When does the Constitution not mean what it says?
Apparently when it sets a tax limit on local governments and taxing districts.
Local businessman Ed Pipalski took issue with the county’s tangible tax rates after they blossomed this year to 52.49 cents per $100 assessment. He quoted Section 157 of the Kentucky Constitution, which states the tax rate for counties and taxing districts cannot exceed 50 cents per $100. The language sets maximum rates for cities, counties, and taxing districts, for other than school districts. It specifically states: “for counties and taxing districts, fifty cents on the hundred dollars.”
Taxing districts are created through the fiscal court and state law restricts most districts from imposing a tax of more than 10 cents. Adair County has six separate taxing districts, not including the school district. Those districts are health, extension, library, ambulance, soil conservation and hospital.
While property owners expect to get a tax bill every fall based on the value of their real estate, the tangible tax often goes unnoticed and unpaid. People like Pipalski, however, take note because the tangible tax requires their business to pay the tax based on their inventory and equipment. That can turn into some big dollars for businesses that carry expensive inventory.
“Adair County punishes businesses for investing their earnings back into the business for business growth,” Pipalski said. He compared $10,000 of business revenue deposited in a Certificate of Deposit to buying more materials and selling it at a profit.
If the business buys $10,000 in product, sells $7,000 worth at a retail of $8,000, the owner pays income tax on the $1,000 profit (minus overhead costs). In addition, the owner pays tangible taxes on the remaining $3,000 product that remains in inventory.
“The remaining $3,000 worth…would be taxed at the county, taxing district and state tangible property rates,” Pipalski said.
CLARIFYING THE LAW
Pipalski contacted the Revenue Cabinet and the National Federation of Independent Business. So far, he isn’t getting any clear answers.
The Community Voice contacted County Attorney Jennifer Hutchison-Corbin, who said she had been researching this issue. Corbin said she had been in contact with the Revenue Cabinet and the Kentucky Association of Counties. According to the information she received, the law separates the county from the taxing districts, meaning that a county’s general tax rate cannot exceed 50 cents and taxing districts collectively cannot exceed that amount.
Two 1966 lawsuits involve Section 157 but offer little clarification to Pipalski’s concern.
Floyd County residents filed a class action lawsuit that year to fight a 3-cent ad valorem tax levied by the fiscal court for an Extension District when the county already had a 50-cent tax in place. The 3-cent increase was thrown out by the original court, which found that the new tax did indeed violate the Constitution. During an appeal, however, the court ruled the increase could be allowed because the county only assessed its property at an average of 21.1 percent of its fair cash value.
“It is unnecessary to discuss the first point, because a 53-cent rate against a 21.1 percent assessment does not violate the Constitution,” the court wrote. Section 157 of the Constitution states that the rate be assessed “upon the value” of property, as opposed to “assessed value.”
The second case involves a tax assessment for a public library in Laurel County. In that case, the appeals court ruled statutory authority authorizes the library district and the county’s only charge is to collect the tax, meaning the library district is “not a part of the county tax.” The case limits its scope, however, in stating that particular issues when a taxing district is created affect whether in violates Section 157.
For Pipalski, the answer is clear: voters approved a revision to the amendment more than two decades ago.
“I can’t imagine anyone walking into the voting booth in that November election thinking that the Amendment meant to authorize each and every board or taxing district to be allowed to tax them 50 cents per hundred,” he said. “I believe the people of Kentucky meant the limit for all local government was 50 cents per hundred and I most certainly do not think the good people of Kentucky thought as they cast their ballot, ‘well I know what I think it means, but I’ll have to wait for a bunch of lawyers and a judge to tell me what it really means.’”
The Community Voice attempted to contact the Attorney General’s office but a call was not returned prior to presstime.
By Sharon Burton