George v. Scent

• Decision Date: 21 April 1961
• Citation: 346 S.W.2d 784
• Parties: William A. GEORGE, Appellant, v. William E. SCENT, Commissioner, Department of Revenue, Commonwealth of Kentucky, et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 784

346 S.W.2d 784

William A. GEORGE, Appellant, v. William E. SCENT, Commissioner, Department of Revenue, Commonwealth of Kentucky, et al., Appellees.

Court of Appeals of Kentucky.

April 21, 1961.

As Modified on Denial of Rehearing June 23, 1961.

Stanley B. Mayer, Louisville, for appellant.

John Breckinridge, Atty. Gen., Wm. S. Riley, Hunter B. Whitesell, Asst. Attys. Gen., for appellees.

STANLEY, Commissioner.

This action by William A. George, as a class representative, against the Commissioner of Revenue and the Attorney General, seeks a judgment declaring rights and determining the scope and effect of the 1960 Act of the General Assembly called the 'Veterans' Bonus Sales and Use Tax Law' with respect to taxes on the sale or use of motor vehicles upon which a similar tax has been paid to another state.

The Act, Chapter 5, Acts of 1960, has six articles and many sections and subsections. Article I is a new and complete general Gross Receipts or Sales Tax statute (now Chapter 139, Ky.Rev.Stats.). Article II amended the existing motor vehicle usage tax statute (KRS 138.460 et seq.). Article III practically rewrote the Income Tax Statute (Chapter 141, KRS). Article IV repealed the Utilities Receipts Tax (KRS 136.240) and amended various sections relating to license taxes (KRS 137.030 et seq.). Article V appropriated money for use by the Department of Revenue. Article VI contained a severability clause, declared an emergency and postponed the effective dates of several provisions of the Act.

Another lengthy and comprehensive Act, Chapter 186, also amended and added a number of provisions to the revenue statute, some of which relate to motor vehicles. Article I, §§ 19, 28, Article IV, § 3, post. Both of these Acts (Ch. 5 and Ch. 186) amended KRS 138.460, concerning the motor vehicle usage tax.

The appellant, while a resident of Michigan, bought an automobile in that state in March, 1960, paid a three percent sales and use tax thereon and registered the car in that state. Subsequently, upon becoming a resident of Kentucky, in August, 1960, he sought registration and licensing of the car as required by KRS 138.460. The clerk refused to register it or issue a license because the appellant declined to pay the Kentucky usage tax on the car.

The trial court recognized the difficulty of determining the legislative intent of the 1960 Act in some respects, but construed the law as exacting the usage tax, holding that the previous payment by the plaintiff of the Michigan tax was immaterial. The court further declared the Act did not violate the Federal or State Constitutions.

The questions are: (1) the proper construction of the statutes in their application to such transactions; and, if the court should determine that payment of the use tax is required, (2) the constitutional validity of the application, which is challenged on the ground that it offends the equality clauses of the Federal and State Constitutions, that is, on the ground of discrimination.

Article I, § 4, paragraph (1), of the Act of 1960, c. 5 defines 'Gross receipts' as meaning 'the total amount of the sale, lease or rental price, as the case may be, of 'retail sales' or 'sales at retail', valued in money, whether received in money or otherwise, without any deduction on account of any of the following:' (Enumeration omitted.) Paragraph (3) of the section says "Gross receipts' do not include any of the following: * * * (f) The sales price of any motor vehicle (including those defined under KRS 189.010(5) and 189.010(10), ¹ which has never been registered in Kentucky.'

Article I, § 20, imposes a tax of three percent of the gross receipts derived from retail sales after June 30, 1960.

Section 31 reads:

'An excise tax is hereby imposed on the storage, use or other consumption in this state of tangible personal property purchased on or after July 1, 1960, for storage, use or other consumption in this state at the rate of three percent of the sales price of the property.' (Emphasis added.)

Section 72 reads 'The tax levied by Section 31 of this Article shall not opply with respect to the storage, use or other consumption of tangible personal property in this state upon which a tax substantially identical to the tax levied under Section 20 of this Article (not including any special excise taxes such as are imposed on alcoholic beverages, cigarettes and the like) equal to or greater than the amount of tax imposed by Section 31 of this Article has been paid in another state. Proof of payment of such tax shall be according to rules and regulations of the department. If the maount of tax paid in another state is not equal to or greater than the amount of tax imposed by Section 31 of this Article, then the taxpayer shall pay to the department an amount sufficient to make the tax paid in the other state and in this state equal to the amount imposed by Section 31 of this Article. No credit shall be given under this section for sales taxes paid in another state if that state does not grant credit for sales taxes paid in this state.' (Emphasis added.)

