Court Opinion

ID: 9666345
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:11:21.560201+00
Date Added: 2024-06-11T14:56:38.774309
License: Public Domain

LEIBSON, Justice,
concurring.
The majority opinion should go further and address the second major issue in the case, the constitutionality of setting a one mil tax rate for unmined coal, as established in KRS 132.020(5), under Sections 3, 170 and 174 of our Kentucky Constitution.
We should address this problem for two reasons, one theoretical and one practical:
The theoretical reason is that classification and rate are not two different problems, but interrelated elements of a single problem. Sections 170, 171 and 174 of the Constitution are parts of a single plan to constitutionally control state property taxes, constitutionalized in Sections 170-175. The meaning of the words in any one part of the constitution plan can only be grasped by considering the entire plan, not by considering isolated phrases. To analyze the constitutional challenge, we must test it against the constitutional plan, rather than any single element in the plan.
The practical reason is that the same coal interests who promoted the separate tax classification and rate for unmined coal in the first place will now move with all deliberate speed to promote legislation intended to circumvent our decision, perceiving (I believe erroneously) that by failing to address the rate issue we implicitly recognize that a one mil rate would be valid if the class were expanded. In short, to paraphrase from Lexington Herald-Leader Co., Inc. v. Meigs, Ky., 660 S.W.2d 658, 661 (1983), I “conclude that the controversy before us is not moot” and is “capable of repetition.”
Separate classification of property for taxation, per se, is innocuous. It has no constitutional significance until the property separately classified is assigned a different rate. The 1976 statute setting up un-mined coal in a separate classification would have been meaningless as long as this type of real property carried the same *367tax rate as other real property. It was the next step in the plan, the 1978 enactment assigning the one mil rate, that converted the statute at issue, KRS 132.020(5), into a constitutional problem.
Sections 174, 170 and 3 of our Constitution provide in pertinent part:
1) In Section 174: “All property, whether owned by natural persons or corporations, shall be taxed in proportion to its value, unless exempted by this Constitution; and all corporate property shall pay the same rate of taxation paid by individual property.”
2) In Section 170, after specifying constitutional exemptions: “and all laws exempting or omitting property from taxation other than the property above mentioned shall be void.”
3) And in Section 3 (part of the Bill of Rights), for good measure: “no property shall be exempt from taxation except as provided in this Constitution....”
The one mil tax rate on unmined coal is unconstitutional because it effects a de fac-to exemption rather than a revenue raising measure, and as such it violates these provisions established for our constitutional protection. It violates the constitutional command that “all property ... shall be taxed in proportion to its value, unless [constitutionally] exempted.” And therefore its constitutional shortcomings will not be overcome by expanding the separate statutory classification for unmined coal to add other (or all) unmined minerals. It would still be an exemption and not a rate.
Whereas there are other types of property, such as stocks and bonds and similar intangibles, whose value is so easily determined and assessed that a low tax rate does not make the tax unworkable and thus effect an exemption, and whereas there may well be reasons related to raising revenue that may justify a very low tax rate for such other classes of property, the effect of a one mil rate for taxing unmined minerals in general, and coal in particular, necessarily creates an exemption because of the nature of the property. This was the legal conclusion reached by the trial court in holding the tax rate was unconstitutional because it amounted to an exemption and not a tax, and findings of fact by the trial court leading to this conclusion stand unchallenged on this appeal. These include, in pertinent part:
1) The legislative history behind the one mil tax rate proves that it was deliberately developed as a “way ... to effectively exempt a class of property without amending ... the constitution.”
2) “KRS 132.020(5) effectively exempts unmined coal from property taxation in basically two ways. First it produces a ‘nil amount’ of revenue. For example, in 1983, the last year for which there is evidence in the record, the total yield from the levy on unmined coal was at best, $2,067. This yield was on assets that in 1983 were worth approximately six through twelve billion. Second, the .001 rate makes it uneconomical and irrational for the Revenue Cabinet and the Commonwealth’s Property Valuation administrators ... to assess or collect a levy because, as the evidence reflects, the cost of administering the levy far exceeds its possible yield.”
