Statewide Sales and Use Tax on Services Imposed
For the first time in Kentucky state history, a sales and use tax was imposed on labor or services for maintenance, repair, and installation, of “tangible personal property, digital property, or service sold.” While business owners and operators were frantic to decipher the consequences of HB 366, one thing was certain, the new bill left the Kentucky manufacturing industry in a state of angst.
Quick to recognize the bill’s impact on the state economy, regional industry groups rallied to provoke change. Thanks to the diligence of the Kentucky Society of CPA’s Tax Committee and other industry groups throughout the 2018 General Assembly, a technical corrections bill was released, rectifying several key issues threatening the prosperity of the manufacturing industry. With the contents of HB 366 remaining largely intact, HB 487, passed on April 27th, provides welcome relief to the Kentucky manufacturing industry.
HB 487 Offers Manufacturing Industry Reprieve
While the new sales and use tax remains, HB 487 includes an exemption for manufacturers and industrial processors. The exemption renders services and labor to “items used directly in manufacturing or industrial processing” as non-taxable, and, therefore, retains the same treatment in effect prior to tax reform. Although new to Kentucky, the taxation of labor and services has been in effect in neighboring states for years and the exemption keeps Kentucky manufacturers on more equal footing with those surrounding states while also modernizing Kentucky’s state tax policies.
Effective July 1, 2018, additional taxable services likely of most interest to manufacturers include the following:
Additional Modifications Impacting Manufacturers
Other key provisions in HB 487 will impact those doing business in Kentucky:.
With the effective date of July 1st rapidly approaching, it is critical that your business is prepared for these tax reform modifications. Suggested next steps are as follows:
For more information regarding Kentucky Tax Reform and State and Local Tax guidance, please contact Robin Teeters, or visit us at https://vlcpa.com/state-local-tax.