KY Supreme Court declines to review tax dispute between Corbin, Knox County

After over a year of mulling the issue, the Kentucky Supreme Court has declined to hear an appeal in a long-standing occupational tax dispute between the city of Corbin and the Knox County Fiscal Court, moving the issue one step closer to a final resolution.

The Supreme Court first got the case in Jan. 2011 when Knox County filed an appeal following a confusing Court of Appeals ruling that did little to decide the case.

On Feb. 15, the court notified both sides it would refuse to hear the case.

Corbin Mayor Willard McBurney said now the lawsuit will move back to Knox County Circuit Court when the issue of the county’s population in 1999 must be decided.

"I don’t know how long it will take for them to get that on the docket. We’d like to have it happen sooner rather than later. We need to get some sort of final decision on this case so we know what we can do," McBurney said Tuesday. "It’s a positive thing for us, but it is still pending litigation."

Central to arguments in the case has been a similar dispute between the city of Barbourville and Knox County, which went all the way to the Kentucky Supreme Court, and was finally settled in 2003. Barbourville passed an occupational tax in Oct. 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.

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.

While the City of Corbin stands to gain significant tax revenue if it wins, it is not still technically a litigant in the case thanks to the Appeals Court decision. The ruling essentially removed the city as a Plaintiff, leaving only local tax-preparer Joe White, who is now a City Commissioner, to carry on the fight. Corbin, the justices ruled, did not have "standing" in the case because, regardless of the outcome, the city can still collect its portion of the tax. The court also rejected arguments that the city has standing because of its concerns about the economic well being that could be put at risk if citizens are double taxed, calling that concern "vague and remote."

The lawsuit has a long and convoluted history.

It was originally filed in 2008.

In June 2009, Special Judge Roderick Messer entered a ruling in favor of the city of Corbin after over three months of deliberation on the issue.

In a nutshell, the ruling meant that the Knox County Fiscal Court would not receive any money from occupational taxes paid from inside the city of Corbin. About 23 percent of Corbin’s citizens live in Knox County.

It stated that upon collection by the City of Corbin of its occupational license fee, all Corbin taxpayers who also owe an occupational fee to Knox County shall be allowed to credit the amount of the occupational license fee paid to the City of Corbin against occupational license fee owed to Knox County.

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 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.

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.

Neither Knox County Judge-Executive J.M. Hall nor the fiscal courts attorney in the case, Douglas McSwain, returned a calls seeking comment on the issue Tuesday.

Corbin’s attorney on the case, Todd McMurtrey, said he could not comment.