Request By:
Mr. John W. Sullivan
President
Kentucky Crushed Stone Association Inc.
P.O. Box 326
Frankfort, Kentucky 40602
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Lee County Fiscal Court recently enacted a general occupational or license tax on all businesses and gainful occupations in Lee County, except those within the city of Beattyville. The tax is in the amount of one percent (1%) of the market value of all products produced in Lee County in the case of business manufacturing or producing products, and one percent (1%) of the net profit from other types of businesses or services, except that any business with a net profit of less than $25,000 shall pay a flat license fee of $20.
You feel that the one percent (1%) on the market value of products would constitute an excise tax.
Counties can only levy two kinds of taxes: (1) ad valorem taxes; and (2) occupational or license taxes. Driver v. Sawyer, Ky., 392 S.W.2d 52 (1965) 53.
The question here: Is the Lee County tax an occupational or license tax or is it an excise tax? We think it is an occupational or license tax.
Lee County is authorized to levy an occupational or license tax under the authority of § 181 of the Kentucky Constitution and KRS 67.083(3). The authorized tax under § 181 is to be imposed upon "trades, occupations and professions. " (Emphasis added).
The case of City of Lexington v. Motel Developers, Inc., Ky., 465 S.W.2d 253 (1971) suggests the difficulty the courts have had with defining an "excise" tax. The court cites an earlier case, City of Louisville v. Churchill Downs, 267 Ky. 339, 102 S.W.2d 10, 13 (1937), defining an excise tax: "An excise tax is in its proper sense something cut off from the price paid on a sale of goods as a contribution to the support of the government." The court listed a sales tax as a classic example of an excise tax. The court also, in City of Lexington, above, cited the case of State Tax Commission v. Hughes Drug Co., 219 Ky. 432, 293 S.W. 944 (1927), with this quote at p. 945:
"'Excises, in their original sense, were something cut off from the price paid on a sale of goods, as a contribution to the support of the government. The word has, however, come to have a broader meaning and includes every form of taxation which is not a burden laid directly upon persons or property; in other words, excise includes every form of charge imposed by public authority for the purpose of raising revenue upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation. '"
However, the courts have come to distinguish the special case of an occupational or license tax as a tax actually imposed upon persons engaged in a trade (business), occupation, or profession. See City of Lexington v. Motel Developers, Inc., Ky., 465 S.W.2d 253, 255. The court in C.C.C. Coal Co., Inc. v. Pike County, Ky., 536 S.W.2d 467 (1976) found that the Pike Fiscal Court had sought to impose a franchise tax upon "the business of receiving and/or processing coal in Pike County, Kentucky, the business of mining and removal of coal, and such an extractive business enterprise. " The court said this, at page 468, about Pike County's coal tax ordinance:
"The Pike County coal tax is not levied upon engaging in the extractive business enterprise of coal production. In this case, receiving and/or processing coal for distribution is not an independent trade, occupation or profession. It is but one of a series of events which occur in the business of production. Therefore, this is not a license tax laid upon a trade, occupation or profession. It is an attempt to levy a license tax on but a single aspect of a trade, occupation or profession.
"The Pike County coal tax is levied upon the receiving and/or processing of coal at a fixed place of business within the county for distribution outside the county, which events are only uses made of coal in the business of production. What we have here is that inevitable complement to the sales tax, the use tax. Our cases place it beyond dispute that a use tax is an excise tax. " (Emphasis added).
Now, returning to the Lee County order, it is our opinion that the intent of the fiscal court was to levy the tax on all independent trades, occupations and professions. Thus it qualifies as an occupational or license tax. It is not an excise tax, as defined by the courts. The fact that the tax applied to certain producing businesses is measured in terms of one percent (1%) of the market value of the goods produced does not, in our opinion, convert the license tax into an excise tax. In City of Lexington, above, the court observed that "The general license tax of the city (license tax on motel and hotel owners) is measured by a percentage of net income. Specifying the source of income does not necessarily convert a tax upon a business enterprise into a tax upon the transactions involved." In City of Louisville v. Sebree, 308 Ky. 420, 214 S.W.2d 248 (1948) 253-254, the court, in upholding the City of Louisville's occupational or license tax, said this:
"This Louisville ordinance lays the tax upon the privilege of working and conducting a business within the city, and only measures the value of the privilege by the amount of earnings or net profits. It is contended that this is but a subterfuge to avoid the absence of power and that, looking beyond the matter of form to the matter of substance, it is but an income tax. The definition or classification may be a matter of approach or point of view. Sometimes one may not see the woods for the nearby trees. The psycho-logical impact loses force when emphasis is placed on what is made subject to taxation rather than on the measure of the tax and the basis of computation." (Emphasis Added).
From the above authorities it can be seen that where the license tax is laid upon persons engaged in independent trades, occupations, and professions, the tax is a valid occupational or license tax; and such tax may be measured in terms of net income or market value of the goods produced. The measuring of the tax in terms of market value does not convert the license tax into an excise tax.