Opinion ID: 2975325
Heading Depth: 3
Heading Rank: 2

Heading: The Changes to Kentucky’s Tax Law

Text: In March 2005, Kentucky amended its tax laws. See 2005 Ky. Acts 168, Ky. H.B. No. 272, 2005 Regular Session (2005) (the “2005 amendments”) (relevant provisions codified at various sections of Chapter 136 of the Kentucky Revised Statutes). Prior to the 2005 Amendments, neither the cable companies nor the satellite companies were required to pay Kentucky state sales tax. In addition, pursuant to § 602(a) of the federal Telecommunications Act of 1996, the satellite companies, but not the cable companies, were and are exempt from all local taxes and fees. Pub. L. No. 104-104, Title VI, § 602(a), 110 Stat. 144(a)(1996) (reprinted at 47 U.S.C. § 152, historical and statutory notes). Nevertheless, the No. 06-5523 Directv, Inc., et al. v. Treesh, Comm’r for Dep’t of Revenue Page 3 Telecommunications Act explicitly reserves to states the powers the states themselves had to tax satellite companies. Ibid. Meanwhile, as stated above, the cable companies paid franchise fees to local governments. The Kentucky legislature passed the 2005 Amendments in order to provide “a fair, efficient, and uniform method for taxing communications services sold” in Kentucky and to simplify “an existing system that includes a myriad of levies, fees, and rates imposed at all levels of government.” KRS § 136.600(1), (3). The 2005 amendments became effective on January 1, 2006. Section 90 of the 2005 Amendments imposes an excise tax on the retail purchase of multichannel video programming service provided to a person whose place of primary use is in the state. KRS § 136.604(1). The amendments define “multichannel video programming service” as “cable service and satellite broadcast and wireless cable service.” Id. § 136.602(8). The excise tax is 3% of the sales price charged for the service. Id. § 136.604(2). Section 96 of the 2005 Amendments imposes a 2.4% tax on a multichannel video programming service provider’s gross revenues from service provided to people in Kentucky. Id. § 136.616(1), (2)(a). Together, these provisions effectively impose a 5.4% tax on total charges for either cable or satellite. Section 112 of the 2005 Amendments establishes a gross revenues and excise tax fund. KRS § 136.648(1). All revenues from the taxes described above are to be deposited into this fund. The money in the fund is then to be allocated among the state and its political subdivisions, school districts, and special districts. Id. § 136.648(3). Under Section 113 of the 2005 Amendments, every “political subdivision, school district, special district, and sheriff’s department” must certify to the Revenue Cabinet the total local franchise fees it collected from multichannel video programming service providers in fiscal year 2005. Id. § 136.650(1). This certified amount is then used to determine the monthly portion of the gross revenues and excise tax fund that will be distributed to each subdivision, school district, and special district. The 2005 Amendments provide that each will be assigned a percentage, called the “local historical percentage,” which is based on the amount of the subdivision’s certified collections as a proportion of the total certified amount of all collections of all parties participating in the fund. In return for their participation in this fund, the subdivisions must agree to relinquish any right to a franchise fee or tax on multichannel video programming services. Id. § 136.650(1)(b). Pursuant to Section 118 of the 2005 Amendments, local governments are prohibited from levying any franchise fee or tax on a multichannel video programming service. KRS § 136.660. If a local government imposes or attempts to impose a franchise fee or tax, the local government may not receive any share of the proceeds of the excise and gross revenues taxes for the period that the imposition occurs. Id. § 136.660(4). Further, if a provider of a multichannel video programming service actually pays a franchise fee or tax with respect to the service, the provider is entitled to a credit against the state taxes due in the amount of the franchise fee or tax. Id. § 136.660(5).