Request By:
C. W. Gregory, Jr.
Pear Orchard Road
Elizabethtown, Kentucky 42701
Opinion
Opinion By: Frederic J. Cowan; Ross T. Carter, Assistant Attorney General
You have presented the following question to the Attorney General:
Does the fee that would be imposed under [1990 House Bill 132] constitute an "excise taxation . . . relating to gasoline and other motor fuels" within the meaning of Section 230 [of the Constitution of Kentucky]? If so, would the use of such funds contemplated by the bill be permissible within the limitations set out in section 230?
We conclude that the fee does not constitute an excise tax on motor fuel within the meaning of section 230, and that the use of the funds in the manner specified in the bill would be permissible.
I. Background.
The bill in question proposes to establish a program to test and inspect motor fuels to insure that consumers receive a product that matches the specifications provided by the seller. Expenses of operating the program would be payable from a dedicated account called the Motor Fuel Compliance Fund. The funding mechanism for this account is set forth in section 15 of the bill, which states:
There is established a motor fuel compliance fee to be paid by dealers, as defined in KRS 138.210(2), on each gallon of gasoline and special fuels received in the state. The fee shall be assessed at a rate of two and one half cents (2 1/2 ) for each one hundred (100) gallons received. All money collected from the assessment of this fee shall be deposited to the Motor Fuel Compliance Fund.
Section 230 of the Constitution of Kentucky states in part:
No money derived from excise or license taxation relating to gasoline and other motor fuels, and no money derived from fees, excise or license taxation relating to registration, operation, or use of vehicles on public highways shall be expended for other than the cost of administration, statutory refunds and adjustments, payment of highway obligations, costs for construction, reconstruction, rights of way, maintenance and repair of public highways and bridges, and expense of enforcing state traffic and motor vehicle laws.
I. Excise and license taxes defined.
Although the constitution's reference to "excise or license taxation" might suggest that the two terms denote separate areas of taxation, the term "excise tax" broadly encompasses most taxes, including license taxes. A license tax has been defined as "a tax on the right to exercise a business privilege which is commonly regulated,"
Commissioners of the Sinking Fund of the City of Louisville v. Hopson, Ky.App., 613 S.W.2d 621 (1980). Excise taxes include taxes on "the performance of an act, the engaging in of an occupation or the enjoyment of a privilege,"
Bloom v. City of Fort Collins, 784 P.2d 304, 307 (1989); as a practical matter, excise refers to any tax other than a tax imposed directly on property (an ad valorem tax) or persons (presumably a poll tax).
New Neighborhoods, Inc., v. West Virginia Workers' Compensation Fund, 886 F.2d 714, 719 (4th Cir. 1989);
Shannon v. Streckfus Steamers, 279 Ky. 649, 131 S.W.2d 832, 838 (1939) ("[t]he term 'excise tax' is often used as synonymous with privilege or a license tax" ). The term "excise" derives through the Dutch excijs or accijs from the Latin accensare, which means simply "to tax."
Abney v. Campbell, 206 F.2d 836, 839 (5th Cir. 1953).
We conclude that the phrase "excise or license taxation relating to gasoline and other motor fuels" refers to any motor fuel tax other than an ad valorem property tax.
III. Tax and fee distinguished.
Section 230 refers to two broad areas that may be subject to exactions: motor fuels and motor vehicles. With respect to motor fuels, section 230 governs "excise or license taxation, " as we have seen. With respect to motor vehicles, however, the section governs "fees [and] excise or license taxation. " The section suggests that a fee is something different than a tax, and the authorities support this conclusion.
In
Long Run Baptist Association, Inc., v. Louisville and Jefferson County Metropolitan Sewer District, Ky.App., 775 S.W.2d 520, 525 (1989), the court explained, "A tax is universally defined as an enforced contribution to provide for the support of government, whereas a fee is a charge for a particular service." A slightly more thorough distinction is drawn in
Leggett v. Missouri State Life Insurance Company, 342 S.W.2d 833, 875 (Mo. 1961), in which the court quoted Cooley on Taxation in stating,
Taxes are '"proportional contributions imposed by the state upon individuals for the support of government and for all public needs." . . . Fees or charges prescribed by law to be paid by certain individuals to public officers for services rendered in connection with a specific purpose ordinarily are not taxes [citations], unless the object of the requirement is to raise revenue to be paid into the general fund of the government to defray customary governmental expenditures.
