Legislators continue to explore tax structure
FRANKFORT — Members of the Interim Joint Committee on Appropriations and Revenue received testimony on Wednesday regarding local taxation and how Kentucky measures up with other entities.
Rep. Michael Meredith, R-Oakland, is one of several legislators who serve on the committee. He said he and other business advocates have been researching local tax structures in other states to see where Kentucky stands and how taxation could be improved.
Andi Johnson, chief policy officer and director of regional engagement for Commerce Lexington Inc., said her group advocates for tax diversification, adding that new tax options could boost the area’s ability not only to attract jobs, but also people.
Much of the discussion stemmed from legislation that stalled in the 2022 legislative session. The measure – House Bill 475 – proposed a constitutional amendment that would have set the stage for new types of taxes at the local level. One focus under consideration is transitioning from income-based taxes to consumption taxes.
Meredith said a core group of stakeholders has been working on the issue since 2018. He said that baseline revenue needs to be protected and that drafting effective legislation will take time.
“We have to predict organic growth in the revenue streams that we have. But, we have 415 cities across the Commonwealth of Kentucky and 120 counties,” he said. “And we’re going to have to be very, very smart and be very, very cautious about how we draft something, because we want to make sure that whatever we pass when we get to a statutory framework on this does not create a Kansas situation for our local governments.”
Sen. Christian McDaniel, R-Taylor Mill, is co-chair of the committee. He agreed with Meredith that the local taxation issue remains important, and now is a good time to continue to work on the matter.
“We’ve had this issue several times through the years about local taxation and changes to it, and I thought it would be good for all of us to hear from the various interested parties while we’re not necessarily in the hustle and bustle of session,” he said.
However, forecasting might not be easy.
Meredith said the state Department of Revenue has provided some data showing how a 1% sales tax would look at the local level. But “they can’t give us anywhere near real numbers on what it would look like city by city, and the county by county numbers are very, very difficult because the way that retailers report,” he said.
Rep. Josie Raymond, D-Louisville, said she would support tax reform that would allow Louisville to raise revenue to offer universal access to “life-changing Pre-K.”
“To clarify, a city wouldn’t necessarily be restricted in raising additional revenue, or would they be because they would use the local option flexibility to make up something they’re lost from the state?” she asked.
Meredith said it does not mean the reduction plan in House Bill 8 would have to be implemented. House Bill 8 – passed during the 2022 Regular Session – will gradually reduce state taxes on personal income over several years once state revenue exceeds certain thresholds. It simultaneously seeks to expand and diversify the state’s overall tax base.
“I think it compliments House Bill 8. And what you have seen with the reduction in 2018 and the House Bill 8 reduction is that we do have an economy that is growing significantly right now in the Commonwealth, and we’re experiencing great revenue growth because of that,” he said.
Meredith said entities would have to move to be less reliant on occupational taxes.
“Again, as I said in my comments when we started, we have to protect baseline revenue, allow for organic growth and provide some incentive for the movement,” he said.
Rep. Jason Nemes, R-Louisville, said he is also a proponent of diversification.
“I’ve always supported this, and the reason I supported it is because working property owners are soaked in the local government taxation. And it’s time that we had more diversity of taxation,“ he said.