A Judge ruled Thursday that the city of Corbin should get to keep 100 percent of the occupational taxes its Knox County citizens are now paying to the county’s fiscal court – a move that could add hundreds of thousands of dollars to the city’s coffers.
Special Judge Roderick Messer entered the ruling after over three months of deliberation, and it could have huge implications for the bottom lines of budgets for both sides of the dispute.
"It’s about darn time," said Joe White, a local tax preparer who maintains an office on Master Street in Corbin. He joined the city in a lawsuit filed last April seeking a judgment on the issue. "I’m tickled to death. That just means more money for the city I live in and work in. My tax dollars are going to be put to use for me instead of for Barbourville."
In a nutshell, the ruling means that the Knox County Fiscal Court will not receive any money from occupational taxes paid from inside the city of Corbin. It states 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 city of Corbin, which passed a one percent occupational license tax in Aug. 2005, is claimed that its residents should be able to take a credit against a similar tax, approved in 1999, for all of Knox County. But county leaders disagreed and the issue ended up in the courts after a few failed attempts at working out an agreement over the dispute.
Corbin City Commissioner Phil Gregory said Thursday, moments after learning of the ruling, called it "great news."
"We thought we had a good chance of winning but you never know about these things," Gregory said. "We just sort of took our time and did what our attorney’s suggested and it worked out."
Gregory said he was involved in meetings with former county leaders over the issue that never came to fruition. He said he isn’t sure how much tax revenue is at stake, but was told several years ago it was estimated at $600,00 to $700,000 a year.
Both sides in the case expected appeals regardless off the ruling so it isn’t likely much will change in the near future.
The motion was the latest action in a suit originally filed April 7, 2008. The seven- page document, officially titled a "petition for declaratory relief" names as respondents both Knox County and the City of Barbourville. The suit came after a March 10 meeting, including a 20-minute executive session, during which members of the Corbin Board of Commissioners voted unanimously to file the suit in an attempt to end speculation over how the tax issue between Corbin and Knox County would be resolved.
Central to arguments in the case was 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 straight 25 percent. Knox County Assistant Judge Executive Jim Tye, who was City Manager of Barbourville during the dispute, said the county and city agreed on 25 percent, but that an extra seven percent was added to make up for back taxes that the county collected and spent, but could not pay to Barbourville all at once.
In the wake of the dispute, state legislators passed a moratorium on any occupational license tax levies until the situation was settled. As a fix, the General Assembly changed the law to say that population is determined by the most recent U.S. Census.
Donald McSwain, who represented both Knox County and the city of Barbourville at last week’s hearing, argued that residents in the city of Corbin were not entitled to a credit because the city did not participate in the original litigation between Barbourville and Knox County.
"It was given every opportunity to do so and it declined to do so," McSwain said. "We were making efforts to get Corbin to join the suit but they wouldn’t for whatever reason."
McSwain told Messer that changes in law regarding occupational taxes were "remedial" measures intended to fix ambiguity regarding how population is determined, not "retroactive" legislation that would allow Corbin to gut a significant portion of what Knox County receives in tax revenue from inside the city limits.
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.
Hughes argued that the current tax-sharing situation created "two worlds" in Knox County where laws applied differently depending on where you lived. He told Messer if he adopted arguments presented by McSwain, then Corbin residents would be "double taxed," forced to pay one percent to Knox County and one percent to the city of Corbin, a move he said would be negative for economic development prospects.
Patrick Hughes, who represents the city of Corbin, argued that the court ruling in the dispute between Barbourville and Knox County proved that the county’s population was over 30,000 at the time, and remains so today, which should entitle Corbin residents to the credit.
McSwain argued, basically, that the judicial decision that led to the deal between Barbourville and Knox County could not be circumvented by interpretations of current laws. He added a ruling in Corbin’s favor could endanger similar county-city tax situations all over the state, leading to more litigation.
Gregory said city leaders have not discussed how and when the tax will be collected in the wake of the ruling. Also, he said he was unsure how much litigation over the issue has cost taxpayers.
"This go on for a little while still, but I hope not," Gregory said of the legal wrangling over the case. "I hope we can get together and work out the arrangements to start collecting soon."