Yount v. Calvert

• Decision Date: 13 September 1991
• Docket Number: 90-CA-1398-MR,Nos. 90-CA-454-M,s. 90-CA-454-M
• Citation: 826 S.W.2d 833
• Parties: William D. YOUNT and Scott Barbour Suing On Their Own Behalf And On Behalf Of All Other Persons In The Commonwealth of Kentucky Similarly Situated, Appellants, v. C. Emmett CALVERT, Secretary Kentucky Revenue Cabinet; Jim Beam Brands Company, Appellees. JIM BEAM BRANDS COMPANY, Cross-Appellant, v. William D. YOUNT and Scott Barbour Suing On Their Own Behalf And On Behalf Of All Other Persons In The Commonwealth of Kentucky Similarly Situated, Appellants/Cross-Appellees, and C. Emmett Calvert, Secretary Kentucky Revenue Cabinet, Cross-Appellee.
• Court: Kentucky Court of Appeals

Page 833

826 S.W.2d 833

William D. YOUNT and Scott Barbour Suing On Their Own Behalf

And On Behalf Of All Other Persons In The

Commonwealth of Kentucky Similarly

Situated, Appellants, v. C. Emmett CALVERT, Secretary Kentucky Revenue Cabinet; Jim

Beam Brands Company, Appellees.

JIM BEAM BRANDS COMPANY, Cross-Appellant, v. William D. YOUNT and Scott Barbour Suing On Their Own Behalf And On Behalf Of All Other Persons In The

Commonwealth of Kentucky Similarly

Situated, Appellants/Cross-Appellees,

and

C. Emmett Calvert, Secretary Kentucky Revenue Cabinet, Cross-Appellee.

Nos. 90-CA-454-MR, 90-CA-1398-MR.

Court of Appeals of Kentucky.

Sept. 13, 1991.

Rehearing Denied Dec. 13, 1991.

Discretionary Review Denied by

Supreme Court May 6, 1992.

Joseph J. Leary, Frankfort, for appellants/cross-appellees.

Celia M. Dunlap, Div. of Legal Services, Revenue Cabinet, Frankfort, for cross-appellee Calvert.

Bruce F. Clark, Stites & Harbison, Frankfort, for cross-appellant Jim Beam Brands Co.

Before CLAYTON, HOWERTON and McDONALD, JJ.

McDONALD, Judge.

This is a tax case involving the constitutionality of the Kentucky ad valorem tax on distilled spirits. On September 29, 1989, the Franklin Circuit Court entered a judgment which held that the state ad valorem tax classification of distilled spirits, KRS 132.020(10) ¹ is a manifest violation of Section 171 of Kentucky's Constitution. The court held that distilled spirits should be taxed under the general provisions of KRS 132.020. By further order entered October 24, 1989, the court ruled that under KRS 132.020(1), a state tax rate of $.45 per $100 of assessed valuation should be applied to distilled spirits. The trial court's final judgment entered on February 28, 1990, held that the general property tax rate under KRS 132.020 was to be applied prospectively beginning with the tax year in which the court's final summary judgment was entered. This appeal and cross-appeal followed.

The appellants/cross-appellees, Yount and Barbour, have appealed the order which applies the general tax rate prospectively instead of retrospectively. Appellee/cross-appellant, Jim Beam Brands Co., has appealed the orders which hold that KRS 132.020(10) is unconstitutional and that the general state tax rate under KRS 132.020 should be applied to distilled spirits.

Section 171 of the Kentucky Constitution provides in pertinent part:

... [T]axes 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 Constitution of Kentucky, Section 172, provides in pertinent part:

All property, not exempted from taxation by this Constitution, shall be assessed for taxation at its fair cash value, estimated at the price it would bring at a fair voluntary sale....

In 1982, KRS 132.020 became effective. The statute created a different classification for distilled spirits for purposes of imposing a different rate of taxation from the rate imposed upon other tangible property in Kentucky. The rate imposed under the general provisions for property tax set forth in KRS 132.020 was $.45 per $100 of value. However, subparagraph 10 of KRS 132.020 set a special rate for state ad valorem tax on distilled spirits at a rate per $100 of assessed value of $.225 in 1982, $.1125 in 1983, and $.001 in 1984 and after.

The lower court stated in its judgment of September 29, 1989:

... After numerous hearings on motions which address many substantive matters of this complaint, and being otherwise sufficiently advised, plaintiffs' motion for partial summary judgment declaring KRS 132.020 unconstitutional is GRANTED. As directed by the Kentucky Supreme Court in Gillis v. Yount, Ky., 748 S.W.2d 357 (1988) at page 362, "our 'duty' is 'to lay the article of the constitution which is evoked beside the statute which is challenged and decide whether the latter squares with the former.' " Quoting United States v. Butler, 297 U.S. 1, at 63, 56 S.Ct. 312, 318, 80 L.Ed. 477 (1936).

