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Circuit Court Finds Budget Bill Imposing Tax On Cigarette Papers Violate Kentucky Constitution


In North Atlantic Operating Co., Inc. v. Commonwealth ex rel. Dept. of Revenue, Civil Action No. 07-CI-00517 (Franklin Cir. Ct., Div. II), the Franklin Circuit Court held that a provision imposing an excise tax on cigarette papers violated Section 51 of the Kentucky Constitution because it was set forth in 2006 H.B. 380, the Biennial Budget for the Commonwealth of Kentucky.

The 2006 General Assembly enacted H.B. 380, the Biennial Budget for the Commonwealth, which in its over 600 pages, purported to amend Kentucky’s general cigarette tax statute to impose an excise tax on cigarette papers. Cigarette papers were previously not taxed in Kentucky. The Plaintiffs challenging the provision alleged numerous violations of the Kentucky Constitution as well as a statutory provision.

Although the Court noted that it had previously decided a similar case involving the same Budget Bill [American Express Travel Related Services, Inc. v. Commonwealth, Case No. 06-CI-1151 (Franklin Cir. Ct. Div. II)], the Court addressed the specific issues and facts as presented in this case.

The Court explained that Section 51 of the Kentucky Constitution prohibits the General Assembly from passing laws related to more than one subject, as well as passing a revision, amendment or extension to a law by reference to its title only. The Court indicated that Section 51’s purpose is to prevent logrolling legislation and acts as a prohibition against omnibus legislation.

The Court held that H.B. 380 plainly embraced multiple constitutionally distinct subjects, both in its title and its text, i.e., that “Revenue” and “Appropriations” are two distinct subjects. In so holding, the Court observed that “We believe this is the very evil the framers sought to prohibit when drafting Section 51.” 

The Court went on to find that the legitimate purpose of a Biennial Budget Bill is limited to making appropriations; however, the tax provision at issue was in no way related to making appropriations. Rather, the provision at issue was a new revenue generating measure which purported to tax cigarette papers.

As the provision violated Section 51, the Court permanently enjoined enforcement of the tax at issue.

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