Owensboro staff outlines occupational license tax rules, exemptions and filing requirements

Dana Coombs, the city’s occupational tax and revenue collections manager, presented an overview of occupational license taxes and fees to the Owensboro Board of Commissioners on May 20, 2025. The presentation covered what the tax is, who pays it, required forms and filing schedules, common exemptions and how the city determines tax nexus.

Coombs told commissioners the occupational license tax and occupational license fee are treated as the same and apply to business activity inside the jurisdiction. “The license fee on wages is imposed on employees only. All others pay license fee on the net profits,” Coombs said. She said independent contractors receiving a 1099 must file a net profit return (NP1). Coombs said employers withholding more than $300 per quarter must file payroll withholding monthly; others may file quarterly. The annual NP1 return is due on the 15th day of the fourth month after the end of the licensed federal tax year, she said.

Coombs reviewed commonly taxed payroll items — gross compensation, employee contributions to retirement, taxable fringe benefits, auto allowances and certain moving and parking allowances — and described how the city starts with federal taxable income, adds back certain deductions and excludes income exempt under federal or state law when calculating municipal net profits. She also listed several statutory and local exemptions from net-profit taxation, including certain financial institutions, public service companies that pay a franchise tax and locally defined exemptions such as city‑sponsored events.

On nexus, Coombs said a company has a taxable presence if it maintains an office, consigns inventory in the city, or has employees or agents regularly acting for the company. She referenced federal limits on state and local taxation of out‑of‑state business solicitation — expressed in the presentation as “Public law 86‑272” — when explaining that mere solicitation of orders for tangible goods can limit local taxing authority under federal law.

During Q&A, commissioners pressed staff on practical enforcement. In response to a question about storm‑repair contractors and other short‑term entrants, Coombs described the city’s process for catching businesses that advertise locally or pull permits: staff cross‑checks permit pulls and local advertising, sends welcome letters to unlicensed businesses and verifies contractor payments during post‑event audits. The city manager noted the tax office also collects occupational net profit for the county and highlighted the department’s audit recoveries.

Commissioners also asked about property tax collection and the share that flows to Owensboro Public Schools; the city manager explained the Property Valuation Administrator (PVA) sets values and the commission sets the tax rate and said roughly 23 percent of a typical tax bill goes to the city, with the remainder allocated to schools and other taxing entities. Coombs and staff emphasized that reassessments can create large, lumpy changes in individual assessments because valuations are updated in multi‑year cycles.

The presentation closed with staff reiterating compliance steps — business license application for account setup, timely payroll withholding returns, annual NP1 filings and the annual reconciliation due February 28 — and offering to assist businesses with questions.

The presentation was informational; no formal action was taken.