Department of Revenue, Finance and Administration Cabinet, Commonwealth of Kentucky v. Carriage Ford, Inc.

RENDERED: JULY 14, 2023; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0231-MR
DEPARTMENT OF REVENUE,
FINANCE AND ADMINISTRATION
CABINET, COMMONWEALTH OF
KENTUCKY APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
v. HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 19-CI-00655
CARRIAGE FORD, INC. APPELLEE
OPINION
AFFIRMING
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BEFORE: ACREE, DIXON, AND JONES, JUDGES.
DIXON, JUDGE: The Commonwealth of Kentucky, Finance and Administration
Cabinet, Department of Revenue (KDOR), appeals from the order of the Franklin
Circuit Court entered on January 25, 2022, reversing and remanding the final order
of the Kentucky Claims Commission (KCC)1 issued on May 31, 2019, dismissing
the claim of Carriage Ford, Inc. (Carriage Ford) against KDOR. Following a
careful review of the record, briefs, and law, we affirm.
BACKGROUND FACTS AND PROCEDURAL HISTORY
Carriage Ford is an Indiana car dealership whose customers include
Kentucky residents. Many of its Kentucky customers drove purchased vehicles off
the lot, while others were delivered in Kentucky. Carriage Ford collected “State
and local” taxes, using a “Retail Buyer’s Order form” to collect Kentucky’s motor
vehicle usage tax (MVUT) for its Kentucky customers and deposited the funds into
its corporate account. It acted as an agent for its customers and delivered assigned
certificates of title and other documents necessary to register the vehicles to the
appropriate Kentucky county clerks. Carriage Ford paid for titling, registration,
and the MVUT out of its account.
In 2015, the Indiana Department of Revenue (INDOR) audited
Carriage Ford for tax years 2012 through 2014. INDOR found that Carriage Ford
owed Indiana sales tax for the transactions where its vehicles were sold to
Kentucky customers who took possession of the vehicles in Indiana. Rather than
analyze every transaction for the tax years in question, INDOR and Carriage Ford
1
In 2021, KCC was replaced by the Office of Claims and Appeals and the Kentucky Board of
Claims. See Kentucky Revised Statutes (KRS) 12.020, KRS 13B.020, and KRS 49.010 et seq.
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agreed to use a “sample methodology” to analyze a few months’ transactions and
extrapolate from them to approximate the tax liability. Under Indiana’s tax
amnesty program, Carriage Ford satisfied its Indiana tax bill for $183,003 – an
amount less than the assessed tax – and paid no interest or penalties.
After Carriage Ford settled with INDOR, it requested a refund from
KDOR. Carriage Ford submitted evidence that it paid $256,862.16 in MVUT but
only requested a refund of $183,003 – the amount of Indiana sales tax it paid – plus
interest. KDOR denied Carriage Ford’s request, asserting it was ineligible because
the MVUT was due when the vehicles were titled and registered in Kentucky and
there was no evidence a substantially identical tax had been paid at that time.
KDOR further claimed Carriage Ford was neither the “taxpayer” authorized to
make the “application or claim for the refund” nor “the person who paid the tax” as
required pursuant to KRS 134.580(2) and (3).
Carriage Ford appealed KDOR’s final ruling to the KCC. Both
Carriage Ford and KDOR moved the KCC for summary judgment. The KCC
ultimately upheld KDOR’s final ruling, concluding only the Kentucky customers
are entitled to a credit against the MVUT for taxes paid in another state.
Carriage Ford appealed the KCC’s final order to the Franklin Circuit
Court. In its opinion and order, the trial court reversed the KCC’s order, finding
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substantial evidence supporting the fact that Carriage Ford paid the MVUT even
though it was not due. This appeal followed.
STANDARD OF REVIEW
It is well-settled that:
[t]he basic scope of judicial review of an
administrative decision is limited to a determination of
whether the agency’s action was arbitrary. Bobinchuck v.
Levitch, [380 S.W.2d 233 (Ky. 1964).] If an
administrative agency’s findings of fact are supported by
substantial evidence of probative value, they must be
accepted as binding and it must then be determined
whether or not the agency has applied the correct rule of
law to the facts so found. [Kentucky Unemployment Ins.
Comm’n v. Landmark Cmty. Newspapers of Kentucky,
Inc., 91 S.W.3d 575 (Ky. 2002).] The Court of Appeals
is authorized to review issues of law involving an
administrative agency decision on a de novo basis.
[Aubrey v. Office of the Att’y Gen., 994 S.W.2d 516 (Ky.
App. 1998)]. In particular, an interpretation of a statute
is a question of law and a reviewing court is not bound
by the agency’s interpretation of that statute. Halls
Hardwood Floor Co. v. Stapleton, [16 S.W.3d 327 (Ky.
App. 2000).]
Liquor Outlet, LLC v. Alcoholic Beverage Control Bd., 141 S.W.3d 378, 381 (Ky.
App. 2004).
LEGAL ANALYSIS
On appeal, KDOR argues the trial court erred in determining Carriage
Ford was the “taxpayer” under KRS 134.580, rather than its customers. However,
in pertinent part, KRS 134.580(2) provides, “When money has been paid into the
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State Treasury in payment of any state taxes . . . the appropriate agency shall
authorize refunds to the person who paid the tax . . . of any overpayment of tax
and any payment where no tax was due.” (Emphasis added.)
