I. Governor Abolishes the KCC and Reinstates the KBTA

On August 31, 2020, Governor Andy Beshear issued an executive order abolishing the Kentucky Claims Commission (KCC) and reinstating the Kentucky Board of Tax Appeals (KBTA) as part of a reorganization of the Public Protection Cabinet.

The Board of Tax Appeals will consist of a three-member panel, each appointed by the Governor and serving staggered terms of 4 years with the possibility of one reappointment. The Governor shall designate one member as the chairperson. To qualify as a member of the Board of Tax Appeals, a person must be at least 35 years of age, with one member being an attorney having the same qualifications required of candidates for a Circuit Judge with the other two members having a general business background.

The KBTA will be tasked with exclusive jurisdiction to hear and determine tax appeals from final rulings, orders, and final determinations of any agency of state or county government which affects review and taxation, with all appeals being heard by the full board. The KBTA will also take over all cases currently pending before the KCC. Final rulings of the KBTA may be appealed to the appropriate Circuit Court, though full payment or a bond may be required prior to review.

The change comes only four years after the initial formation of the KCC. Gov. Beshear cited to “efficiency and economy of the government and more effective delivery of services” as rationale for the change, which includes the formation of the Office of Claims and Appeals. The Office of Claims and Appeals shall comprise three administrative boards: The Board of Tax Appeals, the Board of Claims, and the Crime Victims Compensation Board. As further explanation, the Governor noted that the KCC created inefficiencies in the resolution of tax appeals, with a backlog of approximately 60 cases. This backlog impacts both the Commonwealth’s ability to raise revenue and taxpayers’ due process rights.

II. Kentucky Taxes & COVID-19

As did many states and the federal government, Kentucky responded to the Coronavirus pandemic by extending tax filing and payment deadlines earlier this year, pausing collection activity, and providing other relief. In addition, many of the Kentucky Department of Revenue’s (“Department”) programs and services were altered or interrupted as a result of government office closures and health and safety mandates. Following are elements of the relief provided that may be of note to business taxpayers.

A. Department Adopts IRS Income Tax Relief and Filing Dates Extension

Pursuant to Kentucky Senate Bill 150, the Department adopted the income tax relief set forth by the IRS in Notice 2020-18, Notice 2020-20 and Notice 2020-23. The relief includes delaying income tax return filings and income tax payments due on April 15, May 15, and June 15 to July 15, 2020. Further, penalties, fees and interest related to the income tax filings and payments due on July 15, 2020 will begin on July 16, 2020. The relief applies to individual, corporate, limited liability, fiduciary, and pass-through filers with filing deadlines between April 15, 2020 and July 15, 2020.

For filers who submit an automatic return filing extension, the due date for returns which were originally due on April 15, 2020, extended to July 15, 2020, is now October 15, 2020. Though, for C corporation, the extension due date is now November 15, 2020. For returns originally due May 15, 2020 (now July 15, 2020), the extension due date is now November 15, 2020, December 15, 2020 for C corporations. Similarly, for returns previously due June 15, 2020 (now July 15, 2020), the extension due date is now December 15, 2020, January 15, 2021 for C corporations.

B. Department Suspended Enforced Collection Action

Due to the COVID-19 state of emergency, on April 15, 2020, the Department suspended all actions for the enforcement of collections. The Department issued guidance stating that taxpayers receiving a “Final Notice Before Seizure”, which encourages them to pay outstanding debt within 60 days, should note that the letters are generated automatically.

C. Suspension of In-Person Services and Encouragement of Online Filing

On March 16, 2020 the Department suspended in-person services, stating that it would no longer receive walk-in customers seeking assistance for tax filing, collections, or any other tax-related issues. All scheduled appointments were cancelled.

Further, on March 31, 2020, the Department announced that it encourages taxpayers who might be used to submitting paper sales tax returns and payments via paper check to utilize the Department’s electronic filing and payment systems.

