2007 Kentucky Tax Legislation Summary
The 2007 Kentucky General Assembly has enacted into law several new pieces of tax legislation.
One of the most significant pieces of tax legislation enacted during the 2007 Session is H.B. 316, which amends Kentucky’s Tax Refund Statute [KRS 134.580] to revoke and withdraw the Commonwealth’s consent to suit in any forum for the recovery of tax overpayments for any taxable year ending before December 31, 1995, made by an amended return or any other method after December 22, 1994 (the decision date inGTE v. Revenue Cabinet, 889 S.W. 2d 788 (Ky. 1994)), and based on a change from any initially filed separate return or returns to a combined return under the unitary business concept or to a consolidated return. This Bill was apparently filed in response to the Court of Appeals’ recent decision in Johnson Controls, Inc. v. Rudolph, No. 2004-CA-001566-MR (Ky. App. May 5, 2006), discretionary review requested, No. 2006-SC-000416 (Ky.), holding that retroactive amendments extinguishing unitary refund claims violated constitutional due process guarantees.
H.B. 258 updates the reference to the Internal Revenue Code of 1986 (“Code”), as amended, used to compute a taxpayer’s Kentucky income tax [KRS 141.010(3)] as well as the local reference [KRS 67.750(7)] used in the computation of local occupational license taxes to the December 31, 2006 version of the Code, with some exceptions. H.B. 258 also disallows a deduction for a dividend paid to a captive real estate investment trust. Although no fewer than three Bills (e.g., H.B. 87, H.B. 88 and H.B. 119) were introduced to repeal the Limited Liability Entity Tax, none passed.
H.B. 360 makes several amendments to further conform to the Streamlined Sales and Use Tax Agreement. H.B. 360 amends various substantive and procedural sales and use tax and related statutes.
For example, H.B. 360 amends the definition of gross receipts or sales price [KRS 139.050] to generally include consideration that a retailer receives from a third party in exchange for a price reduction or discount on a sale to a customer. It amends KRS 139.472 regarding the exemption for medical oxygen. It also amends KRS 139.105, KRS 139.195, and KRS 139.200 primarily to define various communication services terms and their taxation. It creates a new section of KRS Chapter 139 regarding the taxation of bundled transactions, including a telecommunications service, ancillary service, Internet access, audio programming or video programming. H.B. 360 also amends the sourcing rules (regarding the determination of the proper state to attribute sales to in multistate transactions) for the taxes on communications services imposed by KRS Chapter 136.
H.B. 360 amends KRS 139.270 regarding acceptance of a resale certificate to provide that such exemption does not apply when a purchaser presents an out-of-state resale certificate, based on an entity-level exemption, which clearly states that the claimed exemption is unavailable. It further provides that a seller may accept a resale certificate within 90 days subsequent to a sale, and after the 90 day period may offer additional documentation to the Department of Revenue to consider. H.B. 360 also amends various Streamlined Sales and Use Tax Agreement definitional provisions and provides relief from liability for failure to collect sales tax to certified service providers and certain sellers provided that they have relied on software provided by the Commonwealth.
H.B. 244 provides for a cap on the 2.5% tax on gross revenues imposed on providers of hospital services. H.B. 321 establishes fee limits and notice provisions for private purchasers of property tax certificates of delinquency and makes amendments to various statutes regarding that issue. H.B. 540 exempts so-called “reference cigarettes” (manufactured for health research and experimental purposes) from the cigarette excise tax.
H.B. 443 amends KRS 131.672 to provide that the Department of Revenue may not require a financial institution to implement its financial institution match system for seizing delinquent taxpayers’ and debtors’ financial assets until the Department is prepared to implement the system in 90 percent of all financial
institutions. It also provides for penalties (including forfeiture of its license to do business in the Commonwealth), which the Department may assess on a financial institution when the financial institution fails to comply within 90 days after notification by the Department.
S.B. 82 provides for definitions for qualifying voluntary environmental remediation property used in redevelopment of Brownfields. Such property is taxed at a reduced state property tax rate and is exempt from local tax for a three-year period. It similarly amends the nonrefundable income tax credit for voluntary environmental remediation provided by KRS 141.418.
The General Assembly also enacted several Bills regarding economic development. H.B. 462 amends the definition of “economic development project” in two economic development statutes (KRS 154.22-010 and 154.28-010) to authorize a manufacturer to locate project improvements or facilities on land it possesses via a ground lease with a term equivalent to that of the involved economic development project financing agreement. H.B. 468 amends economic development incentives regarding jobs development (specifically, KRS 154.24-090) to encourage the location of an economic development project adjacent to one of five regional postsecondary education centers.
H.B. 536 establishes an economic development incentives program for a motor vehicle manufacturer that employs a minimum of 1,000 employees, has operated for five continuous years, and is located in a consolidated local government containing a city of the first class (i.e., Metro Louisville). The program provides that an approved company may recover 50% of approved costs (e.g., new equipment) of a $100 million jobs retention project, and if the approved company agrees to a second supplemental jobs retention project, 75% of approved costs. H.B. 536 also appropriates up to $18 million for use by the Bluegrass State Skills Corporation for training grants.
H.B. 549 establishes one new local and three new state tax increment financing (“TIF”) programs. The local TIF funding program generally makes available incremental local real property ad valorem taxes (except for school and fire district taxes) and occupational license taxes generated in the local development area to finance a local project. H.B. 549 also provides for the establishment of the State Tax Increment Financing Commission, which will oversee the three state TIF funding programs: the Commonwealth Participation Program for State Real Property Ad Valorem Tax Revenues (which provides financial support derived from incremental state property tax revenue only and requires a minimum capital investment of $10 million), the Commonwealth Participation Program for Mixed Use Redevelopment in Blighted Urban Areas (which provides financial support from various state taxes and requires a minimum capital investment of between $20 and $200 million), and the Signature Project Program (which provides financial support from various state taxes and requires a minimum capital investment of $200 million).