When Tax Trust Breaks, Kentucky Hits Pause

Legislation aims to restore trust after Fayette County tax backlash

In response to widespread frustration from residents and employers, the Kentucky Senate has approved legislation designed to block the future expansion of local school board occupational license taxes in growing counties, sending a clear signal that tax changes must be handled carefully and transparently.

The measure, sponsored by Sen. Amanda Mays Bledsoe of Lexington, was approved by the upper chamber Friday and now heads to the Kentucky House of Representatives for consideration. At its core, the proposal raises the population threshold required for a county to gain authority to increase a school board occupational license tax — a move that directly addresses concerns stemming from a contentious attempt by the Fayette County Board of Education last year.

That effort, which lawmakers described as procedurally flawed, drew sharp criticism from the public and left many residents feeling blindsided by the prospect of a tax increase without adequate notice or engagement.

A Higher Bar for Future Tax Increases

Under current law, counties with populations of 300,000 or more may pursue an increase in a school board occupational license tax. The legislation approved by the Senate raises that threshold to 500,000 residents, effectively preventing counties like Fayette from revisiting or implementing such an increase unless they eventually meet the higher population requirement.

Supporters say the change offers predictability and stability for workers and businesses, while reinforcing the idea that significant tax decisions should reflect broad community input and trust.

Importantly, the legislation does not remove or alter any occupational license taxes already in place. Instead, it draws a line against future expansions in counties that have not reached the new population benchmark.

Decades of Stability, Suddenly Disrupted

For more than 40 years, Fayette County’s occupational license tax structure has remained largely unchanged. The school board’s 0.5 percent occupational license tax was adopted in 1985 and has stayed at that rate ever since. Similarly, the City of Lexington last adjusted its occupational license tax in 1992, increasing it from 2.0 percent to 2.25 percent — where it has remained for more than three decades.

Sen. Bledsoe has argued that this long-standing stability reflects an understanding that changes to local taxes carry real consequences and require transparency, public trust, and meaningful buy-in from the community.

As a former Lexington City Council member and current vice chair of the Senate Appropriations and Revenue Committee, she said last year’s attempt to alter that balance without clear notice understandably left many residents frustrated and concerned.

Giving Communities Room to Rebuild Trust

Bledsoe said the legislation is not only about limiting future tax authority but also about allowing local leaders time and space to restore confidence with the people they serve.

“This proposal offers stability and confidence for employees and employers and gives the school board and administration space to rebuild trust with the community,” Bledsoe said.

She also noted that the Senate’s early action sends a broader message about the seriousness with which lawmakers are approaching education-related issues during the 2026 legislative session.

“I’m encouraged to see the Senate pass this measure to the House early in the session,” she added, urging lawmakers there to move it forward and send it to the Governor’s desk.

What the Measure Changes — and What It Preserves

The legislation makes targeted amendments to multiple sections of Kentucky law governing local occupational license fees and school taxes. It raises population thresholds across statutes related to fiscal courts and boards of education, while preserving long-standing limitations and exemptions already in place.

Those protections include exemptions for certain regulated industries, National Guard members performing training duties, precinct workers during elections, disaster response employees during declared disaster periods, and other categories outlined in existing law.

The bill also maintains current caps on occupational license tax rates and does not interfere with license fees imposed for regulatory purposes.

Looking Ahead in the House

With Senate approval secured, the measure now advances to the Kentucky House of Representatives, where lawmakers will determine whether to move it forward in the early weeks of the session.

If approved and signed into law, the changes would take effect August 1, 2026.

Supporters say the legislation reflects a broader principle: that local tax policy should not shift suddenly or without public confidence. As debate continues in the House, the proposal is expected to remain central to discussions around education funding, local authority, and the relationship between government and the communities it serves.