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General Assembly Considers Tax Bills

01.20.2009

The Kentucky General Assembly recently convened in Frankfort to begin the 2009 Regular Session. The Commonwealth’s revenue shortfall seems to dominate the short, 30-day legislative session, causing the General Assembly to be focused on legislation that will impact the state’s budget and economy. Accordingly, many of the bills to be considered by the General Assembly impact the taxes of the Commonwealth.

A bill that received media attention even before the 2009 Regular Session began is House Bill (“HB”) 68. HB 68 proposes to: increase the cigarette tax by 70 cents per pack, more than double the tax levied on smokeless tobacco products (from $0.095 per unit to $0.20 per unit), and impose a floor stock tax as of July 1, 2009. HB 123, which also relates to the cigarette surtax, proposes to increase the tax by 75 cents and levy a floor stock tax, with half of the money raised to be spent on health care and the other half to help fund public pensions.

Another notable bill is HB 51, which if passed, would significantly change Kentucky tax statutes by repealing the corporation income tax, individual income tax and limited liability entity tax effective January 1, 2010. In order to replace such revenue, HB 51 proposes to expand the sales and use tax base to include certain services (e.g., real estate services, repair and maintenance services, dry cleaning and laundry services, etc.) and rental of commercial real estate, repeal certain exemptions and lower the tax rate from 6 percent to 5 percent.

In an effort to provide relief for small businesses in a down economy and to stimulate employment, HB 26 would establish a small business tax credit to be applied to income tax and limited liability entity tax to assist new or existing small businesses in creating jobs. Other bills with tax implications include:

  • HB 166 – would increase the alcoholic beverages wholesale tax from 11 percent to 20 percent;
  • HB 86 – would provide a sales and use tax holiday for the first week in August each year to exempt clothing with a sales prices of less than $100 per item and school supplies;
  • HB 110 – would provide an exemption from individual income tax for all military pay, effective on or after January 1, 2009;
  • HB 36 – would provide a tax credit for live organ donation in the amount of the lesser of actual expenses or $10,000 and provide that state employees who donate a live organ are entitled to paid leave;
  • HB 111 – would provide an employer income tax credit for up to 50 percent of the cost of implementing an employee wellness program;
  • HB 40 and HB 31 – would provide income, limited liability entity and sales tax incentives for locating a film production facility or filming or producing a motion picture in Kentucky;
  • HB 10 – would create a community rehabilitation tax credit for the amount paid to a nonprofit agency or work center for work performed by legally blind or severely disabled individuals;
  • HB 162 – would provide a reduction in property tax on voluntary environmental remediation property used for agricultural production of energy feedstocks.

Other tax-related bills would, if enacted, make technical changes:

  • HB 3 – amends KRS 139.472 to exempt durable medical equipment from sales and use tax;
  • HB 121 – amends KRS 139.010 to define “direct mail” and exclude delivery charges from the definition of “gross receipts” and amends KRS 139.480 to exempt direct mail;
  • HB 171 – amends KRS 139.010 to exclude recreational vehicles from the definition of occasional sale;
  • HB 87 – amends KRS 67.750 to update the reference to the Internal Revenue Code to the code in effect on December 31, 2006, as amended.

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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