Georgetown Mayor Tom Prather has begun his barnstorming campaign to pitch a possible transition for the city from a net profits tax for businesses to a gross receipts tax.
On Monday during the regular council meeting Prather and city chief administrative office Andrew Hartley unveiled a video outlining the differences between the two tax avenues and why they believe a move to a gross receipts tax is necessary. Following the council presentation, Prather and Hartley made a similar presentation to Scott United on Wednesday with future presentations scheduled for the Georgetown/Scott County Chamber of Commerce Board of Directors and the Scott County Industrial Forum.
Council members were mostly supportive of the information, but offered little indication how they might be leaning as a group. At Scott United, there was some mild pushback, but Prather shrugged his shoulders and said the questions raised are why the city is making these presentations, in order to determine if this transition can work and what might be the issues/problems if the city does make the move.
“A reason we are looking at a gross receipts tax is the inequity between what small businesses and large businesses pay in taxes,” Hartley said.
Only 35 Kentucky cities utilize a gross receipts tax, with four cities within Georgetown’s population grouping, according to information provided by the Kentucky League of Cities. The average tax rate for that group in Kentucky is .075 of gross receipts, but the illustrations offered by Georgetown show a far lower potential tax rate, although nothing has been written down or planned upon, Prather said.
Most Kentucky cities use the net profits tax, and the average rate is 1.2 percent of net profits, according to KLC. Georgetown’s net profits tax is 1 percent.
Prather noted the transparency using a gross receipts tax, compared to a net profits tax which is based upon tax returns.
The video, which can be seen at https://www.georgetownky.gov/ breaks Georgetown’s businesses into three categories: small businesses generating less than $1 million annually, small to medium enterprises generating $1 million to $100 million and large businesses generating over $100 million. Many of the large businesses are multi-location retail and industrial operations which operate globally.
The video points out that some 994 of Georgetown’s 3,245 businesses did not pay any net profits taxes to Georgetown last year.
Compounding taxes was one concern raised about the tax transition, especially for manufacturing operations. If parts for a product are manufactured in Georgetown and then used to build another product in Georgetown, there is a possibility the city is collecting taxes at multiple stations in the production process, creating a compounding taxation situation. Another concern is requiring a business to pay a tax even if it lost money during its fiscal year.
“This is just the next logical step in our process,” Prather said. “We have gathered the data and now are doing the analysis. But we are willing to begin a discussion and dialogue about this.”
Hartley noted the volatility of the net profits tax is another problem for the city. One year, net profits it may be high, and collapse the next year, he said.
“The net profits tax is not reliable as a revenue source,” he said.
The city has outlined a five-year plan, which increases the salaries and staffing levels of all first responder departments. The increases are covered during the first two years of the plan through an increase in the insurance tax premiums and a 911 fee. But Prather is concerned the city may not be able to sustain the plan without additional revenue coming in the later part of the plan.
The mayor said he has no specific timeline for proposing a possible transition to the gross receipts tax, and there is no template at city hall for a probable ordinance. He also emphasized this move is not targeted at any individual business or operation, but is an avenue to correcting what he sees as a taxing inequity and to improve revenues for the city in order to continue to provide services.
Mike Scogin can be reached at firstname.lastname@example.org.