Request By:
Mr. Joseph H. Conley
Nicholas County Attorney
Courthouse
Carlisle, Kentucky 40311
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Nicholas County Road Department has operated a rock quarry for many years. Some of the rock is used by the county in the maintenance of county roads. Some of the rock has been sold to the state for maintenance of public roads. Still portions of this county rock has been sold to private individuals for private purposes.
House Bill 968, enacted in the 1980 session [became effective June 1, 1980], levies an excise or severance tax on certain "natural resources" in Kentucky [various minerals such as rock, stone, limestone, shale, gravel, sand, clay, fluorspar, zinc, natural gas etc.]. The tax applies to "all taxpayers severing and/or processing natural resources in this state." The tax on rock is 4 1/2%, based upon the gross value of the rock severed or processed. Section 5 requires taxpayers, before severing such natural resources, to procure a certificate of registration by filing an application with the Department of Revenue.
Here the county is severing and processing rock from the county owned rock quarry. The question is whether or not the county is subject, as a taxpayer, to the act. We conclude, as explained hereinafter, that the county is a taxpayer under the Act, since it severs and processes rock, and that the exception provision of the Act does not apply to rock used on county and state roads. However, Section 170 of the Kentucky Constitution exempts the county from the tax as relates to rock used on county and state roads.
Section 1 of the act creates a new KRS Chaper 143A; and subsection (4) thereof defines the term "taxpayer" as follows:
"(4) 'Taxpayer' means and includes any individual, partnership, joint venture, association, corporation, receiver, trustee, guardian, executor, administrator, fiduciary, or representative of any kind engaged in the business of severing and/or processing natural resources in this state for sale or use."
The above definition of "taxpayer" includes the term, "corporation". The act does not distinguish between a private and a public or governmental corporation. A county is a political subdivision and a body corporate. It is essentially a kind of or quasi municipal corporation. See KRS 67.080(1)(e), 67.083;
Anderson v. Wayne County, 310 Ky. 597, 221 S.W.2d 429 (1949) 430;
Howell v. Haney, Ky., 330 S.W.2d 941 (1960) 943; and
Brown v. Marshall County, Kentucky (U.S.C.A. -6, 1968) 394 F.2d 498, 500.
It is our opinion that counties and cities are "taxpayers" under this act, since they are municipal corporations and come under the broad term "corporation", provided that they are severing and/or processing one or more of the "natural resources" set out in the act.
The tax applies to all taxpayers severing and/or processing natural resources in Kentucky. "Severing" is defined in Section 1 of the act as the physical removal of the natural resources from the earth or waters of this state by any means, whether sold or used by the taxpayer.
Section 3 provides exemptions from the tax:
"The taxes imposed in Section 2 of this Act do not apply to rock, limestone or gravel used for privately maintained but publicly dedicated roads or limestone when sold or used by the taxpayer for agricultural purposes so as to qualify for exemption from sales and use taxes as provided in KRS 139.480."
Your second question reads:
"If local governments are determined to be subject to the act, would not rock, limestone or gravel used for publicly maintained roads by implication be exempt from the tax?"
In our opinion the exception provision would not apply to the rock, limestone or gravel used for county or state roads. To begin, implied exceptions to the express provisions of a statute are not favored.
United Brick & Clay Workers v. Denna Artware (U.S.C.A. - 6, 1952) 198 F.2d 637, 644. Judge Tilford, for the court in
Straight Creek Bus v. Saylor, 299 Ky. 309, 185 S.W.2d 253 (1945), wrote this at pages 254-255:
"Courts are not limited to the literal wording of an Act indicating what exceptions to its operations are permissible when any, by its terms or necessary intendment, are permissible. But where it is apparent that no exceptions were intended, we cannot properly create them."
From the literal language of the exception concerning rock used for publicly dedicated roads which are privately maintained, such an exception would fit subdivision access roads, not a part of state, city or county road systems. But this clearly stated exception cannot be twisted into an application relating to rock used on state or county roads.
The general rule as to tax exemptions is stated in Sands, Sutherland Statutory Construction, Vol. 3, Section 66.09, page 207, in part:
"As a general rule grants of tax exemptions are given a strict interpretation against the assertions of the taxpayer and in favor of the taxing power. As explained in court opinions: 'Exemptions from taxation claimed under legislative acts should be rigidly construed and established beyond a reasonable doubt. It is only where a deliberate purpose of the legislature to grant an exemption is expressed in clear and unequivocal terms that a claim to an exemption can be maintained.' 'Taxation is the rule and exemption therefrom the exception; and the claimant of such an exemption must show his right thereto by evidence which leaves the question free from doubt. The claimant for an exemption must show that his demand is within the letter as well as the spirit of the law.'"
The final question is whether or not there is any constitutional or statutory section which would exempt the county in this situation. See
Kesselring v. Bonnycastle Club, 299 Ky. 585, 186 S.W.2d 402 (1945).
Section 170 of the Kentucky Constitution provides in part that " There shall be exempt from taxation public property used for public purposes. . . ." (Emphasis added). Here the rock is owned by the county and some of it is put on state maintained and county roads. Thus it is our opinion that Section 170 of the Constitution expressly exempts the county in this situation as specifically relates to the county owned rock placed on state maintained and county roads. See Kesselring v. Bonnycastle Club, above, p. 404. Here the rock put on state and county roads is public property used for a public purpose. See also
Board of Education of Jefferson County v. Louisville Water Company, Ky., App., 555 S.W.2d 587 (1977) 588, 589.
However, the county would not be exempt from the tax as relates to county rock sold to private individuals for purely private purposes, and not involving publicly dedicated roads. As we said earlier, the act exempts such rock, limestone or gravel used for privately maintained but publicly dedicated roads. It also exempts limestone when sold or used by the taxpayer for agricultural purposes, etc. As concerns such rock to be privately used, but not involving publicly dedicated roads, the fiscal court must procure, under the subject act, a certificate of registration by filing the necessary application with the Department of Revenue.