Stites & Harbison, PLLC

The city of Frankfort, Kentucky recently initiated efforts to impose certain license fees on all "itinerant professionals" who conduct business within city limits, regardless of whether or not those "itinerant professionals" are residents or nonresidents of the city.  The city's initial efforts have been targeted at lobbyists—City Solicitor, Rob Moore, has advised more than 300 registered legislative agents of their purported obligation to obtain a city business license and pay certain license fees for the privilege of doing business in the city.  The city is taking the position that the license fees at issue apply to all lobbyists who do any work at all in Frankfort.  For example, under the city's interpretation, liability for the license fees would arise from the following actions:  (1) meeting with officials from the Department of Revenue regarding the interpretation of Kentucky's tax laws; (2) participating in legislative hearings on proposed legislation; and (3) conferring with members of the General Assembly, or other elected officials.  In addition, the city has made it clear that it intends to target a broader class of professionals, including attorneys, engineers, contractors, journalists, physicians, and delivery drivers for carriers such as UPS and Federal Express.

    The license fees at issue are Frankfort's Occupational License Fee and Net Profits Fee.  Both of these fees have been in existence since the 1960s, but the city has not previously made any organized effort to impose the fees on nonresident professionals.  The Occupational License Fee imposes a fee "equal to 1.75% of all salaries, wages, commissions and other compensation, including deferred compensation, earned by every person in the city for work done or services performed or rendered in the city and of the net profits of all business, professions or occupations from activities conducted within the city."  Similarly, the Net Profits Fee imposes "an annual license fee being the greater of $35 or 1.75% of the net profits of the occupation, trade, profession or other business activity conducted in or derived from activity within the city."  City ordinances require that returns be filed for purposes of both fees and that penalties be imposed for failing to file the appropriate returns and pay the applicable fees.

The city presently is seeking recovery of the license fees going forward and for a five-year "look back" period, but has extended the deadline for filing returns through July 31, 2007.  It is still uncertain exactly how the city will apply and enforce the ordinances imposing the license fees.  A group of lobbyists has suggested that the ordinances should be interpreted to exempt individuals who are required to work in Frankfort only because it is the location of the state government, arguing that imposition of the fee impinges upon the right of the people to petition their government.  It is expected that other challenges to the ordinances will be presented as the city targets other professions.
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Bruce Clark is a Member located in the Frankfort, Ky., office where he is a member of the Business Litigation Service Group.
Erica Horn is a Member located in the Frankfort, Ky., office where she is also a member of the Business Litigation Service Group.