Opinion
NO. 2018-CA-000757-MR
05-24-2019
BUCK'S ENTERPRISES, INC., D/B/A BUCK'S PARTY MARK APPELLANT v. CITY OF FULTON, KENTUCKY APPELLEE
BRIEFS FOR APPELLANT: Stephen G. Amato Preston S. Worley Lexington, Kentucky BRIEF FOR APPELLEE: Stacey A. Blankenship Kristen N. Worak Paducah, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FULTON CIRCUIT COURT
HONORABLE TIMOTHY A. LANGFORD, JUDGE
ACTION NO. 15-CI-00052 OPINION
REVERSING AND REMANDING
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BEFORE: DIXON, LAMBERT, AND L. THOMPSON, JUDGES. LAMBERT, JUDGE: Buck's Enterprises, Inc., d/b/a Buck's Party Mark, has appealed from the April 17, 2018, findings of fact, conclusions of law, and judgment of the Fulton Circuit Court upholding a 5% regulatory license fee rate enacted by the City of Fulton, Kentucky, by Ordinance No. 2015-04. This matter involves the interpretation and application of Kentucky Revised Statutes (KRS) 243.075(4). Because we agree with Buck's that the circuit court erroneously upheld the ordinance, we reverse.
Buck's is a Kentucky corporation with a principal place of business in Fulton, Kentucky. It operates a retail package liquor store, for which it possesses licenses to do so from the City of Fulton and Kentucky's Department of Alcoholic Beverage Control (ABC). On September 25, 2015, Buck's filed a complaint seeking a declaratory judgment and permanent injunction against the City of Fulton after its Board of Commissioners enacted Ordinance 2015-04 on June 11, 2015. This ordinance imposed a 5% regulatory license fee on the sale of alcoholic beverages by the businesses that were licensed to do so by the City of Fulton. Buck's alleged that the City of Fulton improperly imposed this fee because it did not meet the requirements of KRS 243.075. Rather, it constituted a tax because it added to the overall fiscal year budget by replacing tax revenues that were lost from businesses that had left the city and was not associated with the discontinuance of prohibition. Buck's sought a declaration that the ordinance was null and void and a permanent injunction prohibiting the City of Fulton from collecting further fees under its authority. In its answer, the City of Fulton denied the allegations in the complaint and sought dismissal of the lawsuit and for a declaration that Ordinance 2015-04 was valid and enforceable.
Buck's moved for summary judgment shortly thereafter, stating that there were no disputes of material fact and seeking a ruling on its claims. Buck's argued that the license fee was improperly enacted to offset losses to the general revenue and did not comply with KRS 243.075(4), which requires a city or county to consider the evidence of the additional cost of policing, regulation, and administration arising from the sale of alcoholic beverages in the fiscal year immediately prior to determine the appropriate rate. The minutes from the Board of Commissioners meetings established that this was not done, it claimed, as the fee was meant to balance the budget, the calculations that were made did not encompass the correct amounts, and the rate was not based on the expenses the City of Fulton actually incurred for the additional expenses caused by the sale of alcoholic beverages. In response, the City of Fulton argued that no discovery had been taken at that time and that it expected to file evidence to rebut the allegations made by Buck's that it had not followed KRS 243.075. The circuit court denied the motion in an order entered February 2, 2016, finding that material issues of fact remained in question.
Buck's filed a renewed motion for summary judgment in February 2017, continuing to argue that the City of Fulton did not have any statutory justification for enacting the ordinance. It argued that the audio recordings of the Board of Commissioners meetings further supported its assertion that the fee was merely a revenue-generating mechanism to balance the budget shortfall and was unrelated to alcohol. The City of Fulton again objected to the motion, continuing to argue that disputed issues of material fact remained to be decided. In addition, it argued that the ordinance was proper because it was meant to offset only alcohol regulatory costs and that the rate was reasonable. The court again denied the motion by order entered March 24, 2017, finding that issues of material fact remained.
A bench trial was scheduled for early 2018, at which the parties presented arguments related to the stipulated facts. The parties had also been ordered to prepare evidence and present arguments related to the City of Fulton's later review of the fee in connection with its repeal of the contested ordinance and enactment of a new one imposing a new fee. The City of Fulton argued that the rate enacted in 2015 was too low based upon the calculations, and that the only question to be considered was whether the fee collected more revenue in Fiscal Year 2015-2016 than it cost the City of Fulton for the administration, regulation, and policing matters related to the sale of alcohol. Buck's continued to argue that the fee was improperly enacted and that data compiled after the fact and used to enact the new fee could not be used to justify the original ordinance based upon the statutory language.
On April 17, 2018, the circuit court entered its judgment in favor of the City of Fulton and concluded that the ordinance was properly enacted and that the rate imposed was reasonable based on the limited evidence it had in its possession when it was enacted. The court determined that because Buck's added the 5% to its point of sale transactions in passing it along to the ultimate consumer, it could not allege any harm. Therefore, the court dismissed the case. This appeal now follows.
On appeal, Buck's challenges the circuit court's ruling that the ordinance imposed a regulatory license fee pursuant to KRS 243.075 rather than a revenue-raising tax and specifically disputes its reliance on subsequently collected data to justify the 2015 ordinance. The 2017 version of the re-enacted ordinance and amounts collected pursuant to that version are not at issue in this appeal.
Our standard of review, generally, is set forth in Sawyers v. Beller, 384 S.W.3d 107, 110 (Ky. 2012), in which the Supreme Court of Kentucky stated that "[b]ecause this matter was tried without a jury, we review the trial court's findings of fact for clear error. McClendon v. Hodges, 272 S.W.3d 188, 190 (Ky. 2008) (citing CR 52.01). The trial court's conclusions of law are reviewed de novo. Id." Here, the parties stipulated the facts, and therefore our review will center on the propriety of the circuit court's legal conclusions. With respect to the admission of evidence, we review such rulings for abuse of discretion. See Miller v. Eldridge, 146 S.W.3d 909, 914 (Ky. 2004).
