Covington formally opposes short-term rental bill, other proposed legislation

The Covington Board of Commissioners cast votes both approving and opposing several statehouse bills this week.

Specifically, they cast a vote approving a bill to reform how local occupational tax is collected for certain companies. Meanwhile they voted to oppose a bill that would mandate additional taxes on alcohol sales, as well as a bill that would preempt local regulations on short-term rentals, known more commonly as Airbnbs.

The votes came in the form of city resolutions. Resolutions aren’t binding like ordinances or municipal orders, but they can signal an local elected body’s support or disapproval of particular policies to higher jurisdictions, like the state and federal governments.

The recommendations for the resolutions were furnished by Covington’s Director of External Affairs, Sebastian Torres, who has been lobbying on behalf of the city in Frankfort.

Short-term rentals

The bill on short-term rentals takes the form of Senate Bill 112, which is sponsored by Kentucky Sen. Craig Richardson, a Republican from Hopkinsville.

If passed, the bill would ban local governments from mandating rental licensing requirements, imposing density limits and imposing residency requirements on owners, among other regulations that cities and local governments have enacted as short-term rentals have become more common. The current regulations around short-term rentals in Covington were passed in 2023 and 2024.

Several cities in Northern Kentucky, including Bellevue and Fort Wright, have already come out against Senate Bill 112. Other local leaders have expressed worries the bill would circumvent local controls over zoning, housing prices and quality of life in their cities.

Torres explained some of the worries city residents had expressed about unregulated short-term rentals, namely the limitation of the city’s housing stock and the conversion of neighborhoods designed for conventional residential life getting converted into “boutique hotel districts.”

The vote to oppose the bill was unanimous.

Alcohol tax

House Bill 612, sponsored by Republican Kentucky Rep. Matt Koch from Paris, would impose an additional 4 percent state regulatory license fee on gross receipts of alcohol sales made by retail sellers. Essentially, if passed, it would be an extra 4% fee on all alcohol sold directly to consumers in Kentucky, affecting restaurants, bars, liquor stores and convenience stores.

Combined with Kentucky’s 6% flat sales tax, the consumer would effectively pay 10% on their alcohol purchases. A $100 purchase today would bring you $106 after the 6% sales tax. A $100 purchase under the bill would be $110. If passed, it would take effect on July 1, 2027.

All of the commissioners voted to formally oppose the bill, except Commissioner Shannon Smith, who abstained from voting to avoid conflicts of interest (she owns a bar). Abstentions are counted with the majority of votes.

In spite of her abstention, Smith expressed her point of view, making it clear she took issue with the bill. With the 6% flat tax, plus the possible 4% tax, plus any additional taxes that might be imposed – some cities tax as high as 5%, she said – could mean as much as a 15% gross receipts tax on local businesses.

“You’re talking about that tax at a time when it’s incredibly difficult to run a small business, particularly in this area, and when the industry itself is seeing some huge issues,” Smith said. “And I would encourage not just this board but every city within this state to say no to this.”

Several small businesses have already reached out to the city asking them to oppose the bill, Torres said. He added the bill reflected a plan at the state level to restructure taxation on alcohol. Commissioner Tim Acri asked how.

“It’s my understanding that they want to ship taxes off of wholesalers,” Torres said. “The argument is that that shift would then cause the overall price to actually drop on each alcohol and beverage.”

Torres said he brought that line of reasoning to some local business owners, who weren’t convinced.

“They said, ‘Yeah, sure, the wholesalers are going to keep every single cent of that, and at the end of the day, the consumer’s going to have to pay,'” Torres said.

“We don’t need this,” Mayor Ron Washington said.

Occupational taxes

Finally, the board voted to support Senate Bill 237, dubbed the “Economic Development Incentive Retention Act,” which would create several reforms related to occupational tax collections, especially as it relates to work-from-home policies imposed by large companies. The bill was filed the same day the city voted to adopt its resolution and is a refinement of an earlier bill, House Bill 495, which the legislature recently dropped.

If passed, the bill would mandate that companies that have corporate offices in a city, have received a city economic development incentive and that have at least 1,000 employees who spend 30 percent of their time in the office must always remit their occupational taxes to the city.

Occupational taxes include payroll taxes and nets profits taxes. Typically, those taxes are collected based on where work is being done, rather than where the company’s corporate office is. This means that a remote worker who never sets foot in Covington, even if their employer’s office is in Covington, will be taxed based on the location where they’re actually doing the work.

This is especially germane for Covington and its large corporate employers, namely Fidelity, whose employees moved to remote work during the pandemic, affecting how payroll taxes were remitted. Although many Fidelity employees have since returned to the office, the city is still reeling from the decline in tax revenue that resulted. The city had given Fidelity a development incentive when it first set up shop in Covington.

“We make a promise to our community that by giving a corporation a reduced tax rate that they are going to be full partners with us in our community when its taxes come to the full rate,” Washington said, “and we’re not seeing that under the current work from home.”

Torres said a similar bill will likely be filed in the Kentucky House, as well, on Wednesday. The vote to adopt the resolution supporting Senate Bill 237 was unanimous.

Haley Parnell contributed reporting to this story.