Veterans service organizations call on state legislators to address tax issue

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Kentucky legislators are joining the march to aid the more than 586 Kentucky-based veterans service organizations (VSO) in gaining tax-exempt status.

There are 45,559 VSOs in the United States and while some of these, like those in Alabama, Missouri, North Carolina, Georgia, South Carolina, Indiana, Ohio and Illinois, are tax-exempt, many, like those in Kentucky, are not.

For those in less populated areas, tax hikes may not be an issue, but for those such as Owensboro Veterans of Foreign Wars Post 696 that are located in lucrative areas, not being tax-exempt can be debilitating, especially in terms of their charitable works. For instance, the Owensboro VFW's bill this year for city and Owensboro Public Schools taxes is $20,433, putting a strain on many of the organization's charitable ventures, said Post Commander Joey Benningfield.

"Last year, through our electronic gaming, canteen and fundraisers, the VFW was able to distribute more than $20,000 to various community causes," he said. "The tax bill is almost over what we gave out. If we aren't able to be exempt from the property tax especially, we will have to pull back to cover costs just so we can stay in our building.

"Yes, we could sell that property, but we are not there for profit, we are there for combat veterans to relax and have peace of mind. It is the greatest location in town in my opinion. We do a great deal for the community, and we are involved in everything that we can be in. There are many veterans organizations that are feeling the crunch like we are."

While many in the community were surprised when Benningfield posted the post's tax statement on Facebook on Sept. 28, the reality is that post officials knew that the tax hammer would inevitably come down hard as the downtown area, where the post is located, continued to develop and grow. Initially, the organization went through the channels of applying for tax-exempt status with the state, only to be denied. Then, VFW officials reached out to former state Rep. DJ Johnson.

Johnson, now an executive adviser for Gov. Matt Bevin, initially entered in a bill that would help alleviate the property tax issue for VSOs statewide, but his legislative initiatives were cut short by a 30-day session and his loss to Rep. Jim Glenn in 2018. Despite that, Johnson has continued his advocacy to alleviate tax burdens for veterans' organizations throughout the state.

"I know the good work that they are doing," Johnson said. "Especially now having worked first hand with them as we have gone along in this process. ... I'm not knocking the taxes or how they are used, but I know that these guys are doing good work and shouldn't have a tax burden that could put them out of business and hurt those works. Not many veterans organizations are going to have an almost 300% increase in their taxes in a four-year period, but every one of them should be protected."

Since Johnson's ascension into the governor's office, two state representatives, both veterans, have joined his cause and taken a two-pronged approach to adding VSOs to the language of Section 170 of the state's constitution and to the statutory language of which organizations qualify to be exempt from property taxes.

Navy veteran and District 29 Republican Rep. Kevin Bratcher and Marine veteran and District 72 Republican Rep. Matthew Koch have pre-filed two pieces of legislation into the 2020 legislative session -- BR (bill request) 127 by Bratcher, and BR 247 by Koch.

"I'm doing it constitutionally and he is doing it statutorily," Bratcher said. "There are constitutional issues with changing property tax and exemptions of property tax and I have a bill that would change the constitution to allow this to happen. The process would be easier to pass his (proposed bill). The way it is looking now, we are probably going to go with his. The process will be easier to change the statutory language, (but) the question is whether or not it will stand up in court."

Koch's bill would create a new section in KRS Chapter 132 to exempt veteran service organizations from ad valorem taxation if more than 50% of the organization's annual net income is expended on behalf of veterans and other charitable causes. This action, given that there would be no changes to the constitution, could be more palatable in terms of garnering political support, but, as Bratcher pointed out, there could be problems down the road.

"There is language, and it matches federal requirements, that makes sure that these organizations are giving half of their net profit to charitable organizations to be eligible," Koch said. "Everyone will get behind their vets, we all do. I don't know anyone in our legislator that doesn't.

"We will have to take a hard look at the money. We will make sure this is fair and that these organizations are doing what they say they are doing. At the end of the day, I believe that the right thing will be done and we will be able to give some relief to these organizations. It is straightforward and if vets can't be straightforward, then all is lost. In reality, these bills are ensuring that veterans can do what they do best -- serve their communities."

"To support us, the community needs to do two things," he said. "Come down to the post to sign our paper petition the old school way or print one and mail it in or sign our online petition. Our goal is to get as many signatures as we can so that I can take a big stack of documents to DJ (Johnson) and he can get them into the right hands."

Looking forward to the legislative session, Johnson is optimistic, he said.

"I think the bill's passing looks promising," he said. "A lot of that is based on these VSOs educating us on how we can do this by statute and not making this a constitutional issue. They have made a strong case. When you have a military organization with an objective in mind, look out. This is a precision operation and they are good at this kind of thing, they have made a lifetime of doing it."

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