AN ACT Relating to Local Option Sales and Use Taxes

UNOFFICIAL COPY AS OF 11/03/1814 REG. SESS.14 RS BR 857

AN ACT relating to local option sales and use taxes.

Be it enacted by the General Assembly of the Commonwealth of Kentucky:

SECTION 1. A NEW SECTION OF KRS CHAPTER 65 IS CREATED TO READ AS FOLLOWS:

As used in Sections 1 to 5 of this Act:

(1)"Consolidated local government" means a combined city-county government formed pursuant to KRS Chapter 67C;

(2)"Department" means the Department of Revenue;

(3)"Gross receipts" and "sales price" have the same meaning as in KRS 139.010;

(4)"Local government" means a city, county, urban-county government formed pursuant to KRS Chapter 67A, unified local government formed pursuant to KRS 67.900 to 67.940, charter county government formed pursuant to KRS 67.825 to 67.875, or any other form of merged city-county government except a consolidated local government;

(5)"Local jurisdictions" means all local governments and consolidated local governments;

(6)"Member state" has the same meaning as in KRS 139.781;

(7)"SSUTA agreement" has the same meaning as in KRS 139.781; and

(8)"State sales and use tax" means the sales and use taxes imposed by the Commonwealth pursuant to KRS Chapter 139.

SECTION 2. A NEW SECTION OF KRS CHAPTER 65 IS CREATED TO READ AS FOLLOWS:

(1)A local jurisdiction may impose a local option sales and use tax as provided in Sections 1 to 5 of this Act.

(2)Any local option sales and use tax imposed by a local jurisdiction shall:

(a)Be approved by the voters prior to imposition of the levy, as provided in Section 3 of this Act;

(b)Be used solely for a specific capital project or projects, which shall be identified and described in the ballot language proposing the levy, except that portion of the amount collected necessary to offset the costs of the department incurred in collecting and administering the tax may be used for that purpose;

(c)Be for a limited period of time, which shall be identified in the ballot language proposing the levy;

(d)Be collected by the department at the same time, and in the same manner, as the state sales and use tax;

(e)Apply to the same base as the state sales and use tax;

(f)Include both the sales tax and the use tax, which shall be imposed at the same rate;

(g)Be sourced as provided in KRS 139.105; and

(h)If:

1.Kentucky is a member state to the SSUTA agreement, comply with all requirements of the SSUTA agreement relating to levies by local jurisdictions;

2.The SSUTA agreement is replaced by federal legislation authorizing states to require out-of-state vendors to collect and remit sales and use taxes on behalf of the state, and that legislation includes requirements relating to levies by local governments, comply with all requirements of the federal legislation that will allow Kentucky to remain in compliance with the federal law; or

3.Neither subparagraph 1. nor 2. of this paragraph apply, comply with any requirements established by the department pursuant to an administrative regulation promulgated pursuant to KRS Chapter 13A establishing administrative, reporting, notice, and effective date requirements.

(3)(a)The maximum aggregate local option sales and use tax rate that may be imposed at any time within the boundaries of a county shall be:

1.One percent (1%) of gross receipts as described in KRS 139.200; and

2.One percent (1%) of the sales price of property as described in KRS 139.310.

(b)Before a local option sales and use tax levy may be imposed in:

1.Any jurisdiction other than a consolidated local government or urban-county government, the mandatory inquiry process established by Section 4 of this Act shall be followed; or

2.A consolidated local government, the provisions of Section 5 of this Act shall be followed.

SECTION 3. A NEW SECTION OF KRS CHAPTER 65 IS CREATED TO READ AS FOLLOWS:

(1)(a)A majority of the members of the governing body of a local jurisdiction may adopt an ordinance submitting to the qualified voters of the local jurisdiction the question of whether a local option sales and use tax shall be imposed.

(b)If a joint local option sales and use tax levy is proposed by multiple local jurisdictions pursuant to an interlocal agreement, the ordinance adopted by the governing body of each participating local jurisdiction shall be identical with regard to the information required by subsection (2) of this section.

(2)The ordinance shall set forth the specific wording of the ballot question, which shall, at a minimum, include the following:

(a)Identification of the local jurisdictions that will receive revenues from the levy, and if more than one (1) local jurisdiction will receive revenues, the percentage or amount of the tax collected by the department to be received by each local jurisdiction;

(b)A description of the specific capital project or projects to be funded by the levy, including:

1.Where the project or projects will be located; and

2.If there are residual funds remaining after all specifically identified projects are completed, identification of other capital projects that residual funds may be used for;

(c)The rate of the levy;

(d)The effective date of the levy, which shall be established only after consultation with the department regarding timeframes for providing required notice and the development of database information as required by subsection (3) of this section; and

(e)The period for which the levy will be imposed, which shall not exceed:

1.For local governments other than consolidated local governments, the earlier of the time limitations established in Section 4 of this Act, if applicable, or the date on which all projects approved by the voters are completed; or

2.For consolidated local governments, the earlier of ten (10) years from the effective date of the levy, or the date on which all projects approved by the voters are completed.

