Request By:
Richard A. Brueggemann, Esq.
Hemmer Pangburn DeFrank PLLC
Opinion
Opinion By: Jack Conway, Attorney General; James M. Herrick, Assistant Attorney General
Opinion of the Attorney General
Attorney Richard A. Brueggemann, on behalf of Boone County Property Valuation Administrator Cindy Rich and Boone County Fiscal Court Commissioner Cathy Flaig, has requested an opinion from the Attorney General, pursuant to KRS 15.025(3), as to the proper method of calculating real property tax rates under KRS 132.010. This office has received and considered comments from the Boone County Judge/Executive, the Department for Local Government, the Department of Revenue, and the Kentucky Association of Counties.
KRS 68.245(6)(a) provides that a property tax rate levied by a county fiscal court is subject to a recall vote to the extent that it "will produce revenue from real property, exclusive of revenue from new property, more than four percent (4%) over the amount of revenue produced by the compensating tax rate defined in KRS 132.010." The following definition is given in KRS 132.010(6):
"Compensating tax rate" means that rate which, rounded to the next higher one-tenth of one cent ($ .001) per one hundred dollars ($ 100) of assessed value and applied to the current year's assessment of the property subject to taxation by a taxing district, excluding new property and personal property, produces an amount of revenue approximately equal to that produced in the preceding year from real property. However, in no event shall the compensating tax rate be a rate which, when applied to the total current year assessment of all classes of taxable property, produces an amount of revenue less than was produced in the preceding year from all classes of taxable property. For purposes of this subsection, "property subject to taxation" means the total fair cash value of all property subject to full local rates, less the total valuation exempted from taxation by the homestead exemption provision of the Constitution and the difference between the fair cash value and agricultural or horticultural value of agricultural or horticultural land.
Pursuant to KRS 68.245(6)(a), this "compensating tax rate" is the rate which the fiscal court cannot exceed by more than four percent without triggering the right to a recall petition.
The questions presented by Mr. Brueggemann's clients relate to the method of calculating the compensating tax rate. Specifically, they ask:
(i) Is it proper, under any circumstances, to include assessments of personal property in with the current year assessments of real property when calculating the compensating tax rate applicable to real property under KRS § 132.010(6)? Put more simply, should assessments on personal property even be a part of the equation? And, if the answer to (i) is other than no in all cases:
(ii) When the personal property tax rate is greater than the real property tax rate (hereinafter referred to as a "Rate Disparity"), the current practice is to combine all assessments (real and personal) but to use only real property rates in calculating the compensating tax rate. This process has been called the Minimum Revenue Limit Test (the "MRL Test"). When there is Rate Disparity, the current application of the MRL Test results in a false indication that "an amount of revenue less than was produced in the preceding year" will occur. The rate is then adjusted upward. Is it proper to ignore the personal property tax rate in the MRL Test when the MRL Test includes assessments of personal property?
(Emphasis omitted.) We are aware of no previous court decisions or opinions of this office which have directly addressed these questions.
We must begin, as always, with a plain reading of the express language of the statute, "rather than surmising what may have been intended but was not expressed."
Flying J Travel Plaza v. Com., Transportation Cabinet, Dept. of Highways, 928 S.W.2d 344, 347 (Ky. 1996). KRS 132.010(6) mandates a two-step process for calculating the compensating tax rate. The first and second sentences of the definition represent, respectively, the first and second steps in the process. The first step consists of identifying the rate which would yield approximately the same revenue from the current assessed value of real property (excluding new property) as was produced from the real property in the previous year. That rate is rounded up to the next higher tenth of a cent per one hundred dollars.
In the second step, the rate obtained in the first step is "applied to the total current year assessment of all classes of taxable property" to determine the amount of revenue it produces. If that resulting amount is less than the revenue produced in the previous year "from all classes of taxable property, " then the compensating tax rate must be adjusted upward until the revenue is no longer less than that produced in the previous year. This higher rate is generally known as the "substitute rate." This substitute rate then becomes the compensating tax rate.
The compensating tax rate is computed and certified for each of Kentucky's 120 counties by the state local finance officer 1 by June 30 of each year, pursuant to KRS 68.245(3)(a), after the PVA has submitted an official estimate of property assessments as required by KRS 68.245(1). On the basis of that computation, the rate which will produce only four percent more revenue from real property than the compensating tax rate is also calculated and certified to each county by the state local finance officer pursuant to KRS 68.245(3)(b). Counties are free to levy the compensating tax rate without restrictions. KRS 68.245(2). If they levy a rate that exceeds the compensating tax rate by four percent or less, they must follow notice and hearing requirements contained in KRS 68.245(5). Any levy of more than four percent above the compensating tax rate, under the terms of KRS 68.245(6)(a), is subject to a recall petition as provided in KRS 132.017. 2
At this stage, we have essentially answered Mr. Brueggemann's two questions presented. With regard to the first question, it is proper to include personal property in calculating the compensating tax rate when KRS 132.010(6) requires the inclusion of "all classes of taxable property" ; that is, in the second step of the process. As for the second question, it is indeed proper to "ignore" the personal property tax rate when KRS 132.010(6) requires the calculation of a rate based on real property alone; that is, in the first step. We turn, however, to the objections Mr. Brueggemann's clients raise to this procedure.
