Request By:
Mr. William E. Fletcher
Attorney at Law
P.O. Box 672
Princeton, Kentucky 42445
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Alex W. Rose, Assistant Attorney General
This is in response to your letter of September 21, 1982, wherein you inquire whether the fourth class City of Princeton may lawfully require its taxpayers to attach various schedules from their federal income tax returns to the city's net profits tax returns.
Federal tax return schedules are an integral part of a taxpayer's books and records which are subject to verification and examination by the taxing authorities. In order to require taxpayers to attach these schedules to the city's net profits tax return, an ordinance must be passed specifically setting this requirement forth in detail.
The legislature provides taxing power to municipal governments under the authority of Sections 171 and 181 of the Kentucky Constitution. The enabling legislation for this taxing power is found in KRS 92.280. State legislators may delegate part of this taxing power to local governments within the state, English vs. Robinson T.P. School District, 358 Pa 45, 55 A.2d 803(1947).
Incident to a municipal taxing power, the local government may require taxpayers to file returns. Reasonable enactments granting local governments inquisitorial powers to determine the accuracy of tax returns have been held valid as not being in conflict with the due process, search and seizure, and other clauses of the federal and state constitutions. This position was stated in a Missouri Supreme Court case styled Kirkwood Drug Company, Inc, vs. City of Kirkwood, 387 S.W.2d 550(1965), in which the court stated as follows:
"We hold the provisions of § 304(e) for investigating licensees tax returns are reasonable, in aid of the collection of the tax, . . ." at page 554.
In Kirkwood, a city ordinance gave the city tax collector access to taxpayers' books and records to verify the accuracy of the returns.
A Philadelphia income tax ordinance which required taxpayers to produce books and records was found not to violate the privilege against self incrimination. In Dole vs. City of Philadelphia, 337 Pa 375, 11 A.2d 163(1940), the court cited 70 C.J. 722, Witnesses, Section 876 which states:
"A statute requiring disclosure of particular facts or merely requiring a person to appear and answer as to particular facts is not violative of the privilege where the right to refuse to answer as to incriminating facts is not taken away." at page 168.
The court went on to state as follows:
"Statutes requiring the making of reports or the disclosure of particular facts as requlatory of particular organizations, occupations, or businesses are not construed as compelling self-incrimination." at page 168.
There appears to be no legal distinction to draw between requiring copies of federal tax return schedules with the city tax return and the inspecting of books and records of taxpayers. Both examples are incidental to the power to tax.
A 1975 Attorney General opinion, OAG 75-519, stated that a city of the fourth class had authority to enact an occupational license tax ordinance in which the city was empowered to examine the books and records of employers and taxpayers. This opinion cited Kohler vs. Benckart, Ky., 252 S.W.2d 854, 358(1952), and Paducah Automotive Trades Association vs. City of Paducah, 307 Ky. 524, 211 S.W.2d 660, 667(1948), both of which held that ordinances authorizing cities to examine books and records are not unconstitutional as being an unreasonable search and seizure. Additionally, in Batten vs. Hambley, Ky., 400 S.W.2d 683(1966), the court upheld the validity of an ordinance of a city of the fourth class which provided for examination and audit of books and records of taxpayers.
Therefore, a city of the fourth class has authority to enact an ordinance requiring its taxpayers to file federal income tax return schedules as a part of the city's net profits tax returns as a verification of such returns.