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

Heading: The Enabling Statute

Text: 10 Martin Marietta does not allege that the Hancock County Fiscal Court lacked authority to promulgate regulations for the collection of the Tax. 4 Martin Marietta contends that it is entitled to the statutory exemption from the Tax because during the four-year period its cost of energy and energy-producing fuels exceeded three percent of its cost of production. According to Martin Marietta, section 160.613(1) provides an unconditional entitlement to the exemption whatever the method of payment used by a taxpayer. Because the regulation promulgated by the Hancock County Fiscal Court limits the exemption to taxpayers paying by the Direct Payment Method, Martin Marietta contends that the regulation conflicts with the enabling statute and constitutes an attempt to amend, alter, enlarge or limit the terms of the legislative enactment. Martin Marietta also asserts that the Hancock County Fiscal Court, in conditioning the statutory exemption on the use of the Direct Payment Method, exercised its authority contrary to statute in violation of Ky.Rev.Stat.Ann. Secs. 67.080(3) and 67.083(2). 5 11 The Board contends that the statute permits fiscal courts to promulgate regulations providing for the collection of the Tax, and that the Hancock County regulation merely provides a detail for the collection of the Tax. The Board also emphasizes that Martin Marietta could have availed itself of the statutory exemption had it complied with the regulation. 12 An examination of Kentucky case law is necessary for this Court to determine whether the regulation is an attempt to amend, alter, enlarge or limit the Tax statute. The District Court in upholding the regulation relied upon Lamar v. Board of Educ., 467 S.W.2d 143 (Ky.1971). In that case, plaintiff challenged the validity of a regulation permitting an extension of time in which to pay the Tax. The statute requires the Tax to be remitted on or before the twentieth day of the next succeeding month. Ky.Rev.Stat.Ann. Sec. 160.615. The Hancock County Fiscal Court adopted a regulation that permitted utilities unable to remit the Tax by the twentieth of each month to obtain an extension for not more than ten days. The court of appeals upheld the regulation because the regulation was not such a deviation from the statutory scheme as to destroy the validity of the Tax. 476 S.W.2d at 149. 13 Martin Marietta relies upon these cases in which regulations were held invalid. In Linkous v. Darch, 323 S.W.2d 850 (Ky.1959), the court of appeals considered the validity of a regulation promulgated by the Commissioner of Insurance requiring a wholesale dealer of petroleum gas to inspect the retailer's facilities before delivery. The purpose of this inspection was to ensure that the retailer's facility was constructed and maintained in accordance with the regulations prescribed by the Commissioner. The statute authorizing the Commissioner to promulgate regulations provided the Commissioner with authority to set minimum standards covering the design, location, installation, and operation for the storage, transportation, and handling of such gases to the extent that the regulations were reasonably necessary for the protection of public health, safety, and welfare. The court noted that an agency generally may regulate relative to the administration and enforcement of a statute when the regulation is within the limit set by statute. Nevertheless, the court held that the regulation exceeded the Commissioner's power because it was an attempt, by regulation, to amend or alter the terms of a legislative enactment. Id. at 852. According to the court, the legislature vested the Commissioner with the duty to inspect retail facilities; by imposing this duty on the wholesale dealer, the regulation placed an unwarranted burden on such dealer. The Hancock County regulation, in contrast, does not attempt to enlarge or limit the terms of the legislative enactment. All taxpayers eligible for the exemption need only obtain a direct pay authorization and pay the Tax according to the Direct Payment Method in order to claim the statutory exemption. 14 Martin Marietta cites two other cases in support of its contention that the regulation imposes a new condition on the availability of the exemption. In Texas Gas Transmission Corp. v. Board of Educ., 502 S.W.2d 82 (Ky.Ct.App.1973), Texas Gas contended that a regulation promulgated by a fiscal court excluded from the definition of gross income for the purpose of the Tax, the furnishing of natural or artificial gas within the county, thus relieving Texas Gas from responsibility for the payment of the Tax. The court concluded that, although section 160.617 vested local taxing authorities with the right to enact regulations providing for the details of the collection of the Tax, such regulations could not amend or repeal the statute imposing the Tax. Accordingly, because the statute clearly imposed the Tax on gross receipts derived from the sale of gas within the county, the court refused to interpret the regulation as exempting natural gas suppliers from the Tax. Id. at 87. 15 In Barnes v. Department of Revenue, 575 S.W.2d 169 (Ky.Ct.App.1978), the taxpayer contended that the Revenue Department erroneously concluded that the taxpayer was not entitled to the statutory exemption from the state sales and use tax. The statute exempted from taxation ships and vessels used principally in the transportation of property or in the conveyance of persons for hire. Ky.Rev.Stat.Ann. Sec. 139.483 (Baldwin 1983). The Revenue Department contended that the exemption related only to river-industry vessels such as barges and towboats, and not pleasure craft. The Kentucky Court of Appeals held that the taxpayer was entitled to the exemption because the statute drew no distinction between industrial commercial craft and pleasure commercial craft. 575 S.W.2d at 171. 16 Both Texas Gas and Barnes are distinguishable from the present case. In Texas Gas, plaintiff requested the court to interpret a local regulation in a manner directly contrary to the enabling statute. The statute clearly imposed the Tax on suppliers of natural gas; the regulation could not be construed to exempt natural gas suppliers without conflicting with the statute. Similarly, in Barnes, if the regulation were upheld, plaintiff, under any circumstances, would be precluded from claiming the sales and use tax exemption for ships used principally in the transportation of persons for hire. Under the regulation in Barnes, owners of commercial pleasure craft would always be subject to the tax. 17 In the present case, however, Martin Marietta and other taxpayers can claim the statutory exemption if they comply with the Hancock County regulation conditioning the exemption on the use of the Direct Payment Method. The regulation does not attempt to make the Tax applicable to the cost of energy exceeding three percent of the taxpayer's cost of production. Other taxpayers have used the Direct Payment Method and received refunds of overpaid Tax. Taxpayers such as Martin Marietta can use their energy direct pay authorizations issued for state sales tax purposes to claim their exemption from the Tax. Thus, unlike Barnes and Linkous, the regulation does not alter the applicability of the Tax, and does not attempt to enlarge or limit the terms of the legislative enactment. As the District Court noted, in Lamar the court concluded that a regulation which on its face conflicted with the Tax statute was not found to be such a deviation from the statute that it destroyed the validity of the levy. The regulation in the present case merely requires taxpayers to pay the Tax according to the Direct Payment Method in order for the taxpayer to claim the exemption. Thus, the regulation does not destroy the validity of the Tax. 6