by Erica Horn
In AT&T Corporation v. Commonwealth of Kentucky, Hon. Thomas B. Miller, Commissioner of the Department of Revenue, et al.1, AT&T brought suit in Jefferson Circuit Court seeking a declaration that two amendments to the sales tax refund provisions of KRS § 139.505, enacted in 2003 and 2005 as part of the State’s budget bills, were unconstitutional and invalid on their face. AT&T sought a refund of $13 million in sales tax, plus interest. The circuit court granted the Department’s motion to dismiss, finding AT&T failed to exhaust its administrative remedies. The court found that while AT&T challenged the facial validity of the amendments, AT&T’s complaint contained other counts unrelated to its constitutional challenge and, should AT&T prevail on these counts, there would be no need to reach the constitutional issue. The court also found there were disputed factual issues that should be resolved prior to review by the court.
The Kentucky Court of Appeals reversed, noting that exhaustion of administrative remedies is not necessary when attacking the constitutionality of a statute as void on its face. The Kentucky Supreme Court, however, adopted the view of the circuit court and reversed the decision of the Court of Appeals.
The Court predicated its analysis on its 2012 decision in W.B. v. Commonwealth, Cabinet for Health and Family Services2, wherein the Court held that while administrative remedies may not have to be exhausted in proceedings related to the facial constitutionality of a statute, there were “prudential factors weighing against consideration of the case until the conclusion of the administrative process.” The Court described the “prudential factors” as follows:
(1) the record before us is undeveloped by an actual administrative proceeding providing context to the administrative proceedings thereby hindering our ability to evaluate the administrative process as it works in practice, and deferment will allow development of a full administrative record to facilitate our constitutional review; (2) Appellant may succeed in the administrative process, thereby obviating the need for our consideration of the constitutional issues in the first instance; (3) it is fundamental that constitutional issues should be avoided if possible; (4) deferment would allow the simultaneous examination of a facial challenge to the administrative provisions with an as-applied challenge.
The Court then held the first factor was dispositive in this case because there were factual issues concerning whether AT&T’s refund claims were filed timely; “the Circuit Court cannot make a constitutional finding until these purely administrative issues are resolved.”
1 Kentucky Supreme Court, No. 2013-SC-000800 (June 11, 2015, To Be Published).
2 338 S.W.2d 108, (Ky. 2012).