Dep't of Revenue, Finance & Admin. Cabinet v. Cox Interior, Inc.

• Citation: 400 S.W.3d 240
• Decision Date: 20 June 2013
• Docket Number: No. 2010–SC–000794–DG.,2010–SC–000794–DG.
• Parties: DEPARTMENT OF REVENUE, FINANCE AND ADMINISTRATION CABINET, Commonwealth of Kentucky, Appellant v. COX INTERIOR, INC., Appellee.
• Court: United States State Supreme Court (Kentucky)

400 S.W.3d 240

DEPARTMENT OF REVENUE, FINANCE AND ADMINISTRATION CABINET, Commonwealth of Kentucky, Appellant

v.COX INTERIOR, INC., Appellee.

No. 2010–SC–000794–DG.

Supreme Court of Kentucky.

June 20, 2013.

Douglas M. Dowell, Counsel for Appellant.

Steven Lowell Lenarz, James Lee Deckard, Lexington, Michael David Kalinyak, Counsel for Appellee.

Deborah Tully Eversole, Timothy Joseph Eifler, Louisville, Counsel for Amicus Curiae Bluegrass Institute for Public Policy Solutions, Inc.Jennifer Yue Barber, Mark Francis Sommer, Louisville, Counsel for Amicus Curiae Kentucky Chamber of Commerce, Inc., and National Federation of Independent Business.

Opinion of the Court by Justice ABRAMSON.

The Department of Revenue audited Cox Interior, Inc., for the period 2001 through 2004 and determined that Cox Interior owed $151,943.51 in ad valorem taxes on tangible personal property. Cox Interior paid the full amount without protest and months later filed a refund claim for a portion of the taxes, alleging it had overpaid because the Department had improperly classified certain machinery. The Department denied the refund claim because Cox Interior paid without protest. The Kentucky Board of Tax Appeals (KBTA), ruling in favor of the taxpayer, reversed, and both the Franklin Circuit Court and the Court of Appeals affirmed.

We granted the Department's motion for discretionary review to consider the requirements a taxpayer must satisfy when seeking a refund of tangible personal property taxes under Kentucky Revised Statute (KRS) 134.590 in light of our recent decision in Cromwell Louisville Associates, LP v. Commonwealth, 323 S.W.3d 1 (Ky.2010). In Cromwell, we held that a taxpayer's compliance with administrative remedies by properly protesting a real property assessment was a condition precedent to seeking a tax refund. Because Cox Interior properly followed the appropriate administrative remedies in this case, we affirm the decision of the Court of Appeals.

FACTUAL AND PROCEDURAL BACKGROUND

The facts of this case are undisputed. In 2006, the Department audited Cox Interior's compliance with ad valorem tax laws for tangible personal property for the tax years 2001 through 2004. The Department determined that Cox Interior had omitted certain tangible personal property from its tax returns during the relevant years, resulting in a bill of $151,943.51. Cox Interior did not protest the new assessments and, in March 2006, paid them in full with the exception of the assessed penalties, which the Department waived.

Cox Interior later determined that the Department's audit improperly listed manufacturing machinery on the non-manufacturing schedule of the return. This was important because manufacturing machinery is subject to a more favorable tax rate than non-manufacturing machinery and is exempt from local tax. Because of this discovery, Cox Interior filed for a refund under KRS 134.590 in July 2007, sixteen months after it had fully paid the new assessments from the Department's audit. Cox Interior alleged that the Department improperly assessed $44,717 in tangible property taxes. The Department denied Cox Interior's refund claim strictly on procedural grounds, stating that Cox Interior had failed to follow the applicable administrative procedure. The Department contended that Cox Interior had to protest the assessment pursuant to KRS 131.110 within forty-five (45) days of receiving notice of the tax due in order to preserve its right to a refund.

Cox Interior appealed the Department's final ruling to the KBTA, following proper procedure under KRS 131.110 and 131.340. Cox Interior stressed that it had fully complied with KRS 134.590 and the relevant administrative procedures for a tax refund. The Department disagreed and moved for summary judgment, again arguing that Cox Interior was required to protest the assessment before paying the taxes in order to have a valid claim for a refund. Ruling in favor of Cox Interior, the KBTA relied heavily on Revenue Cabinet v. Castleton, 826 S.W.2d 334 (Ky.App.1992), and concluded that the refund claim was timely filed and was not waived by Cox Interior's failure to protest the Department's audit assessment.

The Department appealed to the Franklin Circuit Court. The Franklin Circuit Court, also relying primarily on Castleton, agreed with the KBTA and held that Cox Interior had properly exhausted administrative remedies. Further, the Franklin Circuit Court noted that the Department's view of KRS 134.590 was improper and erected unnecessary procedural obstacles to Cox Interior's obtaining a refund. The circuit court concluded that requiring Cox Interior to protest the assessment in order to preserve the right to file a refund claim exceeded what the doctrine of exhaustion of administrative remedies can or should require.

