Tax commission releases report

Revenues could rise by an additional $659 million annually under a set of recommended changes to how Kentucky employers and citizens are taxed. These recommendations were sent to Gov. Steve Beshear on Monday by the 16-member Blue Ribbon Commission on Tax Reform. The commission, chaired by Lt. Gov. Jerry Abramson, held 15 public meetings, including one each in each congressional district, with the intent of conducting an extensive review of Kentucky’s tax code and providing the governor with a set of recommendations to create a more competitive, equitable and adequate tax code.

Business taxes

For businesses, the top corporate tax rate would be lowered from 6.0 to 5.8 percent. Small businesses could see an increase in their taxes based on a recommendation by the Commission to lower the Limited Liability tax exemption from $3 million to $1 million. This will broaden the base by requiring approximately $14 million more from small companies with between $1 million and $3 million in gross revenues.

To help encourage job creation and investments in the Commonwealth, the Kentucky Chamber urged the commission to adopt single factor apportionment based on sales, rather than the current three-factor formula of sales, property and payroll for determining taxes. Also included is a recommendation to include an angel investment tax credit to help create investment in small business start-up companies.

Income taxes

Under the proposed recommendations, individuals who earn over $8,000 per year would see a slight reduction in their individual income taxes. The retiree income tax exemption, which is currently at $41,100, would be lowered to $30,000 annually. For the working poor, the recommendations propose the state create an earned income tax credit (EITC) at 15% of the federal EITC. One of the most significant proposals for individuals is a limit of $17,500 in itemized deductions including charitable contributions, necessary medical expenses and home mortgage interest.

Utility taxes

Kentucky’s residents and businesses would also pay more on their monthly utility bills based on a recommendation to place a one percent gross receipts tax on all residential and business utility bills with the proceeds dedicated to the SEEK formula, which is the day-to-day funding of Kentucky’s education system. This proposal would raise over $100 million annually for education, but hit Kentucky’s energy intensive industries like auto manufacturers and aluminum industries significantly. A recommendation to expand Kentucky’s current 6% sales tax to certain household “luxury” services, such as country club memberships is also included in the report. 

Tax relief for signature industries

Two of Kentucky’s signature industries could see some tax relief under the recommendations. Kentucky’s distillery industry would benefit from a repeal of the distilled spirits case sales tax, and most importantly a recommendation to create an income tax credit for the bourbon industry to offset the property tax on stored barrels of bourbon. Kentucky’s horse industry could benefit under a recommendation to exempt the sales and use tax on certain equine products such as hay, feed, grooming supplies and fertilizer.

Tobacco tax

For health advocates, the commission recommended raising Kentucky’s cigarette tax from 60 cents per pack to $1 per pack. 

To view the full set of recommendations and all presentations to the commission, click here.

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