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BUSINESS AND OCCUPATION
LICENSE FEES
LICENSE FEES
For the purpose of this business title, the following definitions shall apply unless the context clearly indicates or requires a different meaning.
BUSINESS. Any enterprise, activity, trade, occupation, profession or undertaking of any nature conducted for gain or profit. BUSINESS shall also include specifically but not exclusively the rental or offering of rent of any property, real or personal, having a site in the city; but shall not include the usual activities of board of trade, chambers of commerce, trade associations or unions or other associations performing services usually performed by trade associations or unions. BUSINESS shall not include funds, foundations, corporations or associations organized and operated for the exclusive and sole purpose of religious, charitable, scientific, literary, educational, civic or fraternal purposes, where no part of the earnings, incomes or receipts of such unit, group or association, inures to the benefit of any private shareholder or other person.
BUSINESS ENTITY. Each separate corporation, limited liability company, business development corporation, partnership, limited partnership, registered limited liability partnership, sole proprietorship, association, joint stock company, receivership, trust, professional service organization or other legal entity through which business is conducted.
BUSINESS REGULATORY LICENSE. A license required by the City of Covington for the purpose of regulating business activities and operations within the city. The term “business license” may be used interchangeable with BUSINESS REGULATORY LICENSE for purpose of convenience and both terms shall have the same meaning and effect.
BUSINESS REGULATORY LICENSE FEE. A fee required by the city for each business regulatory license, pursuant to KRS 82.082 and the regulating business activities and operations within the city, including police power thereof, to provide the funds necessary to pay the expenses of, without limitation the expense of issuing business regulatory licenses.
CITY. The City of Covington, Kentucky.
CODE ENFORCEMENT OFFICER. As used in this chapter, any employee working under the direction of the Director of the Code Enforcement Department or his or her designee, exclusive of clerical staff, any employee working under the direction of the Director of the Finance Department or his or her designee, exclusive of clerical staff, as well as police and fire safety officers.
COMPENSATION. Wages, salaries, commis- sions or any other form of remuneration paid or payable by an employer for services performed by an employee, which are required to be reported for federal income tax purposes and adjusted to include the following:
(1) Any amounts contributed by an employee to any retirement, profit sharing or deferred compensation plan, which are deferred for federal income tax purposes under a salary reduction agreement or similar arrangement, including, but not limited to, salary reduction arrangements under I.R.C. §§ 401(a), 401(k), 402(e), 403(a), 403(b), 408, 414(h) or 457; and
(2) Any amounts contributed by an employee to any welfare benefit, fringe benefit or other benefit plan made by salary reduction or other payment method which permits employees to elect to reduce federal taxable compensation under the Internal Revenue Code, including, but not limited to, I.R.C. §§ 125 and 132.
CONCLUSION OF THE FEDERAL AUDIT. The date that the adjustments made by the Internal Revenue Service to net income as reported on the business entity’s federal income tax return become final and unappealable.
EMPLOYEE.
(1) Any person who renders services to another person or any business entity for compensation, including an officer of a corporation and any officer, employee or elected official of the United States, a state or any political subdivision of a state or any agency of instrumentality of any one or more of the above; and
(2) A person classified as an independent contractor under the Internal Revenue Code shall not be considered an EMPLOYEE.
EMPLOYER. The person for whom an individual performs or performed any service, of whatever nature, as the employee of such person; except that:
(1) If the person for whom the individual performs or performed the services does not have control of the payment of the wages for such services, the term EMPLOYER means the person having control of the payment of such wages; and
(2) In the case of a person paying wages on behalf of a non-resident alien individual, foreign partnership or foreign corporation, not engaged in trade or business within the United States, the term EMPLOYER means such person.
FINAL DETERMINATION OF THE FEDERAL AUDIT. The revenue agent’s report or other documents reflecting the final and unappealable adjustments made by the Internal Revenue Service.
FISCAL YEAR. An accounting period of 12 months, ending on the last day of any month other than December.
FLEA MARKET. The renting of booth space by one person to another for the sale of retail items.
