Kentucky 2018 Tax Reforms
Last week I gave you a 'special edition' of Sales Tax Tuesday dealing with the rather quickly implemented hikes in Oklahoma (my home state) sales tax including the taxing of 'non-collecting sellers'. This week I'm going to give you details about Kentucky's attempts at comprehensive sales tax reports which we vetoed by Governor Matt Bevin, and which now has been passed via a 'veto override'.
Sales Tax
Earlier this month, on April 2, the Kentucky Legislature approved comprehensive tax reform legislation (House Bill 366) that would not only tax sales by out-of-state internet sellers, but also tax a variety of services previously exempted under Kentucky sales tax laws including:
- Admissions
- Auto repairs
- Country clubs and golf courses
- Fitness and recreational sports (e.g., bowling, skating, swimming, tennis, and weight training facilities)
- Janitorial services
- Landscaping, including lawn care, snow removal, and tree trimming
- Laundry (except coin-operated) and dry cleaning
- Linen supply, including diaper services
- Limousine services
- Non-medical diet and weight loss services
- Overnight trailer campgrounds
- Pet care (boarding and grooming)
- Pollution control facilities
- Tanning services
- Veterinary care (small animals only)
- Warranties (extended only)
This same tax legislation incorporated changes to both corporate and personal income tax by setting a flat 5% tax rate while eliminating the prior 2-6% tax rate. Changes to the state's cigarette tax rate were also incorporated into this legislation.
Additional provisions of the legislation would tax sales by remote retailers selling tangible personal property or digital property delivered or transferred electronically to a purchaser anywhere within Kentucky if the retailer made 200 or more sales transactions in any calendar year or if the gross receipts of such sales exceeded $100,000 in any calendar year.
While the taxation of these remote sales may likely bring in more revenues, the biggest emphasis from a press and political standpoint was clearly the attempt to broaden sales tax by inclusion of previously exempt 'services'.
Apparently these 'press' and 'political' pressures resulted in Kentucky Governor Bevin vetoing the legislation on April 9 (2018) despite the fact that it had been passed with substantial support in both houses of the Kentucky legislature. The Governor's actions came despite the fact that he had called for 'tax reform' in his 2018 Budget Address.
Apparently the Kentucky legislature didn't care for the Governor using the power of his pen to veto their idea of 'tax reform' because they quickly responded to the Governor's veto.
On April 13 the Kentucky Senate responded by overriding the Governor's veto with a vote of 20 yea and 18 nay, the Kentucky House overrode the Governor's veto that same day with a vote of 57 yea and 40 nay. On April 14th the legislation was delivered to Kentucky's Secretary of State for final record.
In addition to the tax changes mentioned above, this legislation also disallows many previous tax deductions including the cost of medical insurance, medical expenses, taxes paid, interest expense on investments, casualty and theft losses and miscellaneous deductions. It removes the 'personal income tax credit', reduces pension income tax breaks, and temporarily suspends the 'angel' investment tax credit for wealth investors who invest in small companies.
Because the legislation was passed with 'Emergency' provisions it will be up to the Kentucky Department of Revenue to implement all of the provisions of these changes which are estimated to increase total tax revenues for the state in excess of $400-million during the next fiscal year.
Along with legislative provisions you can expect the Kentucky Department of Revenue to follow with rules and regulations regarding the implementation of the multitude of provisions encompassing the new law. Obviously that means that enforcement via audits and compliance check-ups will be aimed an maximizing the additional revenues the state is expecting to rake in to their coffers.
Then the question becomes can you as a small business, especially a retailer, whether brick-n-mortar store or internet based marketplace, be able to come into full compliance in the short time frame you have to meet the requirements of these changes? That's where Avalara, "the sales tax people" can assist you.
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Since merchants and other 'tax collecting' entities will get simplistic notifications of their new, amended and enhanced responsibilities for collecting this additional revenue on behalf of the state, it will likely be easy get lured into a false sense of compliance, thinking that you are administering the new legislative requirements and rules properly, only to find out during a tax audit that you didn't.
That's why you need a sales and use tax expert like Avalara helping you integrate sales and use tax collections and reporting into your business framework, especially if you are doing business in Kentucky with all these changes.
By providing sales tax automation solutions, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting, Avatax can give you the assurance of compliance without sacrificing productivity so that your sales tax is way less taxing than ever before.