The ruling will add to the debate over local income taxes that erupted during the 2000 General Assembly and is to continue through at least this year. The ruling means something only in counties that have a population of 30,000 or less and impose a local occupational tax. In those counties, where cities also impose an income tax, taxpayers still must pay the full amount of both. Cities, too, can impose an occupational tax, and the department said 32 counties levying local taxes also have cities that charge income taxes. In counties of more than 30,000, residents who pay an occupational tax to a city can deduct those payments from their county income tax due.
Smaller counties have no limit on the amount of tax they can impose.
The maximum rate in larger counties is 1 percent. The court said there is no such offset provision available to residents in smaller counties. John David Preston, a former Republican state senator from Paintsville, which has levied an occupational tax since 1981, sued after Johnson County levied a similar tax in 1997. He said the double taxation was arbitrary and violated the equal protection provisions of the Constitution. Justice William Cooper, writing for the 6-1 majority, said the General Assembly has broad freedom to make classifications in tax law.