Nearly $17 million in county bank franchise tax revenue remains safe after legislative fix

Last night, the Kentucky legislature passed HB 458, which safeguards the ability of local governments to collect local bank franchise taxes after a drafting error put that capacity in doubt.

Another bill – HB 354 – which was signed by Gov. Matt Bevin on Tuesday, modified the tax structure for financial institutions, transitioning them to a corporation income tax from the current bank franchise tax.

Although the repeal of the tax in HB 354 was intended to apply only to taxes collected by the state, ambiguous language could have inadvertently removed the ability of counties to collect the tax at the local level. HB 458 clarified that the language in the previously passed legislation does not apply to counties. 

“Now there’s no room for doubt: financial institutions will remain subject to the local tax,” said Shellie Hampton, KACo’s Director of Governmental Affairs.   

Without this legislative fix, the impact on counties would have been significant as nearly every county in Kentucky collects a local bank franchise tax. In FY2018, county budgets included $16.7 million from these taxes.

Tight local budgets mean preserving revenue streams like the bank franchise tax for counties is more important than ever.

“Our counties are struggling to fund services as it is, which includes everything from animal control to road maintenance,” said Hampton. “Every dollar counts.”  

If the tax had not been preserved, losses would’ve ranged from a few thousand dollars in some counties to well over a million dollars in others.