For
Immediate Release
April 03, 2003
Contact: Rusty Cheuvront or Terry Sebastian (502) 564-2611
Gov. Patton statement and veto message on House Bill
390
“For
three years I have been raising the issue of the unfairness and inadequacy of
the Kentucky tax code. The Illinois
Tool Works case is a prime example of the problem but not the only one which
needs to be addressed. In January,
I proposed a comprehensive revision of the corporate tax code which included a
solution to the problem created by the Illinois Tool Works court decision. I want this problem solved but it needs to be solved in the
context of solving the many other problems which exist with Kentucky’s
corporate tax code. That is the
reason I have vetoed that portion of House Bill 390.
Over the years,
special interests have secured the passage of supposed minor adjustments to our
tax laws which, in some cases, has resulted in the opening of major loopholes.
In many instances, these changes have been made by last-minute amendments
which received no public debate and little or no review by tax law experts to
evaluate the eventual results. This
is the way the legislation I have vetoed was passed.
These kinds of
problems are particularly true in relationship to our business tax code.
The result of these loopholes is that over the past twelve years the
taxes paid by the corporate community as a share of total General Fund revenue
has gone down by fifty percent; cut in half.
The Illinois Tool
Works case is the result of a law change in 1976, which, unconstitutionally,
attempted to provide a special tax break to Kentucky-based companies which was
not provided to non-Kentucky companies. As
well intended as this effort was, it illustrates the problems which can be
caused when legislation is not thoroughly analyzed and publicly debated.
Another classic
case is the changes in the laws regulating the taxation of limited liability
companies which have virtually repealed corporate taxes.
This was certainly not the intention of the General Assembly.
This erosion of business support for state government is one of the major
causes of the imminent fiscal crisis confronting the Commonwealth. Unless these loopholes are closed in a sensitive and yet
effective manner, support for state government from the corporate community will
be insignificant in a few short years.
It appears to me
that some of the leaders of the business community in Kentucky are not as
concerned as I expected they would be about the inevitable cuts in education and
other vital state services which will occur within the next year if this issue
is not addressed.
In January I
proposed a solution to this problem and called for our business leaders to get
involved. I got no response.
As the issue of the impact of the Illinois Tool Works case became
apparent, I invited the leaders of about thirty of Kentucky’s leading business
to discuss this entire issue on Monday, March 31, six days before I had to
decide about a potential veto. I
asked them to commit to analyzing the state’s fiscal condition in detail and
to suggest ways to bring the state’s budget for Fiscal Year 04 into structural
balance and to complete this analysis by mid-summer.
I have received no significant response to that invitation, excepting
some last minute overtures which were positive but not sufficient to convince me
that the business community as a whole really appreciates the need for them to
get involved.
This is a crisis
which needs to be solved now, before it consumes the next governor in their
first four months in office. I am
prepared to work with the General Assembly to do that but nothing will be done
unless and until the business community provides the leadership it did in 1990
when the Kentucky Education Reform Act was passed along with a major tax
increase to pay for a better school system for the children of Kentucky.
All the progress made in education in Kentucky in the past twelve years
is at stake. Only the business
leadership can ensure that this progress will be saved.
While my veto will
not solve the problem, it will keep it from being solved piecemeal.
That is the root of the current dilemma.
I may not be able to bring about a solution but I can and will continue
to articulate the problem and advocate that this serious problem will be
addressed in conjunction with other problems which exist in our corporate tax
code. At the very least I can lay the groundwork for the next
governor and legislative session to address it.”
I, Paul E.
Patton, Governor of the Commonwealth of Kentucky, pursuant to the authority
vested in me by Section 88 of the Kentucky Constitution, do hereby veto the
following parts of HB 390: Page 12, lines 15 through 27; Page 13, lines 1
through 19; Page 14, lines 3 through 10. House
Bill 390 by its title and in its substance, is an appropriations bill subject to
the line item veto provisions afforded the Governor under Section 88 of
Kentucky’s Constitution. The veto
of the provisions indicated would prohibit implementation of a tax provision
which would exempt Kentucky corporations from paying corporate license tax on
the value of wholly owned subsidiaries. These
provisions purport to rectify the results of a decision of the Franklin Circuit
Court which ruled an exemption for similarly situated Kentucky corporations was
unconstitutional in light of a state requirement that out of state corporations
must pay the same tax.
My veto of these
provisions is primarily based upon my strong belief that Kentucky’s currently
enacted budget which has a large structural deficit is a result of precisely the
type of piece-mill tax reform that is attempted in HB 390.
Kentucky’s tax structure should be reformed comprehensively in a way
which is contemporary with Kentucky’s emerging knowledge based economy and is
equitable to corporations as well as individuals.
For Kentucky to move forward in education and to provide adequate social
services it is critical that our tax structure be reformed systemically and not
in an isolated fashion as a reaction to a particular court case.
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