The Kentucky General Assembly has made expanding the sales and use tax base a priority in its latest legislative session, and there are 35 new services that will be subject to the tax beginning January 1, 2023.
Additionally, the Assembly expanded an exemption and enacted new reporting requirements for organizers of festivals.
New services subject to sales and use tax include:
- Photography and photo finishing services
- Marketing services
- Telemarketing services
- Public opinion and research polling services
- Lobbying services
- Executive employee recruitment services
- Web site design and development services
- Web site hosting services
- Facsimile transmission services
- Private mailroom services, including presorting mail and packages by postal code; address barcoding; tracking; delivery to postal service; and private mailbox rentals
- Bodyguard services
- Residential and nonresidential security system monitoring services
- Private investigation services
- Process server services
- Repossession of tangible personal property services
- Personal background check services
- Parking services, including valet services and the use of parking lots and parking structures, but excluding any parking services at an educational institution
- Road and travel services provided by automobile clubs
- Condominium time-share exchange services
- Rental of space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties, and other short-term social events
- Social event planning and coordination services
- Cosmetic surgery services
- Body modification services including tattooing, piercing, scarification, branding, tongue splitting, transdermal and subdermal implants, ear pointing, teeth pointing, and any other modifications that are not necessary for medical or dental health
- Testing services, except testing for medical, educational, or veterinary reasons
- Interior decorating and design services
- Household moving services
- Specialized design services including the design of clothing, costumes, fashion, furs, jewelry, shoes, textiles, and lighting
- Lapidary services, including cutting, polishing, and engraving precious stones
- Labor and services to repair or maintain commercial refrigeration equipment and systems when no tangible personal property is sold in that transaction including service calls and trip charges
- Labor to repair or alter apparel, footwear, watches, or jewelry when no tangible personal property is sold in that transaction
- Prewritten computer software access services
Additional expansions to sales and use taxes
- Broadens the definition of extended warranties - there will now be a tax imposed on extended warranties covering real property. In addition to covering agreements like extended warranties on vehicles, the definition also includes maintenance or service contracts for all types of real property. Some examples include parking lot cleaning, maintenance of building exteriors, heating, and A/C maintenance.
- Limits the exemption for residential utilities - the exemption for utilities will be limited to those purchased for use at a resident's place of domicile only.
- Admission to historical sites - the new legislation removes the exemption from sales tax on admissions to historical sites operated by a nonprofit.
New exemptions added
It's not all bad news - the assembly did add a few new exemptions from the sales and use tax:
- Significant expansion to the exemption for prescription drugs - in the past, the exemption only applied to drugs used for humans. However, effective January 1, 2023 both prescription and over the counter drugs used in the farming and treatment of cattle, sheep, goats, swine, poultry, ratite birds, llamas, alpacas, buffalo, aquatic animals, or cervids will now be exempt from sales and use tax. Notably absent though are drugs used for horses.
- Lump sum, fixed price, or similar contracts executed on or before February 25, 2022 - note that the date has passed, so businesses entering these agreements should factor in the taxable services when considering.
- Partial exemption for the newly taxed services - if gross receipts related to any of the previously mentioned newly taxed services were less than $6,000 during 2021 there is a partial exemption. However, if gross receipts exceed the $6,000 threshold in 2022 or beyond, receipts over the threshold are subject to the tax. Even though this threshold is in place, we recommend collecting the new tax in 2023 on all receipts if a business knows it will exceed the threshold.
Change for vendors at events
The final change to note is directed at increasing sales and use tax compliance by vendors at events. Starting July 14, 2022, festivals and similar events are required to provide the Department of Revenue a listing of all vendors doing business at the event. The assembly has not provided a precise definition yet of "festivals or similar events", but it is possible that the new requirement could range from events like city and county annual festivals to large events like the Kentucky Derby or Breeder's Cup.
As always, if you have any questions about how the changes will apply to you or your business, please consult your Rudler, PSC advisor at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This e-Tip is presented by James Ray, CPA.
If you would like to discuss your particular situation, contact James at 859-331-1717.
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