December 12, 2016

KLC and Cities Win Telecommunications Tax Lawsuit in the Kentucky Court of Appeals

KLC and Cities Win Telecommunications Tax Lawsuit in the Kentucky Court of Appeals.

On Friday, November 7, the Kentucky Court of Appeals issued an opinion in the long-running legal battle over the validity of a 2005 state law that replaced local franchise fees and public service company property taxes on cable and telephone companies with a uniform state tax system.  The law ultimately short-changed cities approximately $30 million since it went into effect in January 2006 because an insufficient “hold harmless” amount was written into the final version of the law. 

The Kentucky League of Cities along with the cities of Florence, Greensburg, Mayfield and Winchester filed lawsuit in Franklin Circuit Court in September 2011 arguing that cities should be permitted to go back to collecting revenue from franchise fees on telecommunication companies for the privilege of using city rights of ways because the law violated the Kentucky Constitution.  The Franklin Circuit Court ruled against KLC and the cities, upholding the validity of the law.

The ruling from the Court of Appeals reverses the decision of Franklin Circuit Court and holds that the Kentucky Constitution delegates “to local governments the right to grant utility franchises and necessarily the concomitant right to collect franchise fees.”  In its opinion, the appellate court wrote that 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.”  As a result, the court held that the telecommunications tax violates “Sections 163 and 164 of the Kentucky Constitution by prohibiting appellants from assessing and collecting franchise fees.”   Click here to read the entire opinion.

Cities have been unsuccessful in the legislative arena for the past several years in getting the 2005 law changed to make up for the approximate $7.5 million annual short fall for local governments.  As an alternative to the legislation, this legal victory in the Court of Appeals puts local governments back on the path to be able collect their traditional revenues from franchise fees.  However, a motion for appeal is likely from either the state or the cable companies or both to have the Kentucky Supreme Court consider the issue.  

KLC will keep you posted on developments on this important case.  If you have questions about this litigation, please contact J.D. Chaney at 1-800-876-4552 or