It is time to modernize Kentucky’s local tax code. That was the message Monday night when KLC Executive Director|CEO James D. Chaney and Representative Michael Meredith (R-Oakland) appeared on Kentucky Educational Television’s (KET) Kentucky Tonight. Meredith sponsored a bill in the 2022 session that would have asked voters to amend an antiquated section of the Kentucky Constitution limiting local governments to a few productivity-based taxes. He intends to file a similar bill in the 2024 Regular Session.
Amending the constitution to allow the legislature to reform the local tax code is the top legislative priority for the KLC Board of Directors. Meredith stressed that it is the logical next step in Kentucky’s effort to become more competitive with neighboring states. “If we’re going to have truly comprehensive tax reform, we have to focus on the local level as well,” he said. “The working class folks across Kentucky are footing the bill for the burden at the state level and at the local level.”
Legislators began a process in the 2022 session to reduce the state’s income tax and passed a measure this session to codify the reductions. However, occupational taxes remain the largest source of revenue for local governments. “Fifty-eight percent of all city revenues come from occupational taxes,” Chaney explained. “We are really reliant on those taxes that burden productivity.” Local governments use the revenue to pay for services people expect, such as water, sanitation, public safety, and transportation.
Meredith noted that most states transitioned away from that form of taxation, opting instead to utilize a more consumption-based method. A vast majority of states (38) now allow some form of a local sales tax. “We know we are already 30 years behind the curve in competing with these other states that have consumption-based taxation,” Meredith replied. “We want to make sure when the next modernization comes along it doesn’t take us 30 years to catch up as well.”
A constitutional amendment would not give local governments any new taxing authority. It would only remove a restrictive section of the Kentucky Constitution that limits local governments to only a handful of revenue options.
Once voters approve a referendum on the 2024 ballot ‒ a constitutional amendment cannot be on the ballot this year ‒ legislators could write a new local tax code in future sessions. Local governments would not be able to institute any new taxes without legislative approval. “All we would do is change the constitution, where the General Assembly is handcuffed right now, to be able to rewrite the local tax code,” Chaney stressed.
“We are one of the top five or six most reliant states in the nation on local occupational taxes for the revenue that provide the basic services to cities and counties,” Meredith added. “If we ever want to reduce that, we have to give them another option to replace that revenue.”
He stressed that the goal is to grow Kentucky’s communities. “We all believe in creating a stronger Kentucky,” he said. “We create a stronger Kentucky by creating a stronger economy, and we do that by being more competitive with other states.”
