Request By:
Honorable Fred S. Tarter, Mayor
City of Russell Springs
P.O. Box 247
Russell Springs, Kentucky 42642
Opinion
Opinion By: Steven L. Beshear, Attorney General; By Alex W. Rose, Assistant Attorney General
This is in response to your letter of February 12, 1982, in which you requested an opinion as to whether the City of Russell Springs could legally levy a tax on insurance companies.
Section 181 of the Kentucky Constitution provides, in pertinent part, as follows:
"The General Assembly may, by general laws only, provide for the payment of license fees on franchises, stock used for breeding purposes, the various trades, occupations and professions, or a special or excise tax; and may, by general laws, delegate the power to counties, towns, cities and other municipal corporations, to impose and collect license fees on stock used for breeding purposes, on franchises, trades, occupations and professions." (Emphasis added)
The General Assembly exercised the power conferred upon it by the Constitution and enacted KRS 92.280(2) and KRS 92.281(1) authorizing cities of all classes to levy and collect any and all taxes enumerated in Section 181 of the Kentucky Constitution.
The General Assembly has, however, placed certain limitations and restrictions on the method of taxation to be utilized by cities in levying a tax upon insurance companies. KRS 92.285(1) provides that the legislative bodies of cities or urban-county governments authorized to impose or collect license fees or taxes upon insurance companies for the privilege of engaging in the insurance business within their jurisdictional limits shall file with the Commissioner of Insurance copies of ordinances and amendments thereto which impose such license fees or taxes.
License fees or taxes levied upon fire insurance companies must be based on a percentage of the premiums received by the company in the preceding calendar year for insurance on property located within the taxing authority's jurisdictional limits. See KRS 92.285(2).
License fees or taxes imposed upon life insurance companies may be based upon premiums received from new policies written within the preceding calendar year upon the lives of persons residing within the jurisdictional limits of the taxing authority. The method of taxation of life insurance companies, however, is not limited to premiums received. See KRS 92.285(2).
The license fees and taxes levied against all other types of insurance companies, except those companies insuring employers against liability for the personal injury or death of their employees under the provisions of the Worker's Compensation Act, must be based upon premiums received within the preceding calendar year for insuring against risks located within the taxing district. See KRS 92.285(4). The city or urban-county government may collect a fee of five dollars ($5.00) from any company whose fee or tax on the percentage of premium received basis is less than five dollars ($5.00). See KRS 92.285(8).
KRS 136.320 imposes a state tax on all domestic life insurance companies. Subsection (3) of that statute provides as follows:
"An annual tax of seventy cents (70 ) on each one hundred dollars ($100) of the fair cash value of 'taxable capital' and one-tenth of one cent ($ .001) on each one hundred dollars ($100) of the fair cash value of 'taxable reserves' shall be imposed for state purposes. The tax shall be in lieu of all excise, license, occupational, or other taxes imposed by the state, county, city, or other taxing district, except as provided in subsections (4), (5), and (6) of this section." (Emphasis added)
In OAG 69-366, copy attached, this office issued an opinion stating that the exempting clause contained in KRS 136.320(3) only limits the rate of local taxation which can be levied on the capital stock of a domestic life insurance company. Therefore, a city may levy an occupational license tax on such companies based on the amount of premiums collected. Commonwealth Life Insurance Company v. City of Paducah, 244 Ky. 756, 52 S.W.2d 704 (1932), was cited as authority for that opinion. In that case the Kentucky Supreme Court interpreted a similar exempting clause contained in the predecessor to KRS 136.320(3). The Court, at page 705, ruled as follows:
"With these principles in mind, in view of the title to the act, we are of opinion that the exempting clause has reference only to the exemption of the shares of stock of domestic insurance companies from other forms of taxation than that set out in the act, and does not exempt such companies from an occupational license tax. "
The Court in Commonwealth Life Insurance Company v. City of Paducah, supra, based its opinion on the restrictive language contained in the title of the act passed by the General Assembly and codified as Section 4237a-1 of the 1930 Edition of the Statutes (the predecessor to KRS 136.320). That title is located in Kentucky Acts 1926, Chapter 99, and reads as follows:
"AN ACT relating to the taxation of domestic life insurance companies, fixing the annual State rate on the shares of stock thereof, prescribing how the value of said shares of stock shall be determined, and to whom the taxes shall be paid, and limiting the local rate of taxation thereon for county, city, town and other taxing districts; providing for the taxation of real estate owned by such companies, and for a referendum if desired; repealing and re-enacting section 4237a (1) and (2) of Kentucky Statutes, Carroll's edition 1922, and repealing all laws or parts of laws in conflict herewith."
The Court, at page 705, states as follows:
"But for the title to that act, it would seem plain that the exempting clause embodied in the italicized portions of the act quoted supports the claim of the appellant that the tax on the capital stock was meant to be in lieu of every character or description of tax, including occupational license taxes. However, when the body of the act is read in connection with the title, the contention of appellant must fail. The title clearly states that the act is one relating to the taxation of domestic life insurance companies, fixing an annual state rate on the shares of the stock thereof, prescribing how the value of such shares is to be determined, and limiting the local rate of taxation of such shares, and providing for taxation of the real estate of such company. This is a restrictive title. It has reference only to the fixing of the rate of taxation on the capital stock of the company and the limiting of the local rate of taxation on such stock in addition to the providing for the taxation of the real estate owned by such company. Should the exempting clause in the body of the act be interpreted as widely as appellant insists it should be, it would be without the title of the act, for there is nothing in that title to indicate that, beyond the taxing of real estate and the fixing of the rate and method of taxation of the capital stock, anything else is to be found in the body of the act, or that exemption from other forms of taxation not applicable to the capital stock or real estate is to be found in the body of the act." (Emphasis added)
Section 4237a-1 of the 1930 Edition of the Statutes has been repealed and re-enacted on several occasions since the decision in Commonwealth Life Insurance Company v. City of Paducah, supra, was rendered by the Kentucky Supreme Court. The titles to the acts repealing and re-enacting Section 4237a-1 of the 1930 Edition of the Statutes and its successors have all been general rather than restrictive. See Kentucky Acts 1966, Chapter 160 (AN ACT relating to revenue and taxation) ; Kentucky Acts 1972, Chapter 203 (AN ACT to revise and correct the Kentucky Revised Statutes); Kentucky Acts 1976, Chapter 93 (AN ACT relating to the collection and distribution of taxes for education and other purposes); and Kentucky Act 1978, Chapter 384 (AN ACT to revise and correct the Kentucky Revised Statutes).
In view of the repeal of the restrictive title of the act construed by the Court in Commonwealth Life Insurance Company v. City of Paducah, supra, and following the reasoning of that Court, the language of the exempting clause contained in KRS 136.320(3) must be construed according to its common meaning. See also KRS 446.080(4). Therefore a city can levy a tax on a domestic life insurance company only as prescribed in KRS 136.320(5). That statute provides as follows:
"The city in which the principal office of the company is located may impose a tax of fifteen cents (15 ) on each one hundred dollars ($100) of 'taxable capital.'"
So much of OAG 69-366 that is inconsistent with this opinion is no longer valid.
In conclusion, the City of Russell Springs can legally levy an occupational license tax on insurance companies if the city complies with all the restrictions contained in KRS 92.285 and KRS 136.320(5).