Deadline looms for Supreme Court battle in Corbin, Knox tax case

Today is the deadline for the Knox County Fiscal Court to appeal to the Kentucky Supreme Court a 2010 ruling that could finally pave the way for collection of occupational taxes in the city of Corbin, and essentially gut a huge portion of tax revenue from the county coffers.

On Dec. 6, 2010, the Kentucky Court of Appeals denied a petition to rehear the case between the city of Corbin and Knox County over who should get to keep occupational taxes collected in the city’s portion of Knox County. About 22 percent of Corbin’s residents live in Knox County. Corbin is the only city in the state of Kentucky that lies in two counties. The city wants its residents to be able to claim its one percent tax as a credit against the Knox County tax, otherwise residents would have to pay two percent – one to the county and another to the city. The tax affects the gross income of individuals and the net profit of all businesses.

According to Kentucky law, Knox County has 30 days from the denial to petition the Supreme Court to hear the case.
According to a deputy clerk with the Kentucky Supreme Court, no petition to hear the case had been filed as of press time Tuesday.

In any event, if one side in the case appeals to the Supreme Court, there is ample time for the other to respond. Justices review the case and determine if it will be heard. The clerk said typical cases receive rulings in three to six months. More complex litigation can take from six to eight months or more.

"It just really depends on how much investigation needs to be done and what the court feels they need to know," the clerk said.

The Supreme Court hears cases one week each month, except for February and July.

Neither the city of Corbin attorneys in the case, nor those representing Knox County could be reached for comment.
On Oct. 10, 2010 a three-judge panel from the Kentucky Court of Appeals issued a multi-faceted and ultimately confusing ruling that did little to clear up the dispute. In it, the justices essentially removed Corbin from the case, saying the city did not have proper "standing" to continue with litigation. Left as a plaintiff is local tax professional Joe "Butch" White, a resident of the Corbin portion of Knox County who filed suit alongside the city. The original lawsuit was filed in 2008.

Also, the appeals court also ruled that Knox County is not bound by a ruling in a previous suit filed in 1999 by the City of Barbourville against Knox County.

That suit was settled in 2003. Barbourville officials passed a one percent occupational tax in October 1999, a couple weeks before the Knox County Fiscal Court took the same measure.

At the time, state law provided that counties with a population less that 30,000 did not have to allow cities with a similar tax to claim credits. But the law did not give any mechanism by which population was to be determined. The Appeals court ruled that even though a lower court, in 2003, determined Knox County’s population exceeded 30,000 in 1999, that the county was not bound by that decision. Since state law has changed regarding the distribution of occupational taxes, as they relate to cities and counties, the issue of population must be resolved again.

Through expert testimony, it was ruled Knox County’s population exceeded 30,000 at the time the tax was passed. After lengthy negotiation, the two sides reached an agreement that remains in effect to this day. Barbourville gets 32 percent of all taxes collected in Knox County up to $1.8 million, and 25 percent thereafter until 2012, when it reverts to a straight 25 percent.

The issue of population, and how it is determined, is central to the case. Knox County has contended that the state law regarding division of occupational taxes should be "retroactive." The law says that, for purposes of determining whether any credit will be issued, the most recent decennial Census figures are to be used. Attorneys for Knox County have argued that the 1990 Census should be the one used since the county passed its tax in 1999. Corbin argues the 2000 should be used.

The 1990 shows Knox County’s population less than 30,000. The 2000 Census shows it over 30,000.

Since the appeals court ruled the law was not retroactive, then Corbin would likely win the population argument.

The Corbin City Commission voted in 2008 to file a lawsuit against the Knox Fiscal Court over the issue after failed attempts to come to an agreement in advance of litigation. City leaders feared that any tax imposed on its Knox County citizens would "stack" with the Knox Fiscal Court’s tax, essentially setting occupational taxes on that side of Corbin at two percent.

The city of Corbin, which passed a one percent occupational license tax in Aug. 2005, claimed that its residents should be able to take a credit against a similar tax, approved in 1999, for all of Knox County. Knox County leaders have disagreed.

The appeals court ruled that a hearing should be held in Knox Circuit Court to determine the population issue.
Corbin city leaders have estimated annual revenue from the tax would be about $600,000 to $800,000.

The city of Corbin asked, on prior occasions, for a breakdown of how much tax is collected from the city. Knox officials said the information doesn’t exist. Corbin leaders sought an opinion from Kentucky’s Attorney General on the issue in an attempt to force the county to produce the breakdown, but was rebuffed.

Even with a ruling in its favor, the city of Corbin has never collected the tax.