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Kentucky’s Telecommunications Tax: Hanging in Limbo

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A 2015 Tax Alert from the Kentucky Revenue Cabinet informed all telecom providers doing business in the Commonwealth of a then-recent decision by the Court of Appeals of Kentucky, the state’s second-highest tribunal, which had ruled the state’s Multichannel Video Programming and Communications Services Gross Revenue Tax on Telecommunications and Cable (the “GRT” established under KRS §§ 136.600 through 136.660) to be unconstitutional and void. (City of Florence, Kentucky; City of Winchester, Kentucky; City of Greensburg, Kentucky; City of Mayfield, Kentucky; and Kentucky League of Cities, Inc., Appellants, v. Lori Hudson Flanery, in her official capacity as Secretary of the Finance and Administration Cabinet for the Commonwealth of Kentucky; Thomas B. Miller, in his official capacity as Commissioner of the Department of Revenue for the Commonwealth of Kentucky; and Kentucky CATV Association, Inc., Appellees, Case No. 2013-CA-001112-MR, Court of Appeals of Kentucky, 2014 Ky. App. Unpub. LEXIS 865)

But there’s a procedural hang-up delaying ultimate resolution of this dispute: at present, the Court’s decision is neither published nor final, and is thus not (yet) either actionable or appealable. (The revenue authority did, however, want to advise telcos concerning the tax’s now-very-uncertain status.) The gravamen of the Tax Alert is that the court-ordered nullification of the tax – although official in law – is nevertheless far from settled in practice and effect, and was not, in fact, expected to be so any time before later this year (2016) at the very earliest, when further Court action is anticipated. Understanding the full story requires we go back exactly one decade:

The Kentucky Legislature enacted the GRT in 2005 (effective January 1, 2006), which effected several changes to the Commonwealth’s telecommunications taxation regime: It created: a 3% excise tax on each retail purchase of “multichannel video services” such as cable and satellite; a 2.4% gross revenue tax (hence, “GRT”) on all receipts of multichannel video service providers (thus assuring taxation at both ends – the buying and the selling – on sales of these services); and a broadly-based 1.3% GRT on revenue taken in by telcos generally. The new tax law also, however, replaced, preempted, and prohibited imposition of any local cable TV franchise fee – thereby eliminating a revenue stream long relied upon by Kentucky municipalities and, in fact, guaranteed by no less an authority than the Commonwealth Constitution itself (in §§ 163 and 164).

Armed with this constitutional argument, on September 23, 2011, several small communities instituted a lawsuit in the State Circuit Court for Franklin County against the Department of Revenue, seeking to reverse the GRT’s imposition entirely (and to re-legitimate those disestablished local levies). The Circuit Court, however, refused to nullify the three-part tax, determining, in an Opinion and Order dismissing the cities’ action dated June 5, 2013, that the GRT law did NOT offend Kentucky’s Constitution! The (surprised) municipalities naturally enough appealed that verdict to the Commonwealth Court of Appeals, and there they at last prevailed: On November 7, 2014, the appellate court UNANIMOUSLY REVERSED the lower court, remanding the matter back to the Circuit. The thinking of the appellate judges was conveyed with what certainly appeared to be firmness and finality:

“The Commonwealth may not by legislative fiat abrogate appellants’ constitutionality delegated prerogative to grant a franchise and collect franchise fees. The Telecommunications Tax has effectively frustrated the ability of local governments to collect franchise taxes, which this Court believes can only be accomplished through constitutional amendment. Accordingly, we hold that the Telecommunications Tax violates Kentucky Constitution Sections 163 and 164 by prohibiting appellants from assessing and collecting franchise fees. We, thus, believe the circuit court improperly granted summary judgment to appellees. Rather, we are of the opinion that appellants are entitled to summary judgment as the Telecommunications Tax is unconstitutionally void. … ALL CONCUR.”

But that may not be the last word on the subject, if the Revenue Cabinet, adamant to a fault, has its way: In last year’s Alert, the taxation authority observed that “this case is not yet final and the DOR believes the provisions of the law in question are valid under the Kentucky Constitution. The Department is likely to seek discretionary review by the Kentucky Supreme Court of any adverse determination of its pending petition for rehearing before the Court of Appeals, and therefore does not anticipate a resolution of the case until the year 2016. When disposition of the case finally occurs, the Department will provide further guidance as necessary. Accordingly, the DOR reminds multichannel video programming and communications service providers to continue reporting and remitting their monthly Telecommunications Taxes.”

Thus, the state’s numerous telecom providers will have to hold their collective breaths yet a bit longer – and keep on collecting and paying over those funds to Revenue in the meantime! – while the controversy inches its way towards settlement. We’ll report when it arrives.

About the Author: Marc Palmer Kram is a Senior Tax Analyst at Wolters Kluwer Tax & Accounting US, where he performs quality control and troubleshooting on the vast taxability database supporting its best-in-class CCH tax-compliance software, and then sometimes writes about what he finds. Learn more about him by visiting his author bio page. Learn more about Wolters Kluwer at and

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