Supreme Court Of Kentucky Holds Board Of Tax Appeals Is Not Entitled To Deference

Author:Ms Erica Horn and Maddie E. Schueler
Profession:Stoll Keenon Ogden PLLC

In a recent case involving Kentucky's inheritance tax, the Supreme Court of Kentucky held a reviewing court does not owe any deference to the Kentucky Board of Tax Appeals ("KBTA") as to questions of law.1 The case involved whether inheritance taxes paid as a "cost of administration" under a will's tax exoneration provision may be deducted from the value of distributive shares under KRS § 140.090 and thereby reduce the overall tax liability, and whether the payment of tax by an estate on behalf of a beneficiary is itself a taxable "bequest of tax".

The KBTA held that inheritance taxes paid by the estate under a tax exoneration provision are deductible under KRS § 140.090 where the decedent's will directs that such taxes shall be paid as "costs of administration". The KBTA also held that a bequest of tax is not a taxable transaction. The Franklin Circuit Court reversed, reviewing the KBTA's decision de novo, and the Court of Appeals affirmed. The Supreme Court of Kentucky granted discretionary review.

The Court held the KBTA's interpretation of the statutes at issue was not entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.2 The Court first noted that so-called "Chevron deference" applies only where a statute is silent or ambiguous with respect to the specific issue before the court. Because the statutes involved were neither, the Court found no deference should be given to the KBTA's interpretation.

More importantly, the Court noted that deference is given only to an administrative agency's interpretation of a statute which it administers. The KBTA is an administrative review agency that determines appeals of tax rulings. Thus, the Court stated, the KBTA does not administer Kentucky's inheritance tax statutes or any other portion of the Kentucky statutes. Instead, the statutes are administered by the Kentucky Department of Revenue...

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