When Kentucky’s business community works together, we can accomplish incredible things to benefit our commonwealth. But when it comes to discussions about local tax expansion, retailers and restaurants are at best ignored and at worst being hoodwinked into something harmful to their future.
For years, Kentucky retailers have warned against a local option sales tax, commonly referred to as LOST, which will lead to significant uncertainty and higher costs for businesses and create an unlevel playing field that needlessly pits retailers in different communities against one another.
Despite these concerns, some business organizations support this concept, claiming it will only allow local governments to decide which new taxes will help their communities. But as they lobby Kentucky legislators year after year to create a constitutional amendment to allow it, they cleverly hide the pitfalls behind positive-sounding rhetoric like “tax modernization” and “revenue diversification.”
In reality, their plan opens the door to unlimited tax increases on the goods, services and activities Kentuckians use and rely on. The truth remains that no matter what you call it, this has been and will always be a bad idea for the small businesses that employ most Kentuckians and keep our communities thriving.
While we understand local governments face revenue challenges, giving them a blank check isn’t the solution. And opening the door for 120 different counties and 415 different cities to create a hodgepodge of new taxes is a recipe for disaster that will make doing business in Kentucky far more difficult—and more expensive.
Proponents claim this will allow local governments to eliminate local income taxes once and for all. But to date, nothing has been officially put forth that requires eliminating any local income taxes—meaning local businesses could get hit with income taxes and sales taxes at the local level.
Simply put, when local governments adopt new taxes, residents and businesses are the ones left footing the bill. So why do some of these groups claim that local tax expansion is good for Kentucky businesses? There’s nothing good about raising prices because of greater tax burdens or being forced to make difficult staffing decisions because your operating costs have increased.
Businesses are always trying to plan ahead but also understand there are no guarantees. Kentucky’s constitutional protection from over-taxation is at least one guarantee that businesses have been able to count on—and has helped give us an edge in economic development. Not to mention, businesses in Kentucky are already handing over ample tax revenue to the state. Kentucky businesses pay 43.9 percent of state and local taxes collected in Kentucky and, in 2019 alone, paid $1.7 billion in state sales taxes.
While local tax expansion may have a lesser impact on larger businesses, it would be detrimental to the smaller businesses in our communities—many of which are just getting back on their feet after COVID and struggling in an uncertain market amid record-high inflation. Smaller businesses won’t be able to compete with larger businesses that have more leeway regarding slashing prices and could even be forced to shut their doors.
LOST—and its many forms—has always been a wolf in sheep’s clothing, and it is disappointing that some in the business community are investing so many resources to advance policy that would go against the best interests of their dues-paying members.
This was a bad idea when it was proposed nearly a decade ago, and it’s still a bad idea today. Our business community should be working together, alongside retailers and restaurants, to strengthen Kentucky’s economy and ensure the commonwealth remains a great place to do business. Meanwhile, Kentucky legislators should be working to strengthen our industry and protect hardworking consumers from higher costs and prices, and they can do so by opposing unfettered local tax expansion, no matter what form it takes.
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