Kentucky House Approves Bill On Income Tax Reform

Rep. Jason Petrie, R-Elkton, presenting House Bill 8 on the House floor

The Kentucky Senate will now consider key changes to Kentucky’s tax structure after the measure advanced off the House floor on Friday.

The Legislative Research Committee (LRC) reports House Bill 8 would reduce the personal income tax rate from 5% to 4% beginning in 2023. And as long as the state meets certain revenue thresholds, the income tax rate would continue to decrease by .5% or 1% each year until the personal income tax rate hits zero.

The bill’s primary sponsor, Republican State Representative Jason Petrie, of Elkton, said the journey to tax modernization has been years in the making. He noted one of the first steps taken by the General Assembly came in the reduction of the personal income tax rate from 6% to 5% in 2018.

According to Petrie, the data shows the commonwealth has struggled to have significant economic and population growth and has fallen behind many other states. He said tax modernization is one of the key steps Kentucky needs to see growth in those areas.

The plan to eventually eliminate the state income tax will take years. At the end of the fiscal year, Petrie said the Department of Revenue will look at whether actual state revenues, not an estimated amount, meet one of the “trigger” requirements to lower the state income tax rate by either half or full percent.

Under HB 8, in order for the income tax rate to decrease by a half percent, the general fund must see a $1 billion increase in revenue.

Petrie added the way the bill is written means that once the income tax rate goes down, it cannot be triggered to go back up.

The LRC reports in order to reduce the income tax rate, the state plans to expand the sales tax base.

Another provision of HB 8 imposes a 6% use tax on nonessential services such as nonessential cosmetic surgery, body modifications, photography, research polling, bodyguard services, marketing and more. Another section of the bill imposes a tax on ridesharing services, such as Uber and Lyft, and electric vehicles.

Electric vehicle owners would have to pay three cents per kilowatt-hour excise tax at vehicle charging stations. The tax would go into effect on January 1, 2023, if HB 8 becomes law.

After debating HB 8 for nearly three hours, the measure cleared the House by a 67-23 vote.