(3)(a)The ordinance adopted pursuant to subsections (1) and (2) of this section shall be submitted by the local jurisdiction to the department for review. The department shall review the ordinance to determine compliance with any requirements of the SSUTA agreement, federal legislation, and administrative regulations of the department. The department shall return the ordinance to the local jurisdiction within thirty (30) days of receipt with any changes necessary for compliance noted. The governing body of the local jurisdiction shall make any changes required prior to filing the ordinance with the county clerk.

(b)After making any changes requested by the department, the ordinance shall be filed with the county clerk of each county in which the vote will take place no later than the second Tuesday in August prior to the next regular election, and the clerk shall cause the question to be placed before the voters of the local jurisdiction at the next general election.

(4)(a)If a majority of the votes cast are in favor of the imposition of a local option sales and use tax levy, the governing body of the imposing local jurisdictions shall forward to the department:

1.A copy of the ordinance or ordinances placing the local option sales and use tax levy on the ballot;

2.Certification of the results of the election from the county clerk or clerks;

3.Boundary information, in the form and format required by the department;

4.A copy of the interlocal agreement if the levy will be imposed in multiple local jurisdictions, or if revenues from the levy will be distributed among multiple local jurisdictions; and

5.Any other information required by the department pursuant to an administrative regulation promulgated pursuant to KRS Chapter 13A.

(b)If a local option sales and use tax levy is considered by voters residing in multiple counties pursuant to an interlocal agreement, the levy shall apply only upon a majority of the votes cast in each county being in favor of the local option sales and use tax levy. If the voters in one (1) or more counties fail to approve the levy by a simple majority vote, the levy shall not be imposed.

(c)If a local option sales and use tax levy is being proposed by a county and cities within that county pursuant to an interlocal agreement that does not require a separate vote by residents of the county and city, the levy shall become effective upon a simple majority vote in favor of the levy by residents of the county.

(d)If the local option sales and use tax levy is being proposed by a county and cities within that county pursuant to an interlocal agreement that requires separate votes by the residents of the city and county, the provisions of the interlocal agreement shall determine whether the levy shall become effective as provided in Section 4(6)(c)4.b. of this Act

(5)Unless a later effective date is specified in the ballot question approved by the voters, the local option sales and use tax levy shall become effective on the first day of the calendar quarter following the provision of notice and establishment of database information as required by:

(a)The SSUTA agreement, if Kentucky remains a member and the SSUTA agreement is not replaced by federal legislation;

(b)Federal legislation, if the SSUTA agreement is replaced by federal legislation that includes notification requirements relating to the imposition of local option sales and use taxes; or

(c)The department, pursuant to an administrative regulation promulgated under KRS Chapter 13A if neither paragraph (a) nor (b) of this subsection apply.

(6)(a)Upon approval of a local option sales and use tax by the voters of a local jurisdiction, the rate, duration of the levy, boundaries for application of the levy, and specific capital projects for which funds may be expended shall not be amended without prior approval of a simple majority of voters of the local jurisdiction in which the levy applies during a general election. The process established for the initial levy of the local option sales and use tax shall also apply to any amendment of an original levy.

(b)The effective date of a levy approved by the voters may be extended beyond the date stated in the ballot language if the extension is necessary to comply with the requirements of:

1.The SSUTA agreement, if Kentucky remains a member and the SSUTA agreement is not replaced by federal legislation;

2.Federal legislation, if the SSUTA agreement is replaced by federal legislation that includes notification requirements relating to the imposition of local option sales and use taxes; or

3.If neither subparagraph 1. nor 2. of this paragraph apply, notification and administrative requirements established by the department pursuant to an administrative regulation promulgated pursuant to KRS Chapter 13A.

(7)All proceeds from the local option sales and use tax received by a local jurisdiction shall be maintained in a separate, discrete account, which shall be audited on an annual basis as part of the annual audit required for the local jurisdiction establishing the separate account.

SECTION 4. A NEW SECTION OF KRS CHAPTER 65 IS CREATED TO READ AS FOLLOWS:

(1)As used in this section:

(a)"Initiating entity" means the county or qualifying city initiating the inquiry process established by this section;

(b)"Population" means the number of inhabitants living within jurisdictional boundaries of a city or county as determined by the most recent official decennial census of the United States Bureau of Census;

(c)"Qualifying city" means any city within a county that includes at least fifteen percent (15%) of the total population residing within incorporated areas of the county; and

(d)"Trigger date" means the day on which the mandatory inquiry process ends, as determined under subsection (5) of this section.

(2)The process for initiating a proposal for the imposition of a local option sales and use tax by a local government or group of local governments shall begin with the mandatory inquiry process established by this section.

