City opposes state bill to collect local occupational taxes
Occupational taxes are local taxes collected by the entity that imposes them. Both the city and county have occupational taxes.
In fiscal year 2023-24, the city collected $23.644 million in occupational taxes and $6.399 million in net profit license fees. Daviess Fiscal Court collected $6.194 million in occupational taxes and $3.354 million in net profit license fees.
The bill, House Bill 254, was filed Tuesday by Rep. Jared Bauman, a Louisville Republican. The bill wasn't available online Tuesday afternoon, but a press release from the House GOP leadership office says the bill 'would establish a working group to assist the State Treasurer's office in the modernization of occupational tax collections.'
The press release says the bill would create 'a unified online portal for businesses to streamline the payment of local payroll and net profit taxes across all jurisdictions.' The bill would make it simpler for businesses to pay occupational and net profit taxes, according to the press release.
The city's resolution says occupational tax collection 'is best accomplished at the local level by professionals who have local experience and local knowledge of our communities,' and creating a state system for collecting occupational taxes 'would have a severely adverse effect on the fiscal condition and economic development of Owensboro and all local government entities if mandated by the General Assembly.'
An official with the Kentucky League of Cities said Tuesday the organization's board voted to make opposition to the plan their top priority during this year's legislative session.
Occupational taxes make up an average of 60% of a city's revenue, the KLC official said. A copy of the resolution Owensboro city commissioners approved Tuesday evening was sent to cities across the state by the KLC.
Owensboro City Manager Nate Pagan said the KLC has taken the lead on the initiative, and said word of a possible bill was brought to the city's attention last week.
Pagan said a concern is the state would have to create a mechanism to collect the tax.
'There's no structure in place' for the state to collect the tax, Pagan said Tuesday. Any collection system the state creates could come with a collections fee taken from occupational tax revenues, Pagan said.
'It's a cost that's not incurred at this point' by the city, Pagan said.
The current system, where the city collects the tax for both city and county, is working well, Pagan said. The city's finance department 'has years and years of experience and expertise' collecting the tax, Pagan said.
The KLC official said businesses would have to file multiple forms and would have to file with the state to pay the tax.
Mayor Tom Watson, who is on the KLC board of directors, said before the bill was filed that another concern is occupational tax revenue would go to the state, where it could possibly be held for a period of time.
'We are definitely opposed to that, because they could hold (the funds) as long as they wanted to,' Watson said.
City Finance Director Angela Waninger told commissioners at Tuesday's meeting she had several concerns about the plan. Waninger said with taxes the state already collects on behalf of the city, such as the tax increment financing (TIF) revenue, the state provides no information that city officials can use to reconcile their estimate of the TIF revenue with what the city receives.
Waninger also said the city is currently able to collect unremitted occupational tax revenue through audits, but said that will be lost under a state system. People who pay their occupational taxes at City Hall won't be able to get local assistance as they can now, Waninger said.
Pagan told commissioners he had seen a comment from Bauman, who said an electronic system could be managed by two people. Pagan said he thought that was unlikely.
'It's a little head-scratching,' Pagan said.
Before the meeting, Watson also expressed a concern about not all of the revenue collected returning to the city.
'Usually, when money comes down from D.C. to Frankfort to Owensboro, everyone takes a little cut off it,' Watson said.
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