The legislature is considering House Bill 2 to allow local governments to add a one percent local sales tax. This would mean you would pay a seven percent sales tax instead of the current six percent. In “government speak” it’s called a local option sales tax (LOST). The proponents of this bill like to point out that voters in their own communities would choose to tax themselves to pay for projects they want. But the only way that could be true is if the vote was conducted at the cash register. The reality is that many Kentuckians will end up paying for projects they didn’t vote for and don’t get to use.
This new tax will further divide Kentucky’s urban versus rural areas. Voters in rural communities that go to bigger cities to shop won’t have any say; they will only get to pay. Almost one-third of the revenue raised by this measure state-wide would go to Louisville/Jefferson County. A quick analysis of this new tax shows that Kentucky’s top ten most populated cities will get to spend two-thirds of the new tax, leaving the rest of the hard-working folks in the rural parts of the state further behind.
The proponents of this bill have tried to insinuate that the business community supports this bill. But the reality is that the business community pays one-third of the sales taxes collected in Kentucky. Businesses pay sales taxes on products and services that they use such as supplies, equipment, and utilities. An increase in the sales tax at the local level would cost Kentucky businesses approximately $165 million dollars.
The amount of money this new tax will raise is staggering, approximately $500 million dollars each year. Kentucky businesses will end up paying for one-third of this new tax and consumers will shoulder the rest. Taking a half a billion dollars out of the economy is not without negative consequences on the commonwealth’s tax revenue, consumer spending, and future business expansion.