Corbin loses occupational tax case appeal

To read the entire ruling, click here.

The City of Corbin suffered a grievous legal blow in its bid to change how occupational taxes are split between the city and the Knox County Fiscal Court.

In a unanimous decision, handed down May 23, the Kentucky Court of Appeals ruled that a controversial amendment, filed by Kentucky State Senator Robert Stivers and passed as part of “Tax Amnesty” legislation in 2012, did not run afoul of the state’s constitution. The measure essentially short-circuited court rulings that favored the city of Corbin and would have allowed residents, in the Knox County portion of the city, to claim an offset or “credit” to the one percent tax against Knox County. The city of Corbin would then have kept all the revenue from the tax generated inside the city limits.

Local leaders estimate occupational taxes collected from the Knox County portion of Corbin to be, conservatively, between $800,000 and $1 million annually.

Corbin Mayor Willard McBurney said city leaders were, naturally, disappointed in the ruling and vowed to continue the fight.
“We will pursue it to the [Kentucky] Supreme Court if they will hear it,” McBurney said.

“We need to have a share in our taxes on the east side of town. It’s not right what is happening. We won the initial lawsuit, and we are now just being steamrolled by these amendments Senator [Robert] Stivers keeps putting on every two years.”

The city of Corbin won an initial ruling on the matter in 2009, but an appeal initiated by Knox County was muddled. The Supreme Court declined to hear the case meaning all that was left was for Corbin to get a court declaration regarding the population of Knox County in order to start collecting the tax.

That’s when, In 2012, Kentucky State Senator Robert Stivers (R-Manchester), whose Senatorial district includes Knox and Whitley Counties, introduced legislation that has since been called the “Stiver’s Amendment.” The law essentially thwarted numerous court rulings and roughly three years of litigation over the issue of which local government – the city of Corbin or the Knox County Fiscal Court – would receive the money collected from the occupational tax.

The city of Corbin fought the law in the courts, calling it “special legislation,” but Knox Circuit Judge Greg Lay ruled last year that the law could remain in effect.

In Kentucky, it is unconstitutional for the state legislature to pass laws that unfairly target single communities or areas, or which focus on singular local problems.

In 2012, the “Stivers Amendment” was added to HB 499, a “tax amnesty” bill that was eventually signed into law by Kentucky Gov. Steve Beshear. The law allowed citizens delinquent in paying state taxes to do so without heavy penalties and fees they would face otherwise. As of February, the state had collected roughly $60 million in back taxes because of the amnesty law.
The amendment had a time limit of two years.

Stivers attached a similar amendment this year to three separate bills during the most recent session of the General Assembly. It passed attached to a bill that funded the Transportation Cabinet.

The City of Corbin has filed a lawsuit in Knox Circuit Court challenging the legitimacy of the newest amendment as well.
In its recent ruling, the Court of Appeals concurred with the Knox Circuit Court ruling, noting that the amendment gave the General Assembly time to study the “efficacy” of occupational tax credits in order to “quell any turbulent effects that it might have had during a time of fiscal uncertainty.”

“The Knox Circuit Court concluded that the statutory provision was rationally related to legitimate state objectives and that there was a rational basis to justify the chosen time-frame. We agree. Thus, the challenged provision does not run afoul of constitutional provisions guaranteeing equal protection under the law.”

Stivers has defended his amendments as necessary because, without the occupational tax revenue it receives from the city of Corbin, the Knox County Fiscal Court would be unable to provide adequate government services to its citizens.

During this year’s General Assembly, Stivers again defended another 11th-hour amendment related to the issue by saying that the way occupational taxes are dispensed to cities and counties is unfair.

Eighty-second District State Rep. Regina Bunch (R-Williamsburg), who district includes the Whitley County portion of the city of Corbin, opposed the amendment and spoke out against it on the House floor during the final day of the 2014 General Assembly.

So far, the city of Corbin has spent roughly $225,000 in attorney fees on litigation costs related to the cases.