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Court passes controversial payroll tax increase
In April 7 Issue
By Derek Aaron
Times Journal Editor

After nearly two hours of discussion at Thursday night's special called meeting of the fiscal court, county leaders voted 4-1 to amend the county's occupational tax ordinance, raising the so-called payroll tax to one percent effective the first of April.

Magistrate Greg Popplewell made the motion to increase the occupational tax with the two year sunset clause along with the $800 cap on payroll tax and net profits following the second reading of the ordinance.

The motion was seconded by Magistrate Ronald Johnson and supported by Magistrates Jimmy McQueary and Larry Holt. Second District Magistrate Brook Cochran cast the lone no vote. The court will revisit how to look into the net profits of a business to determine how much should be paid in the coming weeks after agreeing that was in their best interest Thursday night.

The payroll tax amendment, which was about a month in the making, includes a two-year sunset clause, which means it will end on April 1, 2013 unless amended again at a later time. At that time the payroll tax will be reduced back to the previous .25 percent. Another key point to the amendment is that it includes an $800 cap, meaning people, including the self-employed, have the option of paying $800 annually instead of one percent of their total income. The cap also means any income over $80,000 will not be taxed at the one percent rate.

"The magistrates had it before them," said Judge-Executive Gary Robertson following the meeting. "We had a choice to make. I recommended twice, in an open meeting to them, that since it is for a two year period only that I thought we should go ahead and remove the cap and treat everybody fairly right now."

Robertson said he just wanted people to be aware that he recommended it, but it is not a popular issue.

"I will have to pay more business-wise, but I can see where people are coming from, and everybody should be treated equally," he said.

Robertson also said he agreed with Stephens Pipe & Steel owner Terry Stephens' argument at the meeting that it might affect industry locating here.

"I've said that the whole time," he said. "That would have to be done on an individual basis by your industrial development foundation. They would have to very discreet or whatever in their dealings in trying to give people x number of years of reprieve in order to get them to locate here. I can understand that argument clear."

For much of the meeting, magistrates, Judge-Executive Gary Robertson and County Attorney Kevin Shearer discussed whether or not a cap should be placed on the tax.

Shearer, who had conversed with KACO on the issue, said that the section of the amendment on the alternative tax from one of the previous meetings would not stand up to legal scrutiny.

"I don't think we can treat the tax payers differently, I think we have to treat them the same," Shearer said. "If you're going to put an $800 cap on, it has to be for everybody. Everybody has to be able to opt into it if they want or not a cap whatsoever, not a cap at all."

Magistrate Popplewell said he would not be for one percent after the sunset clause runs out while Magistrate Cochran said he thought if the businesses have to pay one percent there will be lay-offs and that the county needs to be creating jobs instead.

Magistrate Johnson said of the calls he has gotten, all but two have been about the cap and that they did not want the cap. Magistrate McQueary stated the calls he has had have been in favor of no cap as well.

Magistrate Holt said he has had a lot of questions about why we are in the shape we are and he stated what some of those reasons are and things that are coming up in the near future, hen then said he did not like the vote he was going to have to make.

Treasurer Kathy Tupman said if there is not another source of revenue by the end of next fiscal year, June 2012, the county would be in a deficit of approximately $1,254,604 for general, jail and 911 funds. That is not taking into consideration the payment on the loan to get the county through until they start getting more money coming in, rising gas prices and any other unexpected expenses.

Judge Robertson also asked for a show of hands from those in attendance who would like to see the cap stay on and who would like to see the cap removed with an overwhelming majority of people who wanted the cap removed.

At the meeting Terry Stephens said that he pays 50 cents of every dollar he makes in taxes and that he must use profits of his business to grow his company, saying that the county didn't deserve one percent of the profits from Stephens Pipe & Steel but to put a maximum cap of $10,000 or whatever the court thought was necessary.

Robertson recommended again that the county go with one percent and no cap and revisit it again in two years.

He also said that the county must do something to balance the budget or the Department for Local Government would come in and take over the operations of the county.

The court's consensus seemed to be that they didn't want to keep businesses from moving to the county or to have businesses leaving the county and as a result raise the tax to one percent with a cap on payroll and net profits of $800 with a 2-year sunset clause.

Dozens of citizens attended the meeting with several voicing opinions on the ordinance and what it would mean to them personally or the jobs they work at. Two representatives from the Department of Local Government, Junior Wright and Matt Frohlic, were also on hand to discuss the ordinance.

As mentioned earlier, from listening to both sides at the meeting, those against the cap said it is unfair to low or middle class workers who would have to pay the same amount, percentage-wise, as people who make more money and that could possibly afford more.

Those in favor collectively said the one percent tax with no cap would result in the county losing jobs and would prevent new industry from coming here, afraid of the tax burden that would be placed on them.

The occupational tax will be paid quarterly, meaning the county will not see any funds from the one percent payroll tax until July, after the start of the next fiscal year.

Also at the meeting, the court heard the first reading of an ordinance giving Judge Robertson the ability to pursue a $410,000 loan that would keep the county viable through the current fiscal year. The county is in the process of trying to get a loan that would allow the loan balance to carry over into the next fiscal year without receiving a reprimand during the next yearly audit by the state.

It has been reported that the county is looking at a budget shortfall of approximately $191,000 for the current fiscal year due to operational costs that include the 911 dispatch, funding to the financially struggling EMS and paying other counties to keep local inmates for several months during the closure of the old Russell County Jail as well as "unforeseen circumstances" on the new detention center.

The one percent occupational tax is estimated to bring in about $1.652 million in revenue to the county, up from the $440,000 that the .25 percent tax is estimated to provide for fiscal year 2010-11.

With no changes to the current tax structure the county is projected to have a deficit of $1.254 million for the next fiscal year. This number does not include any loan repayment the county will have to receive to make it through this fiscal year, nor does it take into account rising fuel prices or other unforeseen expenses, including replacement of county equipment imperative in effectively functioning as a county.

By law, the county's budget must be balanced by the end of the fiscal year, which ends on June 30.

Some information in this story courtesy of Times Journal reporter John Thompson

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