Kentucky House Bill 8 (HB 8) was enacted on April 14, 2022, after the Kentucky Legislature overrode Gov. Andy Beshear’s veto. HB 8 makes several changes to the Kentucky tax code, including updating conformity to the Internal Revenue Code (IRC), implementing conditional reductions in the individual income tax rate, expanding the sales/use tax base, establishing a tax amnesty program, and adopting a new tax incentive for remediating certain contaminated properties.
HB 8 updates Kentucky’s IRC conformity to December 31, 2021. However, Kentucky decoupled from the federal income tax treatment of restaurant revitalization grants as proved in the American Rescue Plan Act of 2021. HB 8 reduces the individual income tax rate from the current Kentucky individual income tax rate of 5 percent to 4.5 percent starting January 1, 2023, if certain conditions are met.
Most notably, beginning January 1, 2023, Kentucky will impose sales and use tax on the services listed below. However, HB 8 does not define several of these services so the Kentucky Department of Revenue (Department) will have to issue guidance on the treatment.
- Photography and photo finishing
- Public opinion and research polling
- Executive employee recruitment
- Website design and development
- Website hosting
- Facsimile transmission
- Private mailbox rentals and private mailroom services, including presorting mail and packages by postal code, address barcoding, mail tracking, and delivery
- Residential and nonresidential security system monitoring
- Private investigation
- Process serving
- Repossession of tangible personal property
- Personal background checking
- Parking, including valet services and the use of parking lots and parking structures (except for parking services at an educational institution)
- Road and travel services provided by automobile clubs
- Condominium time-share exchanges
- Renting space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties, and other short-term social events
- Social event planning and coordination
- Leisure, recreational, and athletic instructional services
- Recreational camp tuition and fees
- Personal fitness training
- Massage, except when medically necessary
- Cosmetic surgery
- Body modification, including tattooing, piercing, scarification, branding, tongue splitting, transdermal and subdermal implants, ear pointing, teeth pointing, and any other modifications that are not necessary for medical or dental health
- Testing (except for medical, educational, or veterinary reasons)
- Interior decorating and design
- Household moving
- Specialized design services, including the design of clothing, costumes, fashion, furs, jewelry, shoes, textiles, and lighting
- Lapidary services, including cutting, polishing, and engraving precious stones
- Labor and services to repair or maintain commercial refrigeration equipment and systems when no tangible personal property is sold in that transaction, including service calls and trip charges
- Labor to repair or alter apparel, footwear, watches, or jewelry when no tangible personal property is sold in that transaction
- Prewritten computer software access
In general, Kentucky sources sales of taxable services on a destination basis, similar to retail sales of tangible personal property.
HB 8 establishes a 60-day tax amnesty program for all taxes administered by the Department with the exception of certain real estate taxes and property taxes on motorboats and motor vehicles. The program would run from October 1, 2022, through November 29, 2022. HB 8 would allow the Department to issue a request for proposal for outside service providers to administer the amnesty program.
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