D. Extension of Real Property Tax Appeal Period

In a typical year, the inspection period for the real property tax roll begins the first Monday in May and runs for thirteen days. Due to the COVID-19 State of Emergency, on April 3, 2020 the Department of Revenue issued a Memorandum to all Kentucky property valuation administrators delaying the inspection period by 60 days. Though most jurisdictions began their inspection periods on July 6, 2020, the specific dates of the inspection period and COVID-19 procedures may vary depending on the county.

All of the Department’s Coronavirus updates can be found at revenue.ky.gov/Pages/2019NovelCoronavirus.aspx.

III. 2020 Legislative Changes

House Bill (HB) 351 enacted several tax changes of note, which are further described below. Governor Beshear initially vetoed the bill, but the Kentucky Legislature overrode his veto to enact the bill into law.

Conforming Kentucky Law to New Federal Partnership Audit Regime

HB 351 added new provisions conforming Kentucky law to the new federal partnership audit regime for partnership tax. These changes create a new partnership level for tax assessments. Gov. Beshear initially vetoed these parts on the basis that the amendments “do not sufficiently provide for the interplay between the new [federal] rules and current Kentucky partnerships [sic] taxation”, according to his veto message. Specifically, the Governor noted several “deficiencies”, including “unclear provisions regarding allocation and apportioning the income from a federal audit adjustment of a multistate business, the application of limited liability pass-through credits following a federal partnership level audit adjustment, and the effect of inconsistent state laws on multistate partnerships.” Though, as noted above, the Kentucky Legislature overrode the Governor’s veto, and the provisions were enacted into law.

Sales Tax Exemption for Machinery Used in Distilleries and Breweries

The definition for “machinery for new and expanded industry” exempt from sales tax was expanded to include machinery used for the processing of distilled spirits, wine, or malt beverages at a distillery, winery or microbrewery that includes a retail store on the premises. Gross receipts from the sale of such machinery as well as labor or services charges to install, repair, or maintain the same are also exempt from the calculation of sales tax.

New Vapor Products Tax

Effective August 1, 2020, a vapor products tax will be imposed on both closed vapor cartridges at a rate of $1.50 per cartridge and open vaping systems at a rate of 15% of the distributor’s sales price. A closed vapor cartridge means “a pre-filled disposable cartridge” which contains a substance, either with or without nicotine, which is consumed during vaping and is intended to be used with electronic smoking devices. An open vaping system means “any noncombustible product that employs a heating element, battery, power source, [etc.]” which “uses a refillable liquid solution to deliver vaporized [substances]” such as electronic smoking devices like e-cigarettes. Open vaping systems include component parts and accessories as well as liquid solution intended to be used with the product. Products regulated as a drug or device by the U.S. Food and Drug Administration are not subject to either tax. Kentucky had previously not imposed a vapor products tax, so distributors who do not currently have a tobacco license must register and obtain one.

New Tax Credit for Farmers

The selling farmer tax credit program grants farmers wanting to sell agricultural assets to beginning farmers a tax credit equal to five percent of the selling price of the agricultural assets. The stated purpose of the program is “to promote the continued use of agricultural land in Kentucky for farming purposes.” To be eligible for the credit, the selling farm must be a small business with fifty or fewer full-time employees and not already in the business of being a farm equipment or livestock dealer nor otherwise “not engaged in farming as a primary business activity.” The amount of the credit is subject to a $25,000 cap for each taxable year and a $100,000 lifetime cap for each selling farmer.

Creation of Severance Tax Refund for Coal Industry

HB 351 created a severance tax refund for those engaged in severing or processing coal when the coal is transported to a market outside North America. The taxpayers must first pay the tax under KRS 143.020, but may apply for a refund equal to the amount of tax paid with documentation showing the coal was directly transported to a market outside of North America.

Golf Course Admissions of Non-Profits Exempt from Sales Tax

HB 351 clarified that while admissions are generally subject to sales tax, sales of admissions by non-profit organizations, including the sales of admissions to a golf course as a part of a fundraising event, are exempt from sales tax. The amendment notes that all other sales of admission to a golf course which are not the result of a fundraising event would not be exempt from sales tax.

