House update: Members vote to eliminate income tax, expand state sales tax
By CHAD MCCOY
50th District State Representative
Monday, March 7, 2022 — Before leaving Frankfort this week, I had the opportunity to vote for legislation that lays the groundwork for eliminating the state’s personal income tax, leaving more than $1 billion in the pockets of the people who work hard to own it.
The measure, HB 8, is the next step in our commitment to growing the state’s economy by making the state’s tax code more attractive for working Kentuckians and individuals considering relocating to Kentucky. I am glad to see us take this step because lowering the income tax provides multiple benefits like leaving more money in our local communities.
Now, for the details. HB 8 would lower the state’s 5% income tax incrementally over a period of years until it is eliminated. The first decrease would reduce the income tax rate an entire percentage point to 4% on January 1, 2023. That cost would be covered by funding set aside in the version of the budget passed by the House earlier this session. (HB 1). While the first decrease is automatic, HB 8 requires the state to meet additional revenue targets before additional rate reductions can occur. Commonly referred to as triggers, the thresholds are based primarily on state revenue levels. Lawmakers used conservative revenue forecasts based on the work of the Consensus Forecasting Group (CFG) and available sales tax data to predict future state revenues.
To ensure there is enough revenue to trigger further decreases, HB 8 shifts the revenue burden to consumption based taxes — sales taxes — that are paid by those by everyone who purchases a taxed item in the state. The legislation extends the sales tax to the following services as well as many 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
- Pleasure Watercraft Docking
- Entertainment Venues and Event Space Rentals
- Legislative and Executive Branch Lobbying
- Cosmetic Surgery Procedures (non-medically necessary)
- Personal Financial Planning
- Private Mail Services
- Road and Travel Services
- Executive Employee Recruitment Services
- Unsolicited Telemarketing Services
- Public Opinion Research
HB 8 also includes a tax amnesty program, essentially a window of time that those who owe taxes can pay their bills without penalty. We expect the amnesty program bring in more than $200 million in taxes already owed to the state. The measure also implements a battery reclamation fee on electric and hybrid motor vehicles and a tax on the use of fee-for-service charging stations. HB 8 earmarks revenue raised through these mechanisms to the state road fund and general fund.
We have heard a lot of talk over the past couple of months about giving one time bonuses or refunds for specific groups. While I know it may win political points, I believe Kentuckians should keep more of their money and pay the state less in the first place. After all, it isn’t how much money you make, but rather how much you take home that determines your quality of life.
Before I close, I want to remind you that the tax modernization bill we passed last week would not have been possible if we had not already approved our version of the budget. That proposal, HB 1, includes record funding for education, a continued commitment to the state’s budget reserve trust fund, and pay increases for the Kentucky State Police, state employees, social workers, and educators. Both bills are now in the Senate for consideration. While they may make changes, I am optimistic about these measures passing into law.
As always, I can be reached here at home anytime, or through the toll-free message line in Frankfort at 1-800-372-7181. Feel free to contact me via email at Chad.McCoy@lrc.ky.gov. If you would like more information, please visit the LRC website www.legislature.ky.gov.
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