Appeal from the United States District Court for the Western District of Kentucky at Owensboro. No. 4:11-cv-00066--Joseph H. McKinley, Jr., Chief District Judge.
Evan Taylor, Owensboro, Kentucky, for Appellant.
Ann Michelle Turner, TURNER, KEAL & DALLAS PLLC, Prospect, Kentucky, for Appellees.
Before: SUTTON, GRIFFIN, and WHITE, Circuit Judges.
SUTTON, Circuit Judge.
In 2005, the City of Henderson, Kentucky, raised its taxes. The resulting $500 tab was too dear for James Phillips, a certified public accountant and Henderson resident. He assailed the tax hike before the city council, in the Henderson Gleaner, and in the course of advising his clients. When Tax Day 2006 came around, Phillips did not pay what he thought he should not owe. The city treated his civil disobedience as criminal misconduct. A Kentucky jury convicted Phillips of a misdemeanor for failure to file a return, but a state appellate court threw out the conviction. Phillips sued the city and its officials in federal court for violating his Fourteenth Amendment rights to procedural due process and equal protection. The district court rejected both claims as a matter of law. We affirm.
The 2005 tax law, still in effect today, requires " every person or business entity engaged in any business, trade, occupation, or profession" within Henderson's city limits to pay 1% of its previous year's net profits for the privilege of doing business there. Henderson, Ky., Code of Ordinances § 21-33(a). Each taxpayer must report his annual net profits on an " occupational license return." The net-profits calculation depends on information reported on various Internal Revenue Service forms. As a result, no taxpayer can report anything to the city without doing his federal taxes first. As another result of that feature of the law, the ordinance's filing deadlines and the IRS filing deadlines are identical. 26 U.S.C. § 6072(a); Code of Ordinances § 21-37(a).
The ordinance also creates a new agency: the Board of Occupational License Appeals. The Board is empowered to " render decisions on questions of interpretation of [the] ordinance, on questions of allocation of payroll and net profits, on proceedings of delinquent tax collections, and on the waiver of penalties assessed." Code of Ordinances § 21-43. Although the ordinance does not say how such appeals work, the city's assistant finance director described it this way:
[T]he taxpayer would talk to my staff. If they disagreed with that, they would talk to me. If they still disagree, to my boss, up the chain of command to the City manager. If they still disagreed, then they would file some kind of written appeal that says " I don't agree with this interpretation."
R. 96-6 at 11. Henderson's Board of Commissioners has the power to review all Board decisions.
The ordinance backstops its reporting system with several penalties. On the civil side, it designates delinquent taxes as personal debts owed to the city and enforceable " by civil action," Code of Ordinances § 21-46(d), (e), and imposes steep penalties for failure to file and steeper penalties for failure to pay, id. § 21-46(a) to (c). On the criminal side, it creates a " class A misdemeanor" for " willful fail[ure] to make a return . . . with the intent to evade payment of the tax or amount collected." Id. § 21-46(f). That crime ...