While section 230 applies to both fees and taxes relating to motor vehicles, by its clear terms the provision does not regulate fees relating to motor fuels. It therefore remains for us to determine whether the proposed motor fuel compliance fee may be considered a fee rather than a tax.
IV. Analysis of the motor fuel compliance fee.
Section 14 of House Bill 132 states that the proceeds of the motor fuel compliance fee "shall be used only for the purpose of implementing an inspection and testing program to assure compliance with this Act." Without doubt the "compliance fee" is actually an inspection fee: the fee is used exclusively to compensate the government for the expense of maintaining the inspection program.
It has long been recognized that inspection fees represent an exercise of the state's police power and consequently are not regarded as taxes. 71 Am.Jur.2d, State and Local Taxation § 15; The Chicago, Wilmington, and
Vermilion Coal Company v. Illinois, 54 N.E. 961 (Ill. 1899) ("Inspection fees are not taxes, but are imposed under the principle that they are compensation for services rendered in and about making such inspection . . .");
Texas Company v. Brown, 258 U.S. 466, 66 L. Ed. 721, 42 S. Ct. 375 (1922) (inspection fee on gasoline held a permissible exercise of state's police power and hence not an impermissible tax on interstate commerce).
Of course, the character of an exaction must be determined by its operation rather than its label,
Kroger Company v. Department of Revenue, Ky.App., 556 S.W.2d 156 (1977); and a so-called inspection fee may be characterized as a tax if the revenue it produces exceeds the cost of the inspection program.
Texaco Company v. McCanless, 250 S.W.2d 569 (Tenn. 1941) (inspection fee on gasoline held to be an excise tax) ;
D. E. Foote & Company v. Stanley, 232 U.S. 494, 58 L. Ed. 698, 34 S. Ct. 377 (1914) (inspection charge on oysters held to be an invalid tax where only one-third of charge was used to defray expenses). In Red "C"
Oil Manufacturing Company v. Board of Agriculture of North Carolina, 222 U.S. 380, 56 L. Ed. 240, 32 S. Ct. 152 (1912), the Supreme Court presumed, in the absence of evidence to the contrary, that an oil inspection fee of $ 1.50 per 100 gallons would be a permissible fee rather than a tax that would be barred by the commerce clause. The fee set out in H.B. 132 is 2 1/2 per one hundred gallons. We have no hesitation in concluding that if $ 1.50 per 100 gallons was a reasonable fee in 1912, then 2 1/2 per 100 gallons must be presumed to be a reasonable fee today. Of course, if the proposed charge can be shown in operation to exceed the actual cost of administering the inspection program, or if the revenue produced were diverted to another purpose, the character of the exaction might change accordingly. Without such indications we conclude that the motor fuel compliance fee represents a reasonable inspection fee and consequently does fall within the proscription of section 230 of our state constitution.
Our conclusion comports with the purpose of section 230 as explained in
Keck v. Manning, 313 Ky. 433, 231 S.W.2d 604, 606 (1950), where the court stated, "The purpose of the 1944 amendment [to section 230], often referred to as the 'anti-diversion amendment,' was not to curtail the road program but to make secure the funds with which to continue it." The rate of the fee in question, 2 1/2 per 100 gallons, is approximately .17% of the current rate for the gasoline excise tax and .20% of the current rate for the special fuel excise tax (the rates are determined administratively. See KRS 138.220.). Based on the Revenue Cabinet's figures for the most recent fiscal year, the motor fuel compliance fee would generate $ 571,549, compared to $ 327,244,760 for the gasoline and special fuels excise taxes. We do not believe that the modest amount of the motor fuel compliance fee can be deemed in any sense a diversion of funds that would jeopardize the security of the funding for the road program.
In conclusion, we find that the funding mechanism set out in H.B. 132 violates neither the letter nor the spirit of section 230 of the Constitution of Kentucky.