The Kentucky Bankers Association has filed a lawsuit in Frankfort challenging a new requirement for banks established by the recently enacted biennium budget. While the lobbying group representing banks throughout Kentucky is challenging whether legislators can use the budget to make permanent changes in state law, a broader question is whether the state should use private banks as a collection agency for individuals and companies owing back taxes.

A provision in the two-year budget would require banks to create an electronic system able to freeze assets of customers the state Department of Revenue claims are delinquent in paying the state taxes. It would require banks to create an expensive monitoring system that would violate the rights of customers, the KBA says.

The immediate question raised by the lawsuit is whether the General Assembly can use the budget to dictate a permanent change not mandated by a separate law. After all, the suit claims, a budget is in effect for only two years, and the provision would expire at the end of that two years unless re-imposed by the next budget.

The KBA suit — field in Franklin County Circuit Court — claims Gov. Ernie Fletcher and legislators intentionally buried the delinquent taxpayer provision in the $18 billion two-year budget to avoid public scrutiny. Whether intentional or not, the change certainly should have been imposed by a separate bill rather than by the budget bill.

Even if the court should rule the provision legal, we don’t think banks or any other private businesses should be the collection agencies for back taxes. As much as we think the state should be aggressive in its efforts to collect the taxes it is owed, we don’t think private banks should spend thousands of dollars to collect tax revenue for the state by freezing private bank accounts.

Suppose an individual cannot pay the rent or electric bill or put food on the table because his or her money has been taken to pay back taxes? Families could face real hardships because they can’t get access to their money.

In addition to the money banks will have to spend to be able to freeze accounts, the provision could work against Kentucky banks in other ways. For example, individuals in Covington or Louisville who are delinquent in their taxes may simply do their banking in neighboring Ohio and Indiana to avoid having their accounts in Kentucky frozen. Folks in this area could easily cross over to Ohio or West Virginia for their banking.

We’re all for people paying their taxes in a timely manner, but we also are aware of legitimate situations — a temporary job layoff, a sudden costly illness, etc. — where that may not be possible. Having banks do the work of the Kentucky Department of Revenue is asking private businesses to do the work of government. That’s wrong. Here’s hoping the KBA’s challenge to this provision successfully kills this bad idea.

Trending Video

Recommended for you