By Erica Horn and Maddie Schueler
The taxpayer scored a major victory in a recent decision issued by the Kentucky Court of Appeals, which held Section 170 of the Kentucky Constitution exempts an institution of purely public charity from the use tax imposed by KRS § 139.310.  Tri-State Healthcare Laundry, Inc. (“Tri-State”), an institution of purely public charity, provides laundry services to several non-profit hospitals in Northern Kentucky. Tri-State purchased all of the natural gas used in its business from Interstate Gas Supply, Inc. (“IGS”). Pursuant to KRS § 139.340, IGS collected and remitted use tax on the natural gas it sold to Tri-State. Tri-State and IGS then timely filed an application for a refund of the use taxes paid by Tri-State on the basis that Tri-State is exempt from use tax under Section 170, which provides, in pertinent part:
“There shall be exempt from taxation public property used for public purposes; . . . real property owned and occupied by, and personal property both tangible and intangible owned by, institutions of religion, institutions of purely public charity, and institutions of education not used or employed for gain by any person or corporation, and the income of which is devoted to the cause of education. . .”
The Department of Revenue (the “Department”) denied the refund claim, citing Children’s Psychiatric Hospital v. Revenue Cabinet , in which the Supreme Court of Kentucky held Section 170 does not exempt purely public charities from the hospital provider tax imposed on hospitals in Kentucky. The Kentucky Board of Tax Appeals and the Franklin Circuit Court affirmed the Department’s denial, holding that under Children’s Psychiatric Hospital, the exemption set forth in Section 170 is limited to property taxes and does not apply to use taxes.
The Kentucky Court of Appeals reversed. Citing Commonwealth ex rel. Luckett v. City of Elizabethtown , the court stated that under Kentucky law, “the use tax imposed by KRS 139.310 is similar enough to an ad valorem tax to render its enforcement on governmental entities unconstitutional under Section 170.” The court distinguished the provider tax at issue in Children’s Psychiatric Hospital, noting the provider tax is imposed on revenues commonly generated by the rendering of services to patients, and not by the acquisition or use of any property. Thus, unlike the use tax, the provider tax does not function in any way similar to a property tax. Finding no indication that Children’s Psychiatric Hospital explicitly or implicitly overruled City of Elizabethtown, the court held that imposing the use tax on institutions of purely public charity, like Tri-State, violates Section 170 of the Kentucky Constitution.
The Department has 30 days to seek review from the Kentucky Supreme Court.
The authors’ firm represents Appellants in this action.
 Interstate Gas Supply, Inc., for the Use and Benefit of Tri-State Healthcare Laundry, Inc. v. Commonwealth of Kentucky, Finance & Administration Cabinet, Department of Revenue, et al., No. 2013-CA-001766-MR (Ky. App. Feb. 26, 2016) (not to be published).
 989 S.W.2d 583 (Ky. 1999).
 435 S.W.2d 78 (Ky. 1968).