Kentucky passed House Bill 366 on April 13 and with that came a pretty substantial list of services that are now taxable for sales and use tax purposes (see Rudler PSC e-Tip Kentucky Sales & Use Tax Changes for a list). The very next day House Bill 487 was adopted which contained some more changes and technical corrections. Some of the major changes include:
Manufacturing and Industrial Processing Exemptions – House Bill 487 excludes charges for labor or services to apply, install, repair or maintain tangible personal property directly used in manufacturing or an industrial processing process (the charges for labor or services must be separately stated on the invoice)
Economic Nexus for Retailers Without Physical Presence in Kentucky – A 1992 US Supreme Court case (Quill v. North Dakota) has allowed out-of-state retailers to circumvent collecting sales tax on sales to purchasers in Kentucky if the retailer didn’t have a physical presence in Kentucky. This is outdated in the age of online retail and currently another case involving Wayfair is set to overturn or modify the Quill ruling.
In anticipation of this change Kentucky will require (effective 7/1/18) remote retailers selling tangible personal property or digital property delivered to or transferred electronically to a Kentucky purchaser to register and collect sales tax if:
•The retailer had 200 or more such transactions with Kentucky purchasers in the current or previous calendar year OR
•The retailer had gross receipts from such transactions to a Kentucky purchaser in the current or previous calendar year that exceeds $100,000
Admissions for Using Facilities or participating in an event at a Facility are Now Taxable – Monthly fees or membership fees are now taxable for sales tax purposes. Examples include: Health Spas, Golf Courses, Fitness Centers
Some of the services that are now taxable may be typically bundled with other fees. In some cases, separately stating the amounts between taxable and non-taxable on the invoice can save a vendor from collecting sales tax on the whole invoice amount. So, some changes to the way things are invoiced may need to be done before the July changes tax effect.
We have been told by the Kentucky Department of Revenue that additional guidance will be coming out soon. For now, the language of the bills leaves some questions and room for interpretation. The Kentucky DOR launched a website to provide more information (TaxAnswers.ky.gov). If you have questions about how these changes might impact you or your business, contact a member of our tax team 859-331-1717.