Request By:
Mr. Terry Sapp
Assistant Chief
Administrative Officer
City of Erlanger
505 Commonwealth Avenue
Erlanger, Kentucky 41018
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Alex W. Rose, Assistant Attorney General
In your December 29, 1981, letter to the Attorney General, in questions (3) and (4) you request an opinion concerning the ad valorem tax administration of a third class city which has adopted the county assessment for all taxable property situated within the jurisdictional limits of the city:
(3)(A) If subsequent corrections made by the Department of Revenue to the certified county assessments substantially increase the city's tax revenues, could the city be subject to the "recall vote" or "reconsideration" provisions of House Bill 44 as codified in KRS 132.027?
Answer: The limitations contained in House Bill 44 on the ad valorem tax rate which a city can levy are determined, in part, by applying the proposed rate levied by the city to the assessments certified by the Department of Revenue as provided in KRS 133.180. Subsequent corrections in valuations made by the department as the result of adjustments to certain properties which were in the appeal process at the time the certification was made are not relevant in computing the limitations. This interpretation of House Bill 44 is substantiated by the various duties imposed on cities which levy a rate in excess of certain of the limitations, i.e., KRS 132.027(4)(b) provides, in pertinent part, as follows:
"(b) The city or urban-county government shall, within seven (7) days following adoption of an ordinance, order, resolution, or motion to levy a tax rate which will produce revenue from real property, exclusive of revenue from new property as defined in KRS 132.010, more than four percent (4%) over the amount of revenue produced by the compensating tax rate defined in KRS 132.010, cause to be published, in the newspaper of largest circulation in the county, a display type advertisement of not less than twelve (12) column inches, the following: . . . ." (Emphasis added)
This statutory language indicates that the assessed valuations used in computing the limitations must be determinable at the time the city ordinance levying the rate is enacted. Any other interpretation would produce the absurd result of requiring the city to recompute the applicable limitation after each correction in order to determine the city's compliance. In
Ross v. Board of Education, 196 Ky. 366, 244 S.W. 793 (1922), the Kentucky Supreme Court (then Court of Appeals of Kentucky) stated at page 796 as follows:
"Frequently words necessary to prevent a statute from resulting in an absurdity, and where they are plainly necessary to the legislative meaning and have been left out of it by carelessness or inadvertence, are read into it. Collocation of words and phrases may be changed when the court is thoroughly convinced that to carry out the legislative will and to prevent an absurd conclusion or defeat of the purpose and intention of a statute the change of collocation is necessary." (Citations omitted)
(3)(B) Can the city, in a subsequent year, recoup lost tax revenues caused by the recent expansion of the homestead exemption to include qualified real property owned by certain handicapped individuals?
Answer: House Bill 44 imposed three separate and distinct limitations on a city's ability to increase its ad valorem tax rate. These limitations were codified in KRS 132.027.
KRS 132.027(1) establishes the absolute maximum rate which a city can levy. That statute reads as follows:
"(1)(a) Notwithstanding any statutory provisions to the contrary, no city or urbancounty government shall levy a tax rate for 1979-80 which will produce more revenue, exclusive of revenue from net assessment growth, than would be produced by application of the maximum tax rate that could have been levied in 1978-79 to the 1978-79 assessment.
(b) In succeeding years, no city or urban-county government shall levy a tax rate which will produce more revenue, exclusive of revenue from net assessment growth, than would be produced by application of the tax rate that was levied in the preceding year to the preceding year's assessment."
As the language of the statute indicates, a city's maximum tax rate is dependent upon the amount of revenue which would have been raised if the rate of the preceding year was applied to the preceding year's assessment before it was adjusted for the homestead exemption.
KRS 132.027(2) establishes a limit above which a city is prohibited from increasing its rate unless a public hearing is held, in compliance with the provisions of KRS 132.027(3), to hear comments from the public regarding the proposed increase. Subsection (2) reads as follows:
"(2) No city or urban-county government shall levy a tax rate within the limits imposed in subsection (1) of this section which exceeds the compensating tax rate defined in KRS 132.010 until the city or urban-county government has complied with the provisions of subsection (3) of this section." (Emphasis added)
This limitation is dependent upon the compensating tax rate which is defined in KRS 132.010(6) as follows:
"(6) 'Compensating tax rate' means that rate which, rounded to the next higher one-tenth of one cent per one hundred dollars of assessed value and applied to the current year's assessment of the property subject to taxation by a taxing district, excluding new property and personal property, produces an amount of revenue approximately equal to that produced in the preceding year from real property. However, in no event shall the compensating tax rate be a rate which, when applied to the total current year assessment of all classes of taxable property, produces an amount of revenue less than was produced in the preceding year from all classes of taxable property. For purposes of this subsection, 'property subject to taxation' means the total fair cash value of all property subject to full local rates, less the total valuation exempted from taxation by the homestead exemption provision of the Constitution and the difference between the fair cash value and agricultural or horticultural value of agricultural or horticultural land."