3) As a result “the Kentucky Revenue Cabinet does not enforce the mandate of KRS 132.020(5) that a property tax on un-mined coal be administered, and in fact sanctions the failure of many P.V.A.’s to assess ‘unmined coal’ for taxation.... [I]n 1978, prior to the $.001 rate going into effect, some 50 counties had assessments of unmined coal on their tax books; however, by 1983, this number had fallen to 23.”
The trial court concluded that the “minuscule levy imposed by KRS 132.020(5) is not a ‘tax’ in the sense intended by the framers”; that the “plain meaning of the word ‘tax’, as used by the framers ... is: a charge upon property the purpose of which is to raise revenue to defray the costs of governmental operations.”
The trial court reviewed the record of the 1890 Constitutional Convention on this subject (2 Debates Constitutional Convention 1890, 2372-2423 (1890)), and concluded: “When the framers required that ‘all property ... be taxed’, Ky. Const. Section 174, *368they intended that all property not specifically exempted from taxation bear a meaningful tax burden.” The trial court further concluded that a levy must be “intended to increase the net financial resources of the Commonwealth” to be a tax, and that it is not a tax if it “would not under any reasonably foreseeable set of circumstances increase the financial resources of the Commonwealth.” None of these findings or conclusions are refuted by the record.
The trial court correctly applied the principle of constitutional law stated in Commonwealth v. O’Harrah, Ky., 262 S.W.2d 385 (1953), that “[t]he General Assembly may not do indirectly what the Constitution forbids it to do directly.”
The Secretary of the Revenue Cabinet expressly agreed with a statement from the 1983 Legislative Research Commission report stating that the 1978 Act reducing the rate to one mil “for all intents and purposes exempted unmined coal from the state property tax.” [Emphasis added.] He conceded that this rate is “used by the General Assembly to provide tax exemptions through statutory procedures rather than constitutional amendments.” The thrust of the movants’ argument is that “a de facto exemption in taxation” is not unconstitutional because “the general constitutional principle that the legislature cannot do indirectly whatever it is forbidden to do directly” does not “appl[y] to the field of taxation.”
On the contrary, there is no constitutional difference between a tax case and any other. We are not free to ignore the plain meaning of the words providing a constitutional limitation on taxation, any more than we are at liberty to do so elsewhere in the Constitution. As stated in 71 Am.Jur.2d, State and Local Taxation, § 310 (1973):
“When the state constitution limits the power of the legislature to grant tax exemptions, it will not be permitted indirectly to grant an exemption which it is precluded from granting directly.”
A de facto exemption is no more constitutional than a de jure exemption.
The movants’ position is best described simply as frustration with the failure of the people of Kentucky to amend their constitution to permit the General Assembly to exempt property when persuaded that to do so will advance some perceived state economic interests. In sum, the movants concede that the one mil tax rate on un-mined coal is a de facto exemption, but argue that: (1) “[o]n its face, KRS 132.-020(5) does not contravene Section 174 of the Kentucky Constitution”; (2) the reason behind the 1891 constitutional restrictions forbidding property tax exemptions “no longer exists”; and (3) therefore the General Assembly should be permitted to manipulate the state property tax in its unfettered discretion to “promote competitive conditions and to equalize economic advantage as with other taxes not subject to the same constitutional restrictions.”
The nature of the movants’ legal argument can be understood from a sentence in the Conclusion to the Brief filed by the Revenue Cabinet:
“If the General Assembly decides to tax certain property at one mil per one hundred dollars of value, then those who don’t like that policy must turn to the ballot box, not to the courts.”
However, when the issue is the Constitution the law is exactly the opposite. It is written in the Constitution that no property shall be legislatively exempted from taxation and the people have the right of redress to the court to enforce this principle. It is those who wish to change this constitutional principle, and not those who can persuade the General Assembly to enact an exemption, who must “turn to the ballot box, not to the courts,” by seeking a constitutional amendment. The power of the people to challenge the constitutionality of tax legislation in the courts is established by Russman v. Luckett, Ky., 391 S.W.2d 694 (1965). Short of constitutional amendment, the people are not restricted to registering their complaint at the ballot box or to engaging in a tug of war with special interest groups in the halls of the legislature. The constitution is the first line of protection for our people, not the last line of retreat.
