By: Clifton B. Clark
The Kentucky General Assembly recently voted to override Governor Andy Beshear’s veto of House Bill 8 (HB 8) which expands the scope of services subject to the Kentucky sales and use tax to a broad range of additional services provided to businesses and consumers in the state.
In 2018, the Kentucky General Assembly passed legislation expanding the scope of the Kentucky sales tax to certain consumer services. These services included the following:
- Labor and services associated with the repair, installation, and maintenance of taxable tangible personal property;
- Admissions to campsites, campgrounds, recreational vehicle parks, bowling centers, skating rinks, health spas, swimming pools, tennis courts, weight training facilities, fitness and recreational sports centers, gold courses and country clubs;
- Landscaping and lawn care services;
- Janitorial services;
- Small animal veterinary services;
- Pet care services;
- Industrial laundry services;
- Dry cleaning and laundry services;
- Linen supply services;
- Tanning services;
- Diet and weight-reducing services;
- Limousine services; and
- Extended warranty services.
The new law now expands this list of taxable services, effective January 1, 2023, to include the following additional services:
- Photography and photo finishing services;
- Marketing services;
- Telemarketing services;
- Public opinion and research polling services;
- Lobbying services;
- Executive employee recruitment services;
- Web site design and development services;
- Web site hosting services;
- Facsimile transmission services;
- Private mailroom services;
- Bodyguard services;
- Residential and nonresidential security system monitoring services;
- Private investigation services;
- Process server services;
- Repossession of tangible personal property services;
- Personal background check services;
- Parking services, including valet services and the use of parking lots and parking structures (but excluding any parking services at an educational institution);
- Road and travel services provided by automobile clubs;
- Condominium time-share exchange services;
- Rental of space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties and other short-term social events;
- Social event planning and coordination services;
- Leisure, recreational, and athletic instructional services;
- Recreational camp tuition and fees;
- Personal fitness training services;
- Massage services (except when medically necessary);
- Cosmetic surgery services;
- Body modification services, 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 services, except testing for medical, educational, or veterinary reasons;
- Interior decorating and design services;
- Household moving services;
- 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; and
- Prewritten computer software access services.
HB 8 incorporates several definitions to help clarify the scope of certain categories of these new services, including cosmetic surgery services, marketing services, photography and photofinishing services, prewritten computer software access services and telemarketing services, but several other categories are undefined by the law. It is expected that the Department of Revenue will issue guidance on these in the coming months.
As was the case in 2018, this latest expansion of the Kentucky sales and use tax to include additional services was accompanied by a reduction (or an anticipated reduction) in individual income tax rates. Assuming certain budget contingencies are met, Kentucky individual income tax rates will decrease from 5.0% in 2022 to 4.5% in 2023. If similar budget contingencies are met in future years, the new law provides opportunity for further reductions of the individual income tax rates, but these subsequent reductions will require future action by the General Assembly.
Along with the changes made to the sales and use tax and the income tax, this new law incorporates other changes to Kentucky tax law including the following:
- a change to conform Kentucky’s income tax law to the Internal Revenue Code as of December 31, 2021 (with a notable exception for the treatment of restaurant revitalization grants provided under the American Rescue Plan Act of 2021);
2. a new 6% excise tax on gross receipts derived from:
(a) the renting of motor vehicles, including shared vehicles from peer-to-peer car- sharing companies;
(b) selling transportation network company services; and
(c) selling taxicab services and limousine services.
3.a new excise tax and surtax (each at the rate of three cents per kilowatt hour) on the distribution of electricity by an electric power dealer for purpose of charging electric vehicles in the state or when the electric vehicle charging station is located on state property; and
4. the implementation of a tax amnesty period that will run from October 1, 2022 through November 29, 2022 under which all taxes administered by the Department of Revenue, other than certain real estate taxes and property taxes on motorboats and motor vehicles, will be eligible to participate.
Kentucky taxpayers should be aware of these changes and, if engaged in the business of providing or consuming the additional services now subject to tax, will need to take steps to ensure compliance prior to January 1, 2023.