Request By:
Mr. Jerry E. Abramson
General Counsel to the Governor
Office of the Governor
Capitol Building
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You have indicated that the Kentucky Department of Revenue has denied a request of the Louisville Orchestra, Inc., for a refund of certain sales taxes imposed since March 29, 1976, on its sale of admissions.
Your question is whether the sales tax can be validly applied to the sale of the admissions by the subject corporation. The answer is "no".
The current KRS 139.495 (originally enacted in 1976, eff. March 29, 1976) provides that sales and use taxes treated in KRS Chapter 139 shall apply to resident, nonprofit educational, charitable, and religious institutions which have qualified for exemption from income taxation under Section 501(c)(3) of the Internal Revenue Code. The statute contains certain exceptions, none of which are claimed by the corporation. KRS 139.100(2)(c) provides that retail sales include the sale of admissions, except race track admissions. KRS 139.210 provides that the sale or use tax may be collected by the retailer from the consumer.
The corporation contends that KRS 139.470(1) exempts the gross receipts from the sale of which Kentucky is prohibited from taxing under the Constitution of the United States or Kentucky. The corporation also contends that the holding in Dept. of Rev. v. Louisville Children's Theater, Ky., App., 565 S.W.2d 643 (1978), applies to this situation. In that case the court held that the Louisville Children's Theater, as a nonprofit public charity and an institution of education, was exempt from sales taxes.
An examination of the Articles of Incorporation filed in the Secretary of State's Office indicates that it is a nonprofit, nonstock, corporation established under KRS Chapter 273. The declared "purpose of the corporation shall be to maintain and expand a symphony orchestra and to provide leadership in the encouragement and promotion of artistic and educational musical opportunities consistent with the highest standards of professional excellence." The Articles of Incorporation further recites that the corporation is not formed for pecuniary profit or financial gain, and no part of its assets, income or profit shall be distributable to, or inure to the benefit of, its officers and directors. "The purposes of the corporation are educational and charitable purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code of 1954," etc. (Emphasis added).
Section 170 of the Kentucky Constitution provides in part that "institutions of purely public charity, and institutions of education not used or employed for gain by any person or corporation, are exempt from taxation.
The test of a charity is set forth in Iroquois Post No. 229 v. City of Louisville, Ky., 309 S.W.2d 353, 354 (1958):
"First, the institution must itself be a charity and the income from its property must be used to further its charitable purpose; secondly, the property must be employed for a purely charitable purpose."
The court, in Commonwealth v. Isaac W. Bernheim Foundation, Ky., 505 S.W.2d 762, 763-4 (1974), went on to define the word "charity" at page 764:
"Charity is broader than relief to the needy poor and includes activities which reasonably better the condition of mankind." (Emphasis added).
In considering the above judicial tests, the articles of incorporation and the work of the corporation, it is our opinion that the Louisville Orchestra, Inc., is exempt from the sales taxes as a "purely public charity. " We are unable to distinguish the basic nature of this corporation, in that regard, from the Louisville Children's Theater, as developed in Dept. of Rev. v. Louisville Children's Theater. It is not necessary to consider whether or not it qualifies as an institution of education.
While § 170 of the Constitution stresses ad valorem taxes, Section 181, which was amended in 1902 and adopted in 1903, broadened state taxes to include occupational or license taxes and excise taxes. Hatcher v. Meredith, 295 Ky. 194, 173 S.W.2d 665 (1943) 668. However, the type of state tax can be no issue here, since the court, in the early case of Gray v. Methodist Episcopal Church, 272 Ky. 646, 114 S.W.2d 1141 (1938), ruled that the "exception from taxation" in § 170 as applied to institutions of purely public charity refers to state taxation of any type imposed for revenue purposes. The court in Gray, above, expressly held that a 3% use tax on motor vehicles, as applied to a purely public charity, was exempt under a statute and was exempt under § 170, since the use tax was for purely revenue purposes, the court ruling that the exemption to public charities applies to the institution. This was explained in Corbin Y.M.C.A. v. Commonwealth, 181 Ky. 384, 205 S.W. 388 (1918) 389:
"The exemption granted to such institutions of purely public charity, under the peculiar verbiage of our constitutional provision, includes everything that is embraced by the word 'institution'; and this, we are convinced, includes not only their property, but also necessarily all of their legitimate activities that are consistent with and in the futherance of the purposes for which they were organized."
Thus the exemption of § 170 of the Constitution was intended to be from any form of state taxation imposed for purely revenue purposes.
CONCLUSION
It is our opinion that the Louisville Orchestra, Inc., is, under § 170 of the Kentucky Constitution, a "purely public charity" , and is thus exempt under KRS 139.470(1) and § 170, Constitution, from the sales tax on admissions.