Analysis finds Somerset has the lowest occupational tax in the state of cities of its size; second reading will be May 29
Somerset City Council heard the first reading Monday of an ordinance that would make Somerset more competitive with like-sized cities in the amount of revenue it generates from occupational taxes.
The ordinance calls for raising the occupational tax rate from 0.6 percent to 1.2 percent. The increase, if passed, would be implemented in a two-phase approach — 0.3 percent effective July 1, 2025, and 0.3 percent on Jan. 1, 2026.
Somerset Mayor Alan Keck explained to the council and the public that the proposed tax increase is necessitated by a drastic increase in employee costs that the city has experienced in the last six years. An analysis of employee expenditures conducted by the city’s accounting department shows that employee costs (which include salaries, insurance and retirement benefits), are up $6.4 million between 2018 to 2024, even as the number of full-time employees has decreased (271 in 2018 to 268 in 2024).
While the city has experienced record growth during the same time period and has seen an increase in other types of revenue as a result, it hasn’t been enough to offset rising costs of employment, Keck said. For the city to provide the same level of essential services its residents enjoy — including emergency services, parks and recreation, and street maintenance — raising the occupational tax is the best and fairest option available, he said.
“In fact, you could argue it’s the only option we have available,” Keck said. “Many cities our size are delivering services and amenities with the added benefit of a restaurant tax. Somerset does not qualify for this option. And a local sales tax is not allowed by state law. So the best tool in our toolbox is the occupational tax, which is the fairest because it is levied on everyone who uses city services, not just those who live here. It will not impact our residents who live on fixed incomes.”
The increase would mean that a household making the median income for Somerset of $33,275 per year would pay $32.76 more per year in occupational taxes. Keck said the second phase of the increase is timed intentionally in January when the state is set to lower its income tax rate from 4 to 3.5 percent, which helps soften the hit to Somerset employees’ wallets.
An analysis of occupational tax revenue across Kentucky also revealed that the City of Somerset’s occupational tax rate is the lowest in the state for a city of its size. Kentucky cities that Somerset leaders look to as models for quality-of-life amenities in demand by Somerset residents, like indoor sports facilities, recreational or entertainment amenities, or shopping centers, all have higher occupational tax rates, some reaching as high as 2.5 percent. These communities, which include Richmond, Elizabethtown, Bowling Green and Ashland, all provide a high level of service to their residents as well, Keck said.
A second reading of the occupational tax ordinance will be 6 p.m. Thursday, May 29, at Somerset City Council’s regular meeting. The meeting was moved from Monday to Thursday of that week due to the Memorial Day holiday.
Members of the public are encouraged to review the city’s analysis of employee costs and state occupational tax rates in this presentation.
