Thursday, January 16, 2003

Patton will propose increase in taxes



By Mark R. Chellgren
The Associated Press

FRANKFORT - Gov. Paul Patton said Wednesday he will propose a tax increase to patch the leaky state budget and the brunt of it would fall on corporate Kentucky.

Mr. Patton met with business leaders at his office Wednesday to warn them of his plans. Mr. Patton said the final form of his tax proposal will depend to some extent on reaction.

Nevertheless, Mr. Patton said he intends to propose a "complete, comprehensive review of the way we tax the business community in Kentucky."

The proposal is believed to revolve around a business activity tax as a replacement for the corporate income tax and corporate license fee.

A business activity tax is not commonplace and only Michigan among nearby states imposes such a levy. Such a tax often is based on a company's payroll, investment and sales in a state. It can be modified in many ways, depending on the rates and covered activities.

Mr. Patton outlined his idea to nine members of the board of the Kentucky Chamber of Commerce, including its chairman, Dan Lacy of Ashland Inc. Also in the meeting was Tony Sholar, the chamber's lobbyist, who said Mr. Patton was suggesting "a fairly major shift in a tax policy, going from ... corporate income tax, which is based on profits, to an activities tax, which is a tax based on business activity irrespective of making a profit."

"You pay a tax on the privilege of doing business in a state, based on how much money you have invested in the state, how much money you utilize to run your business," Mr. Sholar said.

The chamber officials have several questions about Mr. Patton's idea, including whether the state will end up having to grant larger and costlier incentives to attract new and expanding business, Mr. Sholar said.

During an impromptu question and answer session with reporters in the Capitol Rotunda, Mr. Patton repeated a litany he began a few weeks ago about how corporate Kentucky has not maintained its obligations.

When the business community signed onto the 1990 tax increase to finance the Kentucky Education Reform, corporate taxes raised about $350 million a year and constituted about 10 percent of the state budget.

By 2002, Mr. Patton said, corporate income taxes contributed only about $320 million to the General Fund and made up about 5 percent of the total.

While individual income and sales taxes have more than doubled, corporate income taxes have actually declined, he said.




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