Appellee/cross-appellant contends that they should have been granted an opportunity to present evidence to demonstrate the rational basis for the classification contained in the statute. The lower court addressed this issue and stated:

Under the authority of Gillis v. Yount, supra, this statute is unconstitutional on its face. As the Supreme Court pointed out in Gillis v. Yount, supra, at page 358: "the connection between classifying unmined coal separately from other interests in real property subject to ad valorem tax and then imposing the new one mil rate for such property is abundantly clear from review of the legislative history of the one mil rate." That connection is also abundantly clear in this case. Indeed the same statute both creates the classification and imposes the one mil rate for purposes of ad valorem taxation. This is a manifest violation of Section 171 of Kentucky's Constitution. In Gillis v. Yount, supra, the Supreme Court clearly held that a classification for such purpose "serves no legitimate purpose to promote the governmental function directly involved." Page 363.

Clearly, Kentucky law holds that distilled spirits are property within the meaning of Section 171 and 172 of the State Constitution. Reeves v. Jefferson County, Ky., 245 S.W.2d 606 (1952).

..." 'personal property' includes every species and character of property, tangible and intangible, other than real property." ...

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 U.S. Supreme Court held in Dawson, Att'y General of the State of Kentucky v. Kentucky Distilleries and Warehouse Co., 255 U.S. 288, 41 S.Ct. 272, 65 L.Ed. 638, that distilled spirits are property within the meaning of Section 171 of the Kentucky Constitution requiring uniformity.

Reeves, supra at 610.

It is our opinion that the lower court did not err in its determination that distilled spirits are tangible personal property subject to the same statutory and constitutional requirements which govern taxation of such property generally. Reeves, supra, and National Distillers Products Corp. v. Board of Education, Ky., 256 S.W.2d 481 (1953). It follows that distilled spirits must necessarily be taxed at the rate provided for under the general provisions for property taxation set forth in KRS 132.020. Gillis v. Yount, Ky., 748 S.W.2d 357 (1988); Kentucky Constitution Section 171; Reeves, supra; and National Distillers, supra.

KRS 132.020(10) is repugnant to the Kentucky Constitution. It is a manifest violation of both the letter and spirit of the law. Gillis v. Yount, supra. Accordingly, the judgment of the lower court declaring KRS 132.020(10) to be an unconstitutional infringement upon the Constitution and mandating that the Kentucky Revenue Cabinet tax distilled spirits at the rate provided for under the general provisions set forth in KRS 132.020 is proper. The decision accurately reflects the law of this state.

We will next address the issue of whether the rate provided for under the general provision set forth in KRS 132.020 should be applied to distilled spirits retroactively or on a prospective basis from the date of the lower court's final judgment.

Appellants/cross-appellees relying on KRS 134.050 moved the lower court to order that the general state tax rate under KRS 132.020 be assessed retroactively on distilled spirits for a period of five years. They argued that because KRS 132.020(10) was adjudged unconstitutional, it affords no protection to any taxpayer and that retroactive application under KRS 134.050 is a matter of inescapable law. The statute relied upon, i.e. KRS 134.050, fixes a statute of limitations on taxes due but not paid of five years. The unpaid taxes are the "personal debt of the person liable for the payment thereof...."

Appellee/cross-appellant argued that the application of the rate is a matter of discretion with the court. In support of this position, appellee/cross-appellant cited Chevron Oil Company v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971). Appellee/cross-appellant also submitted five affidavits in support of its position that the distilled spirits industry relied upon KRS 132.020(10) in its business practices and that the industry would be seriously burdened and harmed by retroactive application of a substantially higher tax rate. Further, affiants stated that the retroactive application would have a devastating impact upon the fiscal soundness of the Kentucky industry which is already facing serious financial hardship.

In Chevron Oil, supra, the United States Supreme Court presented a three-pronged test to be applied in deciding cases dealing with the nonretroactivity question. The test provides:

First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied ... or by deciding an issue of first impression whose resolution was not clearly foreshadowed ... (citations omitted).

Second, it has been stressed that "we must ... weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation." ... Finally, we have weighed the inequity imposed by retroactive application, for "[w]here a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the 'injustice or hardship' by a holding of nonretroactivity." ...

Chevron Oil, supra 404 U.S. at...