Kentucky Occupational License Tax: City, County and School District Rates, Louisville 2.2%, Lexington 2.25% and Every Tax District

Kentucky does not issue a statewide general business license. The tax most new businesses actually owe is the local occupational license tax, and it is set by each tax district rather than by the state. Cities, counties, school districts and some special districts levy it on payroll, net profits or gross receipts, so two businesses in the same state can owe very different amounts depending on where they operate.

This guide covers how the tax works, the rates listed for the largest Kentucky cities as of 2026, what to know about county and school district taxes, and how to confirm the rate that applies to your business.

What the Kentucky occupational license tax covers

The occupational license tax is a local tax. It is not the state income tax, it is not the Limited Liability Entity Tax (LLET), and it is not a license issued by a state agency. Registering an LLC or corporation with the Secretary of State is a filing, not a license, and it does not satisfy the local tax.

The tax matters more to local governments than most owners expect. According to the Kentucky League of Cities and the Kentucky Association of Counties (October 2025 data), the occupational license tax makes up 60.6% of city tax revenue and 45.8% of county tax revenue. Expect local tax offices to enforce it.

Each district sets its own:

• Tax base: payroll, net profits or gross receipts, depending on the district
• Rate: a percentage that varies by district
• Minimum or cap: some districts set a minimum tax owed or a maximum on the tax
• Forms and filing schedule: set by the district, subject to the statewide form change described below

Listed rates in the largest Kentucky tax districts (2026)

The table below shows the rates listed for major districts as of 2026. Use it as a starting point, not a final answer. Rates change, and the Secretary of State database entries are self-reported, so some lag behind actual ordinances.

Tax district	Listed rate (2026)	Minimum or other listed term
Louisville Metro	2.2% resident; 1.45% non-resident	The resident rate includes the school share. Confirm how residency is determined and whether a minimum applies.
Lexington-Fayette	2.25%	$100 minimum
Covington	2.5%	$100 minimum; $80,000 cap. Confirm whether the cap applies to the tax base or the tax owed.
Ashland	2.375%, effective January 1, 2026	Confirm minimum and filing details with the city.
Bowling Green	2.0%	$30 minimum
Frankfort	1.95%	$60 minimum
Owensboro	1.78%	$75 minimum

Two points about this table. First, a listed rate tells you the percentage, not the full calculation. Minimums, caps, credits and the definition of the tax base all affect what you actually pay. Second, if your business is in a district not listed here, do not assume its rate is similar to a neighboring city. Look up your district directly.

Louisville: resident and non-resident rates

Louisville Metro lists a 2.2% rate for residents and a 1.45% rate for non-residents. The resident figure already includes the school share, so you do not add a separate school tax on top of it. Whether an individual or business counts as a resident for this purpose depends on the district's rules, so confirm with the Louisville Metro tax office before you set up payroll withholding for employees who live outside the city.

Lexington-Fayette

Lexington-Fayette lists 2.25% with a $100 minimum. The minimum matters most for small businesses with low net profits or modest payroll, where the percentage alone can produce a very small bill that the minimum raises.

Covington and Ashland

Covington lists 2.5% with a $100 minimum and an $80,000 cap. Because the cap changes the outcome for larger businesses, ask the city how it applies before you estimate the annual cost. Ashland's rate of 2.375% took effect January 1, 2026, so older rate tables may still show a lower figure. Use the current rate.

Bowling Green, Frankfort and Owensboro

Bowling Green lists 2.0% with a $30 minimum. Frankfort lists 1.95% with a $60 minimum. Owensboro lists 1.78% with a $75 minimum. Each of these is a city-level tax, so a business located outside the city limits may fall under a county tax instead.

County taxes: a payroll fee in most counties, but not all

Kentucky has 120 counties and about 420 cities. Counties also levy occupational taxes, but coverage is uneven. According to the Kentucky Association of Counties (January 2026), 87 of the 120 counties levy a payroll fee and 33 levy none. The median county rate is 1.00%.

County clerks do not issue or collect this tax. If your business is outside a city that levies its own tax, contact the county's tax office to find out whether a county payroll fee applies.

