Request By:
James O. King
Louisville Metro Council President
Kenneth C. Fleming
Louisville Metro Councilman
Opinion
Opinion By: JACK CONWAY, ATTORNEY GENERAL; Matt James, Assistant Attorney General
Statutes construed : Ky. Const. § 181
OAGs cited: OAG 73-246, OAG 74-348, OAG 74-427, OAG 76-623, OAG 79-385, OAG 84-116, OAG 85-84, OAG 87-19
Opinion of the Attorney General
Louisville Metro Councilmen James O. King and Kenneth C. Fleming have requested an opinion of this office on whether a local option sales tax may be enacted without a constitutional amendment. They ask three questions:
(1) May the General Assembly establish a local option sales tax without a constitutional amendment?
(2) May local governments establish a local option sales tax under existing law without a constitutional amendment?
(3) Would the enactment of a local option sales tax by a municipality require a referendum for approval?
For purposes of this opinion, we define local governments as counties, towns, and cities, the relevant language of Ky. Const. § 181. At the request of this office, the Finance and Administration Cabinet and Kentucky League of Cities have provided their analysis. We advise that a local option sales tax is not consistent with Section 181 of the Kentucky Constitution as interpreted by the courts. Accordingly, local governments may not enact a local option sales tax, nor may the General Assembly delegate such power to them without a constitutional amendment.
Ky. Const. § 181 provides in relevant part:
The General Assembly shall not impose taxes for the purposes of any county, city, town or other municipal corporation, but may, by general laws, confer on the proper authorities thereof, respectively, the power to assess and collect such taxes. The General Assembly may, by general laws only, provide for the payment of license fees on franchises, stock used for breeding purposes, the various trades, occupations and professions, or a special or excise tax; and may, by general laws, delegate the power to counties, towns, cities and other municipal corporations, to impose and collect license fees on stock used for breeding purposes, on franchises, trades, occupations and professions. And the General Assembly may, by general laws only, authorize cities or towns of any class to provide for taxation for municipal purposes on personal property, tangible and intangible, based on income, licenses or franchises, in lieu of an ad valorem tax thereon?
Ky. Const. § 181 establishes that the General Assembly may not impose taxes for local governments, but may delegate the power to tax to them. It specifically provides that the General Assembly may delegate the power to impose occupational license taxes and ad valorem taxes to local governments.
Kentucky courts have repeatedly held that the two types of taxes specified in Ky. Const. § 181, license taxes and ad valorem taxes, are the only types of taxes that a local government may levy. "Ad valorem taxes and license taxes are the only kinds of taxes that a county may levy. " Driver v. Sawyer, 392 S.W.2d 52, 53 (Ky. 1965). See also City of Lexington v. Motel Developers, Inc., 465 S.W.2d 253, 254 (Ky. 1971) ("The legislature, which it is authorized to do under section 181 of the Kentucky Constitution, by KRS 92.280 and 92.281 granted cities? authority to impose license fees or taxes? this authority does not permit such cities to levy excise taxes" (citations omitted)); Wiedemann Brewing Co. v. City of Newport, Ky., 321 S.W.2d 404, 407 (Ky. 1959) ("except for ad valorem taxes and taxes 'on personal property, tangible and intangible, based on income, license or franchises, in lieu of an ad valorem tax thereon' (Const. § 181), cities are confined to 'license fees' as a source of revenue"); Lamar v. Board of Ed. of Hancock County School Dist. 467 S.W.2d 143, 146 (Ky. 1971) (quoting Driver ). We have repeatedly advised in accordance with these decisions. "This office has opined in the past that Section 181 of the Kentucky Constitution limits counties to two types of taxes--ad valorem property taxes and occupational license taxes." OAG 87-19 (citing OAG 73-246; OAG 74-348; OAG 74-427; OAG 76-623; OAG 79-385; OAG 84-116; OAG 85-84). If a local government is to levy a tax, it must be either a license tax or an ad valorem tax, and may not be an excise tax.
A local option sales tax is an excise tax. An excise tax is "a tax imposed on the manufacture, sale, or use of goods? or on an occupation or activity." Black's Law Dictionary (9th ed. 2009). While a license tax is a form of excise tax, Ky. Const. § 181 has not been interpreted to permit excise taxes generally.
We have recognized that a license tax is an excise tax. As the Chancellor aptly observed, in substance a true license tax is a permissible form of excise tax which cities may be authorized to levy under section 181 of the Kentucky Constitution. It is apparent that the drafters of the document, when in effect denying cities the right to impose an 'excise' tax, were not using the term in the broad sense which would encompass a license tax, but were using it in the narrower sense to characterize a tax upon a transaction involving the sale, use or transfer of property.
Motel Developers, 465 S.W.2d at 255 (citations omitted); see also C. C. C. Coal Co., Inc. v. Pike County, 536 S.W.2d 467, 468 (Ky. 1976) ("we have consistently held that the General Assembly cannot delegate to a subordinate unit of government the power to levy an excise tax (other than license fees) "). Since a local option sales tax is a tax on the sale of goods, and is not a license tax, it is an impermissible excise tax under Ky. Const. § 181. 1
Accordingly, we advise that local governments may not enact a local option sales tax, nor may the General Assembly delegate such power to them without a constitutional amendment.
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