The Campbell County Fiscal Court voted to eliminate its net profit tax and replace it with a business license flat fee to streamline its occupational tax collection.
The vote, which took place at the fiscal court meeting Wednesday evening, was ahead of a tax cap lifted by the general assembly last year, giving the fiscal court the option to adjust the tax.
Campbell County has two types of taxes that make up its occupational tax. The first is payroll tax, which is paid on subject wages for people who work in Campbell County, no matter where the person lives. The second is a net profits tax for businesses in the county. Both taxes have had a cap placed by the general assembly since 2004.
The payroll tax is capped at $600 at a subject wage of $38,667. The net profits tax is also capped at around $600, according to Campbell County Administrator Matt Elberfeld.
“What has happened due to those caps is our proportion of revenue between our property taxes, and our occupational taxes has gotten out of balance,” Elberfeld said.
He said that 10 to 15 years ago, the county collected more in occupational taxes than property taxes, but that has shifted over time. They now collect more in property taxes. Elberfeld said that looking at larger counties around the state, they want to collect more in occupational, not property taxes.
Elberfeld further broke down the county’s payroll tax of 1.05%, which comprises three different components. The first is a general license fee of .9% that funds TANK and general fiscal court operations. A tax of .1% goes to mental health and a tax of .05% to senior services.
“My recommendation to begin rebalancing our tax revenue is to update the payroll taxes to the FICA limit,” Elberfeld said. “The FICA limit is what wages are subjected to social security. It’s set by the federal government each year. It’s currently $160,000; it can go up or down every year depending on what the feds do.”
Elberfeld said that any Campbell County city with payroll taxes uses the FICA cap if they have a cap. He said using the FICA cap is a standard method for payroll taxes.
The second part of Elberfeld’s recommendation was to eliminate the net profits tax. He said the county spends roughly 80% of its time collecting it but only contributes about 10% of its tax revenue. Elberfeld said it doesn’t generate that much money for the work it takes to manage it.
The net profits tax will be replaced with an updated business license flat fee of $75, up from $25.
“The form is not the most straightforward process, and it’s been a burden on a lot of small business owners,” Elberfeld said. “We get a lot of feedback; it costs more to pay your accountant to fill out the form and calculate the tax than you pay in the tax. So, it’s complicated, it’s confusing, it’s frustrating. It takes our staff a lot of time to trace down and collect.”
He further explained that the tax will still appear on their books, but procedurally they will eliminate it by making the minimum and maximum the same amount.
He said the new tax form would be simplified to a few questions and be available online. The questions will pertain to whether a company has payroll, issues a 1099 tax form, and what cities the company does business in. The county’s new occupational tax collection software will also streamline the process.
“When we looked at trying to set that amount, the average net profits tax was a payment of $191, but that amount was brought up by a lot of the big businesses that pay that maximum amount every year,” Elberfeld said. “43% of our taxpayers only pay the minimum, $25, so we wanted to look for an amount that we felt was going to be fair.”
Campbell County Commissioner Geoff Besecker asked if the tax cap was unique to Campbell County or if it happened across the state. Elberfeld said Campbell and Kenton Counties were the only ones in the state with a cap.
The cap was set for counties with a population over 30,000, which Boone County did not have at the time. Elberfeld said Boone County’s payroll tax cap had adjusted every year automatically based on the consumer price index.
“This was a unique situation for Campbell and Kenton Counties, and the general assembly both created and solved this problem over a 20-year window,” Elberfeld said.
According to Elberfeld, Kenton County has also taken action to update its ordinances.
Overall, Elberfeld said the restructuring should help the county be more flexible and small business friendly. The restructuring will take effect on Jan. 1, 2024.
