UPDATED june 2018
Kentucky Constitutional Exemptions Are Limited to Property Taxes
Kentucky has, in recent years, seen an increasing number of disputes regarding the application of constitutional tax exemptions. In Commonwealth v. Interstate Gas Supply, 2016-SC-000281-DG, 2018 WL 1419444 (Mar. 22, 2018), the Kentucky Supreme Court clarified that the tax exemption accorded to a “purely public charity” by Section 170 of the Kentucky Constitution is limited to an exemption from property taxes, and not from other kinds of taxes. In so doing, the Court overruled two prior decisions that had ostensibly extended the Section 170 exemption to non-property taxes.
The tax at issue in the Interstate Gas Supply case was the Kentucky use tax that was imposed on natural gas purchases by a charitable hospital. The hospital relied on a 1918 decision, Corbin Young Men’s Ass’n v. Commonwealth, 205 S.W. 388, which held that Section 170 exempted “institutions of public charity” from all taxes, not just property taxes. While several other decisions had questioned the validity of the 1918 ruling, the Court expressly rejected the earlier opinion and found that Section 170’s exemption is limited to property taxes.
The Court also overruled a 1966 case finding that Kentucky’s use tax was more akin to a property tax than to an excise tax. Thomas v. City of Elizabethtown, 403 S.W.2d 269 (Ky. 1966). The Interstate Gas Supply court noted that a number of other cases, both in Kentucky and in other jurisdictions, had found that use taxes are properly classified as excise taxes, not property taxes. Accordingly, the Court found that the natural gas purchases were subject to use tax, and were not exempt under Section 170.
Morgan and Pottinger
American Property Tax Counsel (APTC)