Increased Transparency in Property Tax Administration

HB 351 amended KRS 133.225 to require the Department to make certain information concerning property taxes widely available to the public on its website, including explanations of the processes for assessing property values, setting the state and local tax rates, and property tax collection. The Department is further required to include direct links to local county offices which provide additional information on the administration of property taxes within the district. This required information must be included on every notice of assessment and property tax bill sent to a taxpayer in the form of a website address.

IV. Select Case Updates

Ohio and Testa v. Great Lakes Minerals, LLC, 597 S.W.3d 169 (Ky. 2019), reh’g denied (Apr. 30, 2020) – Out-of-State Tax Assessments – Sovereign Immunity

The issue here is whether a Kentucky taxpayer can contest an out-of-state assessment in Kentucky. So far the answer is no, but the taxpayer is asking the United States Supreme Court to weigh in.

The Kentucky Supreme Court provided the background for its holding in Ohio and Testa v. Great Lakes Minerals, LLC, 597 S.W.3d 169 (Ky. 2019), reh’g denied (Apr. 30, 2020):

Great Lakes … is a mineral processing company that sells minerals to buyers at its Greenup County, Kentucky plant. Great Lakes maintains that it sells its products in Kentucky; all transactions, including payment and delivery of goods, occur in Kentucky; Great Lakes does not have a physical presence in Ohio; and Great Lakes neither directly nor indirectly delivers its products to the State of Ohio.

From a taxpayer’s perspective, one can sympathize with Great Lakes. It’s a 100% Kentucky company and neither directly nor indirectly delivers its products to Ohio. Why then Great Lakes asks should it be forced to go to Ohio to contest an assessment? From Ohio’s perspective, the State of Ohio imposes its CAT tax and provides procedures to contest a CAT assessment issued by Ohio:

Stated very simply, Ohio has created a commercial activity tax (CAT) that taxes persons who do business and have a substantial nexus to Ohio. O.R.C.2 5751.02(A). Ohio’s Department of Taxation (Department) may issue a CAT assessment to an out-of-state business for outstanding liability to Ohio arising from transactions with an Ohio company. Businesses are provided administrative remedies to protest CAT assessments to the Tax Commissioner of Ohio, then the Ohio Board of Tax Appeals, and then the Ohio appellate courts. O.R.C. 5751.09; O.R.C. 5717.02; ORC 5717.04.

Great Lakes petitioned the United States Supreme Court in July 2020 to grant certiorari to review the Kentucky Supreme Court’s published decision. Interestingly, the Kentucky Supreme Court heard the appeal directly from Greenup Circuit Court where Great Lakes sued the State of Ohio and Joseph W. Testa, Ohio’s Tax Commissioner, in his official and individual capacities. Great Lakes sought: (1) a declaratory judgment that it is not subject to Ohio’s CAT; (2) monetary relief pursuant to 42 U.S.C. § 1983 for the forced collection of taxes not owed, in violation of the Ohio and United States Constitutions; and (3) a determination that it would be inequitable to require Great Lakes to defend an action in Ohio, a foreign state. Ohio and Testa moved to dismiss Great Lake’s Complaint, which the Circuit Court denied, and so, Ohio moved to transfer the case directly to the Kentucky Supreme Court, which considered the appeal of Ohio and Testa, focusing on sovereign immunity and comity and thus not reaching the merits of Great Lake’s claims.

The Kentucky Supreme Court, citing Franchise Tax Bd. of California v. Hyatt, 139 S. Ct. 1485 (2019), held that “the State of Ohio is protected by sovereign immunity, and Great Lakes’ claims against it should have been dismissed.” Citing to Kentucky v. Graham, 473 U.S. 159 (1985), the Court held that, “Testa is entitled to the same sovereign immunity that protects the state of Ohio, and therefore Great Lakes’ claims against him in his official capacity should have been dismissed.” The Court then turned to whether immunity protected Commissioner Testa in his personal capacity. It held, “[W]e believe that Ohio’s state courts are better suited to efficiently evaluate and apply Ohio law to this issue. Should the case progress further, Ohio’s courts would also be better suited to evaluate the facts, and to consider whether Testa caused the deprivation of a constitutional right while acting under the color of Ohio state law. Accordingly, relying on the principle of comity, we hereby dismiss Joseph Testa in his personal capacity.”

