House overwhelmingly passes fixes to tax reform package and budget, move bills to Senate

On Thursday, the state House passed two bills making changes to the state’s tax reform package and two-year state budget passed in 2018.

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, cleans up those 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 repealing the mandatory combined reporting provision for businesses.

The clean-up bill also impacts 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 bill includes many other provisions for smaller issues as well.

Because of these changes, Rep. Rudy said in committee the bill results in a negative budget impact over the next two years but expects more revenue in the outyears due to the changes to online sales tax.

House Bill 354 passed the House with a 96-4 vote.

The House also passed House Bill 268 that would add three additional pages to the state budget and make changes there.

The bill was amended on the House floor with an amendment by Rep. Rudy that states the funding for the changes in the bill would come from either the Budget Reserve Trust Fund or the General Fund surplus account and also specifies areas where funding for state parks will be spent.

A key aspect of 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 the House with a 93-6 vote.

Both bills now move to the state Senate to be heard in committee.