INDEPENDENT CONTRACTOR. Any person who meets the criteria of the Official Treasury Regulation 31.3401(c)-1.
INTERNAL REVENUE CODE. The Internal Revenue Code in effect on 12-31-2008, exclusive of any amendments made subsequent to that
date, other than amendments that extend provisions in effect on 12-31-2008, that would otherwise terminate, and as in effect in subsequent years on December 31 of those subsequent years.
NET PROFIT. Gross income, as defined in I.R.C. § 61, minus all the deductions from gross income allowed by I.R.C. Ch. 1, and adjusted as follows:
(1) Include any amount claimed as a deduction for state tax or local tax that is computed, in whole or in part, by reference to gross or net income and that is paid or accrued to any state of the United States, local taxing authority in a state, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States or any foreign country or political subdivision thereof;
(2) Include any amount claimed as a deduction that directly or indirectly is allocable to income that is either exempt from taxation or otherwise not taxed;
(3) Include any amount claimed as a net operating loss carryback or carryforward allowed under I.R.C. § 172;
(4) Include any amount of income and expenses passed through separately as required by the Internal Revenue Code to an owner of a business entity that is a pass-through entity for federal tax purposes; and
(5) Exclude any amount of income that is exempt from state taxation by the Kentucky Constitution or the Constitution and statutory laws of the United States.
REAL PROPERTY. All types of real estate including commercial property, residential property and farm property.
RETURN or REPORT. Any properly completed and, if required, signed form, statement, certification, declaration or any other document permitted or required to be submitted or filed with the city.
SALES REVENUE. Receipts from the sale, lease or rental of goods, services or property.
TAX DISTRICT. Any city of the first through fifth class, county, urban county, charter county, consolidated local government, school district, special taxing district or any other statutorily created entity with the authority to levy net profits, gross receipts or occupational license taxes.
TAXABLE NET PROFIT. In case of a business entity having payroll or sales revenue only within the city means net profit as defined above.
TAXABLE NET PROFIT. In case of a business entity having payroll or sales revenue both within and without the city means net profit as defined above, and as apportioned under § 110.05 of this chapter.
TAXABLE YEAR. The calendar year or fiscal year ending during the calendar year, upon the basis of which net profit is computed.
(1984 Code, § 110.01) (Ord. O-70-66, passed 12-1-1966; Ord. O-54-78, passed 6-24-1978; Ord. O-88-78, passed 8-17-1978; Ord. O-77-82, passed 11-30-1982; Ord. O-78-82, passed 11-30-1982; Ord. O-93-82, passed 1-11-1983; Ord. O-5-96, passed 3-6-1996; Ord. O-47-01, passed 11-13-2001; Ord. O-65-04, passed 12-7-2004; Ord. O-34-05, passed 6-21-2005; Ord. O-52-08, passed 12-2-2008; Ord. O-18-19, passed 6-24-2019)
Every business entity that intends to operate in the city and every employer required to withhold the payroll tax from an employee’s compensation shall be required to obtain a business regulatory license from the city before the commencement of business as required herein.
(1984 Code, § 110.02) (Ord. O-65-04, passed 12-7-2004; Ord. O-34-05, passed 6-21-2005; Ord. O-52-08, passed 12-2-2008; Ord. O-18-19, passed 6-24-2019) Penalty, see § 110.99
(A) Except as provided in § 110.04 of this chapter, every person or business entity engaged in any business, trade, occupation or profession and any person or business entity that makes a filing with the Internal Revenue Service or the state’s Revenue Cabinet shall be required to file and pay to the city an annual occupational license tax for the privilege of engaging in such activities within the city. The occupational license tax shall be measured by:
(1) 2.45% of all compensation paid or payable in the city for work done or services performed or rendered in the city by every resident and non-resident who is an employee; and
(2) 2.5% of the net profits from business conducted in the city by a resident or non-resident business entity, or $100, whichever is greater.
