The Kentucky General Assembly spent the second to last day of the 2022 legislative session overriding Governor Beshear’s vetoes related to the state budget, taxes, education, and more. The changes are effective for tax years after January 1, 2023.

If certain conditions are met, the individual income tax will be reduced by 0.5% in the second January after the fiscal year.

In order to reduce the income tax rate, the state plans to expand the sales tax base.

The end of exemptions

H.B. 8 ends the state sales tax exemption for more than a dozen services including:

  • website design and development
  • website hosting
  • prewritten computer software access services
  • non-essential cosmetic surgery
  • body modifications
  • bodyguard services
  • marketing
  • telemarketing
  • photography
  • research polling
  • lobbying services
  • executive employee recruitment.

The bill imposes a tax on ridesharing or vehicle renting services and electric vehicles.

Taxing consumption versus production

Proponents of Kentucky’s move to a system taxing consumption instead of production believe it will lead to economic growth, while critics believe it would move toward disproportionally taxing low-income people who spend a larger portion of their income on taxable purchases than wealthier people.

In his veto statement, Beshear focused on the “new taxes” in the bill that “weaken public safety, harm vital industries, undermine economic development incentives, and threaten Kentucky’s future economic security.”

Amnesty program offers some relief

H.B. 8 establishes a 60-day tax amnesty program to begin on October 1, 2022, and end on November 29, 2022, provided the Department is able to procure services to implement the program. If not, the tax amnesty will run for a 60-day period during calendar year 2023. The program is available to taxpayers owing Kentucky taxes, penalties, fees, or interest (excluding certain ad valorem taxes, and federal taxes, penalties, fees, or interest). The tax amnesty program waives penalties and 50% of the applicable interest.

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If you have questions about the information outlined above or need assistance with a tax or accounting issue, Barnes Dennig can help. For additional information call us at 859.344.6400 or click here to contact us. As always, we’re here to help.