Kentucky taxes coffins, but not tombstones. A lesson in death and tax reform.

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Kentucky’s tax problem

Kentucky’s legislature needs billions of dollars to pay down the state’s unfunded pension liabilities. As it happens, Kentucky essentially gives away billions of dollars every year through what are called “tax expenditures.” Will Kentucky lawmakers close some of these loopholes?

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Editor’s note: This is the fifth in a series of stories about tax breaks and incentive programs that cost Kentucky billions of dollars each year, leaving lawmakers little money to fix Kentucky’s ailing pension systems.

— For 41 years, Kentucky has given a tax break to the bereaved: When a loved one dies, you don’t have to pay the state’s 6 percent sales tax when buying a gravestone.

“It’s nice to tell them they don’t have to pay any tax when a monument can cost several thousand dollars,” said Blake Shouse, manager of Shelbyville Monument Co.

Each year, this gift to Kentucky’s mourners costs the state an estimated $8.5 million in revenue, according to state budget officials.

It’s one of hundreds of tax exemptions on the books that cost Kentucky about $13 billion a year. That’s more than the state collects in taxes for its General Fund each year.

“We exempt far too many things,” Gov. Matt Bevin recently told the Kentucky Chamber of Commerce. “We have tax exemptions to the tune of billions and billions of dollars that other states don’t have.”

Bevin, a Republican, has not yet identified any specific tax break to eliminate in his quest to reform Kentucky tax laws, but he has said there will be “no sacred cows” as he looks at overhauling the tax code.

All the tax loopholes have a cumulative effect of harming the state budget, he said, and he is considering submitting two budget proposals to lawmakers next year — one with tax reform and another without.

As the late Republican U.S. Sen. Everett Dirksen of Illinois said about government money, “A million here, a million there, pretty soon, you’re talking real money.”

‘No real justification’

Aside from the headstone exemption, all the other tangible goods used in a funeral — caskets, flowers, urns, stationary — get taxed when they’re bought by a funeral home. Those costs are then rolled into a customer’s bill.

So why is a tombstone treated differently from all other death-related goods in Kentucky’s tax code?

As former state Rep. J.R. Gray, D-Benton, recalls, he was contacted by lobbyists for the monument industry before he filed House Bill 447 in 1976 to take the sales tax off monuments.

“I took pride in authorship of that bill. It received bipartisan support,” Gray said recently. “Just how heartless it would be to put a tax back on people who are grieving. I would fight that and I believe many people would.”

Gray’s bill was supported by most lawmakers at the time, including then-state Rep. Steve Beshear, a Democrat from Lexington who became governor in 2007, and then-Rep. Albert Robinson, a Republican who now is a state senator from London.

The bill became law on March 30, 1976, with the signature of then-Gov. Julian Carroll, who now is a Democratic state senator from Frankfort.

Today, Carroll says the tax break should expire.

“We thought it was good at the time and that the state could support the exemption,” he said. “The state now needs money. It seems to me if you can afford a tombstone, you can certainly pay the 6 percent tax. There’s no real justification for keeping that loophole.”

Carroll, though, said he is aware of no effort in the past four decades to do away with it.

Through the years, many items have been exempted from Kentucky’s sales tax. One such exemption is groceries, a carve-out that costs the state about $714 million a year but helps low-income parents feed their children.

Others include $16.5 million a year for not taxing sales of horses younger than 2 years old, $500,000 a year for not taxing admissions to historic sites, about $500,000 for not taxing county fair admissions, and about $5.7 million a year for not taxing sales by school-sponsored clubs and organizations.

Steven Rudy
State Rep. Steven Rudy, R-Paducah. Legislative Research Commission

“The administration is looking at all the tax breaks,” Carroll said. “We’re waiting to see what they come up with.”

Pensions first

House budget chairman Steven Rudy, R-Paducah, said members of his committee were examining Kentucky’s tax laws earlier this year, “when the talk was that we were going to have a special legislative session to deal with taxes and public pensions together.”

“That fell by the wayside, and we have been focusing on pensions,” Rudy said. “We do plan to get back to taxes and tax exemptions in the 2018 session, and after the state comes out later this month with a new report on how costly the tax breaks are.”

If Bevin or lawmakers try to repeal the tax exemption on monuments — or just about anything else — they’ll have to brawl with business leaders.

“We will fight any effort to tax monuments,” said Billy Fox, a board member of the Kentucky Association of Monument Dealers and an employee of Henry and Henry Monuments in Crittenden County.

The average monument costs between $3,200 and $3,500, Fox said.

“A sales tax would up the cost of the monument a couple hundred dollars,” he said. “That can mean a lot to many families in Kentucky on top of other funeral costs.”

The Funeral Directors Association of Kentucky puts the price of a typical funeral service in the state at $6,000. That doesn’t include the cost to buy a grave site and headstone.

If anything, the sales tax should be removed from coffins and other products used by funeral homes, said Rob Riley, with Tandy-Eckler-Riley Funeral Home in Carrollton.

“Good for the monuments business for getting the sales tax removed from their products,” said Riley, president-elect of the Funeral Directors Association of Kentucky. “I really don’t think there should be any sales tax at all on anything related to death.”

Jack Brammer: 502-227-1198, @BGPolitics

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