Kentucky Broadens Sales Tax Base in Tax Bill

The Kentucky Legislature overrode Gov. Matt Bevin’s veto of a tax bill with sales and use tax provisions and other tax provisions.

Marketplace Sales Provisions, Economic Thresholds

The bill enacts a provision under which sales tax nexus exists even if a remote seller does not have physical presence.

The definition of “retailer engaged in business in this state” is expanded to reflect in-state extended warranty service activities. The definition is also expanded to include remote retailers selling tangible personal property or digital property delivered or transferred electronically to a Kentucky purchaser if:

  • they sold such property to a Kentucky purchaser in at least 200 separate transactions in the previous or current calendar year; or
  • their gross receipts from the sale of such property to Kentucky purchasers in that period exceeds $100,000.

In addition, Kentucky adds marketplace sales definitions to sales and use tax law.

“Marketplace” means any physical or electronic means through which at least one retailer can advertise and sell or lease property or digital property. This definition applies regardless of whether the property or retailer is physically present in Kentucky.

“Marketplace facilitator” means a person that facilitates the retail sale of property or digital property (1) by listing or advertising it for retail sale, and (2) either directly (or indirectly through third parties) collects the purchaser’s payment and transmits it to the seller.

“Marketplace retailer” means a person who (1) has an agreement with a marketplace facilitator, and (2) makes retail sales of property or digital property through a marketplace.

“Referrer” means a person that (1) contracts with a retailer or retailer’s representative to advertise or list property or digital property for sale or lease; (2) makes referrals by connecting a person to the retailer or representative, but does not act as a marketplace facilitator; and (3) received in the prior or current calendar year at least $10,000 in consideration in the aggregate from remote retailers, marketplace retailers (or their representatives) for referrals on retail sales to Kentucky purchasers.

“Remote retailer” means a retailer with no physical presence in Kentucky. It does not include a referrer or marketplace facilitator.

Broadening of Sales Tax Base

The bill broadens the sales tax base by applying sales tax to the following services/service charges:

  • landscaping services, like lawn care, tree trimming, landscape design, and snow plowing;
  • janitorial services, like residential and commercial cleaning, and carpet, upholstery, and window cleaning;
  • small animal veterinary services, but not for equine, cattle, swine, sheep, goats, llamas, alpacas, ratite birds, buffalo, or cervids;
  • pet care services, like grooming and boarding, pet sitting, and pet obedience training;
  • industrial laundry services, like industrial uniform supply, protective apparel supply, and industrial mat and rug supply services;
  • non-coin-operated laundry and dry cleaning services;
  • linen supply services, like table and bed linen supply services and nonindustrial uniform supply services;
  • indoor skin tanning services, like tanning booth or tanning bed services and spray tanning services;
  • non-medical diet and weight reducing services;
  • limousine services (when a driver is provided);
  • charges for installing or applying tangible personal property (tpp), digital property, or services sold.

These charges are added to the definition of “gross receipts” and “sales price.” The definition no longer excludes these charges if separately stated:

  • charges for short-term lodging offered to transients by campsites, campgrounds, and recreational parks; and
  • extended warranty services.

Extended Warranty Services

The bill also contains several other “extended warranty services”provisions.

It defines the term as services provided through a service contract agreement between the contract provider and the purchaser where the purchaser (1) agrees to pay for the contract, and (2) the provider agrees to repair, replace, support, or maintain tangible personal tpp or digital property under the contract if: (1) the contract is sold on or after July 1, 2018; and (2) the underlying property is subject to sales tax or motor vehicle usage tax;

The bill revises the sales tax code to change references from “tangible personal property or digital property” to “tangible personal property, digital property, or an extended warranty service.”

In addition, the bill:

  • extends registration requirements to those who sell extended warranty services; and
  • expands “retailer engaged in business in this state” to include retailers if they (or those acting for them) engage in in-state activities involving extended warranty service.

Sales & Use Tax Incentives

Several changes are made concerning sales and use tax incentives.

An exemption for property which has been certified as a pollution control facility is removed.

The alternative energy fuel credit to build or retrofit a production facility for energy-efficient alternative fuels is repealed.

From April 13, 2018, and until July 1, 2022, the KDOR will not accept new applications for the motion picture refundable credit.

Other Sales & Use Tax Provisions

The bill also:

  • extends to taxable services the prohibition against advertising the absorption of sales tax;
  • adds a presumption that a taxable service is taxable unless the person takes from the purchaser an exemption certificate; and
  • defines “admissions” as fees paid for: (1) the right of entrance to a display, program, sporting event, music concert, performance, play, show, movie, exhibit, fair, or other entertainment or amusement event or venue; and (2) the privilege of using facilities or participating in an event or activity.

Cigarette Tax

The bill expressly excludes electronic cigarettes from the definition of “cigarettes.” Also, effective for cigarette and electronic cigarette sales from July 1, 2018, forward, it:

  • increases the 56¢ surtax per pack of 20 cigarettes by 50¢ to $1.06 and stipulates that it can only be paid once;
  • reduces the surtax and the 3¢ tax/20 cigarettes by 50% for products for which a modified risk tobacco product order is issued under 21 U.S.C. §387k(g)(1); and
  • reduces the surtax and the 3¢ tax/20 cigarettes by 25% for products for which a modified risk tobacco product order is issued under 21 U.S.C. §387k(g)(2).

Any person subject to the surtax and the 3¢ tax must:

  • report to the KDOR that an application related to a modified risk tobacco product has been filed within thirty 30 days of the filing; and
  • report to the KDOR that an order authorizing the marketing of a modified risk tobacco product has been received.

On the first day of the calendar month after the end of 45 days following receipt of this information, the KDOR will reduce the tax imposed on the modified risk tobacco product.

Finally, retailers, sub-jobbers, resident wholesalers, nonresident wholesalers, and unclassified acquirers must:

  • at 11:59 p.m. on June 30, 2018, take an inventory of their (1) packaged cigarettes bearing Kentucky tax stamps, and (2) unaffixed Kentucky cigarette tax stamps;
  • file a return by July 10, 2018, showing this inventory; and
  • on the inventory, pay a floor stock tax of 50¢/20-package of cigarettes bearing tax stamps and on unaffixed Kentucky tax stamps.

Motor Vehicles

Changes are made concerning assessments on motor vehicles purchased before January 1 that are registered after January 1 through no fault of the owner. The due date is extended from 45 days to 60 days from the date of notice for property taxes on the vehicle for which the month of registration has passed.

Changes are made concerning the corporation and utility tax assessment of trucks, tractors, trailers, semitrailers, and buses operating partly outside the state. Taxpayers who have been assessed by the KDOR have 60 days (previously, 45 days) from the notice date of the tentative assessment to protest. The due date for the state and local taxes is similarly increased from 45 days to 60 days from the notice date.

New Tire Fee

With respect to the new tire fee, the bill:

  • extends it past June 30, 2018, to July 1, 2020;
  • increases it from $1 to $2 per new tire;
  • subjects it to sales tax;
  • allows dealers to pass it along to customers; and
  • allows dealers to retain 5% of it if the amount due is not delinquent at the time of payment.

H.B. 366, Laws 2018, effective April 13, 2018, and applicable as noted

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All stories by: CCHTaxGroup