*369In Commonwealth v. O’Harrah, supra, when faced with a statute that violated the terms of the constitution although arguably of great public benefit, we said:
“Constitutional provisions, whether operating by way of grant or limitation, are to be enforced according to their letter and spirit, and cannot be evaded by any legislation which, though not in terms trespassing on the letter, yet in substance and effect destroy the grant or limitation.” 262 S.W.2d at 389.
We stated the rule is that “[t]he courts may not countenance an evasion or even an unintentional avoidance of our fundamental law.” Id. This rule applies even if the General Assembly is persuaded that the legislation serves the state’s economic interests, and even though the legislation would appear to have popular support. Constitutional validity is not decided by a popularity contest.
The central fact in this case is that the format for state property taxes, including restrictions and limitations, is constitution-alized. The words of the Constitution are clear in their meaning: all property must share in the tax burden (“shall be taxed in proportion to its value”) and there shall be no exemptions except those expressly enumerated in the Constitution. The record of the Convention bears this out:
“[T]he more we investigated it the more clearly it appeared to us that all exemptions, other than the property of the Government, were wrong. An exemption is a tax levied on a part of the citizens who have no interest in it, for the benefit of others who have....
A certain amount of money must be raised to meet the expenses of the State. If the burden is borne equally by all, it rests lightly on all. If you exempt one piece of property, the sum to be raised remains the same, and you thereby increase the taxes on every other piece of property.” 2 Debates Constitutional Convention 1890, 2882.
The 1890 Constitutional Convention would never have been held except for the people’s desire to protect themselves from legislation providing special privileges and immunities in general, and property tax exemptions in particular:
“[L]ook at the ponderous volumes of private acts passed by our Legislature within the last few years, and enumerate the horde of railroad and other corporations which have been exempted from taxation, and allowed a variety of other special privileges, while battening like vampires upon the substance of the people....” 1 Debates Constitutional Convention 1890, 466.
“[E]xcept for the vicious legislation and the local and special laws of all kind and character passed by the Legislatures that have met in Kentucky for the last twenty years, that no proposition to call a Constitutional Convention could ever have received a majority of the votes of the people of Kentucky.” 1 Debates Constitutional Convention 1890, 1482.
We have been confronted with nonjudicial arguments advanced to uphold this legislation in the face of the constitutional challenge. The essence of these arguments is that the constitutional plan for state property taxes is outmoded and should be circumvented to permit the General Assembly to create de facto exemptions to further the state’s economic development, and that separate classification and de facto exemption of unmined coal “is justified because of its economic importance to the state.” The Revenue Cabinet argues that “the framers of the Constitution never imagined that the complex economics of a future day would require more exemptions” than the Constitution authorizes. These arguments are simply beside the point. Our Court must occasionally interpret the Constitution, but where its meaning is clear it has only the duty to enforce it. The Revenue Cabinet’s Brief states:
“We have always freely admitted that in creating the one mil rates the legislature was probably trying to avoid the constitutional ban on exemptions. We make that admission because there is nothing wrong with trying to avoid outdated con*370stitutional provisions.” [Emphasis added.]
Neither the General Assembly nor this Court has the power to decide when constitutional provisions are “outdated.” This is not a question for the General Assembly to decide in the name of public policy, nor for the judiciary to vote up or down. Constitutional protections and limitations are the law until they are changed by the process of constitutional amendment.
As the trial court so stated, and the Court of Appeals affirmed, the one mil property tax rate when applied to unmined coal in KRS 132.020(5) is an exemption and not a rate, and as such violates our Kentucky Constitution. It is contrary to Sections 174, 170 and 3. Our Courts should declare it so now, in this opinion, rather than leaving the subject open for future debate in the halls of the legislature.
Further, the questions of whether the one mil rate for unmined coal is in fact an unconstitutional exemption and whether the classification was arbitrary and unconstitutional are so interrelated that they cannot be properly decided separately.