COMMONWEALTH OF KENTUCKY, HON. LORI FLANERY, IN HER OFFICIAL CAPACITY AS SECRETARY OF THE FINANCE AND ADMINISTRATION CABINET, HON. THOMAS B. MILLER, IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF THE DEPARTMENT OF REVENUE, APPELLANTS
AT& T CORPORATION, APPELLEE
Released for Publication July 2, 2015.
ON REVIEW FROM COURT OF APPEALS. CASE NO. 2012-CA-001813-MR. JEFFERSON CIRCUIT COURT NO. 11-CI-007292.
COUNSEL FOR APPELLANTS: Stephen Gerard Dickerson, Laura Marie Ferguson.
COUNSEL FOR APPELLEE: Mark Francis Sommer, Jennifer Yue Barber.
Appellee, AT& T, is a corporation that provides various communication services throughout Kentucky and worldwide. Appellants are the Commonwealth of Kentucky, Finance and Administration Cabinet, et al. (collectively, Cabinet). A corporation that satisfies the requirements provided in KRS 139.505 is entitled to a refundable credit for sales taxes paid under Chapter 139. The Cabinet is charged with making the initial determination to approve or deny the claim. If the claim is denied, the taxpayer may protest that determination within the Cabinet. The taxpayer may then appeal any adverse ruling to the Kentucky Board of Tax Appeals (" KBTA" ), and then to the Franklin Circuit Court or to the Circuit Court of the county in which the aggrieved party resides or conducts business. KRS 131.370(1).
In 2004, AT& T filed refund claims with the Cabinet arguing that, under KRS 139.505, AT& T was entitled to refunds for tax years 2002 and 2003. On May 13, 2008, the Cabinet agreed to a partial refund for AT& T's 2002 claim. AT& T received a check for $677,425 for that partial refund. In 2008, AT& T filed refund claims for tax years 2004 through 2008. The total sum claimed for all years is approximately $13,000,000, not including interest.
The Cabinet contends that it initially denied all of AT& T's claims, and that those claims are currently pending before the Cabinet's Division of Protest Resolution. For clarification, these claims include the unpaid portion of the 2002 claim, and the entirety of the claims for 2003 through 2008. The Cabinet states that AT& T has the right to request a formal ruling under KRS 131.110(4), and then appeal that ruling if necessary. However, AT& T asserts that the Cabinet has not formally denied its refund claims. AT& T contends that without a formal denial in the form of a final ruling, it is statutorily precluded from filing an appeal with the KBTA.
The only documents presented to this Court that detail the extent of this administrative quagmire are letters between counsel for AT& T and the Cabinet. These letters are dated from 2005 through 2011. On July 7, 2010, representatives from AT& T and the Cabinet met to discuss the refund claims. It is clear from the appended letters that after this meeting, the Cabinet continued to request additional information and documentation concerning the claims. Although it appears that AT& T attempted to comply with the Department prior requests, the Cabinet made additional requests for information.
In what AT& T calls a " last resort," it filed a declaration of rights action in the Jefferson Circuit Court in 2011 alleging eight counts. Count one asserted that " the purported Budget Bill 'Amendments' to KRS 139.505 Contravene and Violate Section 51 of the Kentucky Constitution." This is a facial challenge to the constitutionality of these amendments. While the remaining seven counts do not raise facial constitutional challenges, several include unconstitutional as-applied claims.
The Jefferson Circuit Court dismissed the case for failure to exhaust administrative remedies. The court determined that AT& T's administrative and as-applied constitutional challenges must be adjudicated by the KBTA before the court would address AT& T's facial constitutional challenge. The Court of Appeals reversed the trial court and determined that the facial constitutional issue raised by AT& T was one that the KBTA cannot decide, but that the other claims were properly dismissed. The Court of Appeals remanded the case to the trial court ...