School district taxes and the 2027 change

School districts can levy their own occupational taxes. Under HB 757 (2026 Acts ch. 161), school districts may not adopt a new school district tax or raise an existing one starting January 1, 2027. Businesses should expect school-level rates to stay where they are through that date, but the rate that applies to your location is still whatever the district currently lists. Check the Secretary of State database and your local tax office rather than relying on older guides.

In some places, including Louisville Metro, the school share is built into the listed rate. In other places the school tax appears as a separate line. Ask the tax office to show you the breakdown so you do not double count or miss a component.

Forms and the move to standard filing

HB 518 (2026 Acts ch. 44) requires occupational tax districts to use standard Secretary of State forms. Districts must accept those forms electronically starting July 1, 2029. Until then, expect each district to use its own forms and filing methods, and confirm what the district requires before you file.

How to find your tax district and confirm the rate

The Secretary of State maintains an occupational tax database at web.sos.ky.gov/occupationaltax/. It lists 228 tax districts, about 148 of which are cities. Use it in this order:

1. Identify where the business is located and where employees work. A business may have a location in one district and employees in another, and each may trigger its own obligation.
2. Search the database for each district. Note the listed rate, minimum, cap and filing details.
3. Call the city or county tax office to confirm. Ask for the current rate ordinance, the tax base definition, the filing frequency, the due dates and the forms. The database is a finder, not the controlling authority.
4. Save the confirmation. Keep a dated note or email from the district so you can show what rate you used if a question comes up later.

What the occupational tax does not replace

Keep these separate in your planning, because each has its own filing and fee:

• Entity formation: Articles of Organization for an LLC cost $40, and Articles of Incorporation for a corporation cost $50, both filed with the Secretary of State.
• Annual report: $15, due June 30 every year. A domestic entity that misses June 30 can be administratively dissolved if it does not correct the problem within 60 days of the Secretary of State's notice. The filing window opens January 1.
• Limited Liability Entity Tax (LLET): LLCs and corporations owe it, with a $175 minimum if Kentucky gross receipts or gross profits are $3 million or less. Kentucky does not impose a franchise tax, but the LLET applies.
• Sales tax: Kentucky's state sales tax rate is 6%, and there are no local sales taxes. The tax reaches about 50 services. Register a sales tax account with the Department of Revenue using Form 10A100 through MyTaxes.ky.gov if you sell taxable goods or services.
• Industry licenses: Kentucky licenses by agency or trade rather than by a general business license. Electricians, plumbers and HVAC contractors are licensed through the Department of Housing, Buildings and Construction. Kentucky has no statewide general contractor license.

Common mistakes to avoid

• Assuming the state covers it. There is no statewide general business license, and the local tax is separate from state income tax.
• Using an old rate. Ashland's increase took effect January 1, 2026. Confirm every rate before you file.
• Stopping at the city line. Some businesses owe a county payroll fee even when no city tax applies, and some owe more than one district's tax.
• Ignoring the non-resident rate. In Louisville, the resident and non-resident rates differ substantially (2.2% and 1.45%). Know which applies to each employee or owner before filing.
• Overlooking minimums and caps. A $100 minimum can exceed the percentage-based amount for a small business, and a cap can reduce the bill for a large one.
• Relying on the county clerk. County clerks do not handle this tax. Contact the city or county tax office instead.

Next steps

1. Map every location where you have a office, employee or taxable activity.
2. Look up each district in the Secretary of State database at web.sos.ky.gov/occupationaltax/.
3. Call each city or county tax office to confirm the current rate, minimum, cap, tax base, filing schedule and forms.
4. Set up payroll withholding and recordkeeping for each district before your first filing due date.
5. Calendar the June 30 annual report and any local filing deadlines.

Important notice

This guide is informational only. It is not legal or tax advice. Rates, minimums, caps and filing rules change, and the figures above reflect data available for 2026. Confirm every rate and requirement with the city or county tax office that administers it, and consult a qualified CPA or attorney about your specific situation, especially if you have employees in multiple districts, operate across county lines or hold an unusual business structure.

For state filing questions, see the Kentucky Secretary of State at sos.ky.gov/bus/business-filings, and for tax questions, the Kentucky Department of Revenue at revenue.ky.gov.