KLC Joins Discussion on Local Government Tax Reform

Posted on September 15, 2017

     KLC Deputy Executive Director J.D. Chaney participated on a panel discussing local government tax reform with representatives from the Kentucky School Boards Association and the Kentucky Association of Counties at a Tax Summit hosted by the Kentucky Chamber of Commerce on Thursday.  Governor Bevin and members of legislative leadership have promised that once a special session concludes dealing with public pensions, the focus will shift to tax reform.  At the event, Speaker of the House Jeff Hoover (R-Jamestown) announced that he will appoint a committee of House members in the next couple of weeks to begin working on the issue.

     The moderator of the panel asked several questions focusing on legislation that would mandate centralized collection of local occupational taxes.  All three associations agreed that their membership would not support such a move.  Chaney said that KLC membership would unconditionally oppose any tax reform proposal if state collection of local occupational taxes is a component, citing a resolution unanimously adopted by the KLC Board of Directors in February 2017, that spelled out the position in detail. You can read the resolution here.  “Rarely do we see bigger government as the solution to anything,” stated Chaney.

     Members of the panel also pointed to work completed by collaboration between local governments and the business community over the past several years that required standardization of the laws related to occupational taxes, electronic accessibility to laws and forms, and the creation of uniform tax return forms.  Chaney indicated that these moves have been “a balanced approach that eases compliance for the business community while permitting local governments to structure their tax policy at the local level in a way that leverages the distinct qualities of their communities.”

     The panel also discussed other elements of local tax reform, including whether local governments would be able to support an elimination of the inventory tax as pushed by the governor.  Chaney stated that city governments embraced the governor’s vision to make Kentucky a manufacturing hub of excellence and that cities were willing to play a part in the goal to eliminate an inventory tax if the revenues could be replaced for impacted local governments in a fair way that did not overburden residential property owners.

     In a video appearance before the attendees, Governor Bevin seemed to echo that sentiment when he said that of the $150 million in revenue generated by the inventory tax only $13 million went to the state and the rest went to local governments.  In the video the governor said, “These are dollars that they [local governments] don’t have the ability to easily replace, so we just can’t say ‘Hey, it would be good for Kentucky, let’s get rid of it’ and not be mindful of the impact it has all the way down the line.”  Also, Chaney said that he doubted that cities would want to see any replacement mechanism include language purporting to “hold harmless” cities combined with a state collection of the local revenue – a reference to the portion of state telecommunications tax that prohibited local franchise fees that was recently ruled unconstitutional by the Kentucky Supreme Court after several years of litigation initiated by KLC.

     All the panelists agreed that local government taxes should be a part of tax reform discussions but that the General Assembly and local governments were severely restrained because of the limitations provided in Kentucky’s 1891 constitution.  Chaney pointed out that the General Assembly was without power to even authorize local governments to collect any consumption-based taxes because of the constitutional provision.  “Not only are local governments boxed in, but so is the General Assembly.  If a real discussion on comprehensive local tax reform is to be held, it really needs to start with a constitutional amendment giving more flexibility so that local tax policy can be better balanced.” Chaney said, “That would change the dialogue entirely.”