Great Lakes’ Petition for Certiorari to the United States Supreme Court asks three questions. Two of the questions focus on Great Lakes’ claims against the Ohio Tax Commissioner and the Kentucky Supreme Court’s holding that dismissed them, i.e., whether a state’s sovereign immunity extends to a state official sued in their individual capacity and whether comity supports a dismissal. Should the United States Supreme Court take up this case, it would generally open the door to in-state lawsuits against out-of-state tax officials. That would upend the status quo.

Great Lakes’ other question asks, “Whether an individual or business that does not have sufficient minimum contacts to be subject to the jurisdiction of a foreign state may seek declaratory or injunctive relief within their home state.” Great Lakes describes the underlying action as “a Kentucky action for Declaratory and other equitable relief to determine whether a Kentucky company has minimum contacts or a substantial nexus with the State of Ohio to be subject to a foreign tax.” Great Lakes argues, “To allow a Kentucky court to determine the minimum contacts issue now, rather than years from now, benefits all parties by preventing unnecessary years of litigation costs.”

The taxpayer’s Petition distinguishes this case from the Hyatt decision, arguing that Great Lakes should be permitted to defend itself in Kentucky:

The Court’s decision in Franchise Tax Bd. of California v. Hyatt, 129 S.Ct. 1485 (2019) clearly prohibits an individual or business from using the courts of its home state to offensively seek monetary redress against another state, but the question in this case is whether an individual or business can file a defensive equitable action to prohibit unconstitutional wrongs being committed against it in its home state. The equitable resolution and decision based upon the precedent of each of the states involved and the federal courts, is that Great Lakes should be permitted to defend itself in Wurtland, Kentucky.

The United States Supreme Court accepts state cases that have decided an important federal question in a way that conflicts with the decisions of state high courts or federal courts of appeal or with its decisions. It seems that the issues in this case are important, given that the Kentucky Supreme Court granted a direct appeal. But, do they conflict with other decisions? Great Lakes argues that they do. On the other hand, Ohio believes otherwise and indicated that it would not respond to Great Lakes’ certiorari petition.

Kroger Ltd. P’ship I v. Boyle Cty. Prop. Valuation Adm’r, No. 2019-CA-000935-MR, 2020 WL 4722042 (Ky. App. Aug. 14, 2020) – Property Tax – Evidentiary Rules

In Kroger Ltd. P’ship I v. Boyle Cty. Prop. Valuation Adm’r, No. 2019-CA-000935-MR, 2020 WL 4722042 (Ky. App. Aug. 14, 2020), the Kentucky Court of Appeals considered Kroger’s appeal of the assessment value of one of its stores for real property tax purposes and in so doing laid out evidentiary rules for a real property tax case at the Kentucky Claims Commission.

As to evidence, Kroger offered the expert testimony and appraisal report of a certified property appraiser employing two approaches to value the property: the sales comparison approach and the income approach. The PVA presented testimony of the PVA who relied on a summary report prepared by the Kentucky Department of Revenue using a cost approach.

The Court of Appeals opined that the PVA’s valuation is an evidentiary presumption that must be presumed correct unless rebutted by competent evidence. Once Kroger presented such evidence, i.e., the expert testimony and appraisal report, the presumption disappeared. Kroger not only presented evidence supporting a contrary value, but also presented evidence which cast doubt on the assumptions relied upon in the PVA’s assessment. Kroger’s evidence was sufficient to rebut the statutory presumption of the validity of the PVA’s assessment. Nevertheless, Kroger retained the ultimate burden of proof and risk of non-persuasion to establish the value of the property. As long as the PVA relied upon a properly supported valuation, the Commission was not obligated to accept the valuation provided by Kroger’s expert. However, the Court of Appeals agreed with Kroger that the PVA failed to carry its burden of going forward with evidence to establish that the PVA’s valuation of Kroger’s property was competent and reliable. Accordingly, the Court held for Kroger.

