Taxes are complicated.
In fact, it would be very difficult to concisely summarize all of the different taxation categories in the commonwealth in a single article like this (you can go to the Kentucky Department of Revenue’s website and check out all of the different subcategories under the drop-down menus on their main page if you’re interested).
Still, you need taxes if you want to have a functioning society, or rather, you need some way of reliably funding and maintaining the public services that enable the niceties of life to continue. As it stands, that means paying your taxes. And that’s true whether you’re an individual or a business.
This story is part of our latest Super Issue, which takes a look at what it costs NKY to stay separate. Click here to learn more.
“Taxes don’t do anything for the public,” said Newport City Commissioner, former business owner and social service professional Ken Rechtin said. “Taxes don’t put out fires, and taxes don’t catch criminals or fix a pothole. They’re a necessary thing that we have to do in order to get the capital in to pay the people that put out fires and catch criminals and fill potholes.”
But, like we said, they’re complicated, especially in a place like Northern Kentucky, where there are three counties, 36 cities and municipalities and a whole lot of school districts, public safety departments and public works departments, all of which are tied to unique taxation structures. This inconsistency has led to calls from business advocacy groups and professional organizations to simplify local occupational taxes. Rechtin is among the people who thinks such a change is necessary.
“I think it’s a big deterrent for people to locate here,” Rechtin said.
Not everyone agrees, though. In fact, cities have repeatedly come out against standardizing either the occupational tax rates or the means by which they’re collected (well, at least, if the state’s involved).
So, why don’t businesses like the current state of affairs? And would reforming the occupational tax code be a good idea?
Business taxes
Taxes fall into a handful of general categories: property taxes, sales taxes and income taxes are usually what individual people think of when they think of taxation. The tension at issue here, however, focuses instead on a category of taxes called occupational license taxes. In conversation, these taxes are sometimes referred to as payroll taxes or profits taxes.
Officially, occupational license taxes are taxes on business activity, i.e. payroll, net profits and (in some cases) gross receipts. That means, yes, these taxes get taken out of your paycheck if you earn wages. The business itself then also pays taxes on its profits (sometimes, depending on where they are). In spite of this, occupational taxes do not legally count as income taxes.
Occupational taxes are a huge chunk of city budgets. This is one reason why cities are often so eager to attract businesses to set up shop in their borders. More business activity means more occupational taxes to fund public services. Many cities have made deliberate efforts to make occupational taxes their primary means of revenue, rather than property taxes.
For perspective, the two most populous cities in the region, Florence and Covington, are both hoping to draw nearly half of their general fund revenues from occupational taxes in fiscal year 2026.
Kentucky cities are constrained in how they can tax their residents. The state levies a flat sales tax at 6%, but counties and cities do not have the legal authority to impose additional sales taxes.
The state also imposes a flat income tax on residents of 4%. That means that cities have to rely on property taxes, occupational taxes, franchise fees and taxes on insurance premiums for much of their operating revenue. Cities can apply for grants from organizations and the federal government, sure, but those funds often come with strings attached. Oftentimes, grant funding can’t be used for general operating expenses.
Occupational taxes are charged depending on where work is completed. If you’re a business that has a single location, and your workers don’t move around that much, this issue won’t affect you because you’ll have predictable rates. But what if your business is region-wide, or your workers move around to complete their work?
“It is a logistical nightmare,” said Steve Harper, former proprietor of Harper Oil, which specialized in wholesaling gas, diesel, other fuels and lubricants throughout the tri-state. Harper Oil was acquired by Valor Oil in 2018. Harper was active in the Chamber of Commerce for 30 years, where this issue was a frequent topic of conversation.
“Each of these jurisdictions had their own formulas,” said Harper, discussing the example of gasoline delivery drivers. “Some were based on net profits, some were based on gross profits.”
One year, he said, Florence changed the percentage of their occupational tax rate and switched from a gross profits calculation to a net profits calculation. As a result, “our tax in that jurisdiction went up 250% in that one year.”
And that’s just considering the amount a business might be taxed. In Harper’s case, he also had to keep track of where and how much time his drivers were spending in each jurisdiction (in multiple states, no less). Accounting for all of the complexity, he said, “was a task that couldn’t be done, in my mind.” Instead, he would instruct his drivers to focus on particular areas and then make estimates based on that.
