Kentucky to tax more services starting July 1
Updated February 23, 2021
A handful of services were subject to sales tax in Kentucky prior to July 1, 2018, including communication services, the furnishing of sewer services, and the transmission and distribution of natural gas. Many more became taxable starting July 1, 2018.
When a Blue Ribbon Commission recommended broadening sales tax to select services back in 2012, then Governor Steve Beshear lauded the idea. At the time, he thanked the commission for working to “make our tax code fairer, simpler and more responsive to the needs of a 21st century economy.” Yet despite several attempts, he was unable to institute many of the changes proposed during his tenure, including expanding the sales tax base.
His successor Governor Matt Bevin also called for tax reform, promising in his 2018 Governor’s State of the Commonwealth and Budget Address that “tax reform is coming” — though he made no mention of sales tax. But he vetoed the tax reform bill the legislature placed on his desk, explaining that “House Bill 366 ... falls short of needed comprehensive tax reform.” Of the proposed consumption taxes, Gov. Bevin said they “target limited services that will disproportionately harm small businesses, while failing to provide relief from other antiquated taxes that harm small businesses.”
The legislature overrode his veto.
A service-based economy
Within and beyond Kentucky, the American economy has become markedly more service based. Neil Irwin says it well in a March 2018 New York Times article: “You probably work in the service sector. This seems like a safe assertion, as 84 percent of private-sector jobs in the United States are in services.”
Kentucky hasn’t gone so far as to tax the sale of all services, but starting July 1, 2018, it’s taking a great big step in that direction. Tax will apply to sales of the following:
- Extended warranty services to maintain, repair, or support tangible personal property or digital property
- Admissions to events and facilities, including initiation fees, monthly fees, and membership fees; facilities include bowling centers, fitness and recreational sports centers, golf courses (private and public), health spas, skating rinks, swimming pools, tennis courts, and weight training facilities
- Indoor skin tanning services (beds, booths, and spray tanning)
- Janitorial services (commercial and residential), including carpet, upholstery, and window cleaning
- Labor charges for the installation or repair of tangible personal property, digital property, or services, and labor that’s part of a taxable retail sale
- Charges for labor associated with the repair of fixtures to real property (e.g., an HVAC system) will remain exempt
- Kentucky exempts the labor charge if the item being installed is exempt
- Landscape services (lawn care/maintenance; landscape design and installation; landscape care and maintenance; tree pruning, trimming, and removal; and snow plowing and removal)
- Limousine services when a driver is provided (could this be in anticipation of driverless vehicles?)
- Laundry and dry cleaning services, including but not limited to industrial mat, rug, and uniform supply; protective apparel supply; non-industrial uniform supply; and table and bed linen supply; non-coin operated laundry and dry-cleaning services will also be taxable
- Coin-operated laundry will remain exempt
- Non-medical diet and weight-reducing services
- Pet care services such as grooming, obedience training, and pet sitting
- Camping accommodations and Recreational Vehicle (RV) parks for stays of less than 30 days (these are not subject to local transient room taxes)
- Veterinary services for small animals
- Veterinary services related to large animals such as alpacas, buffalo, cattle, cervids, equine, goats, ratite birds, sheep, and swine will remain exempt
Some of the specifics of the new tax legislation have raised an eyebrow or two. Some in the veterinary business have wondered why sales tax will only apply to small animal services: “What about horses?” The legislature hasn’t said.
After overriding the governor’s veto of HB 366, the Kentucky Legislature passed House Bill 487, a cleanup bill “that included sales tax increases on some services and a 50-cent hike on cigarettes.” Gov. Bevin allowed it to become law without his signature.
Sales tax changes under HB 487 include taxing the $2 fee for each motor vehicle tire sold in Kentucky starting July 1, 2020.
The Kentucky Department of Revenue reminds, “Service businesses required to collect the 6% sales tax must register for a sales and use tax account number before July 1, 2018.” Businesses already in possession of a sales tax account number may use that number when reporting retail sales of the above services. Additional information about the upcoming sales tax changes is available from the Kentucky Department of Revenue.
The 2021 sales tax changes report: midyear update
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