Personal Taxes

KY lawmakers purpose at decreasing personal earnings tax charge

FRANKFORT, Ky. — Legislation that would gradually eliminate the state personal income tax and modernize Kentucky’s tax structure is on its way to the Governor. The proposal, HB 8, is the second major tax overhaul since Republicans were given control of the House in 2016 and continues the majority’s commitment to growing the state’s economy by making the state’s tax code more attractive for working Kentuckians and individuals considering relocating here.

HB 8, is sponsored by House Appropriations and Revenue Chair Jason Petrie and Vice-Chair Brandon Reed.

The final version of HB 8 would lower the state’s personal income tax incrementally over a period of years until it is eliminated. Before the tax is decreased, the state must meet preset triggers that are based on a formula based on how many actual revenues exceed expenses plus the dollar value of a 1% drop in income tax. If that trigger is engaged, the personal income tax decreases by half a percentage point. The first decrease is measured against the Fiscal Year 2021 performance and would lower the rate to 4.5% on January 1, 2023, leaving an estimated $500 million in taxpayer pockets to be invested and spent in local communities.

House Speaker David Osborne added, “For decades state leaders have talked about tax reform, engaging in countless studies, work groups, and task forces. The problem is the most approached tax reform as a way to increase state revenue rather than grow our economy. You can’t tax your way to prosperity because state government will just continue to grow. Instead, we chose a fiscally responsible approach that benefits working Kentuckians.”

Reed emphasized that HB 8 makes no changes in the corporate income tax or the limited liability entity tax (LLET), nor does it include a rumored expansion of the sales tax to traditionally non-taxed items like groceries and medication. Instead, it focuses on eliminating the personal income tax that working Kentuckians and those with retirement income pay.

In order to ensure further decreases are triggered, HB 8 shifts the revenue burden to consumption-based taxes that are paid by those who visit the state as well as those who live here. It broadens the tax base to include extending either the sales tax or a user fee to the following services as well as others listed in the bill:

  • Non-Primary Residential Electric (primary residences would remain exempt)
  • Taxi cabs, car rentals, or transportation services like Uber and Lyft
  • Temporary Rental Services (AirBnB, VRBO)
  • Residential and Nonresidential Security Systems
  • Bodyguard and Self Protection Services
  • Process Servers
  • Valet and parking services
  • Entertainment Venues and Event Space Rentals
  • Legislative and Executive Branch Lobbying
  • Cosmetic Surgery Procedures (non-medically necessary)
  • Private Mail Services
  • Executive Employee Recruitment Services
  • Unauthorized Telemarketing Services
  • Public Opinion Research

The measure also implements an electric vehicle ownership fee on electric and hybrid motor vehicles and a tax on the use of fee-for-service charging stations. Revenue raised through these mechanisms would be earmarked to the state road fund and general fund.

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