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Ky. hopes eliminating tax draws more residents

FRANKFORT, Ky. — Home to two Army bases and thousands of soldiers, Kentucky is looking to entice more troops to become full-time residents by exempting them from the state’s income tax.

State lawmakers last month approved an income tax exemption for members of the active duty military beginning January 2010. It’s a nod to soldiers’ service to the country, and a shot at boosting the state’s economy.

“When the soldiers come out of Fort Campbell, they take a right instead of a left to come to Kentucky,” said state Sen. Joey Pendleton, a Hopkinsville Democrat who has helped push for the legislation. “We feel like this will be a big economic development win for us.”

Kentucky has both Fort Knox and Fort Campbell — which straddles the border with Tennessee — within its borders. After years of trying, lawmakers approved the exemption during a special session in June.

The income tax exemption applies to all military pay earned by active duty soldiers, reservists and members of the National Guard.

Each state taxes military pay differently — some not at all. Some states tax soldiers the same as anyone else, while others — such as Michigan or Montana — exempt all or some military pay.

The move by Kentucky lawmakers comes as the White House plans to withdraw combat forces from Iraq and considers increasing the U.S. presence in Afghanistan. It had been an idea tried in the legislature since at least 2005, according to Pendleton, whose district includes part of Fort Campbell.

“It was the right thing to do with what we’re asking our military to do today and the number of men and women at Fort Campbell that’s been to Iraq or Afghanistan anywhere from two to five times,” Pendleton said.

Exactly how many soldiers will become Kentucky residents remains to be seen. Lawmakers predicted it would cost Kentucky about $18 million in tax revenue — a loss they’re hoping to offset with additional property and sales tax revenue that could come with additional soldiers.

But Bill Chaudoin, public works director in Oak Grove, Ky., said he expects the exemption will attract Fort Campbell soldiers who currently live in Tennessee to move across the border into Kentucky. Chaudoin said it would be a boon to the local and state economy by increasing housing sales and property taxes.

There’s already a proposal to build a new shopping mall nearby with restaurants, movie theaters, housing and offices, said Chaudoin, who is also the city planner.

“It’s going to help all around,” he said. “We’re a growing community and it’s going to help us grow.”

Sgt. Shaun Morris, 29, of the Kentucky National Guard, said he thought the move could help with recruiting and retaining new people to the guard.

“It’s nice to see the state’s recognizing the sacrifices that the men and women who wear the uniform make on a daily basis,” Morris said. “That they’re willing to help out and recognize us, it’s pretty comforting.”

Capt. Raymond Adams, who is stationed at Fort Knox, said he thought the tax exemption would be a “truly good benefit” to Kentucky service members by recognizing them and leaving them with more money. Adams, a North Carolina resident, said he didn’t think it would sway him to become a Kentucky resident.

“I’m from North Carolina,” Adams said. “And, North Carolina is home to me.”