Court Opinion

ID: 9410455
Source: CourtListenerOpinion
Date Created: 2023-07-21 14:05:50.395464+00
Date Added: 2024-06-11T17:20:57.751872
License: Public Domain

RENDERED: JULY 14, 2023; 10:00 A.M.
                          TO BE PUBLISHED

                Commonwealth of Kentucky
                          Court of Appeals

                             NO. 2022-CA-0231-MR

DEPARTMENT OF REVENUE,
FINANCE AND ADMINISTRATION
CABINET, COMMONWEALTH OF
KENTUCKY                                                            APPELLANT

                APPEAL FROM FRANKLIN CIRCUIT COURT
v.              HONORABLE PHILLIP J. SHEPHERD, JUDGE
                        ACTION NO. 19-CI-00655

CARRIAGE FORD, INC.                                                   APPELLEE

                                   OPINION
                                  AFFIRMING

                                 ** ** ** ** **

BEFORE: ACREE, DIXON, AND JONES, JUDGES.

DIXON, JUDGE: The Commonwealth of Kentucky, Finance and Administration

Cabinet, Department of Revenue (KDOR), appeals from the order of the Franklin

Circuit Court entered on January 25, 2022, reversing and remanding the final order
of the Kentucky Claims Commission (KCC)1 issued on May 31, 2019, dismissing

the claim of Carriage Ford, Inc. (Carriage Ford) against KDOR. Following a

careful review of the record, briefs, and law, we affirm.

          BACKGROUND FACTS AND PROCEDURAL HISTORY

              Carriage Ford is an Indiana car dealership whose customers include

Kentucky residents. Many of its Kentucky customers drove purchased vehicles off

the lot, while others were delivered in Kentucky. Carriage Ford collected “State

and local” taxes, using a “Retail Buyer’s Order form” to collect Kentucky’s motor

vehicle usage tax (MVUT) for its Kentucky customers and deposited the funds into

its corporate account. It acted as an agent for its customers and delivered assigned

certificates of title and other documents necessary to register the vehicles to the

appropriate Kentucky county clerks. Carriage Ford paid for titling, registration,

and the MVUT out of its account.

              In 2015, the Indiana Department of Revenue (INDOR) audited

Carriage Ford for tax years 2012 through 2014. INDOR found that Carriage Ford

owed Indiana sales tax for the transactions where its vehicles were sold to

Kentucky customers who took possession of the vehicles in Indiana. Rather than

analyze every transaction for the tax years in question, INDOR and Carriage Ford

1
  In 2021, KCC was replaced by the Office of Claims and Appeals and the Kentucky Board of
Claims. See Kentucky Revised Statutes (KRS) 12.020, KRS 13B.020, and KRS 49.010 et seq.

                                            -2-
agreed to use a “sample methodology” to analyze a few months’ transactions and

extrapolate from them to approximate the tax liability. Under Indiana’s tax

amnesty program, Carriage Ford satisfied its Indiana tax bill for $183,003 – an

amount less than the assessed tax – and paid no interest or penalties.

             After Carriage Ford settled with INDOR, it requested a refund from

KDOR. Carriage Ford submitted evidence that it paid $256,862.16 in MVUT but

only requested a refund of $183,003 – the amount of Indiana sales tax it paid – plus

interest. KDOR denied Carriage Ford’s request, asserting it was ineligible because

the MVUT was due when the vehicles were titled and registered in Kentucky and

there was no evidence a substantially identical tax had been paid at that time.

KDOR further claimed Carriage Ford was neither the “taxpayer” authorized to

make the “application or claim for the refund” nor “the person who paid the tax” as

required pursuant to KRS 134.580(2) and (3).

             Carriage Ford appealed KDOR’s final ruling to the KCC. Both

Carriage Ford and KDOR moved the KCC for summary judgment. The KCC

ultimately upheld KDOR’s final ruling, concluding only the Kentucky customers

are entitled to a credit against the MVUT for taxes paid in another state.

             Carriage Ford appealed the KCC’s final order to the Franklin Circuit

Court. In its opinion and order, the trial court reversed the KCC’s order, finding

                                         -3-
substantial evidence supporting the fact that Carriage Ford paid the MVUT even

though it was not due. This appeal followed.

                              STANDARD OF REVIEW

              It is well-settled that:

                     [t]he basic scope of judicial review of an
              administrative decision is limited to a determination of
              whether the agency’s action was arbitrary. Bobinchuck v.
              Levitch, [380 S.W.2d 233 (Ky. 1964).] If an
              administrative agency’s findings of fact are supported by
              substantial evidence of probative value, they must be
              accepted as binding and it must then be determined
              whether or not the agency has applied the correct rule of
              law to the facts so found. [Kentucky Unemployment Ins.
              Comm’n v. Landmark Cmty. Newspapers of Kentucky,
              Inc., 91 S.W.3d 575 (Ky. 2002).] The Court of Appeals
              is authorized to review issues of law involving an
              administrative agency decision on a de novo basis.
              [Aubrey v. Office of the Att’y Gen., 994 S.W.2d 516 (Ky.
              App. 1998)]. In particular, an interpretation of a statute
              is a question of law and a reviewing court is not bound
              by the agency’s interpretation of that statute. Halls
              Hardwood Floor Co. v. Stapleton, [16 S.W.3d 327 (Ky.
              App. 2000).]

Liquor Outlet, LLC v. Alcoholic Beverage Control Bd., 141 S.W.3d 378, 381 (Ky.

App. 2004).

