2008 Tax Legislation
The General Assembly has recently concluded its 2008 legislative session and enacted comparatively few pieces of significant tax legislation. The change with probably the broadest impact on taxpayers was to the computation of interest. Beginning May 1, 2008, the interest rate charged by the Commonwealth on tax assessments will be set at the prime rate plus 2% and on refunds at prime minus 2%, a change originally proposed in H.B. 693 and enacted in H.B. 704. Previously, the rates for both assessments and overpayments were the same; however, this change creates a four percentage point spread to the detriment of taxpayers.
Also, retroactively effective for refunds issued after the effective date of H.B. 704, April 24, 2008, the accrual of interest begins after the latest of a tax return’s original due date, extended due date, actual filing date, date of payment, or amended return filing date, a change originally proposed in H.B. 568. Given that many taxpayers often file amended returns months or years after the original return, this will result in a retroactive loss of interest to taxpayers with outstanding refund claims. H.B. 704 also made what appears to be a technical correction to the definition of an “overpayment” for purposes of the general statute of limitations for refunds.
H.B. 704 made a hodgepodge of other relatively minor changes to various tax and fiscal matters including: the insurance premium surcharge of 1.5%, the proceeds of which are deposited into the Firefighters Foundation Program and the Law Enforcement Foundation Program trust accounts, tobacco tax reporting provisions, due dates of the income tax returns of farmers cooperatives, utility gross receipts tax for schools, application of sales and use tax in the charitable auction context, unclaimed property and property tax for schools.
H.B. 538 limits the so-called reimbursement allowed to a taxpayer that collects and remits sales and use tax to $1,500 per monthly reporting period. It also provides for an exemption for over-the-counter drugs for people; however, the new exemption does not include grooming or hygiene products.
Also of general applicability in the sales and use tax area, the General Assembly has, via H.B. 629, consolidated most of the sales and use tax definitional provisions in KRS Chapter 139, without material modification, from their own stand-alone statutes into one definitional statute, which is similar to the structure in other areas of Kentucky tax laws, the income tax laws of KRS Chapter 141 being the prime example. The provisions pertaining to the exemption for industrial machinery and the motion picture company refundable credit were also consolidated into one statute for each. This is significant in that it is a huge reshuffling of KRS Chapter 139 that changes numerous statutory references which have been in place for many years.
H.B. 629 also made two changes to the statutes which comprise the Uniform Sales and Use Tax Administration Act which was enacted as a part of the implementation of the Streamlined Sales and Use Tax Agreement (“SSUTA”) in Kentucky. It provides for a definition for a “taxability matrix,” a requirement of participation in the SSUTA. It also generally relieves a one-time purchaser from penalties and interest when the involved purchaser, seller or certified service provider has relied on information provided by the Department of Revenue.
The legislation also made a rather narrow change by providing for a definition of repair and replacement parts for durable medical equipment, which is excluded from the KRS 139.472 exemption.
In the income tax area, the significant changes were likewise relatively narrowly focused and confined to provisions regarding the apportionment of income. H.B. 258 generally provides that the receipts factor of the apportionment formula includes the overall net gain from treasury function transactions involving liquid assets. It also provides that a passenger airline computes the numerator of its property, payroll and receipts factor by multiplying the total of each by the revenue passenger miles ratio.
H.B. 2 provides for nonrefundable credits against the income tax or the limited liability tax for the purchase of certain energy-efficient products installed in buildings located in the Commonwealth, with item by item limits and a general limit of $1,000. It also provides for nonrefundable credits against the limited liability entity tax or the corporation income tax for the construction of an ENERGY STAR home built in the Commonwealth ($800) or sale of an ENERGY STAR manufactured home to be used as a principal place of residence in the Commonwealth ($400).