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Kentucky 2015 Legislative Summary and Update – Could Unitary Reporting or Local Sales Taxes Be Enacted?


The Kentucky General Assembly’s 2015 legislative session began on January 6, 2015 and will run through March. Legislators have introduced several significant tax bills.

Local Option Sales Tax: The local option sales tax bill has been a hot topic in Kentucky. HB 1 (BR 107) would amend the state constitution to give local governments the power to enact a local sales and use tax for specific projects. The tax would apply to the same base as the state sales and use tax and would phase out after the project’s completion. The House passed House Bill 1 on February 12, 2015, and it now moves to the Senate. This bill has some momentum. Is it enough to get enacted?

Combined Reporting and Throwback: HB 374 (BR 1104) would amend KRS 141.200 to require unitary combined reporting on corporate income tax returns. It also creates a throwback rule for Kentucky for income not taxed in other jurisdictions. The bill also disallows tax haven transactions and implements a Kentucky earned income tax credit. In recent years the General Assembly has rejected unitary reporting. Has the atmosphere changed?

Limited Liability Entity Tax (LLET) “Fix” Bill: HB 331 (BR 1114) would amend and simplify the cost of goods sold (COGS) definition for purposes of computing the LLET using the gross profits method. House Bill 331 would clearly define COGS to include any costs allowed by the Internal Revenue Code. This bill is scaled down from last year’s bill. Big problem – can the General Assembly enact a solution?

Taxpayer Rights Enhancement Act: HB 361 (BR 831) is a comprehensive taxpayer rights bill. It would formally define “taxpayer representative” to include accountants, attorneys, tax practitioners or other persons designated in writing by the taxpayer to represent them before the Department. The bill would also formalize the Kentucky tax education and information program. In addition, the bill would require all determinations from the Department of Revenue to be issued within 6 months and would require the Department to create and provide workpapers for every audit. The bill also places mandates that an assessment must be voided if the Department does not respond to taxpayers within certain amounts of time. The bill also requires the Department to abate penalties and interest if they accrued for unreasonable delay on behalf of the Department. It also requires the Department to post on its website all training manuals, determinations, final rulings, and any other writings indicating the Department’s position on tax matters. The bill addresses several more pro-taxpayer issues. Is now the time for these great ideas?

Clean-up Bill: Nearly every session there is a “clean-up” bill like HB 299 (BR 1165) that amends various tax provisions to change procedures and “clarify” certain provisions. Watch this bill.

Other tax bills include:

KBI Sales Tax Incentives: HB 356 (BR 863) amends the Kentucky Business Investment economic incentive program to provide new sales and use tax incentives for approved companies who begin an economic development project in certain counties. The bill outlines all the procedures for companies to be approved and to apply to the Department of Revenue for sales and use tax refunds on their projects.

Estimated Income Taxes: HB 339 (BR 832) would, among other things, amend the calculation of the estimated tax penalty to track the federal estimated tax penalty calculation. It would also allow taxpayers with seasonably variable income during the year to annualize their income. The bill also clarifies that no interest is due on estimated tax penalties.

No Government Business for Delinquents: HB 77 (BR 266) would forbid state and local governments from obtaining goods and services from delinquent taxpayers.

Sales Tax on Political Ads: HB 307 (BR 1054) would impose the sales tax on political campaign advertising, whether print, television, or other media.

Military Vehicle Tax Exemption: HB 378 (BR 1681) would exempt from motor vehicle usage tax any motor vehicle purchased by a member of the military on active duty in Kentucky if he or she purchases the vehicle from a Kentucky dealer.

First Time Homebuyer Deduction: HB 389 (BR 1119) would create a first-time homebuyer deduction for interest paid on a mortgage on a qualified residence.

Dental Prosthetic Sales Tax Exemption: HB 391 (BR 1636) would create a sales and use tax exemption for dental prosthetics.

Economic Incentives for Restaurants and Hotels: HB 453 (BR 1620) would allow hotels and restaurants to recoup amounts spent on renovations or improvements by refunding incremental sales tax revenues from the improved facility. There would be a maximum refund of 20% spent on the project.

Sales and Use Tax Exemption for Restaurants: HB 454 (BR 1621) would exempt a portion of sales and use tax on electricity, natural and artificial gas, propane, and water purchased by Kentucky restaurants.

Local Property Tax Exemption for Data Centers: HB 466 (BR 1614) would exempt from local property tax data centers by classifying them as manufacturing establishments to attract them to cities within the Commonwealth.

Earned Income Tax Credit: SB 183 (BR 282) would establish a refundable earned income tax credit.

To view a complete PDF of Feb. 27, 2015 SALT Law Letter, please click here.

To learn more about Mark A. Loyd and his practice, please visit his profile.

To learn more about Bailey Roese and her practice, please visit her profile.


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