Kentucky’s new sales tax: what you need to know
David Martarano, head of the non-profit YMCA of Central Kentucky, has bad news for YMCA members across the state: their membership costs are subject to the state's 6 percent sales tax starting July 1.
It marks the first time services offered by non-profits in Kentucky will be taxed, said Martarano.
"This opens the door to possibly more taxes on us in the future," he warned.
YMCA members aren't the only Kentuckians who will face higher taxes.
Labor on your car repairs will include the 6 percent sales tax. So will veterinary services for your dog or cat, but not your horse or cow.
Prepare to pay more if you are planning to buy an extended warranty on your phone; visit a golf course, bowling center or tanning salon, or take your clothes to the dry cleaner.
These and dozens of other services fall under 12 business categories that will be subject to the state's 6 percent sales tax, starting July 1, due to action in this year's state legislature.
"There's been a lot of grumbling by businesses and non-profits about this tax increase and I expect you will hear a lot of grumbling by Kentucky consumers when they feel the impact of what's coming their way," said Tom Underwood, state director of the National Federation of Independent Business.
"There are questions about its fairness, especially why it's applied to some transactions and not others," Underwood said. "It's really going to be hard on some. They will have to pass the tax on to consumers but that might lead to fewer customers or members."
Martorano said the YMCA of Central Kentucky provides more than $1 million in financial assistance to various people, especially children, each year.
"For some Kentucky non-profits it will clearly affect the benefit and support they will provide within your community," he said.
Pamela Trautner, a spokeswoman for the state Finance and Administration Cabinet, said collecting sales tax on retail sales or fundraisers does not impact an organization's federal non-profit status.
Their tax-exempt status applies to their federal and state income taxes, as well as not paying sales taxes on goods and services they buy to operate the non-profit, she said.
"The businesses and non-profits are not paying the sales tax on any of these expanded services — the customer is," Trautner said. "The businesses and non-profits have to collect the tax and remit it to the state."
The Kentucky Revenue Department has been trying to contact more than 20,000 businesses and organizations to inform them of the new sales tax law and instruct them on how to start a sales tax account with the state, said Richard Dobson, the department's executive director of the Office of Sales and Excise Taxes.
"We've heard from several religious institutions and non-profits about this, but we are simply trying to follow the law," Dobson said. "But I must say our focus is on business operations."
The department has been trying to list all the sales transactions the new law covers, said Dobson. For example, the department has determined the sales tax should be applied to boat launch and dock fees under a provision of the law that allows taxing facility and event admissions.
He said a website has been developed to help businesses and consumers know what services should be taxed. It is TaxAnswers.ky.gov.
Dobson also said the state is reaching out to professional organizations and groups, such as the Kentucky Association of Counties and the Kentucky League of Cities, to spread the word about the upcoming tax expansion. Many of those groups are deeply disgruntled by the new law.
"I don't know who is happy with the new tax. We're not," said Doug Peterson, president of the Kentucky Veterinary Medical Association and a Frankfort veterinarian for small animals. "I don't know a vet who has ever raised their costs by 6 percent at one time."
Peterson said he fears that some some customers near bordering states will travel elsewhere for veterinary services.
The 1,100 or so veterinarians in Kentucky "feel as if we're singled out. Why aren't other professions like lawyers and accountants taxed? This was done at the end of the legislative session and we had no chance to argue our concerns and get our questions answered," said Peterson.
In particular, he and others question why only services for small animals are being taxed.
"Someone guessed that small animals are for luxury while larger animals are for the economy," he said. "Maybe horses have better lobbyists than dogs?"
The House and Senate's budget committee chairmen, Republicans Steve Rudy of Paducah and Chris McDaniel of Latonia, did not return phone calls and emails seeking comment for this article.
Peterson said his association will lobby to change or repeal the law in next year's legislative session.
Scotty Dunn, who runs a custom body shop in Frankfort, said it's the customers "who should be upset."
"Businesses will have to pass the tax on to them unfortunately," Dunn said.
The sales tax expansion is expected to raise about $436 million over the next two years for the state. As part of a broader tax overhaul package, lawmakers also increased the cigarette tax by 50 cents per pack, which is expected to generate $245 million a year, and cut the individual and corporate tax code to a flat 5 percent tax.
Much of the revenue gained by the sales tax expansion will pay for the income tax cuts, which disproportionately benefit the wealthy, said Jason Bailey, executive director of the Kentucky Center for Economic Policy in Berea.
"That's why I call it a tax shift and not tax reform," he said.
Charles George, vice president of government affairs for the Kentucky Society of CPAs, said he expects there to be much confusion about the expanded sales tax, particularly regarding car repairs.
"We're getting the most inquiries about that," he said.
George, an attorney, said it's difficult in tax law "to come up with all the scenarios and their effects. We're learning new things practically every day with this tax legislation.
"I feel we will have to come back in future legislatures to clear all this up. "
These services will be taxed beginning July 1
▪ Extended Warranty Services
Sale of extended warranty services to repair, support, or maintain tangible personal property, such as cars, or digital property, such as computers, that is taxable to the warranty holder.
▪ Facility/Event Admission Fees
Under current law, charges for the right of entrance to a display, program, sporting event, music concert, performance, play, show, movie, exhibit, fair or other entertainment event or amusement are subject to the state sales tax.
Effective July 1, examples of additional types of admissions to be taxed are bowling centers, skating rinks, health spas, swimming pools, tennis courts, weight training facilities, fitness and recreational sports centers and golf courses — both public and private.
Admission to racetracks, some historical sites and county fairs are exempt.
▪ Indoor Skin Tanning Services
This includes but is not limited to tanning booths or beds and spray tanning.
▪ Janitorial Services
This includes but is not limited to residential and commercial cleaning and carpet, upholstery and window cleaning.
▪ Labor Charges for Installation or Repair of Tangible Personal Property, Digital Property or Services Sold
Labor associated with the repair of fixtures to real property such as HVAC units, water heaters or plumbing fixtures will not be subject to the tax.
Labor is taxable if it is part of a taxable retail sale. An example would be the labor bill of a mechanic to install repair parts in a car.
▪ Landscape Services
This includes but is not limited to lawn care and maintenance, tree trimming, pruning or removal, landscape design and installation, landscape care and maintenance, and snow plowing and removal.
▪ Limousine Services
The sales tax must be collected if a driver is provided.
▪ Laundry/Dry Cleaning Services
This includes industrial laundry services, linen supply services and non-coin operated laundry and dry cleaning services.
▪ Non-medical diet and weight reducing services
▪ Pet care services
This includes but is not limited to grooming and boarding, pet sitting and pet obedience training.
▪ Rentals of Campsites
This includes campsites, campgrounds and recreational vehicle parks. Rentals for a continuous period of 30 days or more to a person are excluded from sales tax. These new accommodations subject to sales tax will not be subject to the statewide or local transient room taxes.
▪ Veterinary Services
The tax applies to small animals like cats and dogs. It does not apply to large animals like horses, cattle, swine, sheep, goats, llamas and alpacas.
The state says small pet owners will pay sales tax on all charges that a veterinarian bills its customers for, including the cost of lab tests and prescription drugs.
Source: Kentucky Department of Revenue