Gov. Steve Beshear presented his tax reform plan “Kentucky Competes” Tuesday that he said will modernize the tax code and pump more revenue into the state budget as the economy grows. The plan will create “an even more attractive business climate for current and future businesses, and offers some relief to every working Kentuckian,” the governor said.
If all 22 of the governor’s tax changes are implemented, the state would gain $210 million per year.
Kevin Schwartz, managing partner with Myriad CPA Group, has been following Kentucky’s tax reform efforts “even through the Governor’s Blue Ribbon Tax Reform Commission,” he said Thursday.
“One thing, in general, that is positive in my opinion, is that the governor is making an effort to make positive changes,” Schwartz said. “Redoing the wage brackets, for example, is positive; they haven’t been looked at in a long time.”
Schwartz, who is president-elect of the Kentucky Society of CPAs, said that group is still analyzing the governor’s proposal and has not commented on it. The group will be meeting Tuesday with the tax overhaul plan on the agenda.
Schwartz said he is concerned about the compliance and complexity of the tax on services and is unsure about the local impact.
The governor’s plan is based on recommendations from his Blue Ribbon Commission on Tax Reform. It includes numerous, specific tax code changes and credits. In addition, Beshear again has stated his support for a constitutional amendment that would let local communities vote on a
local sales tax for specific projects they may need.
Highlights of the tax code changes include the reduction of individual income tax rates; creation of an Earned Income Tax Credit that is 7.5 percent of the federal credit; lowering of the top corporate income tax rate from 6 percent to 5.9 percent; a new angel investor tax credit; exempting inventory from state property tax.
The plan also has tax breaks for what Beshear calls Kentucky’s signature industries — bourbon and horses.
The cigarette tax would go to $1 with increases for other tobacco products, e-cigarettes and rolling papers as well.
Beshear acknowledged Tuesday that his plan faces challenges and said he wouldn’t press for a vote until there was consensus among leaders in both the House and Senate.
Local reaction to plan
One part of the governor’s tax modernization measures would apply the 6 percent sales tax to all labor related to repair and maintenance on taxable goods. That would broaden the sales tax to services such as car repair, computer installation and repair, landscaping, janitorial work and pet care. The plan also would also tax admission to fitness centers, golf courses, country clubs and overnight trailer campgrounds.
Jim West, owner of Evergreen Lawn Care of Owensboro and its division, Weedman, believes he will lose customers if the sales tax is broadened to include landscaping businesses.
“I haven’t looked at it real closely, but it will require more bookkeeping to pull out the lawn care portion,” West said.
He and other landscapers will have to pass along any tax increase to customers. And some of their residential customers may just go to an individual for the service — someone who doesn’t have to pay the sales tax on landscaping.
West said he will be talking to his state legislators about the proposal.
The potential for a sales tax on services concerns several local businesses –— for varying reasons.
Duke Brubaker, general manager and vice president of Champion Ford, said the tax on the labor for auto repairs will be a burden on families.
“People bring their cars to us to get them fixed because they need them to live — to transport themselves and their families,” he said. “This will be a pass-through tax for us. I don’t want someone not to fix their car because of that. It could become a safety issue.”
Brubaker plans to talk to the governor and local lawmakers about the tax overhaul plan.
Don Moore of Don Moore Auto Group said he has not looked at the details of the plan, but in general, a sales tax is concerning.
“I just don’t know, but I think it will hurt people earning less income,” Moore said. “It will increase the cost of people getting their cars repaired, and it will have an impact on the plumber with a new tax on the labor side, and it could be devastating to people who have income from rental property.”
Another potential impact, he said, is that “all of a sudden the cost to build a building will go up because of the sales tax on some of that labor.”
The plan includes extending the sales tax to labor related to installation, maintenance or repair related to real property or fixtures to real property, such as contractor labor involving plumbing or electrical work.
Sen. Joe Bowen, a Republican from Owensboro, said Thursday that the governor’s plan is a starting point to a discussion “we very much need to have.”
He said he has not been overwhelmed with calls, but he has received some feedback on the plan.
“It may be premature for me to comment,” Bowen said. “But the complaint is that this plan picks winners and losers, and we shouldn’t sit here in Frankfort and do that. Any tax code has to be fair; that’s the ultimate goal. And I don’t think this is.”
Bowen said the General Assembly should address tax reform, but the plan should have been introduced in the interim.
“It was rolled out at a late hour for the General Assembly — several weeks into the session,” he said. “We’re dealing with the budget. For something as big as a tax plan to encroach on something as big as the budget — that’s challenging. We’ll see what happens in the House; I will be surprised if it passes.”
Get more details of the governor’s plan at: http://governor.ky.gov/Pages/default.aspx.