The Kentucky Supreme Court has held that a taxpayer must appeal to the Kentucky Board of Tax Appeals to resolve as-applied constitutional and administrative challenges before a Circuit Court can make a finding on AT&T Corporation’s challenge to the constitutionality of attempted amendments to a statute as void on their face. Commonwealth of Kentucky v. AT&T Corporation, 2013-SC-000800-DG (June 11, 2015).

AT&T had filed refund claims with the Kentucky Department of Revenue pursuant to KRS 139.505 in 2004 for tax years 2002 and 2003. In 2008, AT&T filed refund claims for 2004 through 2008. AT&T alleged that the Department had never formally denied its refund claims, which meant the company could not appeal to the KBTA. AT&T and the Department had written letters back and forth from 2005 through 2011, with the Department continuing to request additional information from the company. In 2011, AT&T filed a declaration of rights action in Jefferson Circuit Court alleging various causes of action. One count involved a facial constitutional challenge under Section 51 of the Kentucky Constitution. AT&T argued that various amendments to KRS 139.505 that were included in the budget bills violated Section 51’s “one subject” provision. The other counts involved unconstitutional as-applied challenges and other administrative claims. The Jefferson Circuit Court dismissed the case for failure to exhaust administrative remedies, ruling that although the KBTA did not have jurisdiction to decide the Section 51 claim, the KBTA must first rule on the as-applied constitutional and administrative claims before the Circuit Court could address the facial constitutional challenge under Section 51. AT&T appealed the case to the Court of Appeals which remanded the case to the trial court to decide only the Section 51 claim.

AT&T appealed to the Kentucky Supreme Court. The Court reversed the decision of the Court of Appeals, holding that the factors set forth in W.B. v. Commonwealth, Cabinet for Health and Family Services, 388 S.W.3d 108 (Ky. 2012) weigh in favor of requiring AT&T to first exhaust administrative remedies. The Court explained that the administrative record was undeveloped regarding several issues, including whether the refund claims were timely filed, whether AT&T had properly documented the refund applications, and whether AT&T’s refund claims all fell under KRS 139.505. Without this information, the Court determined, the action was not ripe for review. The Court therefore reinstated the Jefferson Circuit Court’s order of dismissal.