(3)The inquiry process may be initiated by any county or qualifying city within a county. For purposes of this section, a city is considered to be within a county if twenty percent (20%) or more of the city population resides within the county.

(4)The initiating entity shall adopt a resolution expressing a desire to begin negotiations for the imposition of a local option sales and use tax within the county. The initiating entity shall send a copy of the resolution by certified mail to the governing bodies of all qualifying cities within the county and, if the initiating entity is a qualifying city, to the fiscal court of the county.

(5)(a)Qualifying cities and any county receiving notification of the inquiry process shall have thirty (30) days from the day the notice is received to respond to the initiating entity.

(b)The response shall be made through the adoption of a resolution agreeing to engage in the negotiation process, or declining the invitation to negotiate.

(c)A copy of the adopted resolution shall be sent by certified mail to the initiating entity.

(d)Failure to respond within thirty (30) days shall be considered a refusal to participate in the negotiating process.

(e)The inquiry process shall end upon the earlier of all responses being received, or the passage of thirty (30) days from the date the last invitation to negotiate was delivered.

(f)The initiating entity shall notify all local jurisdictions that received a notice as part of the inquiry process of the outcome of the inquiry process within five (5) days of expiration of the inquiry process as described in paragraph (e) of this subsection.

(6)(a)1.If all qualifying cities and the county agree to negotiate an interlocal agreement, they shall commence negotiations as provided in KRS 65.210 to 65.300. The qualifying cities and the county shall allow non- qualifying cities to participate in the negotiation process, and any participating non-qualifying city may be a party to the interlocal agreement. However, acquiescence by participating non-qualifying cities shall not be required for an interlocal agreement to be reached under this paragraph.

2.The agreement shall, at a minimum:

a.Establish the terms and conditions of the levy of the local option sales and use tax, which shall be at a uniform rate within the jurisdictional boundaries of all parties to the agreement; and

b.Establish the allocation of revenues among parties to the agreement.

3.If an agreement is not reached within four (4) months of the trigger date, and the time for negotiation is not extended beyond four (4) months by mutual agreement of all negotiating parties, the provisions of subsection (7) of this section shall apply.

(b)1.a.If the county refuses to participate in the negotiation process, any city within the county may propose a local option sales and use tax within the jurisdictional limits of the city; or

b.If the county agrees to participate in the negotiation process and all qualifying cities refuse to participate in the negotiation process, the county may propose a local option sales and use tax within the jurisdiction of the county.

2.Any tax proposed by a city or county under subparagraph 1. of this paragraph shall conform with the following requirements:

a.For the first twelve (12) years beginning on the trigger date, the maximum rate that may be levied shall be one percent (1%);

b.If approved by the voters as part of the ballot question, and if additional time is needed to complete all projects approved as part of the ballot question, the levy may continue for an additional ten (10) years at a rate not to exceed one half of one percent (0.5%); and

c.Any tax levied pursuant to this subparagraph shall expire upon the earlier of completion of all projects approved by the voters of the jurisdiction, expiration of the time approved in the ballot question, or the passage of twenty-two (22) years from the trigger date.

3.Upon the conclusion of the twelve (12) year period established by subdivision a. of subparagraph 2. of this paragraph, and if the levy established by subparagraph 2. of this paragraph continues under subdivision b. of subparagraph 2. of this paragraph, any qualifying city or county that declined to participate in the original negotiation process and was thus precluded from levying a local option sales and use tax during the twelve (12) year period, may propose the levy of a local option sales and use tax at a rate not to exceed one-half of one percent (0.5%) for a period not to exceed ten (10) years.

(c)1.The provisions of this paragraph shall apply if the county and one (1) or more, but not all, qualifying cities agree to participate in the negotiation process.

2.The maximum rate that may be levied by the county or any city within the county shall not exceed one-half of one percent (0.5%).

3.Any city within the county that declined to participate in the negotiation process, including non-qualifying cities that do not participate in the negotiating process:

a.Shall be prohibited from levying a local option sales and use tax for five (5) years from the trigger date; and

b.May impose a local option sales and use tax after the passage of five (5) years from the trigger date, except that any tax levied pursuant to this subdivision of this subparagraph shall expire upon the earlier of completion of all projects approved by the voters of the jurisdiction, expiration of the time approved in the ballot question, or the expiration of any tax levied pursuant to subparagraph 4. of this paragraph or subsection (7) of this Section, by other jurisdictions within the county, as applicable.

4.a.The county and those qualifying cities agreeing to participate in the negotiation process, along with any non-qualifying cities within the county that express a desire to be involved in the process, shall commence the negotiation of an interlocal agreement as provided in KRS 65.210 to 65.300. Acquiescence by participating non-qualifying cities shall not be required for an interlocal agreement to be reached under this subparagraph.