Stoll Keenon Ogden PLLC | Advertising Material

Stoll Keenon Ogden PLLC | Advertising Material

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

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;
  • Exempt from sales tax pharmaceuticals for food animals;

  • Lower the wholesale tax on beer, wine and distilled spirits;

  • Repeal the distilled spirits case sales tax;

  • Increase the tax rate on cigarettes to $1.00 and increase the tax rate on other tobacco products commensurate to the cigarette tax increase and tax e-cigarettes at 20% of value;

  • Broaden the sales tax to include selected services such as landscaping and janitorial services, warranty service contracts, industrial launderers and linen supply, security system services, pet care services, tanning salons, fitness and recreational centers, golf courses, country clubs, marina slip and storage rentals, and overnight trailer campgrounds; and

  • Apply sales tax and transient room taxes to online travel companies.

    The proposal would raise revenue for Kentucky’s General Fund of approximately $210M annually after full implementation.

    Electronic Filing

    The Kentucky Department of Revenue missed its “early February” estimate for when corporations required to file corporation income and limited liability entity tax returns in Kentucky (Form 720) would be able to do so electronically. The new estimated date is early March.