Commonwealth Journal

October 17, 2013

On July 1, 2014, Somerset will take 60% of payroll tax collected in city

by Bill Mardis
Commonwealth Journal

Somerset —

The shoe is finally going to drop.
Somerset, after years of using the threat of enacting a city occupational tax as a negotiating hammer, is now driving a wedge that likely will widen the traditional split between city and county governments:
• Somerset, already one of the most financially solvent municipalities in the state, maybe even the nation, is about to become richer.
• Pulaski County, a bright spot in traditionally poor Appalachia, is about to become poorer.
Since January 1, 1987, when the county’s 1-percent occupational and net profit tax levies were put in place, some Somerset city officials have salivated about the pot of gold that transformed Pulaski County government from poverty to affluency. Now, a Somerset ordinance, effective January 1, 2014, levies a 6/10 of a percent occupational and net profit taxes on workers and businesses within the corporate limits.
Six-tenths of a percent sounds minuscule, but when multiplied by dollars, as in who gets what in tax dollars, it is imposing; even crippling to county government that will end up with only 4/10 of a percent of occupational and net profit taxes generated inside the city. The city ordinance does not affect occupational and net profit taxes collected outside Somerset.
When Somerset starts collecting occupational and net profit taxes, the city will get 60 percent of tax revenues from businesses and workers in the city. County government will get 40 percent. Since a large majority of businesses and employees’ paychecks are within Somerset’s corporate limits, city government will take a big bite out of the approximately $10 million a year that now goes to county government. 
The city has delayed collection of the occupational tax until July 1, 2014 and the net profit tax on businesses until April 15, 2015. Somerset city attorney Carrie Wiese explains that under existing state law, county government is not required to credit city taxpayers with occupational and net profit taxes they pay. 
Wiese said if the city were to enact the taxes at the first of the year, city residents would have to pay both the 1-percent county payroll tax and the 6/10 of a percent city taxes for the first half of the year. However, according to Wiese, state law will change July 1 and county government will be required to credit city taxpayers with the 6/10 of a percent city taxes. That leaves the county with 4/10 of a percent of what is now the 1-percent occupational and net profit levies collected within the city.
“That’s why the city is delaying the start of collections; so city residents won’t have to pay extra taxes [from January until July],” said Wiese. 
“[The city occupational and net profit taxes] will devastate the county. It is really going to hurt,” said Laura Adams, the county’s tax administrator. Pulaski County Judge-executive Barty Bullock is out of his office until Monday and county treasurer Joan Isaacs was unavailable for comment when this story was written. Bullock, commenting earlier to the Commonwealth Journal about a possible city payroll tax, said “ ... we (county) may as well go home.”
Somerset’s financial bonanza apparently will extend pain not only to county government but to the four other municipal governments in the county. Not everything is set in stone at this point, but Adams says a reduction in the total amount of occupational and net profit tax monies received by the county likely would diminish the 30 percent of city development funds now in the tax formula. 
These city development funds are allotted after 15 percent comes off the top for the ambulance service, 13 percent to operate 9-1-1 Communications Center, 5.5 percent for Pulaski County Detention Center and 1.5 percent for Lake Cumberland Regional Airport.
Somerset Mayor Eddie Girdler estimates the city’s occupational and net profit taxes will yield about $5 million annually. Adams suggests the city’s part will be more than $5 million.
Under the current city development formula, Somerset during the 2012-13 fiscal year, got $1,683,955.08 in occupational and net profit tax money. Burnside got $98,555.65; Ferguson received $136,308.29; Science Hill’s allotment was $98,091.38; and Eubank’s share was $50,129.32. The cities’ allotments are based on population.
Following is the current formula for distributing occupational and net profit tax revenues, set by Pulaski Fiscal Court Ordinance No. 220.31:
General Fund, 26 percent; Industrial Fund, 19 percent; City Development, 30 percent; and Road Development, 25 percent.