Changes to the budget and tax reform package introduced Saturday morning

After the overrides of the governor’s vetoes on the budget and revenue bills on Friday, changes to the tax reform plan and budget to fix some provisions in the original bills were introduced on Saturday morning.

Because the General Assembly is now outside the veto period, the changes made by the legislature Saturday could be vetoed by the governor without the ability for them to override.

TAX REFORM FIX– The Senate Appropriations and Revenue Committee passed House Bill 487 with a committee substitute containing language with provisions to make additional changes to Kentucky’s tax code that will be coupled with the tax reforms made in House Bill 366, the revenue bill that will go into law after the House and Senate voted to override the governor’s veto on Friday.

Changes to the tax code included in the legislation mainly pertain to clean up language including definitions on items such as a part-time resident of the state and the meaning of a state, which they define as one of the other 49 states and excluding Spain, which Senate A&R Chair Chris McDaniel joked one wouldn’t think that would be necessary to clarify but it is required to clean up these types of items.

The amended version of House Bill 487 also makes changes that will help one of the state’s biggest industries, manufacturing. The legislation defines the term manufacturing labor as the original plan expands the sales tax to repair labors but could have adversely impacted the manufacturing process as written. The bill also retains tax incentives previously repealed including the Kentucky Jobs Retention Act tax incentives and requires some additional reporting on several tax incentive programs.

In regards to conforming with the new changes to the federal tax code, the new bill will decouple Kentucky’s tax code from federal tax reform provisions related to the 20% deduction for pass-through income.

Cable and internet providers, like AT&T, will not be placed under the single sales factor formula as it could have adversely impacted them. They will continue under the three-factor formula.

There are some other changes made to how taxes are reported for businesses including requirements that businesses with $1 million or more in gross receipts per year and businesses with a certain number of employees will have to report electronically as well as providing for combined returns for certain businesses.

Other language tweaks in the bill deal with the phase-out of the inventory tax and make changes to some of the state’s tax incentives, including the angel investor tax credit which will be suspended and then reinstated after two years with a cap on the amount to be awarded.

The amended version of House Bill 487 passed through the Senate Appropriations and Revenue Committee Monday morning and will now be sent to the Senate floor for a vote before heading to the House.

BUDGET FIX– The Senate Appropriations and Revenue Committee passed House Bill 265 with a committee substitute containing language with provisions to correct some oversights made when crafting the budget.

It mainly pertains to the coal severance money in the budget that is distributed to counties, including moving $7 million previously in the Coal Endowment Fund to school districts adversely impacted by the downturn of coal mining in those regions.

The bill also addresses the impact on quasi-governmental agencies, including mental health departments and others. The new language states if an agency is currently eligible to opt-out of the Kentucky Retirement System (KRS), their current rate will be frozen for one year and the language directs KRS to look at a long-term solution for agencies exit the system.

Other small changes were also made to the budget in the committee substitute that passed out of the Senate Appropriations and Revenue Committee Saturday morning with 12 yes votes and 2 pass votes before moving to the Senate floor for a vote.