Opinion ID: 480215
Heading Depth: 1
Heading Rank: 2

Heading: Refund Or Credit For Overpaid Tax

Text: 18 Martin Marietta contends that it is entitled to a refund or credit for the overpaid Tax because the regulation is invalid and it paid the excess Tax involuntarily. With the exception of the state refund statute, 7 Kentucky law provides that a taxpayer is not entitled to a refund or credit of tax not actually due unless the statute or regulation imposing the tax is declared invalid and the tax was paid involuntarily, or the taxing authority engaged in some form of misrepresentation. See, e.g., City of Louisville v. Louisville Taxicab & Transfer Co., 238 S.W.2d 121 (Ky.1951) (illegal tax recoverable if enforcement of tax may be had in summary proceeding or a burdensome penalty may be exacted); Great Atlantic & Pacific Tea Co. v. City of Lexington, 256 Ky. 595, 76 S.W.2d 894 (1934) (plaintiff entitled to a refund where city official charged with duty of issuing licenses stated that license tax was due when in fact no tax existed); Coleman v. Consolidated Realty Co., 239 Ky. 788, 40 S.W.2d 387 (1931) (illegal tax paid under duress may be recovered); Spalding v. City of Lebanon, 156 Ky. 37, 41, 160 S.W. 751 (1913) (illegal taxes paid voluntarily may not be recovered, but if they are paid under compulsion which exists whenever they are collectible by summary process of fine and imprisonment, they come within the general rule and may be recovered). 19 Martin Marietta is not entitled to a refund or credit because the Hancock County regulation does not contravene Kentucky law and was paid voluntarily. In Coleman v. Inland Gas Corp., 231 Ky. 637, 21 S.W.2d 1030 (1929), the court stated that under the general principles of common law, unless a statute provides otherwise, there may be no refund of taxes paid when no taxes were due. Id. at 639, 21 S.W.2d at 1031. The court provided the rationale for this rule: 20 all state governments have been slow indeed to open the doors of their treasuries and allow money to pass therefrom after it has once found lodgment within the governmental vaults. This is as it should be. The state is the sovereign, and its affairs must be conducted for the best interest and welfare of the people.... When the income is collected it is allocated to different funds. The state uses the fund nearly always during the current year. It has been universally held, unless a contrary conclusion was forced by an ironclad statute, that no taxpayer should have the right to disrupt the government by demanding a refund of his money whether paid legally or otherwise .... 21 Id. at 640, 21 S.W.2d at 1031. Because the Hancock County Fiscal Court had the authority to promulgate regulations for the collection of the Tax, and the regulation at issue does not enlarge or limit the terms of the legislative enactment, the regulation does not violate Kentucky law. 8 22 Martin Marietta cites several cases in support of its contention that it paid the excess Tax involuntarily. In Coleman v. Consolidated Realty Co., 239 Ky. 788, 40 S.W.2d 387 (1931), a statute required Consolidated Realty to pay a tax for the privilege of having its mortgages recorded. If Consolidated Realty did not pay the tax, it would have incurred the risk of losing its superior lien on the mortgaged property. The U.S. Supreme Court declared the statute unconstitutional and Consolidated Realty sought a refund. In determining whether the tax was paid involuntarily, the Consolidated Realty court stated: the real question is whether there was such an immediate or urgent necessity for the payment [of the tax] as to imply that it was made under compulsion. Id. at 791, 40 S.W.2d at 388. Because Consolidated Realty would have been unable to carry on its business had it refused to pay the illegal tax, the court concluded that Consolidated Realty paid the tax involuntarily and was entitled to a refund. Id. at 793, 40 S.W.2d at 389. In City of Louisville v. Louisville Taxicab & Transfer Co., 238 S.W.2d 121 (Ky.1951), plaintiff alleged that the City had no authority to impose a license fee on taxicabs, and sought a refund of fees collected over a five year period. The court of appeals concluded that a state statute prevented the City from imposing the license fees on taxicabs. Because a City ordinance authorized the imposition of a fine for failure to pay the fees, the court concluded that plaintiff was compelled to pay the fee and was entitled to a refund. According to the court, [i]n every case where enforcement may be had in a summary proceeding or a burdensome penalty may be exacted for failure to pay, the law will presume payment to have been made involuntarily and will permit recovery. Id. at 124. 23 These cases demonstrate that Martin Marietta paid the excess Tax voluntarily. The Board did not assess the excess Tax or threaten to impose sanctions if Martin Marietta failed to pay the excess Tax. Although Martin Marietta cites the section of the Tax statute authorizing a penalty for failing to pay the Tax timely, 9 the Board would not have exacted a penalty under this provision had Martin Marietta failed to pay the excess Tax. 24 Martin Marietta also relies on Great Atlantic & Pacific Tea Co. v. City of Lexington, 256 Ky. 595, 76 S.W.2d 894 (1934), in support of its contention that it is entitled to a refund or credit. In Great Atlantic, the plaintiff sought to recover monies paid as a license tax for the privilege of selling cigarettes in its grocery stores. Prior to adding cigarettes to its stock, a city clerk charged with the duty of issuing licenses informed plaintiff that it had to pay a license fee before any store could sell cigarettes. No statute or regulation required plaintiff to pay such a fee. The court held that plaintiff was entitled to a refund because plaintiff relied on the clerk's misrepresentation. Id. at 599, 76 S.W.2d at 896. Martin Marietta does not allege that the Board engaged in any misrepresentation in collecting the excess Tax. In fact, Martin Marietta concedes that the Board did not collect the excess Tax with actual knowledge that such Tax was not due. Brief for Appellant at 29. 25 Finally, Martin Marietta cites two special assessment cases in support of its refund or credit argument. In Webster County Soil Conservation Dist. v. Shelton, 437 S.W.2d 934 (Ky.1969), a local water district dissolved itself and certain members sued for a refund of certain monies paid to the district. The court of appeals stated that under its decisions it is about as difficult to recover taxes or assessments once made, as it is to 'draw blood from a turnip.'  Id. at 937. Nevertheless, the court, relying on the distinction between the right to recover taxes collected under the general powers of taxation and the right to recover special assessments, concluded that the members were entitled to a refund. Id. at 938. The special assessments were substantial and not used for current expenses. A similar conclusion was reached in Barnes v. Stearns Coal & Lumber Co., 295 Ky. 812, 175 S.W.2d 498 (1943). There, plaintiff paid monies to the state Unemployment Compensation Committee in the hope of receiving a better payroll percentage rate on its next year's unemployment insurance contributions. Subsequently, plaintiff learned that it did not have to pay this money in order to receive the better rate, and requested a refund. The court concluded that although the payments were regarded as taxes, they were paid into an insurance fund and administered separate from all public monies. The court noted that unlike general taxes, these monies may not be disbursed for a long time. Therefore, the court concluded that a refund was required. Id. at 816, 175 S.W.2d at 498-501. 26 The Taxes paid to the Board in the present case are not a form of special assessment. They are used for a general public purpose--the financing of the Hancock County Schools. These Taxes are likely to be disbursed to the schools promptly and not remain in a fund for a long period of time. Thus, neither Shelton nor Barnes require the Board to refund or credit Martin Marietta the overpaid Tax.