In Kroger v. Boyle PVA, the Court of Appeals also provides a concise summary of evidentiary rules applied to a typical real property tax dispute.

Century Aluminum of Kentucky, GP v. Dep’t of Revenue, No. 19-CI-00424 (Franklin Cir. Ct. Feb. 3, 2020), on appeal, 2020-CA-0301 – Sales Tax – Manufacturing Exemption

Manufacturing sales tax exemptions are always a hot issue. Currently, the Court of Appeals is considering, Century Aluminum of Kentucky GP v. Dep’t of Revenue, which concerns the manufacturing supplies exemption. The case was appealed from the Franklin Circuit Court, which reversed the Final Order of the Kentucky Claims Commission (“KCC”) and found that the items were subject to Kentucky sales and use tax.

The taxpayer in this case, Century Aluminum of Kentucky, GP (“Century”), manufactures aluminum at its Kentucky facility. The Kentucky Department of Revenue had initially denied the refund request for the sales tax paid on anode stubs, inductotherm lining, thermocouples and tube assemblies, and welding wires and industrial gases on the basis that the items were repair, replacement or spare parts, which are specifically excluded from sales tax exemption.

Century appealed the Department’s decision to the KCC, arguing that the items were not subject to Kentucky sales and use tax as tangible personal property for direct use in manufacturing or industrial processing and that the Department failed to distinguish between supplies and parts intended to be used up in the manufacturing process and supplies and parts which wear out and are subject to replacement. The KCC held for Century and adopted Century’s four part test which compares the useful life of the item at issue when the machine or equipment it allegedly maintains is operating with and without the introduction of the product being manufactured. If there is a difference in the useful life of the item, then the item is being consumed in the manufacturing process; if not, then the item is a repair or replacement part.

The Department appealed the Final Order of the KCC to the Franklin Circuit Court, which rejected this test, stating that it “ignores the fact that all tangible personal property used in the manufacturing process wears down or is used up” and that it would “exempt nearly all tangible personal property used in the manufacturing process from the sales and use tax, which is clearly not the intent [of the exemption].” Rather, the Court concluded that “the proper test is whether the items are introduced into the manufacturing process to maintain, restore, mend, or repair a machine or equipment, or whether the items…are used up or consumed as a consequence of their involvement in the manufacturing process.”

Accordingly, the Franklin Circuit Court reversed the decision of the KCC, siding with the Department in finding that the items at issue were repair, replacement or spare parts subject to sales tax since the items were “used to restore anode assemblies into working components so that they can be reintroduced for the manufacturing process” according to one of Century’s expert witnesses, who repeatedly stated that the items were used to “maintain” and “restore” the assembly process.

Stanford Water and Sewer Comm’n v. Lincoln County, et. al, No. 18-CI-00062 (Ky. App. Sept. 11, 2020) – Local Tax – Jurisdiction

This decision by the Kentucky Court of Appeals concerned the validity of a county ordinance which imposed a $4.00 fee on all active water service within the county for the purpose of funding the county’s emergency 911 services. Specifically, the ordinance required any entity operating a water distribution system within the county to collect the fee from its consumers and remit it to the county.

Cities within the county alleged that the ordinance was unlawful on the basis that KRS 96.170 grants cities exclusive authority to regulate the price of water and that the county could not require water companies to collect the additional fee.

Affirming the judgment of the Lincoln Circuit Court, the Kentucky Court of Appeals upheld the ordinance as valid under Kentucky law. The Court determined that KRS 96.170 was a basic grant of authority that did not specifically grant cities exclusive jurisdiction over water prices and that it did not prohibit other governmental entities from adding a tax or fee to the price of water, so long as the governmental entity had such authority. The Court found that the county had such authority under KRS 65.760 which grants the county wide latitude to provide public services and enact ordinances to carry out public functions, including the provision of hospitals, ambulance services, and police and fire protection.

