There is a lot going on with regard to Kentucky taxes of which businesses should be aware, from actual and potential changes to Kentucky’s tax system to changes in tax regulations to tax case developments.

Kentucky Tax Modernization?

The Tax Foundation came out with a study in November 2021 entitled, Aligning Kentucky’s Tax Code for Growth. There are many ideas contained in the study. Fundamentally, the study advocates the reduction of the individual and corporate income taxes, particularly given the existence of significant local net profit taxes; it seems the goal is to reduce Kentucky state income tax rates to at or near 0%. The study also advocates shifting away from local income taxes which are uncommon in other states as well as aligning local net profits apportionment with the state’s to use a single sales factor. For the Commonwealth to be competitive with neighboring states, the combined state and local income tax rates need to be addressed. The study also advocates repealing the Limited Liability Entity Tax, the inventory tax, and the inheritance tax as well as creating a de minimis exemption for tangible personal property taxes, reforming the gas tax so that it remains a viable revenue stream for transportation expenditures going forward, and reforming unemployment insurance. Notably, the study advocates a phased approach with revenue triggers to reduce uncertainty while phasing in income tax rate reductions.

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