Sources who spoke with LINK nky pitched a variety of ways to address this phenomenon, including instituting flat rates region- or county-wide or standardizing formulas across jurisdictions to calculate based net figures or gross figures only. Another solution floated was the idea of creating some kind of centralized collection mechanism where businesses could pay a single place, which would then crunch the numbers for them and divey up the taxes accordingly. Rechtin, especially, thought this had promise.
“I still think that with the proper study and accommodating folks that would be in some way held harmless for a loss of revenue in moving to a new system that we could get to that someday,” Rechtin said.
This could be done either through some interlocal agreement that would either create a new institution, outsource the work to a third-party professional contractor or augment an existing regional institution like the Northern Kentucky Area Development District, which already plays a role in recommending local tax rates. This could conceivably continue to grant local jurisdictions the ability to set their own rates, which they would lose with a flat rate, while making it easier for payers.
“With simplicity comes compliance,” Rechtin said. “So the more easy you make it for somebody to pay, the easier it becomes, and the more compliance you get.”
What about having the state do it?
Centralization, simplicity, autonomy
“Anytime somebody talks about simplifying taxes, I’m not sure what that exactly means,” said Larry Klein, who currently works as a part time tax compliance officer for the City of Crestview Hills. Klein has served in several roles throughout the region, most notably as the city manager for Covington, a role from which resigned in 2017 amid ongoing conflicts with former Mayor Joe Meyer.
Klein is a former president of the Kentucky Occupational License Association, which aims to educate local governments and officials about occupational taxes. They also engage in advocacy.
Klein said that every year there’s a push at the state level to centralize occupational tax collection through the state. It’s worth noting that all of the sources who spoke with LINK nky, including the ones who were in favor of simplifying occupational taxes, opposed doing it through the state, either directly or through a state contractor. Why?
“As a tax-paying resident of the state of Kentucky, it’s hard for me to believe that our dealings with the state would make it easier for us to get our money,” said Dave Hatter, mayor of Fort Wright and IT professional.
Hatter admitted, as a former small business owner himself, that trying to keep track of all of the varying occupational taxes in the commonwealth was a “pain in the butt,” but making things too centralized carried its own risks.
“As a guy who spent 25 years as a software engineer building complex business systems, trying to build a centralized system that could do this will probably be very difficult, very costly, very time consuming, and many of these systems go way over budget if they’re ever delivered,” Hatter said.
The most recent attempt for the state to take control of occupational tax collection took the form of House Bill 253, which would have created a web-based system for occupational tax collection under the Office of the Kentucky Treasurer and allowed that office to determine fees for using the system. Several NKY cities, including Fort Wright, passed resolutions against the bill. The Kentucky League of Cities’ Board of Directors also voted to oppose the bill.
HB 253 never made it out of committee, but bills like this are introduced on the regular, according to Klein.
Hatter meanwhile viewed flat or uniform rates across jurisdictions as likely having the effect of undercutting individual cities’ ability to competitively attract businesses and keep property tax rates low.
“We have purposely tried to lower our taxes as a way to incentivize people to move here and live here and businesses to locate here because more business means less taxes for the residents and more ability to do more things, more good things for the community,” Hatter said.
Another issue that comes up, Klein said, is that anytime legislation at the state level has come up, “the taxpayer would pay the state. If there was missing documents, questions, all of a sudden the local government would still be responsible for the fallout, and so the work would still be there on behalf of the local government.”
There has already been some simplification of occupational tax collection at the county level. Boone, Kenton and Campbell Counties collect occupational taxes for at least a handful of their jurisdictions, plus the counties themselves on a single tax form – 3 in Boone, 8 in Campbell and 15 in Kenton – although many of the larger cities in the region opt to keep things in house, and some cities ask for extra forms depending on their policies. Still, this makes things easier for businesses that operate in those jurisdictions as they only have to make a single payment to one body, the county, which takes care of splitting everything up.
When asked if there may be some middle ground, such as the creation of a region-wide (rather than statewide) collection authority or doing it through an institution like the area development district, Klein said there could be a middle ground.
“But at the end of the day, Klein said, “Local governments have to maintain control of the system because it’s our revenue, and the money we collect today we pay our police and firemen next month with.”
Rechtin was aware that the counties had made strides in simplifying collection but said, “I think we could do even more.”
With the issue likely to come up again in Frankfort, Rechtin concluded: “Boone, Kenton and Campbell [Counties] really need to work together to find solutions before our legislature takes it over.”