A publication of the Kentucky Center for Public Service Journalism

Here’s how the tax picture has changed for you as new state tax laws are now in effect

By Tom Latek
Kentucky Today

Changes to Kentucky’s sales tax laws mean residents will be paying tax on some services for the first time, as well as a higher cigarette tax. These changes became effective July 1.

House Bill 487, effective July 1, brings sales tax to several service items and also taxes cigarettes at 50 cents more per pack. (Photo by Tom Latek,Kentucky Today)

House Bill 487, enacted by the 2018 General Assembly, adds a six percent sales tax on the following services:

• Extended warranty services
• Facility/event admission fees
• Indoor tanning services
• Labor charges for installation or repair of tangible person property, digital property or services sold
• Landscape services
• Limousine services
• Laundry and dry cleaning
• Non-medical diet and weight-reducing services
• Pet care services
• Campground rental
• Veterinary services for dogs and cats, but not for equine, cattle, swine, sheep, goats, llamas, alpacas, ratite birds, buffalo, and cervids (such as deer).

Pamela Trautner, spokesperson for the Kentucky Finance and Administration Cabinet, said “Nothing in HB 487 changes the status of sales of tangible person property at retail by governmental entities or any non-profits, as they were already subject to sales tax.”

But there are exceptions: “The sale of licenses by state and local government entities are not taxable as admissions,” she said. “That includes driver’s, hunting and fishing licenses, occupational licenses and alcohol licenses. None of these are taxable.”

There are also some new or increased “sin taxes.”

The bill includes a 50 cents per pack cigarette tax increase, effective July 1. In addition, a cigarette inventory floor stocks tax of 50 cents was enacted bringing the total tax per pack to $1.10. All cigarette licensees and retailers of cigarettes must take a physical inventory as of June 30 at 11:59 p.m. and file and pay the inventory floor stocks tax.

A change to the alcoholic beverage statutes requires microbrewers to report and pay state excise taxes directly to the Department of Revenue.

There have been numerous changes to income tax deductions. Home mortgage interest and charitable contributions are still allowable for those who file itemized returns, but most others have been eliminated, including premiums paid for health care or long-term care insurance.

The previous tax brackets based on income have been eliminated and replaced with a flat five percent tax rate.

Other changes include:

• The itemized deduction dollar limit cap was eliminated

•Investment income earned on a STABLE account is no longer taxed

• The pension exclusion decreased from $41,110 to $31,110. You are still entitled to exclude more than $31,110 if you are retired from the federal government, the Commonwealth of Kentucky, or a Kentucky local government and a portion of your pension income is attributable to federal or Kentucky government service performed prior to January 1, 1998.

• $10 personal tax credit for taxpayers and dependent was eliminated, however personal tax credits for those over age 65, blind, and National Guard members were maintained

Trautner said the Department of Revenue has been busy notifying everyone involved of the impending changes.

“DOR has met with the Kentucky Retail Federation, Kentucky Society of CPAs and other groups to disseminate the information to their members. They made a presentation to the Kentucky Chamber of Commerce Summit on Tax Reform, sent out thousands of letters to business entities alerting them to the changes, been on radio call-in shows and will participate in a call-in show on KET, July 9.”

According to Deputy State Budget Director Greg Harkenrider, the changes are expected to generate an additional $192 million in revenue to the state next year.

Another change to the tax system will result from a recent U.S. Supreme Court decision to allow states to collect sales tax on out-of-state purchases made from a catalog or online.

While the U.S. Government Accounting Office estimates Kentucky could see an additional $90 to $140 million in revenue, Harkenrider said, that was “a little on the high side.” An exact figure cannot be calculated until out of state businesses enroll in the collection system, Harkenrider said.

The taxes may be collected from out of state firms that have either 200 transactions or $100,000 in annual sales in Kentucky. Harkenrider said legislation passed by the 2018 General Assembly in anticipation of the high court decision mirrors the South Dakota law upheld by the justices.

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