Lawmakers begin discussions about billions in untapped revenue because of tax exemptions

In the House Appropriations and Revenue Committee on Tuesday, legislators began the discussion about how to tackle the issue of tax exemptions as billions of dollars in revenue is not collected each year because of these exemptions.

Kentucky generates around $10 billion in tax revenue per year, half of the potential tax revenue as it is projected the state could see close to $20 billion per year if everything that could be taxed was taxed.

When tax exemptions are discussed, it is often stated the state is missing out on billions in revenue because of tax loopholes for industries in the state. However, it was noted that the three largest exemptions in the state come from Kentucky not taxing groceries, pharmaceuticals, or residential utilities.

House Appropriations and Revenue Chair Steven Rudy pointed to those big three items as exemptions, among others, that benefit all Kentuckians and no legislator would want to bring to the table to be taxed. He also noted the General Assembly began the process of reforming Kentucky’s tax code during the 2018 session and emphasized it is critical to continue this work by looking at tax exemptions as well as the needs of local communities and other impacts of tax reform.

Rep. Jason Petrie, sponsor of tax exemption legislation House Bill 402, which was heard for discussion only on Tuesday, stated after he filed the legislation with the intent of addressing some exemptions that would be considered as zero impact, it became clear that the issue of tax exemptions is far more complex than many realize and is an issue that must be tackled, but needs more research and time.

Petrie also stated through his work on this issue, he saw much of the data the state on which the state is operating, is out of date and not trustworthy.

For these reasons, Rep. Petrie stated his legislation would not move this session but hopes to see action on House Bill 292, which would establish the Tax Expenditure Oversight Board, which would be required to produce a detailed estimate of the revenue lost from each tax expenditure from the General Fund and Road Fund each year.

Legislators from both sides of the aisle commended the issue being brought to the forefront and indicated a readiness to tackle it in order to ensure Kentucky is as competitive and helpful to its citizens as possible.

Rep. Myron Dossett of Pembroke, Kentucky on the Tennessee border, stated his area has to watch the continuous growth Tennessee is experiencing, which stops at the border because of issues like this and the state’s pension crisis. Dossett said it is critical to tackle this issue in order to attract businesses and people to Kentucky which will in turn grow the tax base and help with many other issues facing the state.

Moving forward, Petrie said all exemptions, including not taxing groceries, exemptions for businesses, and all others need to be put on the table and examined heavily so the state can figure out which exemptions are justifiable and which are not. He stated this will be a long process and won’t be solved this year or even in the coming years but added Rep. Tipton’s bill creating an oversight board is a critical step to begin this process.