Kentucky lawmakers continued to focus on tax-related legislature Friday, when a major proposal on tax reform was announced in the House. House Bill 8 seeks to incrementally lower the state’s 5% income tax over a number of years until it is eliminated. However, before most of the reductions can take effect, the state must meet revenue targets based on expansion of the tax base.
According to a release from the Kentucky House, the tax rate would take years to eliminate altogether. The first decrease would reduce the income tax rate an entire percentage point to 4% on January 1, 2023, “leaving an estimated $1 billion in taxpayer pockets to be invested and spent in local communities,” according to the release.
HB was filed by House Appropriations and Revenue Chair Jason Petrie. He said that HB 8 requires the state to meet additional revenue targets before additional rate reductions can occur.
The thresholds are based primarily on organic increases in state revenues together with an expansion of the base of items subject to sales tax. Lawmakers used conservative revenue forecasts based on the work of the Consensus Forecasting Group (CFG) and available sales tax data to predict future state revenues.
Provisions of HB 8 are aimed at broadening the tax base to include extending the sales tax or a user fee to the following services as well as others listed in the bill:
- Non-Primary Residential Electric (primary residences would remain exempt)
- Taxi cabs, car rentals, or transportation services like Uber and Lyft
- Temporary Rental Services (AirBnB, VRBO)
- Advertising, Marketing, and Graphic Design Services
- Residential and Nonresidential Security Systems
- Bodyguard and Self-Protection Services
- Process Servers
- Valet and Parking Services
- Pleasure Watercraft Docking
- Entertainment Venues and Event Space Rentals
- Legislative and Executive Branch Lobbying
- Cosmetic Surgery Procedures (non-medically necessary)
- Personal Financial Planning
- Private Mail Services
- Road and Travel Services
- Executive Employee Recruitment Services
- Unsolicited Telemarketing Services
- Public Opinion Research
The measure also implements a battery reclamation fee on electric and hybrid motor vehicles and a tax on the use of fee-for-service charging stations. Revenue raised through these mechanisms would be earmarked for the state road fund and general fund.
HB 8 includes no reduction in the corporate income tax or the limited liability entity tax (LLET), nor does it include a rumored expansion of the sales tax to traditionally non-taxed items like groceries and medication.
Petries said the goal is to let people keep more of their money rather than collecting it for the government.
“Population growth is a necessary component of long-term growth in Kentucky and is affected substantially by our tax structure,” Petrie said. “It is also critical that we get more individuals into the workforce. We cannot continue to build our economy when more than 40 percent of those who should be working are not. HB 8 incentivizes both by allowing more of the fruits of their labor to remain in their pockets.”
HB 8 followed other legislation that centered around Kentucky taxes this week.
On Thursday, the Senate unveiled a tax rebate plan designed to help Kentuckians cope with economic inflation. The measure — Senate Bill 194 — would provide individual taxpayers with a one-time rebate of up to $500 this year, with a maximum of $1,000 per household.
On Wednesday, House Bill 475 passed a vote on the floor. It proposes a constitutional amendment that could set the stage for new types of taxes at the local level. But even if the measure clears the Senate, Kentucky voters would still need to approve the amendment in a referendum before it could take effect.
