Request By:
Mr. Alan H. Hershberger
Bethlehem Steel Corporation
Martin Tower, Room 1963
Bethlehem, Pennsylvania 18016
Opinion
Opinion By: Steven L. Beshear, Attorney General; By Alex W. Rose, Assistant Attorney General
In your letter to the Attorney General, you ask whether the City of Fleming-Neon has the authority to impose a franchise fee on the Kentucky Power Company for the right to distribute electrical energy in the city.
Section 181 of the Kentucky Constitution specifies the taxes that may be levied by a city. One of these taxes is a franchise tax. See KRS 92.281. In Kentucky, a franchise tax is generally defined as a governmental grant of a special privilege to engage in a particular business. C.C.C. Cook Co., Inc. v. Pike County, Ky., 536 S.W.2d 467, 468 (1976). A franchise tax may be measured by a percentage of the gross receipts or profits of a business. Home Insurance Company of New York v. People of the State of New York, 134 U.S. 594, 600 (1908). See, also, Section 174 of the Kentucky Constitution.
Furthermore, Section 164 of the Kentucky Constitution allows a city to grant any franchise or privilege. See KRS 96.010. The city may receive compensation for the granting of this privilege. See OAG 77-263.
You state that the city has enacted an excise tax which is forbidden. The terms "excise tax" , "franchise tax" , "privilege tax" , "license tax" , etc. have never been precisely defined or distinguished in Kentucky. They are often used interchangeably or to denote different taxes. In 71 Am.Jur.2d, State & Local Taxation, Sections 28 and 29, a privilege tax is considered an excise tax, excise tax being a broad term. In Section 30 a license tax is distinguished from an excise tax. And in Section 25 a property tax is distinguished from an excise tax.
It is our opinion that a city may levy a franchise tax or fee and such may be measured by the gross receipts of the franchisee. The City of Fleming-Neon has not levied a forbidden excise tax.
A question that you have not raised, but that is involved in this matter is whether the city's ordinance amounts to double taxation because of KRS 136.120. See OAG 68-338. However, it is our opinion that KRS 136.120 levies a property tax and not a franchise tax. See KRS 92.281(3). Therefore, it does not amount to double taxation. To the extent that OAG 68-338 conflicts with this opinion, it is superceded.