Paducah's Business License Tax Structure
The Business License Tax (also called the Occupational License Tax) is outlined in Section 106 Article III of the Paducah Code of Ordinances. It's projected to generate approximately $4.5 million for Fiscal Year 2023. The funds are placed in the General Fund, the City's main operating fund.
There are two basic systems for calculating business tax: gross receipts and net profit. More than 30 cities in Kentucky operate on a gross receipts system. The City of Paducah works on a gross receipts system. However, instead of charging one flat rate, the City places businesses into one of five classifications (see A through E below) with a rate based on profitability. The structure of the Paducah's Business License Tax with its five rates is unique and has been called a modified gross receipts system.
Benefits and advantages of the City of Paducah's system include
- Best of both worlds. Paducah has the simplicity of the gross receipts structure. Plus, Paducah has five rates that address the profitability of a business.
- Simple to administer. The Business Tax form is two pages.
- Not Easy to Manipulate. With a net profit system, it is easier for a company to manipulate the "bottom line". For example, a large company with offices outside of Paducah could apportion their profits to an office in another city.
- Similar structure to payroll tax. The payroll tax of 2.0% is based on gross receipts. You are taxed on your income before your deductions.
Do I Need a Business License?
According to Paducah Code of Ordinances Chapter 106-63, any corporation, partnership, proprietorship, individual that receives or expects to receive gross receipts in excess of $600 annually in the conduct of business in Paducah is required to obtain a business license.
Payroll Tax and Investment Fund
The City of Paducah levies an Occupational License Fee (employee payroll withholding tax, also known as payroll tax) of 2.0 percent as described and further amended in Sec. 106-182 of the Code of Ordinances. This means that 2.0 percent of gross salaries, wages, commissions, and other compensation that is earned within the City limits should be remitted to the City of Paducah. In other words for every $1.00 that is earned, $0.02 is paid to the City of Paducah. The payroll tax is the City's largest revenue source. Three-quarters of the payroll tax revenue (equal to $18.0 million for Fiscal Year 2023) is placed in the General Fund. The remaining quarter of the payroll tax is placed in the Investment Fund. The Investment Fund is dedicated to the following expenditures:
- Economic Development
- Neighborhood Redevelopment
- Infrastructure Capital Investment
- Property Tax Relief
History On August 9, 2005, the Paducah Board of Commissioners increased the payroll tax from 1.5 to 2.0 percent. That increase became effective October 1, 2005, but was set to sunset on October 1, 2008. On September 25, 2007, the Board of Commissioners voted to permanently amend the ordinance to maintain the payroll tax at 2.0 percent. The revenue generated from the 1/2 percent increase in the payroll tax is placed into a special fund, the Investment Fund.
Forms (Business License and Payroll Tax)
- Registration Application for a Business License for businesses that are new to Paducah
- Application to Receive Payroll Tax Number for Business
- Business License Form 2023
- Business License Form 2022
- Business License Form 2021
- Business License Form 2020
- Business License Form 2019
- Business License Form 2018
- Annual Reconciliation of Employer's Quarterly Fee Withheld
- Employee's Individual Return of License Fee Form (Payroll Tax)
- Employer's Quarterly Return of License Fee Withheld
Payments can be made in-person at City Hall or over the phone at 270-444-8513. Real estate and personal property taxes also have an Online Payment option.
In addition to cash and/or check, the City of Paducah accepts credit and debit card payments. Services payable by credit or debit card include business licenses, property tax bills, building permits, fines, and liens. A 2.95 percent service charge will apply on credit and debit card payments. Payment types include Discover, MasterCard, and Visa. The City does not charge or retain this service charge. There is a $2.00 minimum per transaction.
Business Retention Survey
Business retention is a priority for the City of Paducah. We would love to hear from our local business community as we engage with local business owners. Please complete the Business Economic Survey.