Kentucky Tax Reform 

By Brian D. Myers
| 5/3/2018
Kentucky Tax Reform

The bill expands the application of sales and use tax to several previously exempt services including:

  • Labor and services for certain repair, installation, and maintenance of tangible personal property unless the property is directly used in manufacturing or industrial processing and the labor charges are separately stated on the invoice
  • Landscaping services
  • Janitorial services
  • Pet care services
  • Industrial laundry services
  • Dry cleaning and non-coin-operated laundry services 
  • Pet grooming and boarding services
  • Linen supply
  • Limousine services
  • Nonmedical diet and weight reducing services
  • Indoor skin tanning services
  • Small-animal vet services
  • Extended warranty services

The bill also imposes sales tax on certain admissions, including but not limited to:

  • Bowling centers
  • Skating rinks
  • Health spas
  • Swimming pools
  • Tennis courts
  • Weight training facilities
  • Fitness and recreational sports centers
  • Golf courses

In addition, the bill enacts two changes effective for transactions occurring on or after July 1, 2018:

  • Establishment of an economic presence nexus threshold by amending the definition of a retailer engaged in business in the state to include any remote retailer if 1) the remote retailer sold property to Kentucky customers in 200 or more separate transactions in the previous or current calendar year, or 2) the remote retailer’s gross receipts derived from the sale of property to Kentucky customers exceed $100,000
  • Elimination of the sales tax benefits of using a toll processing arrangement to minimize sales tax on energy used in manufacturing or industrial processing

Administrative Provisions

Finally, the bill enacts important administrative changes:

  • Extends from 45 to 60 days the period for taxpayers to protest a tax assessment
  • Extends from 30 to 180 days the timeline for reporting federal tax changes to the Department of Revenue
  • Eliminates the pay-to-play bond requirement for a tax case to appeal to the circuit court
  • Prohibits the state from contracting with third parties to collect taxes on a contingency basis

The bill also contains several miscellaneous provisions, the most notable of which phases out property tax on inventory by 25 percent over the next four years.

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