By Joe Biesk
The Associated Press

FRANKFORT - Gov. Paul Patton on Thursday vetoed a part of a bill to preserve a significant tax break for hundreds of Kentucky's larger companies.

Patton said it was "precisely the type of piecemeal tax reform" that flaws the newly enacted executive branch budget, which he contends is out of balance.

Instead, the Legislature and businesses should address a comprehensive corporate tax revenue overhaul, Patton said.

"This problem arose on my watch with this legislature," Patton said. "It needs to be solved on my watch with this legislature."

The General Assembly cannot override the veto because its 2003 session has ended. The legislature will not convene again until January unless Patton orders a special session - something he already has offered.

"There will be a special session only if there is, I think, support within the General Assembly," Patton said. "And I don't think that will materialize unless the business community en masse actually advocates that."

Senate President David Williams issued a single-page response in which he blasted the governor for the decision and vowed to push a measure to retroactively overturn the decision when lawmakers return in January. In the release, Williams said Patton "continues to wallow in self-pity and irrelevance," and that he has essentially hung a "closed for business" sign on the state's borders.

"Obviously, the governor is out of touch, embittered, and in a punitive mood. This veto is a tremendous misstep and overturns 25 years of legislative precedent," Williams said in the statement.

Members of the business community said the governor's move would hurt the business community in the state. Andy Downs, the Kentucky Chamber of Commerce's senior vice president, said the veto would cause some companies to look at moving elsewhere.

Rather than focus on increasing taxes on corporations, the state should look to find additional revenue elsewhere - by increasing the taxes on cigarettes, and allow expanded gambling - said Andy Downs, the senior vice president of the Kentucky Chamber of Commerce. "I don't think that there is a mood in the legislature, with everything going on, to react to the current situation with any kind of summit," Downs said.

The legislation, passed on the General Assembly's final night, would allow Kentucky-based companies with subsidiaries to keep most of a corporate tax deduction for the cost of subsidiary license fees.

"We should not continue this process on making piecemeal adjustments in the corporate tax code by middle of the night amendments that have no public debate and have no real analysis by tax experts to determine what the eventual outcome would be," Patton said.

About 500 companies are affected. The Revenue Cabinet estimates that the deduction amounts to $80 million a year.

The legislation would for the first time extend the deduction to companies based in other states. A group of out-of-state companies successfully sued the state over their different treatment.

Patton said a veto was necessary to illustrate his contention that the tax code should be rewritten before a new governor takes office. Otherwise, the state's next leader will face the same budget problems recently plaguing his administration, he said.

"Now is the time to do that while both parties have a reasonable chance of anticipating that they may hold the governorship," Patton said.