Could a Kentucky city or county adopt a local sales tax without amending the state constitution?

Plain-English summary

Kentucky's Attorney General concluded in 2013 that a local government could not adopt a local option sales tax without a constitutional amendment. The General Assembly also could not delegate that taxing power to a city or county under the constitution as the courts had interpreted it. Louisville Metro councilmembers had asked whether the state or local governments could create such a tax and whether a municipal vote would be needed.

The opinion turned on Section 181 of Kentucky's Constitution. The AG read Kentucky decisions as limiting local governments to ad valorem taxes and license taxes. A sales tax applies to the sale of goods; the opinion classified it as an excise tax outside those permitted categories. Its conclusion that the tax could not be enacted under the existing constitution resolved the proposed approach without a separate answer about a referendum.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could the Kentucky General Assembly authorize a city sales tax in 2013?

The AG concluded that the General Assembly could not delegate that power without a constitutional amendment. Its reading of Section 181 and the cited decisions limited local taxation to the specified kinds of taxes.

Why did the opinion treat a local sales tax differently from a license tax?

The AG said a sales tax is imposed on a sale of goods, while the constitution's permitted license tax is a narrower category. Kentucky decisions had rejected delegation of a general excise tax other than license fees.

Did a voter referendum alone make the proposed tax valid?

The request included a referendum question. The opinion concluded that the tax required a constitutional amendment and did not separately decide whether a referendum would be required after one.

Background and statutory framework

The opinion quoted Ky. Const. § 181 and explained that the General Assembly could delegate specified taxing powers to local authorities. It relied on Driver v. Sawyer for the limit on county taxes, City of Lexington v. Motel Developers, Inc. for the distinction between license fees and excise taxes, and C. C. C. Coal Co., Inc. v. Pike County for the ban on delegating a general excise tax to a subordinate government.

Citations and references

Constitution: Ky. Const. § 181.

Cases: Driver v. Sawyer, 392 S.W.2d 52, 53 (Ky. 1965); City of Lexington v. Motel Developers, Inc., 465 S.W.2d 253, 254 (Ky. 1971); C. C. C. Coal Co., Inc. v. Pike County, 536 S.W.2d 467, 468 (Ky. 1976).

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Pages/Opinions.aspx
• Original Word document: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG13-001.doc

Original opinion text

OAG 13-001

January 11, 2013

Subject: Whether a local option sales tax may be enacted without a constitutional amendment

Requested by: James O. King

Louisville Metro Council President

Kenneth C. Fleming

Louisville Metro Councilman

Written by: Matt James

Syllabus: A local option sales tax may not be enacted without a constitutional amendment

Statutes construed: Ky. Const. § 181

OAGs cited: OAG 73–246, OAG 74–348, OAG 74–427, OAG 76–623, OAG 79–385, OAG 84–116, OAG 85–84, OAG 87-19

Opinion of the Attorney General

Louisville Metro Councilmen James O. King and Kenneth C. Fleming have requested an opinion of this office on whether a local option sales tax may be enacted without a constitutional amendment. They ask three questions:

May the General Assembly establish a local option sales tax without a constitutional amendment?

May local governments establish a local option sales tax under existing law without a constitutional amendment?

Would the enactment of a local option sales tax by a municipality require a referendum for approval?

For purposes of this opinion, we define local governments as counties, towns, and cities, the relevant language of Ky. Const. § 181. At the request of this office, the Finance and Administration Cabinet and Kentucky League of Cities have provided their analysis. We advise that a local option sales tax is not consistent with Section 181 of the Kentucky Constitution as interpreted by the courts. Accordingly, local governments may not enact a local option sales tax, nor may the General Assembly delegate such power to them without a constitutional amendment.

