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Bill Seeks to Repeal and Reenact House Bill 704


The Kentucky Department of Revenue (“Department”) has proposed legislation to repeal and reenact House Bill (“H.B.”) 704, which, inter alia, changed the interest rate structure for tax refunds and assessments. H.B. 216, which is currently being considered by the General Assembly, seeks to repeal and reenact certain H.B. 704 provisions, including KRS 131.183.

In accordance with amendments made by H.B. 704 on May 1, 2008, the Department set the interest rate charged by the Commonwealth on tax assessments at prime plus 2% (now, 9%) and on refunds at prime minus 2% (now, 5%). Before H.B. 704, the rates for assessments and overpayments were the same (then, 8%) but now, after H.B. 704, there is a four percentage point spread to the detriment of the taxpayers.

H.B. 704 also made the accrual of interest begin after the latest of: a tax return’s original due date, extended due date, actual filing date, date of payment, or an amended return filing date, which results in a retroactive loss of interest to taxpayers with outstanding refund claims. Since April 24, 2008, the effective date of H.B. 704, the Department has been administering interest on taxes as if the H.B. 704 amendments were valid.

H.B. 704 was delivered to the Governor for signature on April 16, 2008, after the General Assembly was adjourned as a matter of law on April 15, 2008. A recent court ruling, Williams v. Greyson, Civil Action No. 08-CI-856 (Franklin Cir. Ct. Div. I, Jan. 21, 2009), held that “[p]resentment to the Governor is a legislative action, and […] it must be completed before adjournment because the legislature has no power to act or to force its subordinate officers to comply with their mandatory duties after adjournment.” H.B. 216 appears to have been proposed to repeal and reenact the provisions contained in H.B. 704 in response to this ruling.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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