GUEST BLOG: Louisville Needs Tax Modernization Now
The Kentucky State House has recently passed a constitutional amendment which would allow the state to give cities the authority to levy a sales tax rather than relying solely on our current property and income tax structure. First, this could be the most important change for Louisville to reduce our dependence on anti-growth tax structures and second, if this does not pass the Senate, then Metro Council members should reconsider many of our policy decisions because currently, local taxpayers are subsidizing the local tourism industry.
The current state constitution only allows local jurisdictions to tax property (land, houses, cars, boats, etc.) and licenses which is code for ‘income’. We are all familiar with our property tax bill. If you work, you are also familiar with what we refer to as the ‘occupational tax’. This is a form of ‘licensure’ tax where, simply said, if you have an occupation of any sort, we tax the money you make from that occupation. It is just a nuanced way of saying that we have an income tax on top of the state income tax.
Our occupational tax is over half of our general fund revenue. There is increasing evidence that the higher your income tax, the lower your growth trajectory. There are many examples including our neighbor to the south but the bottom line is, income earners of all levels move to where they are the least penalized. Nashville is booming with an almost 10% sales tax that the city gets a portion of. If we want to truly grow this city and attract investment and talent, we must reduce our occupational tax but we can only do that with the ability to tax consumption through sales taxes.
You may be a bit shocked by my second claim which is that you, the local taxpayer of Jefferson County, are subsidizing the tourism industry. Let me put it this way, do you know how much direct local tax revenue is generated from Derby, Forecastle, Thunder Over Louisville, and all the conventions that come to town? Answer: ZERO, $0, Nada, Nothing. How about from all the gambling at Churchill Downs or their new casinos? Answer: ZERO (see the pattern here?). We don’t get a penny from the hotel tax or any of the tax revenue from these events. Tourists come to our town and they get police protection, they use our roads, they use our parks, and they don’t contribute one dime to their upkeep.
You may be thinking, but how about property taxes from the hotels or income taxes from the people that work for the hospitality industry? When the pandemic hit, our hospitality industry plummeted by almost 90%. There was minimal impact to the occupational tax. The reason is the people that were laid off were largely low-income workers and those that work for cash tips which go undeclared. As for property tax, almost every new hotel downtown has a TIF (tax increment financing) which means they only pay 20% of their new property tax bill to the city. If that isn’t bad enough, Churchill Downs pays precisely $0 in property tax to the city on their $100M valued track.
Finally, the Republican Caucus did an analysis of the city’s capital budget. The Central Business District (almost all built on tourism) received over $200M in city capital dollars in the past 10 years. This is more than the rest of the 25 Metro Council districts received combined. Keep in mind, that $200M doesn’t include the $10.8M annually paid to the YUM Center or the Omni deal or a couple other high-profile projects. How much nicer could all our neighborhoods be with a $200M investment?
Tourists must pay their share of our city services the same way that you and I do every time we go to cities like Orlando or Nashville. Further, we must reduce our dependence on our occupational tax which makes us uncompetitive with other peer cities. Only the state can make that change and it starts with this constitutional amendment. If we don’t get that passed this year, the Metro Council must stop subsidizing tourism on the backs of our citizens and disproportionately funneling capital money to that industry.
About the author: Anthony Piagentini is a Republican Metro Council Member who represents Louisville's 19th District.
The views expressed by the author in this piece do not necessarily reflect the views expressed by Pegasus Institute