Inter-County Rural Elec. Co-op. Corp. v. Reeves

• Decision Date: 26 March 1943
• Parties: INTER-COUNTY RURAL ELECTRIC CO-OPERATIVE CORPORATION v. REEVES, Com'r of Revenue, et al.
• Court: Kentucky Court of Appeals

171 S.W.2d 978

294 Ky. 458

INTER-COUNTY RURAL ELECTRIC CO-OPERATIVE CORPORATION v. REEVES, Com'r of Revenue, et al.

Court of Appeals of Kentucky

March 26, 1943

Rehearing Denied June 22, 1943.

Appeal from Circuit Court, Franklin County; W. B. Ardery, Judge.

Action under Civil Code Practice, § 639a--1 et seq., by Inter-County Rural Electric Cooperative Corporation against H. Clyde Reeves, Commissioner of Revenue, and others, for a declaration of plaintiff's right to exemption from taxation. From an adverse judgment, the plaintiff appeals.

Affirmed.

E. C Newlin, of Danville, H. W. Alexander, of Owenton, and J Smith Barlow, Jr., of Bardstown, for appellant.

Hubert W. Meredith, Atty. Gen., M. B. Holifield, Asst. Atty. Gen for appellees.

John Francis Williamson, of Louisville, amicus curiae.

VAN SANT, Commissioner.

Appellant Inter-County Rural Electric Cooperative Corporation, is a non-profit corporation organized and operating under the provisions of KRS 279.010 to 279.990, inclusive. It has no capital stock and the rights and interests of each member of the corporation in respect to the property of the corporation and in respect to voting at membership meetings are equal. Any person may become a member upon payment of the membership fee, agreeing to purchase electric energy from the corporation, and agreeing to comply with the articles of incorporation, the by-laws, and the rules and regulations adopted by the board of directors; provided that no person may become a member except upon approval of the board of directors or a majority of the membership.

The corporation is the owner and operator of an electric distribution system including wires, poles, and other paraphernalia necessary and expedient to the distribution of electricity. The act provides that upon dissolution, the assets remaining after the payment of all liabilities and obligations shall be ratably distributed to the members of the corporation. KRS 279.180. It further provides (279.200) that a corporation organized under the act shall be exempt from taxation in the following language:

"Corporations formed under this chapter shall be exempt from all franchise taxes, profit taxes, gross and net taxes, sales taxes, occupation taxes, privilege taxes, income taxes, taxes on electric current consumed and from all excise taxes whatsoever, any statute now existing or hereafter passed to the contrary notwithstanding. In lieu of all other state, county, city and district taxes, corporations formed under this chapter shall pay to the State Treasurer an annual tax of ten dollars."

Conceiving the tax exemption provision to be in violation of the Constitution, the Commissioner of Revenue instructed appellant to file returns and schedules of its property and to pay taxes thereon in like manner and to the same extent required of other persons, firms, and corporations owning like property and rendering similar service, but who have not been organized under the Rural Electric Cooperative Corporation Act. Appellant then filed this action under section 639a--1 et seq. of the Civil Code of Practice petitioning the court for a declaration of its right to be, or not to be, exempt from taxation. The court was asked specifically to determine: (1) Whether appellant's property is "public property used for public purposes" within the purview of Section 170 of the Constitution of Kentucky: (2) Whether Section 27 of the Rural Electric Cooperative Act (the tax exemption provision) violates any of the provisions of the Constitution of Kentucky, in particular Sections 3, 59, 170, 171, 172, 174, 181, or 181a thereof; (3) Whether appellant's property, if subject to taxation at all, is subject to the ad valorem tax and to none other; (4) Whether appellant's property is subject to State ad valorem taxation only and exempt from local ad valorem taxation; and, (5) Whether appellant's property, if subject to taxation at all, "shall be considered as real property or as personal property."

Section 170 of the Constitution provides: "There shall be exempt from taxation public property used for public purposes; places actually used for religious worship, with the grounds attached thereto and used and appurtenant to the house of worship, not exceeding * * * two acres in the country; places of burial not held for private or corporate profit, institutions of purely public charity, and institutions of education not used or employed for gain by any person or corporation, and the income of which is devoted solely to the cause of education; public libraries, their endowments, and the income of such property as is used exclusively for their maintenance; all parsonages or residences owned by any religious society, and occupied as a home, and for no other purpose, by the minister of any religion, with not exceeding one-half acre of ground in towns and cities and two acres of ground in the country appurtenant thereto; household goods and other personal property of a person with a family, not exceeding two hundred and fifty dollars [$250.00] in value; crops grown in the year in which the assessment is made, and in the hands of the producer; and all laws exempting or commuting property from taxation other than the property above mentioned shall be void. The General Assembly may authorize any incorporated city or town to exempt manufacturing establishments from municipal taxation, for a period not exceeding five years, as an inducement to their location."

Section 171, in so far as pertinent recites:

"The General Assembly shall provide by law an annual tax, which, with other resources, shall be sufficient to defray the estimated expenses of the Commonwealth for each fiscal year. Taxes shall be levied and collected for public purposes only and shall be uniform upon all property of the same class subject to taxation within the territorial limits of the authority levying the tax; and all taxes shall be levied and collected by general laws.

"The General Assembly shall have power to divide property into classes and to determine what class or classes of property shall be subject to local taxation. Bonds of the state and of counties, municipalities, taxing and school districts shall not be subject to taxation."

It is contended by appellant that the property appellee seeks to tax is "public property used for public purposes" and therefore exempt from state taxation. That if it be considered to be wrong in that contention, the Legislature, under section 171, supra, had the right to, and it actually did, divide the property owned by the corporations organized under the act into a class apart from similar property owned by persons, firms, or corporations not organized under the act. That under that section, the Legislature had the right to, and it actually did, exempt the property so classified from local taxation. Sections 171, 172, 174, and 202, of the Constitution provide for uniform taxes to be levied, assessed, and collected on all property. It is contended by appellees that these provisions as to uniformity would be violated by an attempt of the Legislature to classify property as to ownership and not as to kind. Appellant strikes at this argument with the assertion that the uniformity provisions require uniformity only within the class and not uniformity as between classes.

The Attorney General has conceded that the property owned by appellant is held and used for a public purpose, or at least, if it be determined to be public property, he concedes it follows as a necessary corollary that the property is being used for a public purpose; but he insists that the property has no aspect of public ownership and therefore, cannot be declared to be public property within the meaning of the Constitution.

The first observation to be made is that the devotion of its functions to public purposes does not clothe property with public ownership. It is obvious that a private person, firm, or corporation engaged in the distribution of electricity is engaged in an enterprise which serves a purpose no less public than a municipality or other governmental agency engaged in like enterprise. But such function does not wrest the ownership of the property from those who acquired it previous to the service to which it became devoted, and the service to which it is put does not of itself command exemption from taxation under section 170 of the Constitution, because the purpose of the service is not the only public attribute the property must have attained to be the subject of the exemption claimed. It must in addition be owned by the public. As said in City of Harlan v. Blair, 251 Ky. 51, 64 S.W.2d 434, 436,

"The property of the state and of its political subdivisions, * * * such as cities within its borders, when used exclusively for public purposes, is not subject to taxation."

Therefore to answer the first question specifically presented, we must inquire into the meaning of the word public as...