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Taking over and taking away? What counties should know about potential changes to occupational license fee collection and vehicle property tax

By Shellie Hampton, Director of Government Affairs
The latest on two of the many county-related issues at the Capitol

The General Assembly is currently in recess for the 2025 legislative session, but two issues of concern to counties appear to be gaining momentum: the centralized collection of occupational license fees and a repeal of the state’s ad valorem tax for motor vehicles.

Centralized collection, part two

The idea of "modernizing" how occupational license fees are collected by shifting that function from local governments to a single, centralized collection point by the state has been floated in the past and may once again see traction in the legislature. 

In 2012, KACo worked with other stakeholders to develop compromise legislation requiring county and city tax forms to be posted on the Secretary of State's website.

Developing a single system that would simplify and streamline the process for businesses paying occupational license fees, especially those operating in multiple counties and cities, may sound attractive and seem like a natural progression to drive economic development. Proponents argue a web-based application operated by the state would be more efficient for businesses, have no financial impact on collections and lead to greater compliance.

Past efforts by the state to develop other modernized systems, however, have seen mixed results and delayed implementation dates.

While no legislation on centralized collection has yet been filed, a proposal may drop when the lawmakers return the week of Feb. 4.

Many county officials have expressed that local tax revenue should remain in local control.

Occupational license fees are local taxes on an individual's payroll and the net profits of a business.

In Kentucky, 86 counties and hundreds of cities levy this tax with varying rates and ordinances in place. Each jurisdiction imposes its own unique exemptions, minimums, or maximums on the tax to reflect the specific needs of their community.

[Click here to read KACo’s 2024 data brief on county occupational license fees.]

All those variables are why local leaders feel the collection of occupational license fees is best maintained at the local level by administrators who are familiar with the local business needs and the withholding requirements of that county or city. 

At its Jan. 7 meeting, the Boone County Fiscal Court passed a resolution opposing a state-operated collection of occupational license fees, noting that it already has a "clear, transparent and efficient" process in place to collect revenue that is vital to supporting local services.

Boone County Commissioner Cathy Flaig said she can’t imagine any county would support a statewide centralized collection system.

"Nobody wants that," Flaig said. "We all want to take care of our own [revenue]."

According to the Kentucky Occupational License Association, establishing a centralized collection system would create significant challenges in terms of complexity, cost and feasibility.

In other words, it’s easier said than done.  

Ad valorem tax exemption

 Two bills have been filed – HB 60 and HB 108 – that would exempt motor vehicles from state property (ad valorem) taxes.

As introduced, HB 60 would take effect in 2026 while HB 108 would phase in the tax exemption over eight years. Both proposals would not affect the collection of ad valorem taxes on motor vehicles assessed by counties, cities, schools or other taxing districts.

While counties would not see a direct negative impact on ad valorem tax revenue, eliminating the state tax on motor vehicles would still hurt county budgets. That’s because county clerks collect and remit the ad valorem tax on behalf of the state and receive a 4% commission for doing so (KRS134.805).

County clerks statewide currently receive approximately $8 million a year from this commission. 

County clerk budgets are fee-based offices and for decades have provided an efficient mechanism to collect and remit those dollars back to the state.

According to Grant County Clerk Tabatha Clemons, her office collected $1.17 million in state ad valorem taxes in 2024. That generated nearly $47,000 in fees used to help fund county clerk operations. 

If the state were to stop collecting taxes on motor vehicles, revenue to county clerks across Kentucky would drop, leading to less fee revenue received by fiscal courts that could then fund county services.

Counties continually seek out ways to improve services and become more efficient with their constituents' tax dollars and KACo looks forward to finding common ground that works with the goal of the legislature without harming the ability of counties to provide mandated services to Kentuckians.

 

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