Opinion ID: 1622161
Heading Depth: 1
Heading Rank: 5

Heading: are taxpayers entitled to costs and attorney's fees?

Text: Finally, we address whether an award of attorney's fees is mandated under 42 USC § 1988 or KRS 453.260. Appellants argue that because this Court granted them relief for invalidating the Bank Deposits Tax in St. Ledger, they are now entitled to no less favorable treatment with respect to the Corporate Shares Tax scheme. Further, appellants maintain that any reliance on Schmitt Furniture Co. v. Commonwealth, Ky., 722 S.W.2d 889 (1987), a case primarily based on KRS 453.260(1)(a), not KRS 453.260(1)(b), is misplaced and that Gillis v. Yount, supra , and Revenue Cabinet v. Barbour, Ky.App., 836 S.W.2d 418 (1992), are controlling. We disagree. In Barbour , both taxpayer classes filed a motion for, and were awarded, costs and attorney's fees by the trial court due to the unconstitutionality of a tax on unmined coal. Id. at 423. In Barbour we noted: We cannot deny that an agency cannot assume a statute unconstitutional and must, therefore, continue to enforce it and defend it unless a decision of a court holds otherwise. Thus, we recognize a certain injustice in penalizing the state for what its agency has a legal duty to do. Id. The recent decision of the Supreme Court in National Private Truck Council, Inc. v. Oklahoma Tax Comm'n, 515 U.S. 582, 115 S.Ct. 2351, 132 L.Ed.2d 509 (1995), clearly precludes an award of attorney's fees under 42 USC §§ 1983 and 1988 when an adequate remedy under state law is available. National Private Truck Council , further indicates that a declaratory judgment action provides a plain, speedy, and efficient remedy. Id. Appellants had an adequate remedy under Kentucky law for their objections to the tax levied upon them: (1) a declaratory relief action in circuit court where all constitutional challenges to the two ad valorem taxes could be litigated fully, or (2) the filing of an application for a refund from the State. The National Private Truck Council decision confirms this Court's holding in Gossum, supra , that § 1988 claims challenging the validity of state taxes in courts are barred when an adequate state remedy is available. Id. As in Gossum , appellants in the case sub judice had an adequate remedy for their claims, precluding a § 1988 award of attorney's fees. Furthermore, KRS 453.260(2), as we upheld in Schmitt Furniture Co. v. Commonwealth, supra , provides that a party asking for an award of attorney's fees and costs against the Commonwealth in a tax case must show in the application for fees and costs that the Commonwealth acted without substantial justification. Id. at 891. Schmitt Furniture Co . explained that under KRS 453.260(2)(d), attorney's fees should not be awarded where the Revenue Cabinet's position had a reasonable basis in the law and that its position will not be presumed to have been not substantially justified simply because it lost the case. Id. Additionally, with respect to KRS 453.260(2)(c), we determined that the court may deny an award of fees and costs for two reasons: (1) if the position of the Commonwealth was substantially justified, or (2) the reason that the party other than the Commonwealth has prevailed is an intervening change in the applicable. . . case law. Id. at 890-91. Here, it is clear that appellants cannot carry the burden of proving the required allegation that the Commonwealth acted without substantial justification. Rather, it is apparent that KRS 453.260(2)(c) has been satisfied. But for the Supreme Court's abandonment of Darnell v. Indiana, 226 U.S. 390, 33 S.Ct. 120, 57 L.Ed. 267 (1912) in Fulton Corp. v. Faulkner, 516 U.S. ___, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996), the Revenue Cabinet would have prevailed on the constitutionality of the Exemption Statute under the Commerce Clause. Indeed, the Revenue Cabinet did prevail on this issue in our original decision in St. Ledger, supra . Because the Revenue Cabinet's reliance on Darnell, supra , was substantially justified, and because the awarding of attorney's fees is within this Court's discretion, appellants' claim for costs and attorney's fees is denied.