Commonwealth Journal

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April 22, 2014

City: There’s no ‘status quo’ on payroll tax

Somerset — Despite what Pulaski County’s state senator termed a “freeze” on cities taking a share of the county’s occupational tax, the City of Somerset plans on keeping its options open.

Carrie Wiese, attorney for the City of Somerset, responded this week to comments by Sen. Chris Girdler regarding language in the recently-passed Transportation Cabinet bill for Kentucky that dealt with cities collecting occupational license fees.

“It’s incorrect to say it’s just the ‘status quo’ of old, because it’s not,” said Wiese.

As part of House Bill 236 — which has been delivered to the governor after being passed late last Tuesday night —language was included that said any agreement between a city and county related to the sharing of revenues from a license fee in effect as of the date set in the bill would remain in effect until June 30, 2016.

Girdler said that the language in the budget “freezes the status quo” and gives the state legislature time to tinker with existing occupational tax policies. Girdler said he was inspired by the political bickering between local city and county governments here last year, as Somerset discussed taking a substantial portion of the county’s occupational tax revenue that county officials worried would “cripple” what they were able to do.

“It’s time to put petty politics and local turf wars aside and work together, and in freezing this, I hope that’s something that will help do so,” said Girdler last week.

Wiese, however, pointed to other passages in the road bill — which effectively allows progressive percentages of county license fees to go to cities over the next two years.

“From July 1, 2014 through June 30, 2015, the credit established by subsection (7) of KRS 68.197 shall only apply to the first one-tenth of one percent (0.10%) of the tax rate imposed by the county within the corporate limits of a city.

“From July 1, 2015, through June 30, 2016, the credit established by subsection (7) of KRS 68.197 shall only apply to the first two-tenths of one percent (0.20%) of the tax rate imposed by the county within the corporate limits of the city.”

That credit, said Wiese, refers to what is paid from the occupational tax to the city, credited to taxpayers so they don’t end up paying double-taxes by paying the full amount to the county, and then some amount also to the city.

“The occupational tax is confusing anyway,” said Wiese. “When you look at your paystub, you’ll see a line item that says ‘County OCC Tax’ and it has the amount.

“We enacted an ordinance in 2013 (to have the ability to take a portion of the occupational tax), so it’s been enacted for a while, we just haven’t started collecting on it yet,” she added. “If the city decides to start collecting it’s tax ... you would just have another line item on the paystub that would say ‘City OCC Tax.’”

Girdler had said that the language was included with the idea that “(a) city cannot come in and take part of a county’s occupational tax. ... Don’t come in and try to take what the county has instituted away from them.”

As Wiese put it, however, “As far as the city taking money away from the county, that’s not necessarily true. The percentage the city would get is not a percentage of what the county gets overall, it’s just a percentage of what they collect within the city limits. If it says 60 percent, that would mean we only get 60 percent of the occupational tax collected within (Somerset boundaries). That’s what they would give us credit for. That’s not us taking 60 percent of the overall occupational tax number for the entire county. We couldn’t do that.”

Under the previous agreement with the county, as of July 1, 2014, the city could start taking the 60 percent credit on occupational tax revenue generated within the city limits. Somerset officials had discussed doing so in 2013, particularly to help pay for a funding shortfall for EMS service.

“Just like we’re not going to try to bankrupt the county, we’re not going to cut off ambulance service to the county,” said Wiese. “We understand you can’t just open up an ambulance service over night. It’s morally wrong, and I think it would by legally wrong for us not to continue the service, but we have got to figure out a way to fund it. So far, it’s already half-a-million dollars underfunded this year.”

Based on the language in the road budget bill — which, according to a source at the Legislative Research Commission, had not been officially signed into law by mid-afternoon Tuesday by Gov. Steve Beshear — the city would be able to take the 10 percent credit (or 10 percent of occupational tax generated within the city limits) in the first year, and 20 percent started July 1, 2015, going up to the same point in 2016, noted Wiese.

She also noted that the credit mentioned in the language is new and not originally in the KRS (Kentucky Revised Statute) policy.

“In this new language that will go into effect July 1, 2014, theoretically (by that date, unless the governor vetoes), we now as a city can collect our occupational tax and we can receive 10 percent credit. The county doesn’t have an option,” said Wiese.. “If you say the city’s going to take 60 percent of the occupational tax, yeah, that would bankrupt the county. But we’re just taking 10 percent of what’s collected in the city limits.

“As far as saying that’s taking the county’s money away, people that work in the city are paying that in as the occupational tax. To me, that is the city and the county’s money,” she continued. “The county has been kind enough to always share with us. They don’t have to. Theoretically, they can say, “I’m sorry, Somerset, we don’t have to pay you anymore.’ I don’t think they would do that, just like I don’t think the city would do something to harm the county financially to where they couldn’t operate.”

However, even then, that may not affect Somerset. Wiese pointed to a case in Knox County over a similar dispute with Corbin that’s currently seeking a ruling from the Kentucky Court of Appeals, noting that the language in the bill seemed to more directly apply to that situation.

“There are some other things we’re looking at as to whether this even applies to us or if we fall into the old statute, the prior language that runs out June 30,” said Wiese. “We’re still trying to figure that out. If that’s the case, we could request the full amount of the credit, the 60 percent.”

Wiese said there were two conditions under which Somerset would even consider collecting such a portion of the occupational tax: one, if it’s needed to help pay for services such as EMS, and also if it were ensured that taxpayers would get their credit against the county taxes and would not be hit with an additional tax.

“If we started collecting a city occupational tax, then the county would not have to pay us from the amount of taxes they collect every year,” she said. “They could take that off their books, take EMS off their books, then they could collect our own and the numbers pretty much evened out. The county isn’t worse off than what they are now but it allows us to have control over the tax itself and collection.”

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