KRS 243.075 is the statute that permits a local government such as the City of Fulton to impose a regulatory fee on the sale of alcoholic beverages, and it provides in relevant part as follows:
(1) (a) A qualified city or a county containing a qualified city that is wet through a local option election held under KRS Chapter 242 is authorized to impose a regulatory license fee upon the gross receipts of the sale of alcoholic beverages of each establishment located in the city or county licensed to sell alcoholic beverages.
(b) The regulatory license fee may be levied at the beginning of each budget period at a percentage rate that is reasonably estimated to fully reimburse the local government for the estimated costs of any additional policing, regulatory, or administrative expenses related to the sale of alcoholic beverages in the city and county.
(c) The regulatory license fee shall be in addition to any other taxes, fees, or licenses permitted by law, except:
1. A credit against a regulatory license fee shall be allowed in an amount equal to any licenses or fees imposed by the city or county pursuant to KRS 243.060 or 243.070; and
2. In a county in which the city and county both levy a regulatory license fee, the county license fee shall only be applicable outside the jurisdictional boundaries of those cities which levy a license fee.
. . . .
(4) After July 15, 2014, any fee authorized under subsections (1) and (2) of this section shall be established at a rate that will generate revenue that does not exceed the total of the reasonable expenses actually incurred by the city or county in the immediately previous fiscal year for the additional cost, as demonstrated by reasonable evidence, of:
(a) Policing;
(b) Regulation; and
(c) Administration;
As Buck's argues, a local government's authority to raise revenue is to be strictly construed.
as a result of the sale of alcoholic beverages within the city or county.
The power to tax is a high governmental power, but fortunately for the people it can not be exercised by legislative authority without limit; and when the legislature grants that high power to another tribunal it can only be exercised in strict conformity to the terms in which the power is granted, and a departure in any material part will be fatal to the attempt to exercise it.Judge of Campbell County Court v. Taylor, 71 Ky. 206, 208 (1871). And we note that the words of a statute should be accorded their literal meaning "unless to do so would lead to an absurd or wholly unreasonable conclusion." See Bailey v. Reeves, 662 S.W.2d 832, 834 (Ky. 1984).
Subsection (2) addresses a city or county that is moist. --------
For its second argument, which we shall consider first, Buck's contends that the 5% rate fee was not supported by the required data as set forth in the statute. There is no dispute that the City of Fulton based the 5% rate on only two months of the immediately previous fiscal year, May and June of 2015, when it enacted the ordinance in June of that year. In its ruling, the circuit court addressed this fact, stating as follows:
5. There is no question that the Fulton City Commission did not have complete information to ascertain what the actual costs of additional police as contemplated by KRS [243.075] required. It is the finding of the Court that the Fulton City Commission relied on data from two months of the prior fiscal year (which had not ended at the time of the passage of the subject order) and from those two months performed mathematical calculations to determine what it estimated to be those actual costs.
. . . .
15. This Court through all these proceedings has not been presented with evidence of what the reasonable expenses actually incurred by the city or county in the immediate fiscal year for additional costs were. It is clear to this Court the City considered some months of the prior fiscal year and extrapolated from that. Plaintiff argued that the percentages and mathematical calculations were incorrect. Evidence has been presented as to what the actual costs were in the year during the 2015-2016 year. It has not been made clear to the Court why this same information for the 2014-2015 fiscal year is not available to the Court to make a clear straight forward determination as to what actual expenses incurred were for the year 2014-2015. Although the data
was limited, no proof was provided that any better data was available. The City worked with the data it had.Despite these findings, the circuit court upheld the fee imposed by the ordinance. We find this to be clear error.
KRS 243.075(4) requires a local government to base the rate of the fee at an amount "that will generate revenue that does not exceed the total of the reasonable expenses actually incurred by the city or county in the immediately previous fiscal year for the additional cost, as demonstrated by reasonable evidence, of [p]olicing; [r]egulation; and [a]dministration . . . as a result of the sale of alcoholic beverages within the city or county." (Emphasis added). There is no question that the City of Fulton did not follow the specific statutory requirement of basing the rate on the actual expenses incurred during the previous fiscal year. Rather, the rate was based on an amount extrapolated from only two months of that fiscal year. And while subsection (1)(b) of the statute dictates that the rate must be "reasonably estimated to reimburse the local government for the estimated costs of any additional policing, regulatory, or administrative expenses related to the sale of alcoholic beverages in the city and county[,]" the statute does not permit subsequently collected data to support the initial calculation. Subsection (4) specifically and clearly states otherwise in that the rate must be based on the actual costs expended in the previous fiscal year. It was the City of Fulton's burden to establish the propriety of the rate, not the duty of Buck's to provide better or different data, or any data at all. Therefore, we must hold that the circuit court erred as a matter of law in upholding the ordinance because the City of Fulton failed to follow the statutory requirements set forth in KRS 243.075(4) when it set the rate.
Based on this holding, we need not address the remainder of the arguments Buck's presented in its brief. However, we do reject the City of Fulton's argument that Buck's was not harmed by the ordinance because it passed the 5% fee on to its customers at the point of sale.
For the foregoing reasons, the judgment of the Fulton Circuit Court is reversed, and this matter is remanded for further proceedings in accordance with this opinion.
ALL CONCUR. BRIEFS FOR APPELLANT: Stephen G. Amato
Preston S. Worley
Lexington, Kentucky BRIEF FOR APPELLEE: Stacey A. Blankenship
Kristen N. Worak
Paducah, Kentucky