Request By:
Mr. Reid Haney
Administrative Assistant
Hopkinsville - Christian County
Planning Commission
P.O. Box 1135
City Hall
Hopkinsville, Kentucky 42240
Opinion
Opinion By: Steven L. Beshear, Attorney General; By Alex W. Rose, Assistant Attorney General
In your letter to the Attorney General, you ask whether a city's business license tax may be measured by the net profits of businesses.
In
Kansas City v. Graybar Electric Co., Inc., 485 S.W.2d 38, 41 (Mo. 1972), the Court, citing 53 CJS, Licenses, § 30, p. 573 stated:
". . . The subject matter of a business or occupation tax, however, is not the sale, even though sales of the character specified are utilized as a measure of the tax to be assessed, and are essential to a determination that a person is engaged in a taxable occupation. It is not a privilege tax on purchases, or a tax on the property or income. It is on the privilege or occupation, that is, on the person for the privilege of engaging in the business or occupation designated. . . ."
In OAG 82-33, we held that a city may not graduate its license tax based on gross receipts. That is, as gross receipts increase the tax rate would increase. We relied primarily on Stewart Dry Goods
Co. v. Lewis, 294 U.S. 550 (1935). In that case, Kentucky attempted to levy a graduated sales tax. The Court struck down the tax.
We see no distinction between a business license tax measured by gross receipts and one measured by net profits. The tax is levied on the privilege of doing business. That privilege does not require a greater rate for greater profits. The privilege is worth the same for all businesses. Consequently, a graduated rate based on net profits would violate Section 2 and Section 171 of the Kentucky Constitution.