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Lawsuit filed by eastern county challenges legality of Kentucky's restaurant tax

Sydney Boles

An eastern Kentucky county has filed a lawsuit against the state, seeking the authority to impose a restaurant tax on prepared food and beverages.

Under a state statute, KRS 91A.400, some smaller cities can enact a restaurant tax to help fund local tourism.

The lawsuit filed by Perry County Fiscal Courtargues Hazard isn’t allowed to benefit from a restaurant tax while other cities of a similar size can. When first enacted, eligibility was based on a classification system, and while that system has been scrapped, cities previously deemed as fourth and fifth class remain eligible to enact a restaurant tax.

Hazard, with a population of 5,425, can't levy the tax while Paintsville (population 4,312) and Pikeville (7,924), are allowed to benefit from restaurant tax revenue.

Hank Phillips, president of the Kentucky Travel Industry Association, says his group isn’t opposed to expanding eligibility to other cities, but is concerned the lawsuit challenges the constitutionality of a restaurant tax.

“We just don’t want the baby thrown out with the bath water via a lawsuit that successfully challenges what we believe is a very constitutional source of revenue," Phillips told WKU Public Radio.

Under the statute, cities with smaller populations can impose a tax of up to three percent on retail sales from all restaurants doing business there. The revenue stream is used for tourism marketing and capital projects like parks, amphitheaters, and sports facilities.

The lawsuit against Gov. Andy Beshear, House Speaker David Osborne, Senate President Robert Stivers, and Attorney General Daniel Cameron seeks to have the taxing option applied evenly to cities.

Legislation filed in recent years to make all Kentucky cities and counties eligible for the tax has stalled in the General Assembly.

Currently, 50 small cities in Kentucky impose a restaurant tax, with Elizabethtown being the largest.

Lisa is a Scottsville native and WKU alum. She has worked in radio as a news reporter and anchor for 18 years. Prior to joining WKU Public Radio, she most recently worked at WHAS in Louisville and WLAC in Nashville. She has received numerous awards from the Associated Press, including Best Reporter in Kentucky. Many of her stories have been heard on NPR.