Greater Louisville Inc. The Metro Chamber of Commerce
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January 24, 2024 10:42am

New Report: Sales Tax and Kentucky’s Economic Competitiveness

Today the Tax Foundation released a report titled “Kentucky Sales Tax Modernization: Keeping the Sales Tax on Sales, Not Production”. Greater Louisville Inc. is proud to have sponsored this report along with the Kentucky Chamber of Commerce, Commerce Lexington Inc., and the Northern Kentucky Chamber of Commerce. The report focuses on recent improvements to the Kentucky tax code and offers guidance for increasing the state’s competitiveness.  

The report outlines the disadvantages that come along with taxing additional business inputs, like manufacturing and industrial supplies, when competing with other states. Taxing major new categories of business inputs would hinder the Commonwealth’s economic competitiveness by transforming the sales tax from a relatively competitive tax on consumption to an economically harmful tax on production. The report urges legislators to confine the impact of the sales tax to final consumption rather than taxing business purchases, resulting in tax pyramiding and higher prices for consumers.  

Some of the report’s key highlights include: 

  • An overview of sales tax principles, concepts, and definitions 
  • Analysis of how applying the sales tax to business purchases results in tax pyramiding and higher prices for consumers 
  • Study of recent sales tax changes in Kentucky and how Kentucky’s sales tax base compares to competitor states, including Indiana, Ohio, and Tennessee 
  • Discussion of how sales taxes on business purchases distort economic growth and affect decision-making for both U.S.-based companies and foreign firms looking to invest in a state like Kentucky 
  • An examination of efforts in other states to remove or limit business purchases in their sales tax bases 

GLI applauds the General Assembly for passing recent changes to the  tax code to make Kentucky a more competitive and business friendly state and hopes to continue this work during the current legislative session and beyond.  

Find the full Tax Foundation report here.