Request By:
Mr. William J. Baird, III
Attorney at Law
415 Second Street
P.O. Box 351
Pikeville, KY 41501
Opinion
Opinion By: Frederic J. Cowan, Attorney General; By: Patricia Todd Thomas, Assistant Attorney General
As counsel for the Pikeville Independent City School Board, you have presented a question as to whether the city school board and/or its tax collector can forgive a business or residence past due interest and/or penalty on past due and unpaid local school taxes prior to or after filing suit for collection. Upon review of applicable sections of the Kentucky Constitution and statutes, we conclude that neither the school nor the tax collector can abate past due interest or penalty on local school taxes paid prior to or after filing suit for collection of the unpaid taxes, penalty and interest.
KRS 160.601, et seq., governs the collection by the local boards of education of occupational tax, utility tax and excise tax which will be used for the benefit of the district. However, there is no statute in that section, nor any other applicable statutes, which allow a local board to remit or release a claim for taxes, interest or penalty, in whole or in part.
The General Assembly has the authority to grant a tax collecting officer the power to compromise or settle a tax claim. Demonstrative of this authority, KRS 131.010 permits the secretary of revenue to waive a penalty for reasonable cause for failure to file or pay tax to the Commonwealth. But even in that instance, the legislature expressly forbade the secretary to abate any amounts due the state in interest.
In City of Louisville v. Louisville Railway Co., 111 Ky. 1, 63 S.W. 14 (1901), the Kentucky Court of Appeals discussed in depth whether certain city taxes could be released. In holding that neither the city nor its officers could abate tax claims, the court compared Section 52 of the Kentucky Constitution to similar provisions in several other states. Section 52 reads:
The general assembly shall have no power to release, extinguish or authorize the releasing or extinguishing, in whole or in part, of the indebtedness or liability of any corporation or individual to this Commonwealth or to any county or municipality thereof.
The court found that it was clear under Section 52 that, "there is no authority given to the general council of a city to release in whole or part the taxes due from any individual or corporation," at 19. This decision was partially based upon the case law of other states which held that the constitutional provisions similar to Section 52 would not allow abatement of taxes due.
Additional insight may be gleaned from review of the holding of the Supreme Court of California in San Bernardino County v. Way, Cal., 117 P.2d 354 (1941). The issue was whether certain taxes may be abated in light of California's constitutional provision requiring "all property in the state shall be taxed in proportion to its value." The court held it was not debatable that that section of the constitution permitted remission of taxes because it was clear under this section the releasing of a claim for taxes would be unconstitutional. Such abatement would tend to promote tax delinquency and would result in great uncertainty in the collection of revenues. As a result, the entity which would be the ultimate recipient of the tax dollars would be unable to prepare an appropriate budget for any year until the tax monies were received. The similarity of the California provision and Section 171 of the Kentucky Constitution is obvious. Section 171 reads:
Taxes shall be levied and collected for public purposes only and shall be uniform upon all property of the same class subject to the taxation within the territorial limits of the authority levying the tax; and all taxes shall be levied and collected by general laws.
Therefore, the allowance of a settlement or compromise of interest and penalties which have accrued to taxes owed a school district would be a circumvention of the provisions of Section 171. The result of the settlement or reduction would be that the property for which the tax was reduced would have been taxed at a different rate which would be determined only upon the negotiating skills of the parties involved.
In our opinion, the Kentucky Constitution, Section 184, disallows the abatement of taxes, interest and penalty owed the school district. That section of the Kentucky Constitution provides:
Any sum which may be produced by taxation . . . for purposes of the common school fund shall be appropriated to the common schools and to no other purpose.
Those amounts accruing pursuant to Section 184 include penalties and interest. That entire amount must then be used for the purposes of the common school fund. Any settlement of those claims for taxes owed, including interest and penalties, would be a diversion of school fund monies for a purpose other than that of the common schools.
The review of the applicable statutes also supports the conclusion that no abatement or settlement should be made of interest and penalties owed a school district. The rate of interest and penalty which applies to school taxes is established by KRS 160.648(2) and KRS 92.590. The section which provides the rate of penalty reads:
Any person, individual, or corporation who fails to pay, on or before the due date, any school tax authorized by KRS 160.605 to 160.611, 160.613 to 160.617, and 160.621 to 160.633 and levied by the district board of education shall pay a penalty of one percent (1%) per month of the amount of such tax past due until paid.
KRS 160.648(2), emphasis added. As you will note, the statute is not written in a permissive form but requires the payment of the penalty which has accrued at a rate of one percent per month until the taxes have been paid. The rate of interest due on unpaid school taxes, established by KRS 92.590, also clearly requires interest shall be paid. (The rate of interest and the due dates are provided in that statute and differ as to the class of the taxing city.)
For your additional information, you may wish to review Board of Education of Paducah v. City of Paducah, 261 Ky. 549, 88 S.W.2d 292 (1935), which required the city tax collector to be liable to the school board for taxes, interest and penalties collected. Also of interest is City of Pineville v. Board of Education of Pineville Independent School District, 272 Ky. 636, 114 S.W.2d 1088 (1938), which held penalties and interest on school taxes are to be funds belonging to the board of education just the same as those taxes which have been assessed and levied to it for the school board's benefit. Neither of these cases discusses your actual question; however, they do establish that interest and penalties belong to the local school district in the same manner as the taxes.
I hope this has been of assistance to you.