KRS 132.027(4)(a) provides a limit, based on the compensating tax rate, above which any rate levied by a city would be subject to a recall vote or reconsideration by the city taxpayers. That statute reads as follows:
"(4)(a) That portion of a tax rate levied by an action of a city or urban-county government which will produce revenue from real property, exclusive of revenue from new property, more than four percent (4%) over the amount of revenue produced by the compensating tax rate defined in KRS 132.010 shall be subject to recall vote or reconsideration by the taxing district, such as the case may be, as provided for in KRS 132.017, and shall be advertised as provided for in paragraph (b) of this subsection."
Any rate increase by the City of Erlanger to recoup revenues lost in prior years due to the homestead exemption must comply with all three limitations set forth in KRS 132.027. If the city complies with the applicable procedures contained in KRS 132.027(3) and/or KRS 132.027(4)(b), however, it can increase its ad valorem tax rate to the maximum as provided in KRS 132.027(1).
(4)(A) Can a city having a fiscal year beginning on July 1 and ending June 30 of the following year collect taxes based on its fiscal year or should the taxes be based on a calendar year?
Answer: All ad valorem taxes levied and collected by a city must be made with reference to the city's fiscal year regardless of the dates of the fiscal year. See
City of St. Matthews v. Trueheart, Ky., 274 S.W.2d 52 (1955). Where a city has adopted the county assessment, KRS 132.285(1) provides, in pertinent part, as follows:
". . . In such event the assessment finally determined for county tax purposes shall serve as a basis of all city levies for the fiscal year commencing on or after the county assessment date. . . ." (Emphasis added)
(4)(B) Is the assessment date and levy date one and the same and could this be January 1 for a city on a fiscal year beginning July 1?
Answer: The terms "assessment date" and "levy date" relate to two separate and distinct activities. Both activities, however, are essential to the administration of ad valorem taxes.
The assessment date is the day, fixed by statute, when property is valued for ad valorem tax purposes. While the taxes which a city intends to collect must be referenced to its fiscal year, in actuality, they must be based on a tax liability that can accrue only from the presence of the property within the city's jurisdictional limits on the assessment date. See
City of St. Matthews v. Trueheart, supra.
Under KRS 92.420(2) the legislative body of a city of the third class may fix any date it chooses as its assessment date. KRS 92.020 permits a third class city to begin its fiscal year on January 1, June 1 or July 1. The Kentucky Supreme Court has held that regardless of a city's fiscal year, the assessment date must precede the fiscal year to provide a sufficient amount of time for the city to complete its assessment and equalization procedures before the tax is levied. See
City of St. Matthews v. Stallings, Ky., 298 S.W.2d 676 (1957); and
City of St. Matthews v. Trueheart, supra.
Any city may, pursuant to KRS 132.285, adopt the county assessment as a basis for its ad valorem tax. If a city elects to adopt the county assessment, KRS 132.285 provides for certain deviations from the requirements contained in KRS Chapter 92 regarding that city's ad valorem tax administration. That statute provides, in pertinent part, as follows:
". . . Notwithstanding any statutory provisions to the contrary, the assessment dates for such city shall conform to the corresponding dates for the county, and such city may by ordinance establish additional financial and tax procedures that will enable it effectively to adopt the county assessment." (Emphasis added)
The county assessment date is fixed in KRS 132.220 as January 1 preceding the county's fiscal year.
The levy date is the day when the legislative body of the city enacts an ordinance levying the tax. The General Assembly has not fixed a specific date on which a city must levy its ad valorem tax. It is essential, however, that the assessment be made prior to the ordinance levying the tax. See Covington v. Carroll, 32 K.L.R. 1255, 108 S.W. 295 (1908);
Slaughter v. City of Louisville, 89 Ky. 112, 8 S.W. 917 (1888);
Jefferson County Fiscal Court v. Jefferson County, 257 Ky. 507, 78 S.W.2d 324 (1935); and
National Distillers Products Corporation v. Board of Education of Franklin County, Ky., 256 S.W.2d 481 (1953). If a city has adopted the county assessment, KRS 133.185 imposes the following additional requirement:
"No tax rate for any taxing district imposing a levy upon the county assessment shall be determined before the assessment is certified by the department of revenue to the county clerk as provided in KRS 133.180."
Since the City of Erlanger has chosen to adopt the county assessment, its assessment date is January 1 preceding the city's fiscal year. The city's levy date, however, must be subsequent to the certification of the county assessments by the Department of Revenue.