from income under Section 103(a) of the Internal Revenue Code.
A fire protection district is authorized to establish and operate a fire department in the district and, through its board of trustees, to levy a tax upon property in the district to fund its operations. KRS 75.040. The fire protection district is a separate taxing district within the purview of §§ 157 and 158 of the Kentucky Constitution. In addition, a fire protection district, through its board of trustees, has authority to enter into contracts with other such districts or cities for the furnishing or receiving of fire protection services for all property located within the area defined in the contract, where such fire protection is not otherwise provided by some division of government or governmental agency. See KRS 75.050.
Judge Palmore, in Kelley v. Dailey, Ky., 366 S.W.2d 181 (1963) 183, wrote that "a fire protection district organized under KRS 75.010 is, of course, a type of municipal corporation." The Kentucky appellate court has been inclined to equate "political subdivision" with "municipality. " Stephenson v. Louisville and Jefferson County Bd. of Health, Ky., 389 S.W.2d 637 (1965) 638. In holding a Metropolitan Sewer District to be a municipality, the court said "The metropolitan district is a separate entity acting for its own purposes and possessing defined, though limited, powers of a municipal community. It meets the conventional descriptions or definitions of a 'municipality. ' McQuillin, Municipal Corporations, Sections 126, 128." By statute [KRS 76.010] a metropolitan sewer district is called a political subdivision. Rash v. Louisville & Jefferson County Met. S. Dist., 309 Ky. 442, 217 S.W.2d 232 (1949) 236.
The Sixth Circuit Court of Appeals, in Smith v. Board of Education of Ludlow, Ky., 111 F.2d 573 (1940) 575, expressly recognized the synonymity between a "political subdivision" and a "municipality" in saying that it is well settled in Kentucky that a municipality is a political subdivision of the state.
Appellate courts of other states have mentioned general criteria in defining the term "political subdivision. " The Court of Appeals of Ohio cited a general statement that a political subdivision of a state is a subdivision thereof to which has been delegated certain functions of local government. Fair v. School Employees Retirement System of Ohio, Ohio, 335 N.E.2d 868 (1975). In an Arizona case Judge Howard wrote that "the attributes which are generally regarded as distinctive of a political subdivision are that it exists for the purpose of discharging some function of local government, that it has a prescribed area, and that it possesses authority for subordinate self-government by officers selected by it." McClanahan v. Cochise College, 25 Ariz. App. 13, 540 P.2d 744 (1975) 747. A political subdivision was viewed by the Connecticut Supreme Court as a governmental entity having a governing body, the power to tax and make appropriations, and some provision for self-government. Dugas v. Beauregard, Conn., 236 A.2d 87 (1967).
As far as the Commonwealth of Kentucky is concerned, we conclude that the "fire protection district" created under KRS Chapter 75 would be considered generally by our courts to be a "political subdivision. " However, as to whether or not the application of the Internal Revenue Code provision is dependent upon Kentucky law, such question is for I.R.S. and the federal courts to determine. Justice Brennan, in NLRB v. Natural Gas Utility District, 402 U.S. 600, 29 L. Ed. 2d 206, 91 S. Ct. 1746 (1971), cited an earlier opinion of that court in saying that there are instances in which the application of certain federal statutes may depend on state law. He wrote further: "But this is controlled by the will of Congress. In the absence of a plain indication to the contrary, however, it is to be assumed when Congress enacts a statute that it does not intend to make its application dependent on state law. Jerome v. United States, 318 U.S. 101, 104, 63 S. Ct. 483, 87 L. Ed. 640 (1943)." In NLRB v. Natural Gas Utility District, above, the Supreme Court held that federal rather than state law governs the determination under the federal act whether an entity created under state law is a political subdivision of the state and therefore not an "employer" subject to the act.