March 29, 2022 3:10pm
General Assembly passes state tax reform bill
This post was updated on March 30, 2022 to reflect final passage of the House Bill 8.
The General Assembly passed an amended version of House Bill 8 to modernize Kentucky’s personal income tax on Tuesday. The original version, sponsored by House Appropriation and Revenue Chair Jason Petrie, lowered the state’s 5% personal income tax incrementally over a period of years until it was eliminated and included broadening the base by extending the sales tax or user fees to several services.
The Senate committee substitute adopted and ultimately passed by the General Assembly includes revenue triggers to lower the personal income tax but implements other safeguards for a more conservative approach. A 0.5% personal income tax reduction would require for actual revenue incurred that year to exceed expenses plus the dollar value of a 1% reduction income tax. Additionally, the amended version requires a 10% budget reserve trust fund to be established before lowering the income tax rate and requires that the General Assembly must have the opportunity to affirmatively vote on income tax reductions.
Financial services, travel agencies, and boat launch fees were removed from the list of services that would see an increase in sales tax or user fees. That list still includes the following services:
- Non-primary residential electric (primary residence would remain exempt)
- Taxi cabs, care rentals, or transportation services like Uber and Lyft
- Temporary rental services like AirBnB and VRBO
- Residential and nonresidential security systems
- Bodyguard and self-protection services
- Process servers
- Valet and parking services
- Entertainment venues and event space rentals
- Legislative and executive branch lobbying
- Cosmetic surgery procedures (non-medically necessary)
- Private mail services
- Executive employment recruitment services
- Unsolicited telemarketing services
- Public opinion research
Fees around electric vehicle charging, hybrid vehicle and electric vehicle fees were changed slightly and are projected to be implemented in 2024.
Also included in the amended version are changes to the Historic Tax Preservation program, which GLI has advocated for this session to encourage private investment. The provisions were originally included in House Bill 659 and include an increase in the individual project cap to $10 million and resolves a transferability provision that will allow corporations and banks to support preservation projects in their communities and across Kentucky.
House Bill 8 now returns to the House for concurrence.