Because the additional water fee was for the funding of 911 services, which involved hospitals, ambulance services, and police and fire protection, KRS 65.760 allows for the imposition of the fee since it is not limited by any other statute. Citing to prior case law, the Court found that “any limitation cannot be implied and must be an express restriction.”

Agree Hazard KY, LLC dba Walmart v. Perry County Property Valuation Administrator & Perry County Board of Assessment Appeals, No. K17-S-163 (KCC May 22, 2019), on appeal, No. 19-CI-00285 (Perry Cir. Ct. June 21, 2019) – Property Tax

In Agree Hazard KY, LLC dba Walmart v. Perry County Property Valuation Administrator & Perry County Board of Assessment Appeals, No. K17-S-163, the Kentucky Claims Commission (“Commission”) reversed the Perry County Board of Assessment Appeals (“BAA”) and found that the subject property located in Hazard, Perry County, Kentucky, should be assessed using a value derived from the contract rent generated on the property and noted that such contract rent was a vital factor and must be considered when assessing the property. Such a finding was a notable departure from the recommendations from the Hearing Officer, who had found the contract rent to be above-market and thus inapplicable.

Walmart’s appraiser evaluated the fair cash value of the subject property (both leased fee and fee simple) using the sales comparison approach and the income approach. After appropriately adjusting and weighing both approaches, he determined that the 2017 value of the leased fee estate was $23,225,000 and the 2018 value of the leased fee estate was $22,500,000.

The PVA testified that the 2017 and 2018 assessments were entirely based on the consideration stated in the December 2015 deed. Moreover, the PVA admitted that they did not make any attempts to determine the fair cash value of the property and did not conduct any market research to determine changed market conditions from December 2015 to January of 2017 or 2018. Ultimately, the PVA’s fundamental position was that the consideration stated in the December 2015 deed was an adequate justification of the assessment of the fair cash value of the property in 2017 and 2018. The Hearing Officer stated: “[T]his position implies that consideration, in all cases, is equivalent to the fair cash value. This is not the case. KRS 382.135 makes clear that “consideration” and “fair cash value” are not interchangeable terms.” The Hearing Officer recommended that the property be valued at $10,000,000 for 2017 and $9,700,000 for 2018.

The Commission adopted the majority of the recommendations set forth by the Hearing Officer, but diverted sharply on the final valuation of the subject property. In contrast to the Hearing Officer, the Commission, stated, “the contract rent generated and realized on this property should not be disregarded when assessing this property.” Furthermore, the Commission also concluded that the fair cash value is best represented and derived using a leased fee valuation. The Commission then reversed the BAA and ordered the retail building to be assessed at a fair cash value of $23,225,000 for 2017 and $22,500,000 for January 1, 2018. The case is currently on appeal before the Perry County Circuit Court.

Kentucky Supreme Court Review denied in Rent-A-Center

The Kentucky Supreme court declined to review Dep’t of Revenue, Fin. & Admin. Cabinet v. Rent-A-Ctr. E., Inc., No. 2017-CA-001653-MR, 2019 WL 3059900 (Ky. App. July 12, 2019), review denied (July 1, 2020); that case involved a taxpayer’s use of the methodology of a settlement agreement with KDOR. Taxpayer argued that it could rely on a prior settlement agreement with the KDOR as reasonable cause for taking a position consistent with the settlement. However, neither the Department nor the Kentucky Court of Appeals agreed.

