COVINGTON — The city and Corporex Cos. have mounted a legal challenge to Kenton County's recent payroll tax cap increase, saying they believe it is unenforceable and will hurt Covington's economic development efforts.

        In a suit filed Thursday in Kenton Circuit Court, Covington and Corporex officials are asking a judge to decide the legality of the increased payroll taxes that many Kenton County workers now have to pay.

        Effective Jan. 1, Kenton Fiscal Court raised the annual payroll tax cap from $25,000 to $80,400, increasing the tax level to the same as the Social Security (FICA) cap.

        For some taxpayers, that translates to a 220 percent increase in the tax.

        At issue in the suit is whether Covington taxpay ers — workers and businesses — can offset their county tax increase through a credit for taxes paid to the city of Covington.

        Covington and Corporex officials say Kentucky law entitles local taxpayers to that credit. County officials maintain it does not.

        Both sides said they expect a judge to decide the question in 60 to 90 days.

        “We wanted to take a leadership position on this issue,” Covington Mayor Butch Callery told the Covington Business Council's board Thursday. “We're the largest city in Northern Kentucky, and it affects us the most.”

        When the payroll tax cap increase was approved in June, county officials said it was to build and operate a new jail to replace the crowded facility in downtown Covington. Kenton Fiscal Court later decided to expand the jail.

        Despite the lawsuit, Kenton County officials said Thursday that they are continuing with plans to expand and renovate the jail, which occupies several floors in the county administration building at Third and Court streets.

        Expansion of the old jail will cost nearly what a new jail would, so the county's need for the payroll tax revenues remains.

        “We feel the (payroll tax) ordinance is legitimate, and we're going to continue to collect (the tax),” said Scott Kimmich, Kenton County deputy judge-executive. If the city prevails in its lawsuit, Mr. Kimmich said, the county will have to consider cuts in as-yet-undetermined county services.

        “We're continuing to proceed with our plans to build the detention center,” Mr. Kimmich said. “The bottom line is, we have to do it.”

        Mr. Kimmich said that Kenton Fiscal Court will likely schedule a special meeting for Tuesday to discuss the lawsuit.

        Mr. Callery said that many in the Covington business community think the increase is unfair and unreasonable, and that it will hurt existing businesses and hinder Covington's attempts to attract new ones.

        “When you compare this high tax rate to lower rates in other Tristate business areas, it deters companies from locating to our area,” Bill Butler, Corporex chairman and CEO, said in a statement released Thursday.

        Mr. Callery said the tax, levied in addition to Covington's 2.5 percent payroll tax, among the highest for any municipality in the Tristate, “is destructive to countywide business recruitment and especially penalizes Covington residents and businesses.”

        In a statement Thursday, Kenton Judge-executive Dick Murgatroyd said that three different legal opinions support the county's assertion that the payroll tax cap increase is legal.

        He added that county officials also believe that the increase is fair.

        “The county commissioners and I worked very hard to ensure fairness in the collection of these fees, and in the summer of 2000, agreed not to increase the actual tax rate, instead increasing the cap, in an effort to prevent our actions from having a negative impact on the economic stability of Covington,” Mr. Murgatroyd said.

        After Mr. Callery addressed the CBC's board Thursday, the group agreed to file a friend-of-the-court brief in support of the city's challenge.

        Mr. Callery said Covington offi cials still believe a proposed site at Ky. 17 and Interstate 275, known as the 3L site, is the best location for a county jail. The previous fiscal court had endorsed that site two years ago, but the current officeholders later rejected it, citing a costly environmental cleanup.

        Although Covington City Commission had decided weeks ago to pursue a lawsuit against the county, Mr. Callery said that he had hoped as late as Wednesday to avoid litigation. However, the mayor said that he, City Manager Greg Jarvis, Assistant City Manager Tom Steidel and Finance Director Bob Due were “stood up” by Mr. Murgatroyd on Wednesday afternoon, when they arrived for a scheduled meeting.

        Mr. Callery, who took off work for the meeting, said the four city officials waited at Mr. Murgatroyd's office for about 45 min utes, but the judge-executive never showed and did not call to offer an explanation.

        “He wasn't stood up,” Mr. Kimmich said Thursday. He said that last week, he and Mr. Murgatroyd had asked a secretary to reschedule the meeting for 3 p.m. when they realized they had a heavy schedule that day, and could not make the 2:30 meeting. Through a mix-up, however, Covington officials were not notified.

        Mr. Kimmich said that when he called his office at 3:05 p.m. to tell Covington officials that he and Mr. Murgatroyd were running late, they'd already left.

        “I left two messages with Greg Jarvis (Wednesday) afternoon,” Mr. Kimmich said. “He tried to call me back after business hours. I called him back (Thursday) morning to apologize, and asked to reschedule the meeting. The next report we got was that they were filing the lawsuit.”

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