Earlier this year when the Somerset Mayor Eddie Girdler announced the city was planning to take more than $4 million of the county’s occupational tax revenues, city residents could afford to be complacent while the county panicked. Somerset City Council’s grab for a chunk of the county’s payroll tax certainly would not hurt city taxpayers, and might just have eased things for them.

However today’s news that any Somerset resident who works within the city limits will be paying a half percent more payroll tax beginning April 1, erases any sense of smugness.

Moreover, Somerset residents working in the city are not the only ones whose paychecks will be hit. Any person who works within city limits faces the tax increase. And if misery loves company, businesses within city limits are also being hit with a 0.5 percent tax increase on their net profits.

The specifics of the higher taxes were spelled out in a legal notice issued Friday by Somerset Mayor Eddie Girdler.

The notice—it hit both taxpayers and businesses by surprise—explains how businesses should adjust their payroll tax rates to accommodate the enactment of the division of occupational tax revenues between the city and the county.

Beginning April 1, the new rate structure announced by Mayor Girdler, “will require the collection of six tenths of one percent (0.6%) from employees, and a net contribution of of six tenths of one percent (0.6%) for any business operating within City limits.”

“Consistent with KRIS 68.197 and appropriate sections, ten percent (10%) of the occupational tax collected through June 30, 2015 is an offset to the county occupational tax at this time. Therefore, the county rate within the city will be nine-tenths of one percent (0.9%) rather than the full 1 percent currently collected.

“Employees and businesses within the city limits will be subject to both rates (0.6% and 0.9%) while any employee and business outside the city limits only subject to county rate,” the mayor wrote.

Between April 1 and July 1, workers inside the city will pay a total of 1.5 percent occupational tax, compared with 1.0 percent payroll tax for employees outside the city. Businesses inside city limits will also see their net profits tax raised to 1.5 percent.

“Due to KRS Chapter 68, on July 1, 2015, please change the county rate deduction to .008 [eight tenths of a cent per dollar],” Mayor Girdler wrote in the legal notice.

Thus after July 1, the occupational tax rate in the city will drop to 0.8 percent from 0.9 percent. As an example, for a person working in the city, after April 1 the occupational tax on a $400 paycheck will rise to 1.5 percent or $6.00. After July 1, the payroll tax will drop to 1.4 percent or $5.60.

“Outside the city [workers] will continue to pay 1%,” Judge-Executive Steve Kelley told the Commonwealth Journal.

The agreement reached between Somerset and Pulaski County will remain in place through June 30, 2016.

Mayor Girdler’s notice said Somerset invoked sections of Kentucky Revised Statute 68.197 to allow the occupational tax rate to be raised, in order to offset the cost of taking the full amount of the tax that the city was legally entitled to collect.

Since Mayor Girdler and Somerset City Councilors announced their decision to take a share of the county’s payroll tax as allowed by law, Judge Kelley and Pulaski Fiscal Court magistrates have lamented that the action would financially devastate the county. The compromise plan apparently is intended to lessen the financial blow to the county...at the expense of higher taxes for workers and businesses in the city.

The net result is that Pulaski Fiscal Court will be receiving 10 percent less from the occupational tax than it currently collects, while the City of Somerset will be banking the remainder of new revenues.

“We felt that that for the best interest of the county, we would have a phased-in process,” Girdler said. “We felt that in fairness to the county, that we don’t need to affect their budget.”

In light of the city’s action, a meeting scheduled tonight by Pulaski County Judge-Executive Steve Kelley to address the issue has been canceled.

“The meeting will be canceled because my immediate questions are now answered,” Kelley said,

From the county’s standpoint, its share of occupational tax revenue will decline by only 10 percent until July 1, and then 20 percent thereafter.

The county currently gives Somerset a share of occupational tax revenues — $1.3 million on a per capita basis, and an additional $1.4 million to operate Somerset-Pulaski County Emergency Medical Service (EMS). Under the agreement, revenue collections will basically be a wash for the county. Fiscal Court will no longer pay Somerset the $1.3 million per capita revenue, while employees and businesses within the city bear the brunt of the difference.

Kelley said Somerset did not have to take the option to use the payroll tax offset, and that the tax increase is a part of an ordinance Somerset City Council passed in April 2013 to collect its legally allowed amount of the occupational tax. Higher taxes for employees and employers within the city limits, therefore, are not due to the county’s agreement with the city, and thus the county is not the party responsible for raising the rates, according to Kelley.

Since the county will only lose 20 percent of its payroll tax revenues, the hit will be much smaller than it could have been.

“If the mayor will agree to taking no more from the county’s portion in the future, we can work with these figures,” Kelley said, adding that the reprieve from the current agreement is not a permanent solution to the issue.

“If we can draft an interlocal agreement protecting our revenues going forward, we can function with the amount he (Mayor Girdler) is taking from us,” Kelley said. “We’re going to keep on meeting till we’ve got the right solution.”

Girdler agreed the issue is not fully resolved.

“We will have to work with the county to come up with a new agreement for July 2016. We will be working on a long-term, five year agreement after that,” Girdler said.