                                  LEGAL ANALYSIS

              On appeal, KDOR argues the trial court erred in determining Carriage

Ford was the “taxpayer” under KRS 134.580, rather than its customers. However,

in pertinent part, KRS 134.580(2) provides, “When money has been paid into the

                                         -4-
State Treasury in payment of any state taxes . . . the appropriate agency shall

authorize refunds to the person who paid the tax . . . of any overpayment of tax

and any payment where no tax was due.” (Emphasis added.)

             Here, there is no dispute that Carriage Ford paid Kentucky’s MVUT

and Indiana’s sales tax on the same vehicles. Contrary to KDOR’s arguments, it

matters not that Carriage Ford was not technically liable for or the “person”

required to pay the MVUT or that it might not be considered a “taxpayer” as

defined in other statutes. Following such logic would lead to the absurd result that

Carriage Ford would not receive a refund for payment of the MVUT after it

presented proof that it paid Indiana sales tax for the same vehicles.

             It is a well-established principle of statutory construction that courts

“should not . . . interpret [a] statute to provide an absurd result.” Commonwealth v.

Reynolds, 136 S.W.3d 442, 445 (Ky. 2004). The interpretations KDOR urges us to

follow are patently unfair to Carriage Ford who paid a substantially similar tax

twice. Long ago, in George v. Scent, 346 S.W.2d 784 (Ky. 1961), Kentucky’s

highest court denounced interpretations of the MVUT which would require

payment of two similar taxes on the same purchase. There is no reason to depart

now.

             Unfortunately, however, there is a dearth of law on whether a person

who pays the MVUT can receive credit after registering a motor vehicle in

                                          -5-
Kentucky, as occurred in the case herein. Even so, Kentucky’s Office of the

Attorney General (OAG) has opined that those who pay the MVUT “should

without exception be credited with the tax paid in the foreign state when

registering [a] motor vehicle in Kentucky upon proof that the sales tax was in fact

paid in the foreign state.” 1978-1979 Ky. Op. Atty. Gen. 2-426 (1979). The OAG

further opined that there are instances where “[a]t first blush, it might seem that

[one] would not be entitled to credit for the amount of the sales tax paid in the

foreign state because of a mere procedural quirk.” Id. In the case discussed in that

opinion, the vehicle was not registered in a foreign state when offered for

registration in Kentucky; thus, it appeared the taxpayer was ineligible for a refund

under KRS 138.460. However, “[b]ecause such a construction of the statute does

violence to the legislative intent, [the OAG] specifically decline[d] to adopt such

an interpretation[.]” OAG 2-426. A similar approach should be followed herein.

             KRS 138.460 pertains to the imposition, rate, collection, and refund of

the MVUT. KRS 138.460(6)(a), in relevant part, provides that “[w]hen a person

offers a motor vehicle: . . . [f]or registration . . . in this state which was registered

in another state that levied a tax substantially identical to the tax levied under this

section, the person shall be entitled to receive a credit against the tax imposed by

this section equal to the amount of tax paid to the other state.”

                                           -6-
             Again, KDOR urges our court to engage in a hyper-technical reading

of this statute that would lead to its desired, but absurd, result. It argues that

because Carriage Ford did not pay the Indiana taxes until after it registered the

vehicles in Kentucky, it should not be entitled to receive a credit for payment of

the Indiana taxes. This runs counter to the guidance of the Supreme Court of

Kentucky that courts “should not . . . interpret [a] statute to provide an absurd

result.” Reynolds, 136 S.W.3d at 445. Carriage Ford provided proof that it paid

the Indiana sales tax; therefore, as the trial court correctly concluded, it “shall be

entitled to receive a credit” under KRS 138.460(6)(a).

             KDOR further argues that KRS 134.580(3) bars all, or some, of

Carriage Ford’s claims under its four-year statute of limitations. In pertinent part,

it states, “No refund shall be made unless each taxpayer individually files an

application or claim for the refund within four (4) years from the date payment was

made.”

             Again, this case presents what appears to be a unique situation

because INDOR did not conduct its audit of Carriage Ford for tax years 2012

through 2014 until 2015. Accordingly, Carriage Ford did not pay Indiana’s sales

taxes until sometime between 2015 and March 17, 2016, when it made a claim for

a refund to KDOR. There is little or no guidance in what to do in this situation.

                                           -7-
             Nevertheless, Kentucky’s highest court determined, under a prior

version of this statute, that the statute of limitations begins to run “after the fee was

paid into the state treasury.” Dep’t of Conservation v. Co-De Coal Co., 388

S.W.2d 614, 617 (Ky. 1964), as modified on denial of reh’g (Mar. 26, 1965).

Based on this, and from the text of the statute, Carriage Ford was not barred from

challenging refunds for payments made after March 17, 2016. Furthermore, since

Carriage Ford paid $256,862.16 in MVUT over the three-year period and is only

requesting a refund for $183,003, plus interest, to offset the Indiana sales tax, the

refund requested is doubtlessly offset by payments made to the Kentucky State

Treasury during the period not barred by the statute of limitations. (Carriage Ford

asserts in its brief that the amounts claimed were for tax paid between April 2012

and June 2014; therefore, the statute of limitations would not bar its claims.)

             Due to our resolution of these issues, we need not address KDOR’s

further arguments, such as those concerning equitable relief.

                                   CONCLUSION

             Therefore, and for the foregoing reasons, the order entered by the

Franklin Circuit Court is AFFIRMED.

             ALL CONCUR.

                                           -8-
BRIEFS FOR APPELLANT:    BRIEF FOR APPELLEE:

Bethany Atkins Rice      Mark A. Loyd
Kevin Beiting            Bailey Roese
Frankfort, Kentucky      Stephanie M. Bruns
                         Louisville, Kentucky

                        -9-