February 13, 2014

Restaurant tax could be used for more than just tourism

Kentucky League of Cities lobbies to move 75 percent of tax to general fund

By Rob McDaniel
Staff Writer

LAUREL COUNTY, Ky. — Nearly three months since it was formed, the London Tourism and Convention Commission is expected to discuss their budget and how they plan to fund themselves during their scheduled meeting on February 17 at City Hall.

London is classified as a fourth class city; it has a population of less than 7,999 and can levy up to a three percent tax on restaurant sales in order to fund local tourism commissions, according to KRS 91A.400.  All money received from a restaurant tax must be used for the city's tourism and convention commission. 

However, that may soon change.  In their 2014 Legislative Agenda, the Kentucky League of Cities are looking to change how cities can use the tax money.

According to their agenda, the Kentucky League of Cities will seek legislation that would allow all cities, regardless of current class designation, to impose a restaurant tax.  Currently, only fourth and fifth class cities can implement a restaurant tax.

The proposal would allow cities to retain a maximum of 75 percent of the revenue for “quality of life enhancements.” The remaining 25 percent of the restaurant tax revenue then would be required to go to local tourism commissions.  Under these guidelines, cities could use the tax money for expenses such as employee retirement.


Currently around 16 percent of cities allowed to levy a restaurant tax have chosen to do so.  Although restaurant taxes accounted for only one percent of total tax collection across the state, they provided $11.2 million in revenue in FY 2011.

According to statements by Mayor Troy Rudder and London-Laurel County Tourist Commission Chairman Tom Handy, a three percent restaurant tax could potentially generate as much as $2.3 million in Laurel County.  If the tourism commission decided to request only a one percent restaurant tax, it would generate more than $766,600 in revenue. 

In addition to the restaurant tax, the city tourism commission can levy a one percent transient room tax on hotels and motels located with in the London city limits.  The London-Laurel Tourist Commission, the county tourist commission, currently brings in approximately $422,000 through a three percent transient room tax.  This revenue includes two hotels outside the city limits that the city tourism commission would not be able to tax. 

Based on the 2013 income from the transient room tax, if the London Tourism Commission levied a one percent transient room tax, they would bring in around $140,000 per year.

As of now, the proposed change by the Kentucky League of Cities is gaining momentum in the state legislature, but a bill has yet to be pre-filed.

If a new bill allowed a 75/25 percent split of restaurant tax, the city would generate $574,950 for the general fund and $191,650 for tourism with a one percent tax.

 In order for either tax — restaurant or transient room — to be levied, the city tourism commission will have to agree on an amount that they feel will adequately fund the events and services they will provide throughout the year.

Once a budget has been made and a plan for funding has been agreed upon, the commission will have to present their proposal to the London City Council, who will ultimately have the final vote on how taxes will be set.

The London Tourism and Convention Commission will meet at 5:30 p.m. on Monday, Feb. 17 at London City Hall.