House Committee approves first step toward local government tax reform

Local tax reform in Kentucky would move one step closer to reality under a proposed constitutional amendment that passed the House Committee on Elections, Constitutional Amendments, and Intergovernmental Affairs Thursday.

House Bill 475, sponsored by Rep. Michael Meredith, would ask Kentuckians on a statewide ballot if they support giving the Kentucky General Assembly the ability to authorize local governments to assess and collect local taxes, license fees, and franchise fees that are currently prohibited under the state constitution.

Currently, the constitution is restrictive on the types of taxes local governments can impose.

“Kentucky is one of only 17 states in the nation allowing local governments to impose their own occupational taxes on employees and businesses,” Rep. Meredith said. “Of those 17, Kentucky is of the top five most reliant states on those occupational taxes at the local level.”

Representative Meredith emphasized that local governments need more flexibility in the taxation process in order to stay competitive with surrounding states, and that HB 475 would be the first of three steps in the process.

Should Kentuckians vote to amend the constitution, the General Assembly would then be tasked with bringing all stakeholders to the table and passing an additional bill that would set the framework for how local governments can collect taxes, according to Rep. Meredith. The third and final step would be when local governments then pass their own new ordinances within the framework set forth by the General Assembly.

Representatives from the Kentucky Association of Counties, Kentucky League of Cities, and Greater Louisville, Inc. joined Rep. Meredith to testify in support of HB 475.

Speaking against the measure at Thursday’s committee meeting was Kevin Cranley, chairman of the Kentucky Retail Federation.

Cranley said the Kentucky Retail Federation strongly opposed HB 475 because it could lead to a potential massive expansion of local sales tax with no guarantee that other local taxes would be reduced.

“This expansion has the potential to be damaging not only to the retail community, but to the citizens of Kentucky as a whole,” Cranley said. “We already tax Kentuckians on where they live and where they work. Now we’re asking for additional taxes on where they eat, play, and shop.”

The bill now moves to the full House of Representatives for consideration.

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