Opinion ID: 1463707
Heading Depth: 1
Heading Rank: 1

Heading: newspaper inserts

Text: KRS 139.190 imposes a use tax on the storage, use, or other consumption in this state of tangible personal property purchased on and after July 1, 1990, for storage, use, or other consumption in this state at the rate of six percent (6%) of the sales price of the property. Use, as defined in KRS 139.190, includes the exercise of any right or power over tangible personal property incident to the ownership of that property, or by any transaction in which possession is given, except that it does not include the sale of that property in the regular course of business. The sales and use tax laws are integrated elements of a taxing program that is designed to reach all transactions in which tangible property is sold inside or outside of Kentucky for storage, use, or consumption within Kentucky. Genex/London v. Kentucky Bd. of Tax Appeals, Ky., 622 S.W.2d 499, 506 (1981). The use tax is frequently called a backstop to the sales tax because it ensures that transactions in other states are treated just as if they had taken place in this state and been subjected to the sales tax. Commonwealth v. Lee's Ford Dock, Inc., Ky., 551 S.W.2d 236 (1977). The record establishes that while Lazarus did not have actual possession of the newspaper advertising inserts, it maintained the right of complete control over the handling and distribution of the inserts after their delivery to Kentucky newspapers for distribution. In fact, Lazarus stipulated that it stores the newspaper inserts in Kentucky. The inserts belong to Lazarus up until the time they are distributed to newspaper subscribers free of charge. Once the newspaper subscriber, a potential customer, has possession, Lazarus has made a taxable use of the insert. Pursuant to the plain and unambiguous language of KRS 139.310 and KRS 139.190, the use tax applies to the exercise of any right or power incident to the ownership of property or any transaction in which possession is given . . . . Because Lazarus paid no sales tax to the state where the newspaper inserts were created and manufactured, Lazarus is required to pay Kentucky's use tax because the inserts were stored, used and consumed in Kentucky. The General Assembly employed broad language so that the use tax would reach all forms of tangible property used in the state. Kentucky's use tax is clear and unambiguous. The Cabinet's contemporaneous construction of KRS 139.310 was inferred through its failure to make use tax adjustments against six retailers over a 30-year period. However, contemporaneous construction cannot be founded upon an administrative agency's failure to correctly apply the law. Delta Air Lines, Inc. v. Revenue Cabinet, Ky., 689 S.W.2d 14, 19-20 (1985). The doctrine of contemporaneous construction is a judicial tool for statutory construction. This Court stated in Commonwealth ex rel. Huntsman v. Kentucky Distilleries & Warehouse Co., 143 Ky. 314, 136 S.W. 1032, 1039-40 (1911), [M]ere nonaction upon the part of the officers of the state is not to be treated as contemporaneous construction. Nor can the Cabinet change the law through mistake. The failure of a public officer to correctly administer the law does not prevent a more diligent and efficient public administrator to bring into the revenue proper subjects of taxation. An erroneous interpretation of the law will not be perpetuated. (citations omitted) Delta Air Lines, supra . In Kentucky Bd. of Tax App. v. Citizens Fid. B. & T. Co., Ky., 525 S.W.2d 68 (1975), this Court specifically rejected the notion that contemporaneous construction can be based upon an administrative agency's mistakes. [W]e are no more disposed to hold that an administrative body can change the law by mistake than to hold that it can do so on purpose. Id. at 75; see also Beth-Elkhorn Corp. v. Ross, Ky., 552 S.W.2d 656, 659 (1977). In Delta Air Lines, supra , this Court was asked to apply the doctrine of contemporaneous construction against the Cabinet. Following the creation of the sales tax in 1960, the Cabinet and the airline industry jointly developed a formula to calculate the amount of sales tax to be paid by the airlines. Delta and the other members of the airline industry used this formula to calculate the amount of their sales tax liability for seventeen years. Then, in 1979, the Cabinet decided that the use of the formula was improper, and informed the airlines that in the future, they would be expected to pay sales tax on all food and fuel purchases made in Kentucky, as required by the sales tax statute. On appeal this Court refused to apply the doctrine of contemporaneous construction, and stated the following as its reason: The arguments of Delta extend the doctrine of contemporaneous construction beyond any ascertainable precedent. The primary statute is not ambiguous. KRS 139.200. There is no basis for application of the doctrine. An unambiguous statute is to be applied without resort to any outside aids. [citations omitted]. The Kentucky statute is imposed on retail sales and all retailers. There is nothing in the law which indicates that a retailer is relieved from collecting the tax from a purchaser because the purchaser will thereafter take the goods out of the state. There is no ambiguity requiring the use of extrinsic aids to construe the statute. Id. at 19. For decades the Cabinet collected use tax from other taxpayers for newspaper inserts. However, the Cabinet failed to assess newspaper inserts in 18 audits against six retailers over a 30-year period. The record only demonstrates that the Cabinet's auditors failed to spot the inserts against these six retailers. Such does not warrant the application of the contemporaneous construction doctrine.