Request By:
Mr. Clifford T. Elgin
Vice President
Harris & Co.
9th Floor - Starks Building
Louisville, Kentucky 40202
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You still have a residual question concerning OAG 84-5 and 84-169, written to you. Those opinions deal with the application of the surcharge, levied under KRS 136.392 on insurance premiums, and the application of city taxes on insurance, to governmental bodies and agencies and to nonprofit and religious organizations. OAG 84-169 deals with the question as to the definition of an institution of purely public charity and education.
Your specific question relates to what you believe are contradictory conclusions in the two opinions. In OAG 84-5 we said that "nonprofit institutions of purely public charity and education, where the tax is designed for revenue, would be exempt from the city tax under § 170, Constitution, as an institutional exemption. A city license tax is not an ad valorem tax.
City of Louisville v. Aetna Fire Ins. Co., 284 Ky. 154, 143 S.W.2d 1074 (1940) 1077; and § 181, Kentucky Constitution." You cite this quote from OAG 84-169: "We also concluded (referring to OAG 84-5) that nonprofit institutions would not be exempt from a city license tax on insurance premiums, since such tax is not an ad valorem tax or revenue designed tax."
You believe that quoted portions of the two opinions, mentioned above, are contradictory.
In OAG 84-5 we said that nonprofit institutions of purely public charity and education, where the tax is designed and used for revenue, would be exempt from the city tax (tax on insurance premiums as a license tax) under § 170, Constitution, as an institutional exemption. The case of
Gray v. Methodist Episcopal Church, 272 Ky. 646, 114 S.W.2d 1141 (1938), held in effect that § 170 of the constitution exempts such charitable and educational institutions from taxation, generally. However, our conclusion is framed around the assumption that the city license or occupational tax on insurance premiums is in reality a tax designed for revenue.
Under § 181, Kentucky Constitution, and implementing statutory law, occupation or license taxes may be imposed by municipalities in Kentucky for the purpose of revenue or, under the cities' police power, as a means of controlling or limiting the exercise of a particular vocation. See KRS 82.082, 82.090, and 92.281. The police power extends only to the protection of the lives, health, comfort, or welfare of the public; and an ordinance imposing a tax on an occupation cannot be justified as a proper exercise of that power unless it appears that the requirement of a license tends to promote the public health, morals, safety, or welfare. However, only the courts, in a proper case, can determine whether such a tax ordinance is primarily designed as a revenue measure, or as a police regulation.
Howard v. Libby, 197 Ky. 324, 246 S.W. 828 (1923); and
Kroger Grocery & Baking Co. v. City of Lancaster, 276 Ky. 585, 124 S.W.2d 745 (1939) 748. The court observed in
Great Atlantic & Pacific Tea Co. v. Kentucky Tax Com'n, 278 Ky. 367, 128 S.W.2d 581 (1939) 585, that a purpose of the legislature to levy taxes and regulate business under the police power should not be read into an act which shows on its face that it is strictly a revenue measure.
CONCLUSIONS
As we said in OAG 84-5, nonprofit institutions of purely public charity and education are exempt from a city license tax on insurance premiums under § 170, Kentucky Constitution, as an institutional exemption, provided that the tax is designed for revenue. As we said above, only the courts can, in a given case, determine whether a city license tax is designed for revenue or is purely levied under the police power.
We also said in OAG 84-169 that nonprofit institutions would not be exempt from a city license tax on insurance premiums where the tax is not designed for revenue. We reiterate that the charitable institution is not exempt from payment of a city license tax when it is enacted under the police power or when it is enacted for police or regulatory purposes.
Gray v. Methodist Episcopal Church, 272 Ky. 646, 114 S.W.2d 1141 (1938).
Thus there was no contradiction between the two quotes of OAG 84-5 and 84-169, as mentioned earlier. The line of demarcation as to the application or nonapplication of the city license tax to nonprofit and charitable institutions is drawn around the concept of the license tax being either a revenue measure or a police measure.