Kentucky Tax Overhaul: Changes Affecting Businesses

Changes Affecting Businesses

  1. Corporation income tax rates (for C Corporations) have also been graduated in the past, going from 4% to 6%. This graduated system has been replaced by a flat tax of 5%.
  2. For businesses which operate both inside and outside of Kentucky, the method that determines how much of your net income is changing. Previously, there were multiple factors which determined this – how much gross revenue, payroll and equipment and other property were utilized in Kentucky compared to outside of the state. Starting in 2018, only the gross receipts will be a factor in determining how much of your business income is subject to Kentucky taxes.
  3. Good news – property taxes paid by a business on the value of its inventory is being granted some relief. Bad news – the process for this is complicated. Instead of reducing your property tax bills, a business will apply for an income tax credit based on the amount of property taxes paid on its inventory. The credit is also being phased in – 25% relief in 2018, 50% relief in 2019, 75% relief in 2020 and 100% for 2021 and future years.
  4. Sales tax changes are substantial under this bill. Many companies will have to collect sales tax from their customers when that hasn’t been the case previously. In addition, many companies which currently collect sales tax from their customers will now have more products and services that are considered taxable sales in the future. These changes take place starting with July 1, 2018 – next month! Here is a list of the new areas which will require a sales tax that were previously exempt:
    1. Labor and services associated with the repair, installation and maintenance of taxable, tangible personal property. This will affect many repair businesses and other groups who have had taxable product sales but exempt labor in the past.
    2. Extended warranties.
    3. Landscaping and lawn care services.
    4. Janitorial services.
    5. Pet care veterinarian services for small animals.
    6. Fitness and recreational sports centers.
    7. Industrial laundry services.
    8. Dry cleaning and laundry services.
    9. Linen supply services.
    10. Pet grooming and boarding services.
    11. Diet and weight-reducing services.
    12. Tanning services.
    13. Limousine services.
    14. Admission fees to campsites, campgrounds, RV parks, bowling centers, skating rinks, health spas, swimming pools, tennis courts, weight training facilities, fitness and recreational sports centers, golf courses and country clubs. Who says you can’t tax fun?

These are the primary changes that have the most impact under the new bill. We will be happy to discuss these changes, how they will affect you or your business and how you should respond. Please call or email with any questions you may have. In addition, we will be reaching out to our business clients who will be affected by the sales tax rules changes.