Bob Hook Chevrolet Isuzu, Inc. v. Com. Transp. Cabinet, No. 97-SC-776-DG

• Court: Kentucky Supreme Court
• Writing for the Court: HUDDLESTON; LAMBERT; JOHNSTONE, J., files a separate opinion concurring in part and dissenting in part in which GRAVES; JOHNSTONE; GRAVES
• Citation: 983 S.W.2d 488
• Parties: BOB HOOK CHEVROLET ISUZU, INC., Appellant, v. COMMONWEALTH of Kentucky, TRANSPORTATION CABINET, Appellee.
• Docket Number: No. 97-SC-776-DG
• Decision Date: 19 November 1998

Page 488

983 S.W.2d 488 BOB HOOK CHEVROLET ISUZU, INC., Appellant,
v.
COMMONWEALTH of Kentucky, TRANSPORTATION CABINET, Appellee. No. 97-SC-776-DG. Supreme Court of Kentucky. Nov. 19, 1998.
Rehearing Denied Feb. 18, 1999.

Page 489

David H. Vance, Dandridge F. Walton, Walton & Vance, Frankfort, for Appellant.

Thomas G. Karageorge, Borowitz & Goldsmith, PLC, Louisville, for Appellee.

Timothy J. Eifler, Thomas M. Williams, Ogden Newell & Welch, Louisville, for Amicus Curiae, Greater Louisville Auto Dealers Association, Inc.

OPINION OF THE COURT

This Court granted discretionary review and upon due consideration of the briefs filed herein and after having heard oral argument, has determined that the Opinion of the Court of Appeals rendered on July 18, 1997, adequately represents our view. Accordingly, we hereby adopt the Opinion of the Court of Appeals and reproduce it in full herein:

BEFORE: HUDDLESTON, JOHNSON and KNOPF, Judges.

HUDDLESTON, JUDGE. Bob Hook Chevrolet Isuzu, Inc. (Hook Chevrolet) appeals a Franklin Circuit Court judgment which upheld a ruling of the Kentucky Board of Tax Appeals (Tax Board) that the Commonwealth of Kentucky, Transportation Cabinet (Cabinet) correctly assessed

Page 490

taxes owing by Hook Chevrolet for various motor vehicles and other transactions it contends were covered by a "U-drive-it" permit. Ky.Rev.Stat. (KRS) 281.014(4). ¹

The Cabinet conducted an audit of Hook Chevrolet covering the period from January 1, 1987 through March 30, 1990, concerning its practices under a "U-drive-it" permit. As a result of the investigation, the Cabinet assessed $19,753.39 in taxes and interest ² due to the Commonwealth.

The facts and issues in the dispute between Hook Chevrolet and the Cabinet are not in question. Hook Chevrolet has designated 25 vehicles for use as customer courtesy vehicles. Hook Chevrolet insists that this practice is valid under its "U-drive-it" permit. The Cabinet argues otherwise.

The second issue involves the Cabinet's power to assess a tax for missing records under the "U-drive-it" permit. Hook Chevrolet argues that no tax should have been levied because it explained that these records most likely represented transactions that had been voided for some reason or another.

The final issue concerns the propriety of the Cabinet's assessment of usage tax for lease payments either not reported by Hook Chevrolet or payments which were misreported. Hook Chevrolet asserts that it paid the usage tax on all amounts that it actually received from its customers and that, under the applicable statutes, this is the amount from which the tax is correctly determined.

As an initial matter, we note that the standard of review of decisions from the Tax Board, previously set forth in KRS 131.370(4), is now found in KRS Chapter 13B. KRS 131.370(1). KRS 13B .150(1) limits a court to reviewing the record from the administrative agency unless there is an allegation of fraud or misconduct involving a party. The standard of review appears in KRS 13B.150(2):

The court shall not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact. The court may affirm the final order or it may reverse the final order, in whole or in part, and remand the case for further proceedings if it finds the agency's final order is:

(a) In violation of constitutional or statutory provisions;

(b) In excess of the statutory authority of the agency;

(c) Without support of substantial evidence on the whole record;

(d) Arbitrary, capricious, or characterized by abuse of discretion;

(e) Based on an ex parte communication which substantially prejudiced the rights of any party and likely affected the outcome of the hearing;

(f) Prejudiced by a failure of the person conducting a proceeding to be disqualified pursuant to KRS 13B.040(2); or

(g) Deficient as otherwise provided by law.

This section of the statute codifies in one location the varying grounds for review of an administrative decision already recognized in Kentucky jurisprudence. See Ky. Const. § 2; Reis v. Campbell County Bd. Of Educ., Ky., 938 S.W.2d 880, 885 (1996); American Beauty Homes Corp. v. Louisville And Jefferson County Planning And Zoning Comm'n, Ky., 379 S.W.2d 450, 456 (1964); Epsilon Trading Co., Inc. v. Revenue Cabinet, Ky.App., 775 S.W.2d 937, 940 (1989); Bunch v. Personnel Bd., Commonwealth Of Kentucky, Ky.App., 719 S.W.2d 8, 10 (1986); Revenue Cabinet v. Moors Resort, Inc., Ky.App., 675 S.W.2d 859, 862 (1984).

In the present case the questions to be answered deal with the interpretation of statutes. The construction and application of statutes is a matter of law and may be reviewed de novo. The essential thrust of Hook Chevrolet's arguments on appeal is that the Tax Board misapplied the law to

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the facts. This has been recognized as a matter which is reviewed de novo. Reis, supra at 886; Epsilon, supra at 940.

Our starting point is the term "U-drive-it." KRS 281.014(4) defines this term as meaning one who:

[L]eases or rents a motor vehicle for a consideration to be used for the transportation of persons or property, but for which no driver is furnished, and the use of which motor vehicle is not for the transportation of persons or property for hire by the lessee or rentee. ³

As the holder of a "U-drive-it" permit, Hook Chevrolet has the option of paying one of two taxes. KRS 138.463(1) provides that the permittee "may pay a usage tax of five percent (5%) levied upon the amount of the gross rental or lease charges paid by a customer or lessee renting or leasing a motor vehicle from such holder of the permit." ⁴ Gross rental charges are defined in KRS 138.462(4) as the amount paid by a customer for time and mileage only. The statute also defines a lease as a contract supported by consideration. The Supreme Court has held that there is no ambiguity in assessing the usage tax upon gross rental and lease charges. Revenue Cabinet v. Budget Rent-A-Car Of Cincinnati,...