Starting Sunday, January 01, 2023 Kentuckians will see sales tax on more than three dozen new goods and services. While residents will pay less in income tax in 2023, many things are now included in the current 6% sales tax to offset that loss in state revenue.
House Bill 8 passed earlier this year, dropping the state's income tax from 5% to 4.5%. For a person who makes $60,000 salary, they currently pay $3,000 in state income taxes. Under the new 4.5% rate, the same person would pay $2,700.
Lawmakers then decided to incorporate dozens of different new services into the state's existing 6% sales tax. Some of those industries now taxed include rideshares like Uber or Lyft, parking services, recreational sports, rental space for weddings and more.
Below is the full list of services that will now come with a 6% sales tax:
Photography and photo finishing
Public opinion and research polling
Executive employee recruitment
Website design and development
Security system monitoring
Private investigation services
Process server services
Repossession of personal property
Personal background check services
Road and travel services
Condo time-share exchange services
Short-term rental of space
Social event planning and coordination
Leisure, recreational and athletic instructional services
Recreational camp tuition and fees
Personal fitness training
Body modification (piercing, tattoos)
Interior decorating and design
Specialized design (fashion)
Labor and services for commercial refrigeration
Labor to repair or alter apparel, footwear, watches or jewelry
Prewritten computer software access services
Find more detailed definitions of each category from the Kentucky Department of Revenue, https://revenue.ky.gov/News/Publications/Sales%20Tax%20Newsletters/Sales%20Tax%20Facts%202022%20-%20Jun.pdf and https://revenue.ky.gov/News/Publications/Sales%20Tax%20Newsletters/Sales%20Tax%20Facts%202022%20-%20Sep.pdf.
Senate Budget Chair Sen. Chris McDaniel said he understands it's a lot to digest, but the expansion of sales tax is designed to help lower Kentucky's income taxes.
"This is not a dramatic expansion of sales tax," McDaniel, a Republican, said. "We're taxing consumption and not production. And that, we think, that when Kentuckians earn money, the best people to make the decisions about how to spend that money are those individual people. (People can) choose themselves how they want to spend that money rather than having somebody sitting hundreds of miles away in Frankfort choosing how they spend that money."
But, he admits, it won't exactly make up the loss.
"Ultimately, we put a lot of effort into ensuring that this would not put a large hole in the commonwealth's budget, and there are multiple layers of checks and balances to make sure that can't do that in advance," he said.
Meanwhile, the Kentucky Center for Economic Policy is sounding the alarm.
"Mostly, what's happening here, is there's just a huge hole being cut in the budget," said Jason Bailey, executive director of the Kentucky Center for Economic Policy.
Bailey said the tax change hurts the poor and helps the rich.
"It's really skewed to the very, very wealthy, and that's part of the problem is that those revenues go toward our schools, our health care system, infrastructure and other needs," he said.
But McDaniel disagrees.
"The preponderance of their income is spent in areas that were tax-exempt, and will remain tax-exempt, and those same people will be getting, you know, more money in their pocket," McDaniel said. "So it's just an absolute straw man argument."
At the same time, there's still unanswered questions about some of the nuances in the law, especially around utility taxes for non-primary residences.
"The confusion of how it plays out is always the problem," Kyle Noltemeyer, a Kentucky landlord, said. "No one is ever quite sure and then they find out later and have to go back so yeah, the confusion of it all."
The tax will pertain to water, gas and electric for additional properties like rental units or apartments you may rent out. It also starts Jan. 1, but there are some exemptions.
"The intention is if it's a place that you live that you're not being taxed on those utilities," Rep. Jason Nemes, R-D33, said.
When asked the state Department of Revenue for an interview earlier this month about the changes, we were directed to the frequently asked questions page then to lawmakers who wrote the tax change.
McDaniel said that while it might take a few pay cycles, he hopes Kentuckians adapt to the changes.
"The average Kentuckian is going to see nothing out of this change other than they're going to have a few more dollars in their pocket every single week that they can choose how to spend," he said.