The Department appealed and, consistent with the KBTA and the circuit court, the Court of Appeals found Castleton to be controlling and held that Cox Interior was not required to protest the assessment in order to preserve the claim for a refund. Rather, the Court of Appeals found that Cox Interior fully complied with KRS 134.590 by submitting its refund claim within two years and then protesting the Department's denial of that refund claim. The Court of Appeals noted that the Department's reading of KRS 134.590 would require Cox Interior to exhaust not one, but two administrative remedies.

We granted discretionary review because of an alleged conflict between Cromwell and the decision of the Court of Appeals in the present case. ¹ Finding the Court of Appeals decision consistent with both Cromwell and our reading of KRS 134.590, we affirm.

ANALYSIS

Because the facts are undisputed, this is a case of statutory interpretation; specifically, the interpretation of KRS 134.590(2) and the steps' a taxpayer must take to receive a refund from the Department. Statutory interpretation raises pure questions of law, so our review is de novo, meaning we afford no deference to the decisions below. Commonwealth v. Love, 334 S.W.3d 92, 93 (Ky.2011).

In Shawnee Telecom Resources, Inc. v. Brown, 354 S.W.3d 542, 551 (Ky.2011), we stated the rules of statutory construction as follows:

In construing statutes, our goal, of course, is to give effect to the intent of the General Assembly. We derive that intent, if at all possible, from the language the General Assembly chose, either as defined by the General Assembly or as generally understood in the context of the matter under consideration. Osborne v. Commonwealth, 185 S.W.3d 645 (Ky.2006). We presume that the General Assembly intended for the statute to be construed as a whole, for all of its parts to have meaning, and for it to harmonize with related statutes. Hall v. Hospitality Resources, Inc., 276 S.W.3d 775 (Ky.2008); Lewis v. Jackson Energy Cooperative Corporation, 189 S.W.3d 87 (Ky.2005). We also presume that the General Assembly did not intend an absurd statute or an unconstitutional one. Layne v. Newberg, 841 S.W.2d 181 (Ky.1992).

Thus, where the meaning is plain we are to apply a statute as written, give meaning to all parts of the statute and avoid absurd results. With those rules in mind, we examine the statute before us, stopping first to examine the assessment protest procedure which the Department maintains is preliminary to obtaining a tax refund.

I. THE ASSESSMENT–PROTESTING TAXPAYER.

As discussed below, Kentucky law has long recognized a distinction between ad valorem tax protests challenging the assessor's valuation of the taxed property and refund claims challenging the legality of the assessed tax. Because the Department's reading of KRS 134.590 would, in effect, do away with that distinction, it is helpful, before turning to the ad valorem tax refund statute at the center of this dispute, to understand the tax protest process. The expedited procedure available to taxpayers comes from KRS 132.486, which, in conjunction with KRS 131.110, provides for appeals of issues related to the assessed value of taxable personal property.² Under this procedure, the taxpayer, having been notified of the tax, has forty-five (45) days in which to pay any uncontested amount thereof and to file a written protest with the Department concerning the balance. As the statute states, “[t]he taxpayer shall pay all ... taxes due on the valuation which the taxpayer claims as the true value....” KRS 132.486(3) (emphasis supplied). Notably, the tax notice issues, not from the local property valuation administrator (PVA), but from the Department which is charged with developing and administering “a centralized ad valorem assessment system for tangible personal property.” KRS 132.486(1). If not satisfied with the Department's final ruling, the taxpayer may appeal to the Kentucky Board of Tax Appeals. KRS 131.110. Although resort to the courts may be had following a ruling by the Board, KRS 131.340, KRS 131.370, this procedure is meant to be relatively informal and expeditious. Moreover, “[w]hen the valuation is finally determined upon appeal, the taxpayer shall be billed for any additional tax and interest at the tax interest rate ... from the date the tax would have become due if no appeal had been taken.” KRS 132.486(3) (emphasis supplied). All of the aforementioned statutes regarding personal property tax assessments, protests and appeals are contained in KRS Chapter 131 entitled “Department of Revenue” or KRS Chapter 132 entitled “Levy and Assessment of Property Taxes.” For ease of reference, the taxpayer who follows this assessment protest route will be referred to hereafter as the “Assessment–Protesting Taxpayer.”

II. KRS 134.590—THE REFUND–SEEKING TAXPAYER.

The focal point of this case is KRS 134.590, the refund statute applicable to ad valorem taxes and those held unconstitutional and, not surprisingly, it is in a separate chapter, KRS Chapter 134, entitled “Payment, Collection and Refund of Taxes.” KRS 134.590 provides in relevant...