In Commonwealth of Kentucky, Finance & Administration Cabinet v. Hagerman, Judge & OVWD, Inc., No. 23-013-SC-000624-MR (Ky. Sept. 18, 2014), the Kentucky Supreme Court affirmed a Kentucky Court of Appeals order denying the Kentucky Department of Revenue’s (“Department”) petition for a writ seeking to prohibit a circuit court from exercising jurisdiction in a declaratory judgment suit.
The underlying action was brought by the real party in interest, OVWD, Inc. (“OVWD”) and alleged violations by the Department of the Kentucky and U.S. Constitutions. In seeking the writ, the Department requested that the Court of Appeals dismiss the circuit court case with prejudice. The Court of Appeals denied the writ, holding that the Department’s petition was not ripe because the Department first needed to seek relief with the trial court. The Department appealed to the Supreme Court, arguing that the case dealt with unusual circumstances for which a dismissal at the trial court level would not be an adequate remedy, and the Court of Appeals therefore erred in not granting extraordinary relief.
In the underlying case, the Department issued notices of tax due for cigarettes and other tobacco products assessing excise taxes on cigarettes sold to out-of-state customers, and OVWD protested alleging, inter alia, that the assessment violated the Kentucky and U.S. Constitutions. Before the Department issued a final ruling on OVWD’s protest, OVWD filed a declaratory judgment action in Boyd Circuit Court, seeking a ruling that the Department had assessed the tax illegally. The Department petitioned the Court of Appeals for a writ, arguing that OVWD had deliberately ignored the requirement that a taxpayer must exhaust their administrative remedies before filing a suit in circuit court. The Court of Appeals found in favor of OVWD, holding that because the trial court did not have a chance to review any of the issues in the case, the Department’s petition for a writ was premature.
The Supreme Court agreed with the Court of Appeals, noting that the procedure for obtaining a writ is subject to strict rules. The Supreme Court held that the trial court did have jurisdiction to consider the jurisdictional question at issue pertaining to exhaustion of administrative remedies. The trial court had the power to decide the Department’s issues and the Court of Appeals did not yet have jurisdiction to rule on those questions. The Department could obtain all of the substantive relief it sought at the trial court level and if the Department was not satisfied with a result there it could then appeal to the Court of Appeals.