Kentucky Supreme Court Review pending in Ridge

The Kentucky Supreme Court is still considering whether it will review Ridge v. Fin. & Admin. Cabinet, Dep’t of Revenue, No. 2018-CA-001517-MR, 2019 WL 3850790 (Ky. App. Aug. 16, 2019); the Ridge case involves the question of whether Kentucky can tax the severance income of a Tennessee-resident former employee who was based in Kentucky when employed. For 10 years, a Tennessee resident maintained employment with his employer in Kentucky. When his employment ended, he received a severance agreement which included a non-compete and non-solicitation clause. His employer withheld Kentucky state income taxes, and the taxpayer sought a refund. The Court of Appeals held that severance payments to a nonresident former employee in exchange for non-compete and non-solicitation agreements were properly subject to Kentucky income tax. The Court held that such payments are considered wages for federal income tax purposes and thus subject to withholding in Kentucky. After his retirement, the taxpayer received biweekly payments in exchange for being bound by non-compete and non-solicitation agreements. He argued that the payments were paid post-retirement and were not connected to any Kentucky activities. However, the Court of Appeals disagreed with the taxpayer and held that severance payments are made in consideration of employment and thus are wages and subject to Kentucky income tax.

Haier US Appliance Solutions, Inc. v. Jefferson Co. PVA, et al., No. K17-S-105, Order No. K25929 (KCC June 25, 2019), appealed, No. 19-CI-4516 (Jefferson Cir. Ct. July 24, 2019)– Property Tax

PVA Assessed Property $123,091,000 based on the value of deed. The hearing officer in the case proposed a recommended order reversing the PVA’s assessment and valuing the property at an appraisal value of $27,300,000. The KCC final order rejected the recommended order, finding that the consideration written in the deed is generally consistent with the fair market value reported to the IRS and for financial accounting purposes, and that the consideration recited in the deed was supported by an appraisal obtained by or at the direction of the taxpayer. Accordingly, the KCC affirmed the PVA’s assessment.

Grant County Board of Education v. Ark Encounter, LLC, No. 19-CI-00204 (Grant Cir. Ct. July 29, 2020, affirming, File No. K18-S-15, Final Order No. K-25927 (KCC May 31, 2019) – Property Tax – Standing to Appeal Assessment

The Board of Education (BOE) attempted to appeal PVA’s tax assessment of Ark Encounter property assessed at $48 million, alleging a value of $130 million. The KCC dismissed the BOE’s appeal for lack of standing under the statute since the BOE was not a taxpayer or an aggrieved party, while also noting that historically this has never been done. On appeal to the Grant County Circuit Court, the parties entered an Agreed Order affirming the Final Order of the KCC.

Dep’t of Revenue v. Shepherd, No. 2019-SC-000104-MR (Ky. Feb. 20, 2020)

The Kentucky Department of Revenue filed a petition for a writ of prohibition in the Court of Appeals to prohibit the Franklin Circuit Court from requiring KDOR to disclose what KDOR considered to be confidential taxpayer information. In the underlying case, a Kentucky non-profit mutual ownership corporation that manages, operates, acquires, and owns housing units sued a utility seeking a declaratory judgment that the non-profit was exempt from state sales tax on utilities. The utility requested a Technical Advice Memorandum (TAM) from KDOR but KDOR issued a Private Letter Ruling (PLR) instead, finding that the utility services were commercial, not residential, so that the utilities were not tax exempt. The non-profit served KDOR with a complaint and sought the TAM request letter. KDOR sought a protective order which the Circuit Court initially denied but then after KDOR sought a writ from the Court of Appeals, vacated its own order as moot, since the non-profit had obtained the KDOR-related documents from the utility. Because of this, the Court of Appeals denied KDOR’s petition for writ as moot. But, KDOR appealed to the Kentucky Supreme court arguing that exceptions to the mootness doctrine applied. The Kentucky Supreme Court, however, held that neither the capable of repetition, yet evading review nor the public interest exceptions applied.

One can discern from this case that KDOR will strongly resist turning over what it considers to be taxpayer information. Interestingly, had KDOR issued a TAM instead of a PLR, KDOR would have presumably posted the TAM on its website. And, under KDOR Revenue Procedure KY-RP-19-03 (Oct. 1, 2019), a redacted version of the PLR would have been posted on KDOR’s website, though this would not have been the case for PLR’s issued prior to October 1, 2019.