(B) The maximum tax liability under this chapter shall be assessed as follows:
(1) For each employee, an amount equal to the maximum established for FICA purposes (“the FICA cap”). The FICA cap shall be applied by each employer on the compensation of each employee and deductions shall be applied by each employer only upon the gross amount of compensation that does not exceed the FICA maximum established for that year; and
(2)
For each business entity, there shall be a $80,000 maximum liability for the portion of the occupational license tax which is measured by taxable net profits.
(C) If any business entity dissolves, ceases to operate or withdraws from the city during any taxable year, or if any business entity in any manner surrenders or loses its charter during any taxable year, the dissolution, cessation of business, withdrawal or loss or surrender of charter shall not defeat the filing of returns and the assessment and collection of any occupational license tax for the period of that taxable year during which the business entity had business activity in the city.
(D) The Finance Director or his or her designee shall review the occupational license tax thresholds provided in this section every five years.
(1984 Code, § 110.03) (Ord. O-65-04, passed 12-7-2004; Ord. O-52-08, passed 12-2-2008; Ord. O-47-12, passed 12-4-2012; Ord. O-18-19, passed 6-24-2019; Ord. O-09-23, passed 6-27-2023) Penalty, see § 110.99
(A) Non-profit organizations, as determined by the Internal Revenue Service approval of not-for-profit status, must file an application for a business regulatory license, but are exempt from the $30 administrative cost associated with this filing. Upon the filing of an application by a non-profit organization and confirmation of its not-for-profit status, the Finance Department will issue a business regulatory license certificate to this organization.
(B) The following business entities are exempt under state law from the occupational license tax and are not required to file a city occupational license return (“Form OL-3” or “OL-3”), except as otherwise noted:
(1) Public service corporations that pay an ad valorem tax on property valued and assessed by the state’s Department of Revenue, pursuant to the provisions of KRS 136.120. To be entitled to this exemption, companies are required to show that they are actually assessed as public service companies by the state’s Revenue Cabinet and that they in fact pay an ad valorem tax based on this assessment. Licensees whose businesses are predominantly non-public service, but who are also engaged in public service activity are required to pay a license tax on their net profits derived from the non-public service activities apportioned to the city;
(2) Life insurance companies incorporated under the laws of and doing business in the commonwealth (see KRS 136.320(4), (5)); and
(3) Banks, trust companies, combined bank and trust companies, combined trust, banking and title businesses, and savings and loan associations, whether state or federally chartered, that are expressly exempted by KRS 92.300.
(C) The following business entities are exempt from the net profit occupational license tax, but are required to file a Form OL-3:
(1) Any business entity engaged in the letting or rental of any dwelling unit in the city that owns no more than one dwelling unit for lease in the city and whose rents from all dwelling units owned, whether within or outside the city when taken together, do not exceed $6,000;
(2) Persons whose sole business activity is the manufacture of and/or sale of alcoholic beverages. Persons engaged in the business of manufacturing and/or selling alcoholic beverages are required to file a return, but may exclude the portion of their net profits derived from such manufacturing and/or sale of alcoholic beverages; and
(3) Any usual activities of boards of trade, chambers of commerce, trade associations or unions, community chest funds or foundations; corporations or associations organized and operated exclusively for religious, charitable, scientific, literary, educational or civic purposes, or for the prevention of cruelty to children or animal; or clubs or fraternal organizations operated exclusively for social, literary, educational or fraternal purposes where no part of the income or receipts of such units, groups or associations inures to the benefit of any private shareholder or individual. To qualify for this exemption, the organization must submit satisfactory proof of their exempt status for federal income tax purposes. If any part of the earnings of such business inures to the benefit of any person, it shall be sufficient to defeat the exemption. If an organization earns “unrelated business income”, as defined and administered in I.R.C. § 511, a net profit license tax is assessed on the “unrelated business income”.
