Opinion ID: 1757198
Heading Depth: 1
Heading Rank: 2

Heading: statute of limitations for determining the years available for refund

Text: As refunds are required, they shall be implemented pursuant to KRS 134.590(1, 2). To augment the opinion we state that the income taxes paid upon the federal retirees' pensions were made under an unconstitutional part of a statute. (KRS 141.021). The parties, agreeing on one point, note that the determination in Davis was that the taxing scheme in Michigan (and, admittedly, in Kentucky) was unconstitutional. See Davis, supra ; Harper, supra. Portions of the taxation statutes herein referred to address both ad valorem taxes or taxes of any kind paid under a statute held unconstitutional. We are concerned with the latter, specifically the income tax. Irrespective of the retirees' argument, the remedy of refunds follows no broad, ever-widening, or all encompassing scheme. It is to be recognized that the right to a refund of illegally or improperly collected taxes does not derive from the common law, but is a matter of legislative grace. It follows that if appellees are to be successful in this action, they must bring themselves within the terms of the statute authorizing a refund. Department of Conservation v. Co-De Coal Co., Ky., 388 S.W.2d 614 (1964). A curative statute which provides a remedy must be strictly followed in all respects. Norfolk and W. Ry. Co. v. McCoy, 288 Ky. 458, 156 S.W.2d 493 (1941). Both KRS 134.590 and 134.580(6) are specific as to refunds of taxes paid under an unconstitutional statute. Pointedly, KRS 134.580(6) states that: In cases in which a statute has been held unconstitutional, taxes paid thereunder may be refunded to the extent provided by KRS 134.590, and by the statute held unconstitutional. (Emphasis added.) KRS 134.580 and 134.590 constitute the general refund statutes. The former relates to refunds for taxes, excepting ad valorem taxes and unconstitutional taxes, both of which are covered by the latter provision. Distinctly, these two statutes mandate refunds for taxes paid, whether the payment was voluntary/involuntary, regardless of the reason for overpayment. The Revenue Cabinet pursues the theory that no refunds should be paid as only prospective application of the federal decisions was appropriate. The simple but dispositive question is whether the statutes mean what they say. By the statutes (KRS 134.580 and 134.590) the General Assembly has clearly expressed a will that tax payments made under a statute later held to be unconstitutional shall be refunded, provided application for refund is made within two years from the date payment was made. The statutes, at least at this point, are simplistic in that they make no distinction as to whether the holding of unconstitutionality is to be applied only prospectively or retroactively. See Department of Revenue v. Jack Cole Co., Ky., 474 S.W.2d 70 (1971). The retirees maintain that KRS 134.590(6) extends the statute of limitations to two years after final resolution of this case. We attach no merit to this argument as KRS 134.590, commencing with (3) through (6), applies to refunds of local ad valorem taxes only, and was the result of an amendment affected by SB 287 of the regular legislative session of 1980, wherein no change was made in the statutory requirements for refunds of taxes paid under a statute held unconstitutional. It appears, additionally, that the amount of taxes due is not an item of the litigation. It is an issue of all of the tax or none of the tax. Also see Board of Education of Fayette County v. Taulbee, Ky., 706 S.W.2d 827 (1986), which enumerates three taxing districts, namely, the Department of Revenue, the Board of Education and the Urban County Government as distinct governmental and taxing entities. The case distinguishes that the Department of Revenue shall refund under KRS 134.590(1), and that sections (3), (4), (5), and (6) apply to the refund of all other taxing districts. Davis, supra , reinforced by Harper, supra, emphatically holds that the decision was fully retroactive and Revenue Cabinet v. CSC Oil Co., Inc., Ky.App., 851 S.W.2d 497 (1993), is, therefore, distinguished. The retirees ingeniously seek justification for refunds under a multitude of statutes, including KRS 141.235, 134.580 and 134.590. However, this is not a pick and choose situation to produce a maximum refund. We simply do not follow, let alone adopt, the argument of ambiguity in the refund statutes. The application of KRS 141.235 and 134.580 is limited and concerns overpayment of taxes where no tax was due and is not extendable to apply to situations where the constitutionality of a statute or a tax scheme is at issue. A curative statute which provides a remedy must be provided for in all respects. Norfolk, supra . There is no plethora of options. Refunds are provided under KRS 134.590. Choice of remedy for equitable relief is lacking if none is provided under the refund statute. We determine that Kentucky, by its refund statute, applicable to taxing statutes declared unconstitutional, has availed itself of a procedural protection minimizing the disruptive effect of a tax scheme's invalidation. Inclusively, the legislature has provided, by statute, a relatively short period of limitations which is protective to a state's fiscal security when weighed against the state's obligation to provide meaningful relief for its unconstitutional taxation. McKesson, supra . A reasonable basis does exist for a distinction sufficient to create justification for the separate classification of a four or two year statute of limitation. Tabler v. Wallace, Ky., 704 S.W.2d 179 (1985). The two-year classification withstands an equal protection scrutiny as it rationally relates to the furthering of a legitimate state interest. Vance v. Bradley, 440 U.S. 93, 99 S.Ct. 939, 59 L.Ed.2d 171 (1979). This case stands as a clear example of the distinction that the state legislature has drawn between refunds of taxes paid under a statute (equivalent to a tax scheme) held unconstitutional and of taxes paid under a constitutional statute which is rationally related to a legitimate state interest. Revenue Cabinet acknowledges that refunds under a constitutional statute should normally involve individual taxpayers and nominal payments, whereas refunds under an unconstitutional statute will involve multitudes of taxpayers and millions of dollars. McKesson, supra , authorizes the conclusion that the two-year statute of limitations (KRS 134.590[2]) is not violative of constitutional standards. Refunds shall be made to those retirees whose application for same was made in each case within two years from the time payment was made. The judgment of Marshall Circuit Court upon this issue is affirmed in part and reversed in part.