Request By:
Mr. J. Larry Cashen
Wyatt, Tarrant & Combs
Citizens Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Alex W. Rose, Assistant Attorney General
In your letter to the Attorney General, you asked two questions: (1) Whether Section 170 of the Kentucky Constitution exempts from the real estate transfer tax (KRS 142.050) a transfer of real estate by a tax exempt hospital that is an institution of purely public charity; and (2) whether the real estate transfer tax (KRS 142.050) implicitly exempts transfers from a parent corporation to a subsidiary corporation for nominal or no consideration.
In answer to your first question, the issue involved is whether KRS 142.050 is primarily a tax for revenue purposes or a fee for regulatory purposes. Although, the statute is labeled a "tax", this label is not relevent. As the court stated in Kroger Company v. Department of Revenue, Ky.App., 556 S.W.2d 156, 157 (1977): ". . . the name by which a tax is described in the statutes is without significance. The character of any tax must be determined by its operation in effect, rather than its label. "
In Gray v. Methodist Episcopal Church, etc., 272 Ky. 646, 114 S.W.2d 1141 (1938), the court stated that Section 170 of the Constitution exempts institutions of purely public charity from any taxation, but not from fees exacted for regulatory purposes. In Gray, the issue was a charge for a motor vehicle registration. The court found that the primary purpose was regulatory and not for raising revenue.
Therefore, it is necessary to determine the primary purpose of KRS 142.050. In OAG 74-897, we stated that the primary purpose of the statute was to provide "a source of information as to the sales price of property for the property valuation administrator in each county". This is done by requiring the actual consideration to be stated in the deed, with failure to comply subject to penalty.
However, the amount levied under this statute is fifty cents (50 ) per $500 of valuation. The statute requires that this money be deposited in the county general fund, less five percent (5%) to the county clerk. It is clear that this amount levied by the statute has no reasonable relation to the services provided. Union Brokerage Company v. Jenson, 322 U.S. 202, (1944); 71 Am. Jur.2d, State and Local Taxation, Section 18. While the statute does serve the function of providing the PVA with certain necessary information, the primary purpose of the statute appears to be revenue raising. Therefore, it is our opinion that institutions of purely public charity are exempt from payment of the charges levied by KRS 142.050 pursuant to Section 170 of the Constitution. Consequently, OAG 74-897 is withdrawn.
In light of our answer to your first question, it is unnecessary for us to address your second question.