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House Working Group Releases "Tax Reform" Proposal

02.03.2010

The Kentucky General Assembly convened its 2010 Regular Session on January 5, 2010. With the Commonwealth struggling to bounce back from the down economy, what is casually being referred to as “tax reform” has been front and center on the General Assembly’s agenda.

A House of Representatives “Working Group” examining various tax reform options has received lots of attention in Frankfort.  The group caused quite a buzz when it released the “Working Group Tax Plan.”  The proposal provides insight into the thought process surrounding what Kentucky “tax reform” might look like.  It includes a significant expansion of the sales tax to virtually all services, a repeal of numerous sales tax exemptions and a reduction of certain corporate taxes.

Services proposed to be taxed include, among others:

  • Marketing research and public opinion polling
  • Accounting, tax preparation, bookkeeping and payroll services
  • Legal services
  • Advertising and related services
  • Offices of real estate agents and brokers
  • Activities related to real estate
  • Lessors of nonresidential buildings
  • Dry-cleaning and laundry services
  • Repair and maintenance
  • Investigation and security services
  • Telephone call centers

Sales tax exemptions to be eliminated include, among others:

  • Machinery for new and expanded industry
  • Energy and energy producing fuels
  • Occasional sales
  • Pollution control facilities
  • Industrial supplies

The Tax Plan estimates that if enacted it could result in a net effect of $858.7 million in new tax receipts in fiscal year 2011 and $958.5 million in fiscal year 2012.  The Tax Plan states that “it is highly unlikely that the proposal will be voted on during the 2010 regular session” but that the “current thinking is that it will surface in a Special Session after the fall elections.”

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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