(D) The following persons are exempt from the employee occupational license tax:
(1) Persons whose sole wages, salaries, commissions or other wages and other compensations earned in the city are derived from service as members of the Kentucky National Guard for active duty training, unit training assemblies and annual field training;
(2) Compensation received by persons who have been ordained in accordance with the ceremonial ritual or discipline of a recognized church, religious sect or other religious organization, for the purpose of teaching and preaching such organization’s doctrines or administering its rights and public worship, and who customarily performs one or more of these duties; provided that, no such person is exempt from the payment of an employee license tax on wages and other compensation earned in activities not connected with the regular functions of a religious organization;
(3) Compensation received by precinct workers for election training or work at election booths in state, county and local primary, regular or special elections; and
(4) Compensation received by an employee who works both within and without the city if the employee is physically located within the city while on the job for 5% or less of the time the employee is on the job in any calendar year.
(1984 Code, § 110.04) (Ord. O-77-82, passed 11-30-1982; Ord. O-78-82, passed 11-30-1982; Ord. O-47-01, passed 11-13-2001; Ord. O-65-04, passed 12-7-2004; Ord. O-18-19, passed 6-24-2019) Penalty, see § 110.99
(A) Except as provided in division (D) below, net profit shall be apportioned as follows:
(1) For business entities with both payroll and sales revenue in more than one tax district, by multiplying the net profit by a fraction, the numerator of which is the payroll factor, described in division (B) below, plus the sales factor, described in division (C) below, and the denominator of which is two; and
(2) For business entities with sales revenue in more than one tax district, by multiplying the net profit by the sales factor as set forth in division (C) below.
(B) The payroll factor is a fraction, the numerator of which is the total amount paid or payable in the city during the tax period by the business entity for compensation, and the denominator of which is the total compensation paid or payable by the business entity everywhere during the tax period. Compensation is paid or payable in the city based on the time the individual’s service is performed within the city.
(C) The sales factor is a fraction, the numerator of which is the total sales revenue of the business entity in the city during the tax period and the denominator of which is the total sales revenue of the business entity everywhere during the tax period:
(1) The sale, lease or rental of tangible personal property is in the city if:
(a) The property is delivered or shipped to a purchaser, other than the United States government or to the designee of the purchaser within the city regardless of the f.o.b. point or other conditions of the sale; or
(b) The property is shipped from an office, store, warehouse, factory or other place of storage in the city and the purchaser is the United States Government.
(2) Sales revenues, other than revenues from the sale, lease or rental of tangible personal property or the lease or rental of real property, are apportioned to the city based upon a fraction, the numerator of which is the time spent in performing such income-producing activity within the city and the denominator of which is the total time spent performing that income-producing activity; and
(3) Sales revenue from the sale, lease or rental of real property is allocated to the tax district where the property is located.
(D) If the apportionment provisions of this section do not fairly represent the extent of the business entity’s activity in the city, the business entity may petition the city or the city may require, in respect to all or any part of the business entity’s business activity, if reasonable:
(1) Separate accounting;
(2) The exclusion of any one or more of the factors;
(3) The inclusion of one or more additional factors which will fairly represent the business entity’s business activity in the city; or
(4) The employment of any other method to effectuate an equitable allocation and apportionment of net profit (“alternate apportionment method”). The city must approve any alternate apportionment method prior to its implementation by the business entity. Once an alternate apportionment method is approved by the city, the business entity must apply such apportionment scheme in all future tax years, unless otherwise directed by the city.
(E) All partnerships, S corporations, limited liability companies and all other entities where income is “passed through” to the owners are subject to this chapter. The occupational license tax imposed in this subchapter is assessed against income before it is “passed through” these entities to the owners.
(F) If a business entity makes, or is required to make, a federal income tax return, the occupational license tax shall be computed for the purposes of this chapter on the basis of the same calendar or fiscal year required by the federal government, and the entity shall employ the same methods of accounting required for federal income tax purposes.
(1984 Code, § 110.05) (Ord. O-77-82, passed 11-30-1982; Ord. O-78-82, passed 11-30-1982; Ord. O-15-92, passed 4-28-1992; Ord. O-47-01, passed 11-13-2001; Ord. O-65-04, passed 12-7-2004; Ord. O-18-19, passed 6-24-2019) Penalty, see § 110.99
(A) Each employer who employs one of more persons working within the city is required to apply with the city for an occupational license tax reporting number and in such process shall complete and execute the city application for business regulatory license on behalf of each of its employees. The employee is not required to apply with the city unless the employee has earned income other than “wages and other compensation”. The applicant shall remit a one-time payment of $30 to cover administration costs associated with this application.
