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Kentucky Court of Appeals Determines the Proper Application of City and County Ordinances Which Impose Occupational License Fees Against its Residents

12.16.2010

In Knox County, et al. v. City of Corbin, et al., 2009-CA-001259 (Ky. App. Oct. 8, 2010), the Kentucky Court of Appeals held that KRS 68.199(4), which concerns the determination of a county's population for purposes of imposing county and city occupational license fees, should not be applied retroactively.  In addition to resolving other procedural issues, the Court also determined that a settlement agreement between Barbourville and Knox County concerning the allocation and collection of licensing fees was not void because it did not impermissibly permit one municipality to impose taxes on the citizens of another municipality. 

Before the Kentucky Court of Appeals could resolve the present action, it first had to analyze a case previously before it, City of Barbourville v. Knox County Fiscal Court, 80 S.W.3d 765 (Ky. App. 2001).  In Barbourville, the Court reviewed ordinances enacted by the City of Barbourville (“Barbourville”) and Knox County, which imposed occupational licensing fees on their residents.  According to KRS 68.197, in counties with more than 30,000 residents, “persons who pay a county license fee and a license fee to a city contained in the county shall be allowed to credit their city license fee against their county license fee.”  KRS 68.197(7).  Eventually, Barbourville brought suit against Knox County, seeking a declaration that the county's population was greater than 30,000 so that its residents could receive a credit against their county licensing fees pursuant to KRS 68.197(7). 

The circuit court concluded that the county's population was less than 30,000, relying upon 1990 federal census data, which it found conclusive.  The Kentucky Court of Appeals then reversed this decision and instead held that while census data was presumptive evidence of a county's population, it could be rebutted by other competent evidence.  On remand, the circuit court ultimately concluded that Knox County's population in 1999 was at least 30,000 and, therefore, residents were entitled to a credit against their county taxes.  Barbourville and Knox County later entered into a settlement agreement as to the collection and allocation of the fees. 

To add to the complexity of the present case, the Court also noted that prior to the 2003 decision in Barbourville, which allowed additional evidence in determining a county’s population, the General Assembly enacted KRS 68.199, which provides that “[f]or purposes of this section, the county population shall be determined based only on the official decennial census by the United States Bureau of the Census.”  KRS 68.199(4).  The 1990 federal census determined Knox County's population was 29,676; in 2000 the population was 31,795. 

The present case involves the City of Corbin’s (“Corbin”) 2005 enactment of an occupational licensing fee ordinance similar to that of Barbourville.  In 2008, Corbin and Joe White (“White”), a taxpayer and resident of both Knox County and Corbin, brought a declaratory judgment action against Knox County requesting that the circuit court find Corbin-Knox County residents were entitled to the credit established in KRS 68.197.  The circuit court concluded that the 2003 determination of Knox County's population was binding for purposes of Corbin's ordinance and that the 2003 settlement agreement between Knox County and Barbourville was valid. 

On appeal, Knox County argued that: (1) the matter was not justiciable; (2) Corbin and White lacked standing; (3) the doctrine of collateral estoppel should not apply to bind the parties to the 2003 determination that Knox County's population was at least 30,000 in 1999; and (4) KRS 68.199 must apply retroactively so the 1990 census was conclusive evidence of its population when the ordinance was enacted.  On cross-appeal, Corbin and White argued that the circuit court should not have enforced the 2003 settlement agreement between Barbourville and Knox County as it improperly allocated taxes collected from Corbin residents to Barbourville. 

First, the Kentucky Court of Appeals held that because Corbin had a present right to collect the occupational licensing fees from its residents and because White may have a right to a credit against the county tax for taxes paid to the city, both had a present “justiciable controversy” and thus the matter was justiciable.  See KRS 418.040;  KRS 418.045;  Bank One v. Woodfield Fin. Consortium LP957 S.W.2d 276 (Ky. App. 1997); Mammoth Medical v. Bunnell265 S.W.3d 205 (Ky. 2008).

Next, the Court held that White had standing because he had a real, present and direct interest in the matter, beyond just a mere expectancy, as he was a resident of both Knox County and Corbin and may be required to pay occupational licensing fees to both the city and the county or only to the city.  However, the Court held that Corbin lacked standing because “[t]he determination whether Knox County's population was more or less than 30,000 in 1999 will in no way affect Corbin's ability to impose its ordinance and collect occupational licensing fees.  Simply put, there is nothing for Corbin to gain or lose in the resolution of this case” and any other interest it may have in the matter was too vague and remote to allow for standing.

The Court also held that because the issue presented in Barbourville and the present action were “not identical,” (i.e., how to calculate a county's population in the absence of any clear rule versus how to calculate a county’s population in light of clear statutory instruction), the doctrine of collateral estoppel does not bind Knox County to the population determination of Barbourville.

The Court then determined that because KRS 68.199 contained no express language requiring it to be retroactive and because a reading of the statute as a whole revealed that it was substantive, not remedial, KRS 68.199 should not apply retroactively.

Finally, the Court held that the 2003 settlement agreement between Barbourville and Knox County was not void because it did not impermissibly permit one municipality to impose taxes upon citizens of another.  The settlement agreement did not attempt to impose any tax upon Corbin residents that they were not already obligated to pay pursuant to Knox County's ordinance.  The Court added that a settlement agreement is merely an agreement to end a dispute and does not bind third parties. 

In conclusion, the Court reversed in part, affirmed in part, and remanded for additional proceedings consistent with its opinion.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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