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Department of Revenue v. Revelation Energy, LLC

Court of Appeals of Kentucky

March 9, 2018

DEPARTMENT OF REVENUE, FINANCE AND ADMINISTRATION CABINET, COMMONWEALTH OF KENTUCKY APPELLANT
v.
REVELATION ENERGY, LLC APPELLEE

         APPEAL FROM PIKE CIRCUIT COURT HONORABLE EDDY COLEMAN, JUDGE ACTION NO. 14-CI-00799

          BRIEFS FOR APPELLANT: Jenn Stosberg Frankfort, Kentucky

          BRIEF FOR APPELLEE: Charles J. Baird Pikeville, Kentucky Robert C. Webb J. Christopher Coffman Griffin Terry Sumner Louisville, Kentucky

          BEFORE: CLAYTON, JONES, NICKELL, JUDGES.

          OPINION

          NICKELL, JUDGE:

         The Department of Revenue, Finance and Administration Cabinet, Commonwealth of Kentucky ("Department"), appeals from an opinion and order of the Pike Circuit Court reversing a decision of the Kentucky Board of Tax Appeals (KBTA) and ordering Revelation Energy, LLC (Revelation), be refunded $1, 033, 728.46 in taxes and fees paid during the period of October 20, 2009, through January 5, 2011. Believing the circuit court erroneously reversed the Board, we reverse and remand for further proceedings.

         The Pike Circuit Court's recitation of facts set forth in the underlying opinion is thorough and will be adopted by this Court.

The facts in this matter are not in dispute. Revelation is a Kentucky limited liability company that began mining operations in Kentucky on November 1, 2009. During the period October 20, 2009 through January 5, 2011, Revelation purchased significant amounts of special fuel as part of its mining operations in Kentucky. Revelation purchased the special fuel for consumption in unlicensed vehicles and equipment for nonhighway purposes related to its coal mining operations. Revelation acquired the special fuel from licensed Kentucky dealers, who charged Revelation on the purchases with the special fuel tax imposed under [Kentucky Revised Statute] (KRS) 138.220 and the petroleum environmental assurance fee imposed under KRS 224.60-145. Pursuant to KRS 138.220(1)(c), these dealers added the incurred special fuel tax and petroleum assurance fee onto the selling price of the special fuel purchased by Revelation. Revelation was unaware that its [nonhighway] use of the special fuel purchased during this time meant that the purchases were exempt from the special fuel tax and petroleum environmental assurance fee.
Sometime prior to January 6, 2011, Revelation became aware that it had been paying the special fuel tax and petroleum environmental assurance fee on its special fuel purchases in error and that it must further obtain a motor fuels tax refund permit before it could file a refund claim for the special fuel taxes paid in error. On January 6, 2011, Revelation filed its application for a Kentucky motor fuels tax refund permit with the Department of Revenue (hereinafter "Department"). The Department granted Revelation's application and issued Motor Fuels Tax Refund Permit Number C-263810823-00 with an effective date of January 6, 2011. In October 2011, Revelation submitted refund applications to the Department for the refund of the special fuel taxes and petroleum environmental assurance fees that it had paid on special fuel purchased for consumption in nonhighway unlicensed vehicles or equipment during the calendar years ending December 31, 2009, December 31, 2010, and December 31, 2011. Revelation's refund applications for the periods at issue were filed within the general four-year statute of limitations period provided in KRS 134.580 for filing a claim for refund of taxes other than ad valorem taxes.
The Department granted Revelation's refund for the taxes and fees that Revelation paid on purchases of special fuel for nonhighway purposes made after the January 6, 2011 effective date of Revelation's motor fuels tax refund permit. However, the Department denied Revelation's refund claim for $968, 182.18 in special fuel taxes and $65, 546.28 in petroleum environmental assurance fees that Revelation paid on its purchases of special fuel for nonhighway purposes made between October 20, 2009 and January 5, 2011 because the Department concluded that Revelation did not meet the pre-purchase refund permit requirement under KRS 134.580(8) and 138.345. There is no dispute that Revelation would be entitled to the entirety of its refund claim if it had obtained a motor fuels tax refund permit prior to its first purchase of nonhighway special fuel in October 2009.
Revelation, relying on the Due Process Clause and Equal Protection Clause of the United States Constitution and Section 2 of the Kentucky Constitution, protested the Department's denial of its refund claim totaling $1, 033, 728.46 plus interest, arguing that the pre-purchase refund permit requirement in KRS 134.580(8) and KRS 138.345 is unconstitutional. The Department issued
Final Ruling No. 2013-10 on February 15, 2013 (hereinafter "Final Ruling"), denying Revelation's claim on the basis that it did not have a refund permit at the time it purchased the nonhighway special fuel in question. Revelation appealed the Final Ruling to the Kentucky Board of Tax Appeals (hereinafter "KBTA").
The KBTA's Final Order upheld the Final Ruling denying Revelation's refund claims. The KBTA's Final Order concluded that the KBTA did not have jurisdiction to rule on Revelation's challenge to the facial constitutionality of the pre-purchase refund permit requirement under KRS 134.580(8) and 138.345. Finally, the KBTA's Final Order stated that Revelation had properly preserved before the ...

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