(B) Every employer making payment of compensation to an employee shall deduct and withhold from the compensation due each employee at the time of payment by the employer an occupational license tax calculated under § 110.03 of this chapter.
(C) When compensation is paid or payable for work done or services performed or rendered by an employee, both within and without the city, the license tax shall be measured by that part of the compensation paid or payable as a result of work done or service performed or rendered within the city. The license tax shall be computed by obtaining the percentage of compensation for work performed or services rendered within the city as it bears to the total wages and compensation paid or payable. For the city to verify the accuracy of a taxpayer’s reported percentages under this division (C), the taxpayer shall maintain adequate records.
(D) Subject to division (E) below, at a minimum, every employer required to deduct and withhold tax under this section shall make a return and report to the city, and pay to the city, the tax required to be withheld under this section on a quarterly basis, on or before January 30, April 30, July 30 and October 30 following the withholding period.
(E) For each employer who employs persons within the city for which the occupational license tax is required to be withheld from all employee compensation and the amount withheld by the employer exceeds $450 for any one of the preceding four quarters, the employer shall remit the occupational license tax required to be withheld from employees on a monthly basis, with taxes due on or before the fifteenth day of the month following the month in which the wages shall have been paid by said employer.
(F) Every employer who fails to withhold or pay to the city any sums required to be withheld by this subchapter shall be personally and individually liable to the city for any sum or sums withheld or required to be withheld in accordance with the provisions of this section.
(G) The city shall have a lien upon all the property of any employer who fails to withhold or pay over to the city sums required to be withheld under this section. If the employer withholds, but fails to pay the amounts withheld to the city, the lien shall commence as of the date the amounts withheld were required to be paid to the city. If the employer fails to withhold these sums, the lien shall commence at the time the liability of the employer is assessed by the city.
(H) Every employer required to deduct and withhold tax under this section shall annually, on or before February 28 of each year, complete and file with the city an Annual Report of Earnings reporting the tax withheld in each tax district where compensation is paid or payable to employees. Either copies of federal forms W-2 and W-3, transmittal of wage and tax statements, or a detailed employee listing with the required equivalent information, as determined by the city, shall be submitted.
(I) Every professional employer organization (“PEO”) and every employer with an employee leasing arrangement shall include a separate annual report of earnings for each client or co-employer listing the client’s or co-employer’s name, address and telephone number.
(J) Every employer shall furnish each employee a statement, on or before January 31 of each year, showing the amount of compensation and occupational license tax deducted by the employer from the compensation paid to the employee for payment to the city during the preceding calendar year.
(K) The president, vice president, secretary, treasurer or other person holding an equivalent corporate office of any business entity subject to this section shall, or any person who had authority to collect, truthfully account for, or pay over the tax imposed by this subchapter at the time that the taxes imposed by this subchapter become or became due be personally and individually liable, both jointly and severally, for any tax required to be withheld from compensation paid or payable to one or more employees of the business entity, and neither the corporate dissolution or withdrawal of the business entity from the city, nor the cessation of holding any corporate office, shall discharge that liability; provided that, the personal and individual liability shall apply to each and every person holding the corporate office at the time the tax becomes or became obligated.
(L) Notwithstanding divisions (F) and (J) above, every employee receiving compensation in the city subject to the tax imposed under § 110.03 of this chapter shall be personally liable for any amount due. In all cases where the employer does not withhold the tax levied under this subchapter from the employee, such employee or employees shall be responsible for filing with the city each quarter in the same manner as if they were the employer.
(1984 Code, § 110.06) (Ord. O-77-82, passed 11-30-1982; Ord. O-78-82, passed 11-30-1982; Ord. O-48-83, passed 9-6-1983; Ord. O-49-94, passed 12-29-1994; Ord. O-47-01, passed 11-13-2001; Ord. O-65-04, passed 12-7-2004; Ord. O-18-19, passed 6-24-2019) Penalty, see § 110.99
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