FRANKFURT, Ky. — Legislation that would phase out the state’s personal income tax and modernize Kentucky’s tax structure is being pushed through the governor. The proposal, HB 8, is the second major tax overhaul since Republicans took control of the House in 2016 and continues the majority’s commitment to growing the state’s economy by making the tax code of the more attractive state for Kentucky workers and people planning to settle here.
HB 8, is sponsored by House Appropriations and Revenue Chairman Jason Petrie and Vice Chairman Brandon Reed.
The final version of HB 8 would gradually reduce state personal income tax over a period of years until it is eliminated. Before the tax is reduced, the state must meet predefined triggers based on a formula based on the number of actual revenues exceeding expenses plus the dollar value of a 1% income tax cut. If this trigger is activated, personal income tax is reduced by half a percentage point. The first drop is measured against fiscal year 2021 performance and would lower the rate to 4.5% on January 1, 2023, leaving approximately $500 million in taxpayers’ pockets to invest and spend in local communities.
House Speaker David Osborne added: “For decades, heads of state have talked about tax reform, engaging in countless studies, task forces and task forces. The problem is that most have approached tax reform as a way to raise government revenue rather than grow our economy. You cannot tax your way to prosperity because the state government will continue to grow. Instead, we’ve chosen a fiscally responsible approach that benefits Kentucky workers.
Reed pointed out that HB 8 makes no changes to corporate income tax or limited liability entity tax (LLET), nor does it include a supposed extension of sales tax. to traditionally untaxed items such as groceries and medications. Instead, it focuses on eliminating the personal income tax paid by Kentucky workers and those with retirement income.
To ensure further cuts are triggered, HB 8 shifts the burden of revenue to consumption-based taxes that are paid by those who visit the state as well as those who live there. It expands the tax base to include the extension of sales tax or user fees to the following services as well as others listed in the bill:
- Non-primary residential electricity (main residences would remain exempt)
- Taxis, car rentals, or transportation services like Uber and Lyft
- Temporary rental services (AirBnB, VRBO)
- Residential and non-residential security systems
- Bodyguard and self-protection services
- Process servers
- Valet and parking services
- Entertainment rooms and event space rental
- Legislative and executive lobbying
- Cosmetic surgery procedures (not medically necessary)
- Private courier services
- Executive Search Services
- Unsolicited telemarketing services
- Public Opinion Research
The measure also introduces an electric vehicle ownership charge on electric and hybrid motor vehicles and a tax on the use of chargeable charging stations. The revenue generated by these mechanisms would be allocated to the national road fund and the general fund.
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