Mr. Brueggemann urges that we should recognize a distinction between the "substitute rate" and what he calls the "true" compensating tax rate, i.e., the rate used in the first step of the two-step calculation of the compensating tax rate. He suggests that when the personal property tax rate is higher than the real property tax rate, the second step in calculating the compensating tax rate gives a "false" result which leads to a loss of the recall rights provided in KRS 68.245(6)(a). In response to this, we can only say that the "true" compensating tax rate is the rate arrived at when the complete analysis required by the definition of "compensating tax rate" has been implemented. This includes the second step, i.e., the application of the substitute rate, whenever the statutory conditions warrant.
Mr. Brueggemann proposes a construction of the law that would trigger the recall rights in KRS 68.245(6)(a) whenever the real property tax rate exceeded the previous year's real property tax rate by more than four percent. In effect, he contends that the second step of the two-step process, which involves the use of the substitute rate, should be ignored because the actual intent of the legislature is to allow a recall vote whenever real property tax rates exceed the prior year's rates by more than four percent.
The problem with this construction of KRS 68.245(6)(a) is that it attaches no meaning to the General Assembly's reference in that subsection to the "compensating tax rate. " Instead of the compensating tax rate, the legislature under Mr. Brueggemann's interpretation should simply have referred to the previous year's real property tax rate. Yet it did not do so. Therefore, there is nothing to indicate that the Legislature intended to enact what he describes simply as "a 4% limit on rate increases." 3
Similarly, as applied to KRS 132.010(6), Mr. Brueggemann's construction would effectively require us to rewrite the second sentence of the definition of "compensating tax rate" so as to make "all classes of taxable property" read "real property" instead. The first sentence of KRS 132.010 shows that the General Assembly was entirely capable of excluding personal property, or referring only to "real property, " had it wished to do so. Therefore, if any understanding of the meanings of words is to be attributed to the General Assembly, we cannot consider the proposed interpretation a reasonable one.
Mr. Brueggemann's clients invoke the Attorney General's 1980 opinion which stated that that there was "a legislative intent that only revenue from real property comes within House Bill 44 limitations" because "[p]ersonal property and new property are specifically excluded from the definition of 'compensating tax rate. '" OAG 80-545, p. 3. In fact, the term "House Bill 44 limitations" refers to the four-percent limit under KRS 68.245. Therefore, the conclusion we drew in OAG 80-545 was that only real property tax rates, and not personal, were subject to the recall provision. We then referred only to the first sentence of KRS 132.010(6), not to the second, and did so strictly for an interpretive guide to the scope of KRS 68.245. Nowhere in OAG 80-545 did we opine that personal property should not be included in the calculation of the compensating tax rate where KRS 132.010(6) expressly requires the consideration of "all classes of taxable property. "
In this case, we believe the language of KRS 132.010(6) and KRS 68.245(6)(a) is so unambiguous that a resort to principles of statutory construction is unnecessary. Cf.
Autozone, Inc. v. Brewer, 127 S.W.3d 653, 655 (Ky. 2004) ("generally a statute is open to construction only if the language that is used is ambiguous and requires interpretation"). Yet, even if construction were necessary, we would have to observe that a statute cannot be construed so as to render its express terms inoperative.
General Motors Corp. v. Book Chevrolet, Inc., 979 S.W.2d 918, 919 (Ky. 1998) ("a statute should be construed so that no part of it is meaningless or ineffectual"). Furthermore, the Department for Local Government indicates that it has calculated the compensating tax rate according to this same method for thirty years. "Great deference is always given to an administrative agency in the interpretation of a statute which is within its specific province."
Com. ex rel. Beshear v. Kentucky Utilities Co., 648 S.W.2d 535, 537 (Ky. App. 1982).
Lastly, Mr. Brueggemann argues that the definition of "compensating tax rate, " if taken as written, is "special legislation" in violation of Section 59 of the Kentucky Constitution because it affects similarly situated taxpayers differently based on whether they live in a county or other taxing district where the personal property tax rate is higher than the real property rate. But any such differences do not proceed from classifications made by KRS 132.010(6); rather, they are the result of decisions made by the county fiscal courts or other local taxing authorities. 4 Accordingly, there is no constitutional infirmity in the statute. Moreover, in the context of municipalities, we concluded in OAG 60-807 that there was no constitutional or statutory prohibition against different tax rates applying to real and personal property. 5 We therefore do not find a literal construction of KRS 132.010(6) unconstitutional.
Conclusion
The recall provisions of KRS 68.245(6) are not triggered when a real property tax rate exceeds the previous year's rate by more than four percent, unless the rate also exceeds, by more than four percent, the compensating tax rate as defined in KRS 132.010(6). In calculating the compensating tax rate, personal property must be included when applying a rate to "all classes of taxable property" to determine whether use of a "substitute rate" is required.
Footnotes
Footnotes
1 Pursuant to KRS 68.001, the state local finance officer is the commissioner of the Department for Local Government or his agent.
2 The same is true for cities pursuant to KRS 132.027 and for special taxing districts pursuant to KRS 132.023.
3 The Department for Local Government points out that under certain economic circumstances it is possible, even without the use of the substitute rate, for the compensating tax rate to represent more than a four percent increase over the prior year's real property tax rate.
4 For the same reason, the suggestion that this arrangement violates KRS 68.245 implicitly goes against our opinion in OAG 80-545 that counties are free to establish separate tax rates for real and personal property.
5 Although OAG 60-807 did not specifically address Section 59 of the Constitution, it was addressing a broadly phrased question as to whether such a rate differential was legal.