February 1, 2014

Kentucky Governor Unveils Tax Reform Proposal and Electronic Filing for Corporations Delayed

Written By

By Erica Horn

Governor Reveals Tax Reform Proposal, but Waiting on “Legislative Consensus” before Introducing Legislation

Governor Steve Beshear made good on his promise in his State of the Commonwealth address to present a “tax modernization” proposal to the legislature. However, this “presentation” did not come by way of introduction of a bill, but through a general presentation to legislative leadership and then a PowerPoint presentation to the Appropriations and Revenue Committee of the House of Representatives.

The Governor’s Proposal, “Kentucky Competes”, features:

  • Slight reduction in corporation income tax rates from 6.0% to 5.9%;
  • Phase-in over a three-year period of single factor apportionment based solely on sales for corporation income tax;
  • Change of the existing cost-of-performance based formula for apportioning “sales” of services to destination sourcing;
  • Create an angel investor tax credit for certain investments in small businesses;
  • Expand the state’s research and development tax credit to human capital;
  • Exempt inventory from state property tax (merchant’s inventory, manufactured finished goods, and goods stored in warehouse);
  • Eliminate selected negligible state property taxes for tangible personal property;
  • Create an income tax credit for the bourbon industry the proceeds of which must be reinvested in facilities and equipment;
  • The amount charged for labor or services rendered in installing or applying the tangible personal property, digital property, or service sold;
  • Exempt from sales and use tax certain equine products;