Revenue measure includes several changes to taxes for businesses in Kentucky

Lawmakers passed a negotiated revenue measure the final night before the start of the veto recess in Kentucky’s 2024 legislative session. The legislation – House Bill 8 – contained several provisions that impact state business taxes.

Passing a revenue measure is routine in Kentucky’s legislative sessions, though the past several years have seen major reform packages passed, including landmark legislation to phaseout the state’s individual income tax. The 2024 revenue measure included more modest and mostly technical changes to the state’s tax code. However, there are several measures relevant to the business community.

Some of the key changes impacting the broader business community include:

• New reporting requirements for the Department of Revenue. Each year, the Department will be required to produce a report outlining tax law changes and plans for implementation. In addition, the Department will now be required to publicize its “administrative writings.” This includes final rulings, presentations, technical advice memoranda, private letter rulings, and more. This language in the bill was previously proposed by House Bill 122.
• Increase to the sales and use tax filing threshold for certain services. Current Kentucky law dictates that a person providing certain taxable services whose gross receipts fall below $6,000 in a calendar year does not have to collect and remit sales and use taxes. House Bill 8 raises that threshold to $12,000, which will positively affect very small businesses and casual service providers. Impacted services include landscaping, pet care, photography, website design, executive employee recruitment services, and more. These services are outlined in KRS 139.200.
• Tax credit for broadband investments. The bill creates a new income tax credit for sales and use taxes paid on equipment for qualified broadband investments. A total of $5 million in credits will be made available each year.
• Update to Kentucky’s Internal Revenue Code reference date. The foundation for Kentucky taxpayers to calculate their income that is subject to state income taxes is the Internal Revenue Code. Because the Internal Revenue Code frequently changes, states often update their reference date. Kentucky has made a habit in recent years of updating its reference date, which helps simplify compliance for taxpayers. House Bill 8 updates Kentucky’s Internal Revenue Code reference date to December 31, 2023.
• Clarification to Kentucky’s income tax reduction formula. House Bill 8 clarifies that appropriations from the Budget Reserve Trust Fund are not considered general fund appropriations for the state’s income tax reduction formula. This formula was established through legislation in 2022 and ties reductions to the state individual income tax to meeting certain savings and revenue growth and spending benchmarks.
• New tax amnesty program. Previous legislation had established a tax amnesty program to be held in October 2022. That program did not occur, however. House Bill 8 calls for another tax amnesty program to begin on October 1, 2024, and to last through November 29, 2024. The bill includes language allowing the Department of Revenue to delay the program until 2025.
• New analysis of tax expenditures. The bill requires the Office of State Budget Director to produce a list of 40 tax expenditures that it recommends for immediate and future sunsetting. The report will include a description of the expenditures, the estimated fiscal impacts of sunsetting them, and specific taxpayers impacted by the expenditures and their sunsetting. The Office of State Budget Director already produces annual estimates of state tax expenditures. This new report will be different in that it recommends expenditures for sunsetting and will reference specific taxpayers.     

The bill includes several other tax changes, including modifications to how parimutuel tax revenues are allocated, a new sales tax exemption for “currency or bullion,” and modifications to inheritance taxes.

The full legislative text can be read here along with previous versions of the bill. Both the House and Senate had passed their own versions of House Bill 8. The final version was the result of negotiations between the two chambers. Lawmakers may make additional tax changes when they reconvene on April 12 for the final two days of session.