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Opinion | Tod Griffin: Another tax… coming to a town near you?

House Bill 1 not good for Kentuckians

(Feb. 26, 2015) — The Kentucky State Senate is poised to consider House Bill 1, a new tax that will reportedly put a half a billion dollars in the coffers of county and city governments across this commonwealth.

Tod Griffin
Tod Griffin

Interestingly this new tax is not being portrayed as a tax at all, but is being called a “choice” by the proponents which include many Republicans who supposedly don’t like new taxes. They portray this tax as a “choice” because they’ve been sold on the idea that local voters get to choose to tax themselves in order to pay for projects in their own communities.

But the only way that could be true is if the vote was conducted at the cash register. The reality is that many customers will end up paying for projects they didn’t vote for and don’t get to use. If you live out in the county and it’s the city levying the tax, you will not get to vote. Likewise, nor will voters in rural communities that go to bigger cities to shop have any say; they will only get to pay.

From a retail standpoint, this approach causes several concerns. The first is that adding a local sales tax to different localities across the state creates a collection nightmare for the retailer. Keeping up with different taxing rates between different cities and counties is going to be problematic for those folks who deliver goods, not to mention putting retailers at a competitive disadvantage with their neighboring retail shops in the next county over with a different sales tax rate. Raising the complexity of the taxing structure eventually raises consumer prices in the end.

We also know that sales taxes are transient in nature and consumers soon learn to avoid higher taxing districts in order to save a dollar or two. You only have to look at the increase in online shopping in recent years or the success of a sales tax holiday in Tennessee and other states to see that.

This new tax increase will cost retailers and other businesses as well as major manufacturers that Kentucky sorely needs, in increased energy costs because, unlike residential users, the commercial businesses pay sales tax on utilities. A one percent hike in utility rates could be staggering to big users in this state. Businesses also pay sales tax on many goods and supplies they buy to run their business. As a matter of fact, business-to-business sales bring in one-third of the state’s sales tax revenue every year.

The amount of money this new tax will raise is staggering, over $500 million dollars each year. Kentucky businesses will end up paying for one-third or $165 million 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 (new jobs).

I hope the Kentucky State Senate will carefully consider the ramifications that this new tax will have on businesses and the consumers they serve across this commonwealth.

Tod Griffin is President of the Kentucky Retail Federation