National Distillers Products Corp. v. Board of Ed. of Franklin County ex rel. Reeves

• Decision Date: 24 October 1952
• Parties: NATIONAL DISTILLERS PRODUCTS CORP. v. BOARD OF EDUCATION OF FRANKLIN COUNTY ex rel. REEVES.
• Court: United States State Supreme Court — District of Kentucky

Page 481

256 S.W.2d 481

NATIONAL DISTILLERS PRODUCTS CORP. v. BOARD OF EDUCATION OF FRANKLIN COUNTY ex rel. REEVES.

Court of Appeals of Kentucky.

Oct. 24, 1952.

As Modified on Denial of Rehearing March 27, 1953.

Earl S. Wilson and William Marshall Bullitt (of Bullitt, Dawson & Tarrant), Louisville, for appellant.

William A. Young, Frankfort, Hensley & Logan, Louisville, Lucian L. Johnson, Louisville, of counsel, for appellee.

STEWART, Justice.

The sole question in this case is whether ad valorem taxes paid by National Distillers Products Corporation to the Franklin County Board of Education, hereinafter called the National Distillers and the Board, respectively, on each assessed valuation of whiskey fixed by the Kentucky Tax Commission as of September 1, 1946, September 1, 1947, and September 1, 1949, should have been computed by applying to each such valuation (a) the school rate levied prior to each September 1st assessment date or (b) the school rate levied in the calendar year after each September 1st assessment date.

Payment of taxes on each annual September 1st assessment is deferred under KRS 132.160 until (1) the whiskey is withdrawn from bond, or (2) the federal tax thereon becomes due or is paid, or (3) the spirits are removed from the warehouse for transfer in bond out of this state. Accordingly, when whiskey is withdrawn from bond it may have an accumulation of deferred taxes for several years to be computed at the tax rate applicable to the assessed valuation made as of September 1st of each year; or, there may be no taxes due as in the case where whiskey is manufactured after September 1st of a particular year and withdrawn from bond before September 1st of the following year. The warehouseman having the custody of whiskey in bond is required to report on the 1st day of January, May and September of each year all whiskey withdrawn from bond during the four months period preceding each such reporting date. The deferred taxes on whiskey so withdrawn mature on the next day following the date the report is required to be filed. An 8% penalty accrues if the warehouseman fails to pay the taxes within 15 days after they are due, pursuant to KRS 132.180.

Many years prior to 1947 the school tax rate in Franklin County remained constant, being fixed at 70cents on each $100 of the assessed valuation of all taxable property. On May 13, 1947, a 90cents rate was levied; on June 7, 1948, a $1 rate was levied; and on June 21, 1950, a $1.20 rate was levied. When National Distillers filed periodic reports, as required by law, of the whiskey in controversy withdrawn by it from bond, it applied the 70cents rate levied June 11, 1946, to whiskey assessed as of September 1, 1946, the 90cents rate levied May 13, 1947, to whiskey assessed as of September 1, 1947, and the $1 rate levied June 7, 1948, to whiskey assessed as of September 1, 1949.

The Board contends that National Distillers should have computed the taxes in dispute by applying the 90cents rate to whiskey assessed as of September 1, 1946, the $1 rate to whiskey assessed as of September 1, 1947, and the $1.20 rate to whiskey assessed as of September 1, 1949; and the Board sued for a declaration of rights and for additional taxes, penalties and interest on the alleged ground that the taxes paid to it by National Distillers in the manner mentioned on whiskey physically located in Franklin County on September 1st in the years 1946, 1947 and 1949, respectively, were wrongfully computed by applying the tax rate levied prior to each September 1st assessment period. The Chancellor in his decree applied the tax rate fixed by levy after the September 1st assessment for each of the years in question and awarded judgment to the Board for the additional taxes, penalties and interest so computed on these higher rates. National Distillers has appealed.

Our inquiry in the case at bar narrows down to this issue: Should distilled spirits in storage in bonded warehouses be taxed for school purposes at the same rate imposed upon all other tangible personalty within the taxing jurisdiction; or should such spirits be permitted to lag one year behind the rate which all other property in the same class must bear?

In an unbroken line of decisions this Court has adhered to the principle that distilled spirits are like all other tangible personal property situated within this Commonwealth and are therefore subject to the same statutory and constitutional requirements which govern the taxation of such property generally. In the recent case of Reeves v. Jefferson County, Ky., 245 S.W.2d 606, 610, we made the following pertinent statement on this point: 'Since distilled spirits are property within the meaning of Section 172 of our Constitution, which subjects 'all property' to taxation, it necessarily follows that distilled spirits are 'property' within the meaning of the provisions of the Constitution, which mandatorily requires uniformity in the assessment of property for ad valorem taxes.'

The following excerpt from Section 171 of the Constitution does not seem to leave any room for doubt that whiskey shall be taxed like other tangible personalty: '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.' Moreover, KRS 132.150 clearly provides that the prevailing tax rate applied to distilled spirits for all local purposes shall not be different from that levied on all tangible personalty.

However, counsel for National Distillers come forward with an ingenious argument, which is that it takes fourteen and one-half months to complete a July 1st assessment of property generally whereas it requires less than two months to complete a September 1st assessment of whiskey, so that the significance of this almost one-year's difference in time lag clearly demonstrates that the tax levied subsequent to a July 1st assessment was the 'prevailing rate' at the time the taxes on such assessment became due, whereas the tax rate levied prior to a September 1st assessment of whiskey was the 'prevailing rate' at the time taxes on the first withdrawals of such whiskey became payable.

This line of reasoning falls of its own weight when we examine the intent of the Legislature with reference to the assessment of whiskey as it is identified by law with other tangible personalty. When the present Constitution was adopted in 1891, the entire range of...