The 1st meeting of the Task Force on Local Taxation was held on Friday, September 23, 2005, at 11:00 AM, in Room 131 of the Capitol Annex. Representative Charlie Hoffman, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Damon Thayer, Co-Chair; Representative Charlie Hoffman, Co-Chair; Senators Denise Harper Angel and Ernie Harris; Representatives Steve Riggs and Arnold Simpson; Glenn Caldwell, Tom Guidugli, Steve Hoskins, Vince Lang, Gary Larimore, Kevin Leonard, Bert May, Willie McElroy, Gene Strong, Bill Thielen, Larry Whittaker, and Ellen Williams.
LRC Staff: Pam Thomas, Charlotte Quarles, Jamie Franklin, Donna Gaines, Mark Mitchell, Joe Pinczewski-Lee, Barry Boardman, Mike Clark, and Sheri Mahan
Representative Hoffman and Senator Thayer welcomed the members and briefly discussed the purpose of the task force.
Next, members introduced themselves, described what they felt were the most important issue concerning local taxation, and stated their primary goal to be achieved by the task force. Also, Representative Hoffman introduced the task force staff members.
Representative Hoffman then discussed the mission of the task force. He discussed the enabling legislation that created the task force, stating that the legislation is specific in what is required and what is to be covered by the task force. He stated that the legislation requires the task force to produce and report written recommendations by November 1, 2005. Because the first meeting was held on September 23, a meaningful report will not be produced by the deadline established by statute. Given these timeframes and the requirements of the legislation, the chairmen will ask LRC to approve the continuation of the Task Force so that the task force will have time to meet and complete its work.
Next, Pam Thomas, lead staff person, provided an overview of the background documents produced by LRC staff to present the basic issues confronting the Task Force on Local Taxation. She briefly discussed the task force, outlining its responsibilities. The task force is charged to review the current structure of local taxation, including constitutional requirements, current taxes imposed by local governments, the local tax burden in various Kentucky cities and counties, revenues generated by certain tax types, and the effectiveness of existing economic development incentives available to local governments.
Ms. Thomas then discussed specific issues confronting the task force. She outlined the limitations imposed by the Kentucky Constitution on the types of taxes that may be imposed and the limitations on the ad valorem rate. She discussed the limitations placed on real property tax exemptions and limitations imposed on the relationship between the state and local governments.
Ms. Thomas discussed current types of taxes levied by local governments. She discussed ad valorem taxes, outlining the effects of House Bill 44 which limits overall growth of tax levied on real property within any taxing district without the possibility of a voter recall to 4% per year, exclusive of new property. Also local governments are prohibited from taxing intangible property and most tangible personal property due to constitutional or statutory exemptions. State and local jurisdictions are limited in what they can offer in the form of economic development incentives based upon property tax relief due to strict limitations placed on ad valorem taxes by the Constitution.
Next, Ms. Thomas discussed occupational license taxes, stating that these are becoming an increasingly popular source of revenue for cities and counties. Imposition of these taxes do not require a popular vote and there are no recall provisions. Any city or county may impose an occupational license tax, but there are different requirements depending on the population of the county or the classification of the city. These taxes can generate significant revenues in cities or counties with strong business and employment base, but is limited in jurisdictions with less business and employment activity. The most controversial provision of the occupational license tax are those that require an offset of city occupational taxes against county occupational taxes. Ms. Thomas then discussed some of the reasons for the controversy.
Finally, Ms. Thomas discussed insurance premium taxes, stating that these may also be imposed without a popular vote and are not subject to recall. The statutory authorization for these taxes is very broad. There is no upper limit on the rate and there are few mandated exemptions from the tax. Cities and counties are permitted to tax different lines of insurance at different rates, and may exempt some lines of insurance entirely. This tax is difficult for taxpayers to comply with because of the number of jurisdictions imposing the tax, the variations among the jurisdictions regarding the types of premiums subject to the tax, and the rates applied to each type of premium. Each insurer must file a separate return with each locality and group filing is not permitted.
Ms. Thomas said that the task force would be discussing local tax burdens in cities and counties that are used by local governments to provide services to its citizens. She stated that the task force may also want to explore how services are provided, what process is used to decide which governmental entity provides services and how revenues and the authority to generate revenues relates to the provision of those services.
Ms. Thomas then discussed several obstacles facing the task force in analyzing the revenues generated by various types of taxes, the largest of which is the severe lack of usable data. There is not a good, reliable source of data regarding the taxes imposed and the revenues generated. Local governmental units are required to report revenues by type of tax to the Governor's Office of Local Development (GOLD) on an annual basis, but not all districts report. An estimated 30 percent of all special taxing districts do not report. Also, the information required to be filed with GOLD allows for broad generalizations of tax collections.
Ms. Thomas finally discussed the impact of local economic development incentives and initiatives. She stated that several statutes permit local governmental units to provide economic development incentives of various types, but there is not a central agency charged with collecting information regarding the use and effectiveness of these incentives, so it will be difficult for the task force to gather information regarding these topics.
Representative Simpson asked if there are any model local government tax structures available for the task force to review. Representative Riggs mirrored this question. Ms. Thomas stated that there are general guidelines as to what constitutes a good local tax structure.
Representative Hoffman stated that if LRC approves the task force's request, the next Task Force meeting will be held on November 4 at 10:00 a.m. in Frankfort. Staff will review the results of the surveys and, based on the information provided by the members and the provisions of the enabling legislation, will establish a general outline of topics that we will be covered at future meeting.
Being no further business, the meeting was adjourned at 12:35 P.M.