Here is a broad exclusion from the excise tax of all tangible personal property to be used in this state if a similar tax has been paid in another state. The term, of course, includes motor vehicles.

A 'grandfather clause' in Article VI, § 2, indicates an intention that all provisions of Article I relate to motor vehicles. It reads:

'Nothing contained in Articles I, II, or IV of this act shall affect any liability for motor vehicle usage taxes, utility gross receipts taxes, or retail occupational license taxes arising out of the registration or use of motor vehicles, * * * if such sale, registration or use, * * * occurred or was transacted prior to July 1, 1960.' (This section was omitted from the publication in the Revised Statutes.)

As above stated, Article II amended the existing motor vehicle usage tax statute. It had been enacted in 1936 (3rd Extra Session, Ch. 14) in part substitution of general sales taxes imposed in 1934 (Ch. 25, Acts, and Ch. 19, § 3, Acts of Special Session) which had been repealed at the 1936 regular session. Ch. 101, Acts of 1936. The statute, as it read before 1960, KRS 138.460, imposed on the use in this state of every motor vehicle a tax equal to three percent of its retail price. ² But there were expressly exempted (KRS 138.470) vehicles (1) sold to the United States, the State, a city or other political subdivisions, or to any charitable, religious or educational institution; '(2) Used motor vehicles registered or licensed in this state during the same or immediately preceding license period.'; '(3) Motor vehicles owned by a person bona fide domiciled in another state and used and licensed in that state by the owner during the same or immediately preceding license period.'; and (4) vehicles of public carriers upon which another tax had been paid.

Appellant's automobile would have been expressly exempted by subsection (3), above quoted. ³ But the 1960 Act, Ch. 5, Article II, amended KRS 138.470 by eliminating subsections (3) and (4) and changing subsection (1) to include only vehicles sold to the United States and to the State of Kentucky. Subsection (2), above quoted, was re-enacted in identical language. If this were all, there would be no trouble, for the elimination of subsection (3) may be regarded as evincing, prima facie, an intent to bring such used vehicles within reach of the tax tentacles after twenty-five years of exclusion. But this is not all. The other provisions in the new and extensive legislation cannot be ignored. From them it appears the Legislature failed to carry through the apparent purpose, singly manifested.

A recapitulation of the 1960 Act is that Article I excludes from its operation (1) vehicles never registered in Kentucky (§ 4, par. (3)(f); (2) the 'use' of all tangible personal property upon which a tax substantially the same has been paid in another state (§ 72); (3) and all transactions occurring prior to July 1, 1960 (§ 2, Art. VI). It defines the term 'use' as meaning 'the exercise of any right or power over tangible personal property incident to the ownership of that property, or by any transaction in which possession is given, except that it does not include the sale of that property in the regular course of business.' § 19. Article I also expressly excludes many specific sales and transactions, among which are those that the state is prohibited from taxing under the Constitution of the United States or of Kentucky, and gasoline or special fuels otherwise subject to similar taxation. §§ 46, 47, 48.

Ostensibly, such taxes are imposed upon the privilege of use of motor vehicles in the state. But, generally, a motor vehicle use tax is regarded as complementary of a general sales tax. 47 Am.Jur., Sales and Use Taxes, § 42; Notes 129 A.L.R. 230. As complementary, the statutes must be correlated. Indeed, the existing usage tax statute, KRS 138.450 et al. as amended was integrated with the 1960 general sales tax Act. It is true that the present and other like statutes are interchangeably denominated 'usage tax' or 'use tax.' But words are flexible. The substance rather than the form is to be considered. The end to be achieved is to subject the sale of motor vehicles to the prescribed tax, so a wider meaning should be given the word 'use' or 'usage.' This was certainly the meaning of our statute when it was enacted in 1936 as a limited sales tax. That statute, as does the present one, required the 'sales tax' to be paid by the seller, who may pass it on to the buyer. The 'use tax' is payable by the user or owner of the property in this state. See City of Covington v. State Tax Commission, 257 Ky. 84, 77 S.W.2d 386; Gray v. Methodist Episcopal Church, etc., 272 Ky. 646, 114 S.W.2d 1141. Because of their mobility, the use tax is a justifiable device to protect the revenue and local dealers from outside purchases of automobiles;...