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Kentucky Legislature Seriously Considering a Sales Tax on Services and Elimination of Income Tax

01.21.2010

The Kentucky General Assembly convened its 2010 Regular Session on January 5, 2010. Two bills proposing legislation which would impose sales tax on certain services were filed well before then however.

Representative Farmer sponsors House Bill 78 (“H.B. 78”), which proposes to expand the sales tax to nearly all services (including professional services), rental of commercial real estate, and the sale, rental, or lease of shelf space or other area to display a product. H.B. 78 would also materially change long-standing sales tax benefits, modify the manufacturing exemption and repeal exemptions for new and expanded industry and sale of sewer services, water and fuel to Kentucky residents for use in heating, cooking and lighting, among others. Finally, H.B. 78 would lower the sales and use tax rate from six percent (6%) to five and one-half percent (5.5%), and eliminate the corporation and individual income tax as well as the limited liability entity tax for taxable years beginning after January 1, 2011.

Representative Wayne sponsors House Bill 13 (“H.B. 13”), which would impose a sales tax on select services including janitorial, security, landscaping, garment alteration and pest-control services. H.B. 13 also proposes to increase the individual income tax rates for persons making more than $75,000 per year and to establish a refundable Earned Income Tax Credit at fifteen percent (15%) of the amount of the federal credit for same. The Bill would also decouple the estate tax from the federal law.

On January 13, 2010, University of Kentucky’s Martin School of Public Policy & Administration hosted a symposium on “An Economic Perspective on Kentucky Tax Structure, ”wherein H.B. 13 and H.B. 78, and several other tax policy topics were discussed. This Symposium was attended by multiple General Assembly members and the public, and included remarks by Senate President David Williams and House Appropriations and Revenue Committee Chair Rick Rand.

Following the Symposium, on January 14, 2010, House Speaker Greg Stumbo announced through a press conference that he favors reducing Kentucky’s sales tax rate to five percent (5%) and eliminating the corporate income tax. Stumbo stated that his proposal would make up this revenue by eliminating tax exemptions and ensuring “residents and businesses are paying their fair share.”

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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