Request By:
Honorable Ralph E. McClanahan
Estill County Judge/Executive Office
Irvine, Kentucky 40336
Opinion
Opinion By: Robert F. Stephens, Attorney General; Rickie L. Pearson, Assistant Attorney General
Re: License taxes imposed upon the production of crude petroleum by a county.
In your letter of April 24, 1978, you asked to be advised "if the Fiscal Court of Estill County could levy a 1% tax on the market value of all crude petroleum in the county and earmark it for the Road Department." You also asked, "What effect would such a tax have on ad valorem taxes?"
Please be advised that the Fiscal Court of Estill County may impose a license tax of not more than 1% of the market value of all crude petroleum in the county. Furthermore, it may earmark it for the Road Department. Finally, such a license tax would be in addition to an ad valorem tax and, therefore, would not be double taxation.
In order to better understand the above conclusions, please be advised of the following analysis:
A.
FISCAL COURT'S EXPRESS POWER TO TAX THE PRODUCTION OF CRUDE PETROLEUM.
Pursuant to KRS 137.120, Taxes on production of crude petroleum; state and county, it is provided in the following sections that:
"(2) A producer of crude petroleum oil shall include any person owning an interest in crude petroleum oil produced in this state.
"(3) Any county may impose a tax for road, county or school purposes of not more than one per cent (1%) of the market value of all crude petroleum produced in the county. The fiscal court may levy this tax for county purposes, and shall determine what funds shall receive the tax when collected. When crude petroleum is produced in any separate taxing district in a county, the fiscal court shall equitably distribute such taxes between the county and the taxing district.
"(4) The taxes provided by this section shall be imposed and attached when the crude petroleum is first transported from the tanks or other receptacle located at the place of production, and shall be imposed ratably upon all persons owning any interest in such oil. " (Emphasis added.)
The above-cited statutory provisions expressly grant to any county the power to tax the market value of all crude petroleum produced in the county. It also expressly provides that the license tax may be imposed for "road purposes."
Since the county has the express power to impose such a tax and likewise the expressed (if not implied) power to impose it for road purposes, it may as an implied or incidental power, earmark the revenue for the Road Department.
B.
EFFECT OF THE TAX ON AD VALOREM TAXATION.
In
Swiss Oil Corp. v. Shanks, 273 U.S. 405, 47 S. Ct. 393, 71 L. Ed. 709 (1927), the United States Supreme Court had occasion to determine whether Kentucky's tax on the production of crude oil violated the U.S. Constitution.
The Court held that the tax was a license tax and not a property tax. It was further held that the levy of the tax in addition to a property tax was not double taxation. Finally, the Court held that the license tax was not a denial of the equal protection of the law under the 14th Amendment as being arbitrary and as an unreasonable classification, because it was not imposed on other classes of property.
Thus, the Swiss Oil case denotes that the license or occupational license tax in question (the same tax as it was 51 years ago) has no effect on ad valorem taxation.