Request By:
Hon. Timothy W. Martin
Brown, Todd & Heyburn
Sixteenth Floor
Citizens Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear, Attorney General; Joe Johnson, Assistant Attorney General
In your letter to this office dated July 28, 1982, you set forth the following factual situation and legal problem:
Our client, GMD Enterprises, operates a sporting goods store and, in connection with that operation sells gasoline. The store and adjoining gasoline pumps are located on Preston Highway in Jefferson County, next to a boat dealership. GMD sells both 'regular' gasoline and 'pre-mixed' gasoline (the latter also being generally referred to as '50 to 1' gasoline) . The 50-1 gasoline is suitable only in outboard motors for boats. GMD sells much of their 50-1 to customers of the neighboring boat dealership.
There is a 13 cent per gallon state tax on the sale of pre-mixed gasoline. KRS 138.210 to 138.340. However, KRS 138.445 provides for a 90% refund of taxes paid pursuant to KRS 138.210 to 138.340 on liquid fuel bought and used for operating motorboats. Regulations issued by the Department of Revenue provide that such refunds be made to merchants on a quarterly basis. 103 KAR 43:230.
The Department of Revenue has denied GMD's claim for refunds on the basis of Section 2 of 103 KAR 43:230 which states: 'Only locations situated at public boat docks will be approved.' GMD does not pretend that its Preston Highway site is situated at a public boat dock. Nevertheless, the premixed gasoline sold by GMD is used 'for the purpose of operating or propelling motor boats, ' which is the criterion that the General Assembly has established for granting refunds. KRS 138.445(1).
GMD requests an opinion of the Attorney General as to the legality of that portion of 103 KAR 43:230(2) limiting refunds to . . . 'Only locations situated at public boat docks. . . .', in light of the legislature's intent expressed in KRS 138.445(1) and with respect to Ky. Constitution §§ 171 and 230.
While it is true that KRS 138.445(1) provides for the refund to anyone who buys and uses the fuel for the purpose of operating or propelling motor boats, this provision must be read in conjunction with KRS 138.445(4) which states as follows:
Refunds shall be made only on gasoline purchased from locations designated by the department of revenue.
103 KAR 43:230(2) was promulgated pursuant to the authority vested in the department to designate locations which qualify for the refund. The Department of Revenue has not designated your client as so qualified pursuant to KRS 138.445(4). In fact, the legislature set up rigid requirements for dealers qualifying for the refund and 103 KAR 43:230 summarizes the statute dealing with motorboat gasoline tax refunds and outlines requirements for refund claims. 103 KAR 43:230(2) states as follows:
No person shall be qualified to receive a refund under this regulation unless the Department of Revenue has approved such location and there has been filed with the department an application and a bond. The bond must be issued by a corporate surety authorized to do business in this state, in the amount of $1,000, and conditioned upon the repayment to the Commonwealth of Kentucky of any refunds to which the person was not entitled. Only locations situated at public boat docks will be approved.
The question is whether the department's regulation restricting approved locations to public boat docks is within the purview of the statute.
In the case of
Portwood v. Falls City Brewing Co., Ky., 318 S.W.2d 535, 537 (1958), the Court set forth the following rule:
Administrative rules and regulations to be valid, must be within the authority conferred upon the administrative agency. The power to make regulations is not the power to legislate in the true sense, and under the guise of regulation legislation may not be enacted. The statute which is being administered may not be altered or added to by the exercise of a power to make regulations thereunder. A rule which is broader than the statute empowering the making of rules cannot be sustained. Administrative authorities must strictly adhere to the standards, policies, and limitations provided in the statutes vesting power in them. Regulations are valid only as subordinate rules and when found to be within the framework of the policy which the legislature has sufficiently defined. . . .
Three (3) questions must be answered:
(1) Does the subject regulation alter or add to the statute?
(2) Is the regulation broader than the statute?
(3) Is the regulation outside the standards, policies and limitations of the statute?
Clearly, all the above questions must be answered in the negative since the statute gives the department the authority to designate refund locations. The regulation designates public boat docks as qualified.
Of course, administrative discretion must be exercised in accordance with established principles of justice and not arbitrarily, capriciously, fraudulently or without factual basis.
Dennis v. Rich, Ky., 434 S.W.2d 632 (1968). However, the basis for designating public boat docks is obviously to assure that the gasoline so purchased is actually used in the operation of motor boats as statutorily mandated by KRS 138.445. The regulation achieves this objective. Because there is obviously a factual distinction between the location of public boat docks and the location of your client, it cannot be said that your client is the victim of arbitrary or capricious action on the part of the department.
In conclusion, we are of the opinion that 103 KAR 43:230(2) is within the framework of the statute.
If we can be of any further assistance, please let us know.