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General Assembly Enacts Controversial Sales & Use Tax Legislation

03.25.2009

With three days left in the Kentucky General Assembly’s 2009 Regular Session, Governor Steve Beshear has signed several tax-related bills enacted by the Kentucky General Assembly. Three of these bills – H.B. 347, H.B. 429, and H.B. 216 – amend Kentucky’s sales and use tax scheme and include a few of what could be characterized as somewhat controversial provisions.

The title of H.B. 347 discloses that it relates to the Streamlined Sales and Use Tax Agreement (“SSUTA”). Kentucky is a signatory to the SSUTA and a full member of the Streamlined Sales Tax Governing Board, which oversees SSUTA.

By way of background, in December 2008, the Board’s Compliance Review and Interpretation Committee (“CRIC”) determined that Kentucky was not in compliance with the SSUTA as it relates to the application of Kentucky sales and use tax to hospital beds. The Kentucky Department of Revenue (“Department”) represented to the Board that it would seek a legislative fix to bring Kentucky back into compliance with the SSUTA. In this regard, only one section of H.B. 347 pertains to the taxation of hospital beds. The remaining twenty-plus sections define digital property and impose sales and use tax thereon.

To this effect, H.B. 347 adds definitions for digital audio-visual works, digital audio works, digital books, digital code, and digital property. “Purchase” and “sale,” as defined under KRS 139.010, are both amended to include property transferred electronically. The definition of “retailer” is amended to include persons engaged in the business of making retail sales of tangible personal property, services included in KRS 139.200, and digital property.

H.B. 347 amends KRS 139.200 to include sales of digital property delivered electronically as a sale subject to sales and use tax. It also amends KRS 139.105 to provide that such sales are sourced to the “place of primary use” which means the street address where the end user receives the digital property or primarily accesses the digital property.

Unrelated to digital property in particular, the definition of “retail sale” has also been amended to remove the provision that such sales are made “in the regular course of business….” The reason for this change is not readily apparent.

H.B. 429 repeals and reenacts KRS 139.570 to cap vendor compensation for sales and use tax collection costs at $1,500 per month. This Bill purports to affirm and make retroactive amendments made to KRS 139.570 by 2008 H.B. 538.

H.B. 216 excludes any person making sales at a charitable auction for a “qualifying entity” from the definition of retailer and thus, excludes such sales from sales tax. And, it defines “qualifying entity” as a resident school, church, civic club, or other nonprofit charitable, religious, or educational organization.

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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