Ky. Const. § 181 provides in relevant part:

The General Assembly shall not impose taxes for the purposes of any county, city, town or other municipal corporation, but may, by general laws, confer on the proper authorities thereof, respectively, the power to assess and collect such taxes. The General Assembly may, by general laws only, provide for the payment of license fees on franchises, stock used for breeding purposes, the various trades, occupations and professions, or a special or excise tax; and may, by general laws, delegate the power to counties, towns, cities and other municipal corporations, to impose and collect license fees on stock used for breeding purposes, on franchises, trades, occupations and professions. And the General Assembly may, by general laws only, authorize cities or towns of any class to provide for taxation for municipal purposes on personal property, tangible and intangible, based on income, licenses or franchises, in lieu of an ad valorem tax thereon…

Ky. Const. § 181 establishes that the General Assembly may not impose taxes for local governments, but may delegate the power to tax to them. It specifically provides that the General Assembly may delegate the power to impose occupational license taxes and ad valorem taxes to local governments.

Kentucky courts have repeatedly held that the two types of taxes specified in Ky. Const. § 181, license taxes and ad valorem taxes, are the only types of taxes that a local government may levy. “Ad valorem taxes and license taxes are the only kinds of taxes that a county may levy.” Driver v. Sawyer, 392 S.W.2d 52, 53 (Ky. 1965). See also City of Lexington v. Motel Developers, Inc., 465 S.W.2d 253, 254 (Ky. 1971) (“The legislature, which it is authorized to do under section 181 of the Kentucky Constitution, by KRS 92.280 and 92.281 granted cities… authority to impose license fees or taxes… this authority does not permit such cities to levy excise taxes” (citations omitted)); Wiedemann Brewing Co. v. City of Newport, Ky., 321 S.W.2d 404, 407 (Ky. 1959) (“except for ad valorem taxes and taxes ‘on personal property, tangible and intangible, based on income, license or franchises, in lieu of an ad valorem tax thereon’ (Const. § 181), cities are confined to ‘license fees' as a source of revenue”); Lamar v. Board of Ed. of Hancock County School Dist.

467 S.W.2d 143, 146 (Ky. 1971) (quoting Driver). We have repeatedly advised in accordance with these decisions. “This office has opined in the past that Section 181 of the Kentucky Constitution limits counties to two types of taxes—ad valorem property taxes and occupational license taxes.” OAG 87-19 (citing OAG 73–246; OAG 74–348; OAG 74–427; OAG 76–623; OAG 79–385; OAG 84–116; OAG 85–84). If a local government is to levy a tax, it must be either a license tax or an ad valorem tax, and may not be an excise tax.

A local option sales tax is an excise tax. An excise tax is “a tax imposed on the manufacture, sale, or use of goods… or on an occupation or activity.” Black’s Law Dictionary (9th ed. 2009). While a license tax is a form of excise tax, Ky. Const. § 181 has not been interpreted to permit excise taxes generally.

We have recognized that a license tax is an excise tax. As the Chancellor aptly observed, in substance a true license tax is a permissible form of excise tax which cities may be authorized to levy under section 181 of the Kentucky Constitution. It is apparent that the drafters of the document, when in effect denying cities the right to impose an ‘excise’ tax, were not using the term in the broad sense which would encompass a license tax, but were using it in the narrower sense to characterize a tax upon a transaction involving the sale, use or transfer of property.

Motel Developers, 465 S.W.2d at 255 (citations omitted); see also C. C. C. Coal Co., Inc. v. Pike County, 536 S.W.2d 467, 468 (Ky. 1976) (“we have consistently held that the General Assembly cannot delegate to a subordinate unit of government the power to levy an excise tax (other than license fees)”). Since a local option sales tax is a tax on the sale of goods, and is not a license tax, it is an impermissible excise tax under Ky. Const. § 181.

Accordingly, we advise that local governments may not enact a local option sales tax, nor may the General Assembly delegate such power to them without a constitutional amendment.

JACK CONWAY

ATTORNEY GENERAL

Matt James

Assistant Attorney General