Request By:
Mr. Larry Kelley
Lee County Attorney
Edward Jackson Building
Main Street
Beattyville, Kentucky 41311
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Lee County Fiscal Court recently enacted an ordinance providing for a license tax on all businesses or commercial enterprises operating in Lee County, except those within the city of Beattyville, which tax shall be in the amount of one percent (1%) of the market value of all products produced in Lee County [in the case of businesses manufacturing or producing products] and one percent (1%) of the net profit from other types of businesses or services. Any business with a net profit of less than $25,000 shall pay a flat license tax of $20.
You are asking whether such a tax, without a vote of the people, and with such rates, is legal.
Since your county has less than 30,000 population, the fiscal court can enact a general license tax without a vote of the people. See KRS 67.083(2). Cf. KRS 68.197. The perplexing thing for counties in the population category of KRS 68.197 is that a submission of the license tax to the voters normally means a defeat on that issue. However, strangely enough, KRS 67.083(2) expressly permits fiscal courts in counties having less than the minimum prescribed in KRS 68.197 to enact a general license tax ordinance without submission to the electorate.
We assume that your proposed tax will not involve a public service program [non-capital expenditure program], as defined in KRS 68.520, which requires submission to the voters.
As to the people to be affected by the tax, we assume by your use of the word "services" you mean people on a payroll basis.
As relates to the tax rate, we note that KRS 68.197 establishes as a guideline the imposition of a tax of one percent (1%) of (a) salaries, wages, commissions, etc., earned within the county for work done or services rendered in the county; and (b) the net profits of businesses, etc., conducted in the county. That is essentially what you have in this ordinance, except that the tax upon manufacturers or producers of products is measured in terms of one percent (1%) of the market value of the products produced in Lee County. For example, a producer of coal or oil would be taxed on the basis of one percent (1%) of the market value of the coal or oil produced in the county. However, your ordinance should be corrected in two particulars: (1) The ordinance should make it clear, if that is the intent, that all persons earning salaries, wages, etc., in Beattyville are excepted from the tax; and (2) the ordinance should make it clear that a one percent (1%) tax is levied on the gross salaries, wages, etc., of such salary or wage earners. The "net profit" concept does not apply to those in that classification.
KRS 137.120 authorized fiscal courts to impose a tax not to exceed one percent (1%) of the market value of all crude petroleum produced in the county. We concluded in OAG 79-361, copy enclosed, that a fiscal court could, under a general license tax, measure the tax to be applied to oil producers as a business or occupation in terms of 1% of the market value of the oil produced. However, Section 17 of H.B. 968, enacted in the 1980 session, deletes counties from the operative provisions of KRS 137.120. Notwithstanding that fact, we believe that the proposed ordinance, in measuring the tax to be applied to producers of any product, including natural resources, in terms of one percent (1%) of the market value of the product, would be valid. Our reasoning is that the county license tax is intended to be applied to producers of products, as a complete business or occupation. Cf. C.C.C. Coal Company, Inc. v. Pike County, Ky., 536 S.W.2d 467 (1976), wherein the court held that the Pike County tax was not levied upon coal producers as an independent trade or occupation. See Swiss Oil Corp. v. Shanks, 273 U.S. 405, 71 L. Ed. 709 (1926); and Cumberland Pipe Line Co. v. Commonwealth, 228 Ky. 453, 15 S.W.2d 280 (1929), the latter holding that "It is no objection to the validity of the legislation that the amount of the tax on the producer is measured by the value of the thing produced." (Emphasis added). The county is not invading the state's sphere of excise taxation on minerals. It is merely imposing a license tax on various "producers" under the authority of Section 181, Kentucky Constitution. Driver v. Sawyer, Ky., 392 S.W.2d 52 (1965); and the implementing statute, KRS 67.083(2).
A license tax must be based upon reasonable classifications, must not be discriminatory, and must not be arbitrary or confiscatory. Such an overall license tax must be uniform as applied to each classification. See Section 171, Kentucky Constitution; City of Lexington v. Motel Developers, Inc., Ky., 465 S.W.2d 253 (1971) 257; and Jahr v. City of Radcliffe, Ky., 503 S.W.2d 743 (1973).
On the face of it, we are of the opinion that the ordinance can be validly enacted without a vote of the people, and that it provides for uniformity within each classification, and that the ordinance on these points is valid, except for the corrections to be made, as mentioned above, relating to the excepting of wage earners in Beattyville if that is the intent and the application of the tax against the gross salaries, etc., of salary or wage earners.