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Should Kentucky Cities Be Able To Impose New Sales Taxes? Frankfort Isn't Sure

Frankfort Kentucky Capitol

Standing outside his Highlands polling place on Election Day, Mayor Greg Fischer said he thought a new Republican majority in Frankfort could be open to the local option sales tax, a pet proposal of his administration for years.

His reason? Republicans favor smaller government and decentralized control, and allowing cities to raise their own sales taxes via the ballot checks those boxes.

Doing so would require a constitutional amendment to allow voters in cities to raise sales taxes by up to 1 percent via local referenda to support specific projects. The state House approved such a bill under Democratic control earlier this year, but the Senate declined to give it a vote.

Senate President Robert Stivers said at the time that he would vote for local option were it to come to the floor, but he wouldn't be its champion. The bill never found a Republican to fill that role.

This time around, Fischer, who has lobbied lawmakers in Frankfort for a local option sales tax bill, is bullish on its chances. So is Greater Louisville Inc., the city's chamber of commerce.

"As we work on comprehensive tax reform, we're going to seek to emphasize local control in that effort, which will give us what we need, the independence that we need, so that Louisville can decide its future as opposed to Frankfort handing down the taxes," said Sarah Davasher-Wisdom, GLI's chief operating officer.

The GOP majority in Frankfort isn’t offering much detail on its legislative agenda yet. Gov. Matt Bevin has said comprehensive tax reform is high on his agenda, although it's not likely that would happen in the opening 30-day session in January. Bevin told WDRB that "everything is on the table" when it comes to tax reform.

And while it's clear local option falls under that broad designation, it might be a tough ask of state Republicans to potentially raise taxes — even if doing so would require a win at the ballot box.

“Well, it’s going to have to be a part of comprehensive tax reform with some serious tradeoffs, or there’s going to be concerns about it," said Tom Underwood, state director for the National Federation of Independent Business.

Underwood said one potential swap would be the elimination of local occupational taxes. In Jefferson County, the occupational tax rate for workers who live in the county is 2.2 percent.

That tax has been a target of business lobbyists and politicians for years. They've argued it's onerous for businesses that operate in multiple counties, each with their own way of doing things.

Last legislative session, state Sen. Damon Thayer -- the majority's floor leader who helps decide what bills get a hearing in committee -- opposed the local option sales tax bill. He carried the banner for the GOP, saying there are better ways for local governments to find new revenue than raising taxes.

But he also indicated he could support local option in a comprehensive tax reform bill.

A spokesman for Fischer said the mayor hasn't met with GOP leadership on the issue since the election but plans to.

Stephen George is President and CEO of Louisville Public Media. Email Stephen at sgeorge@lpm.org.