Bills to clean up and amend tax reform plan and state budget pass through House committee

A long-anticipated tax reform package clean-up bill was heard in the House Appropriations and Revenue Committee on Tuesday and passed almost unanimously, sending it to the full House.

After the General Assembly passed a tax reform bill in the 2018 session with some unintended consequences, legislators have been talking about the need for a cleanup bill over the last year.

House Bill 354, sponsored by House Appropriations and Revenue Committee Chair Steven Rudy, was presented and passed Tuesday with a committee substitute. The bill cleans up unintended consequences of the 2018 reforms, especially issues caused by the taxation of nonprofits.

Rep. Rudy explained the bill now expands the exemptions for admissions to all non-profit entities and raises the threshold for taxable income to $10,000 up from the current $1,000. This means if a non-profit entity raises more than $10,000 in a year on things that would normally be taxed, any penny over that $10,000 will be taxed.

Something that is not fixed in the bill is the issue of combined reporting of taxes for businesses.

Though the business community had advocated since the passage of the tax reform package last year for the repeal of the combined reporting provision, that language was not included in the committee substitute.

Another expansion in the clean-up bill impact online retailers as the legislation seeks to collect sales tax on online sales from anyone selling items online with more than 200 transactions per year, rather than only collecting from larger companies. The collection of sales taxes from online purchases comes after a U.S. Supreme Court decision which allowed state taxation of such transactions.

The bill includes many other provisions for smaller issues as well.

Rudy said the bill is considered to have a negative fiscal impact in the coming years due to reigning in some of the provisions and losing that tax revenue but he expects the online sales tax revenue should provide a net gain to the state in the out years.

Another bill, House Bill 268, also passed through the Tuesday evening that would add three additional pages to the state budget and make changes there.

Most importantly, Rudy said, the budget fix bill freezes the pension contribution rates for quasi-governmental agencies for another year to give them more time to figure out how to pay their growing pension bills. (Learn more about that issue here.)

The bill also contains language to allow $2.2 million in debt service to improve state parks, gives additional money to Kentucky State University to ensure they keep their land grant status, gives the University of Kentucky and University of Louisville help with advanced manufacturing and dementia programs, and more. House Bill 268 passed through committee unanimously but was not placed on consent.

Both of those bills now head to the full House for a vote on the floor.