Here, there is no dispute that Carriage Ford paid Kentucky’s MVUT
and Indiana’s sales tax on the same vehicles. Contrary to KDOR’s arguments, it
matters not that Carriage Ford was not technically liable for or the “person”
required to pay the MVUT or that it might not be considered a “taxpayer” as
defined in other statutes. Following such logic would lead to the absurd result that
Carriage Ford would not receive a refund for payment of the MVUT after it
presented proof that it paid Indiana sales tax for the same vehicles.
It is a well-established principle of statutory construction that courts
“should not . . . interpret [a] statute to provide an absurd result.” Commonwealth v.
Reynolds, 136 S.W.3d 442, 445 (Ky. 2004). The interpretations KDOR urges us to
follow are patently unfair to Carriage Ford who paid a substantially similar tax
twice. Long ago, in George v. Scent, 346 S.W.2d 784 (Ky. 1961), Kentucky’s
highest court denounced interpretations of the MVUT which would require
payment of two similar taxes on the same purchase. There is no reason to depart
now.
Unfortunately, however, there is a dearth of law on whether a person
who pays the MVUT can receive credit after registering a motor vehicle in
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Kentucky, as occurred in the case herein. Even so, Kentucky’s Office of the
Attorney General (OAG) has opined that those who pay the MVUT “should
without exception be credited with the tax paid in the foreign state when
registering [a] motor vehicle in Kentucky upon proof that the sales tax was in fact
paid in the foreign state.” 1978-1979 Ky. Op. Atty. Gen. 2-426 (1979). The OAG
further opined that there are instances where “[a]t first blush, it might seem that
[one] would not be entitled to credit for the amount of the sales tax paid in the
foreign state because of a mere procedural quirk.” Id. In the case discussed in that
opinion, the vehicle was not registered in a foreign state when offered for
registration in Kentucky; thus, it appeared the taxpayer was ineligible for a refund
under KRS 138.460. However, “[b]ecause such a construction of the statute does
violence to the legislative intent, [the OAG] specifically decline[d] to adopt such
an interpretation[.]” OAG 2-426. A similar approach should be followed herein.
KRS 138.460 pertains to the imposition, rate, collection, and refund of
the MVUT. KRS 138.460(6)(a), in relevant part, provides that “[w]hen a person
offers a motor vehicle: . . . [f]or registration . . . in this state which was registered
in another state that levied a tax substantially identical to the tax levied under this
section, the person shall be entitled to receive a credit against the tax imposed by
this section equal to the amount of tax paid to the other state.”
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Again, KDOR urges our court to engage in a hyper-technical reading
of this statute that would lead to its desired, but absurd, result. It argues that
because Carriage Ford did not pay the Indiana taxes until after it registered the
vehicles in Kentucky, it should not be entitled to receive a credit for payment of
the Indiana taxes. This runs counter to the guidance of the Supreme Court of
Kentucky that courts “should not . . . interpret [a] statute to provide an absurd
result.” Reynolds, 136 S.W.3d at 445. Carriage Ford provided proof that it paid
the Indiana sales tax; therefore, as the trial court correctly concluded, it “shall be
entitled to receive a credit” under KRS 138.460(6)(a).
KDOR further argues that KRS 134.580(3) bars all, or some, of
Carriage Ford’s claims under its four-year statute of limitations. In pertinent part,
it states, “No refund shall be made unless each taxpayer individually files an
application or claim for the refund within four (4) years from the date payment was
made.”
Again, this case presents what appears to be a unique situation
because INDOR did not conduct its audit of Carriage Ford for tax years 2012
through 2014 until 2015. Accordingly, Carriage Ford did not pay Indiana’s sales
taxes until sometime between 2015 and March 17, 2016, when it made a claim for
a refund to KDOR. There is little or no guidance in what to do in this situation.
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Nevertheless, Kentucky’s highest court determined, under a prior
version of this statute, that the statute of limitations begins to run “after the fee was
paid into the state treasury.” Dep’t of Conservation v. Co-De Coal Co., 388
S.W.2d 614, 617 (Ky. 1964), as modified on denial of reh’g (Mar. 26, 1965).
Based on this, and from the text of the statute, Carriage Ford was not barred from
challenging refunds for payments made after March 17, 2016. Furthermore, since
Carriage Ford paid $256,862.16 in MVUT over the three-year period and is only
requesting a refund for $183,003, plus interest, to offset the Indiana sales tax, the
refund requested is doubtlessly offset by payments made to the Kentucky State
Treasury during the period not barred by the statute of limitations. (Carriage Ford
asserts in its brief that the amounts claimed were for tax paid between April 2012
and June 2014; therefore, the statute of limitations would not bar its claims.)
Due to our resolution of these issues, we need not address KDOR’s
further arguments, such as those concerning equitable relief.
CONCLUSION
Therefore, and for the foregoing reasons, the order entered by the
Franklin Circuit Court is AFFIRMED.
ALL CONCUR.
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BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
Bethany Atkins Rice Mark A. Loyd
Kevin Beiting Bailey Roese
Frankfort, Kentucky Stephanie M. Bruns
Louisville, Kentucky
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