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Tax Changes Roll Out In July, But Are Businesses Ready?

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Kentucky officials are busy sorting through the General Assembly’s new tax changes, which go into effect in July, while some affected businesses have yet to hear from the state.

The GOP-led legislature lowered individual and corporate income taxes to a flat 5 percent rate in the waning days of the 2018 budget session, offsetting the change with new 6 percent sales taxes on more than a dozen services, ranging from labor on car repairs to landscaping.

Ryan Dougherty, the owner of Five Star Exhaust & Auto Repair on Leestown Road, says he’s mostly worried about the effect on his patrons' pocketbooks.

"Most of our customers have enough trouble paying for their car repairs in general without the 6 percent added to labor, and I feel that if we're going to get taxed on labor that it should be across-the-board on all services, not just the select few they've decided to put it on," he tells WUKY.

That’s the mood among many affected by the changes, which touch on a variety of industries including veterinary to janitorial services.

Richard Dobson heads up the Office of Sales and Excise Taxes at the Kentucky Department of Revenue. He tells WDRB-TV the state is putting the pieces into place on the new taxes, set to go into effect in about a month.

"We have a short time frame," he acknowledges. "We're engaged. We're communicating with the affected constituencies, the populations, retail community. So it's an ongoing process."

But Dougherty says so far, he’s only heard about the switchover second-hand.

"I've heard through two other shop-owners that it's going into effect," he says. "Nobody's actually contacted me personally."

Lawmakers overcame a gubernatorial veto to install the $480 million tax increase with an eye toward rolling back proposed education cuts and boosting K-12 spending. Critics contend the services that fall under the new sales tax umbrella disproportionately affect lower and middle-income Kentuckians, while Republican leaders argue the tax reforms create a fairer system.

The state has created a website for business owners and others looking to sort through the tax changes: taxanswers.ky.gov.

Kentucky sales tax will be added to:

  • Extended warranty services to repair, support, or maintain tangible personal property or digital property that is taxable to the warranty holder.
  • Admission fees, initiation fees, monthly fees, and membership fees (excluding racetracks, historical sites, and county fairs). Facilities include, but are not limited to: bowling centers; skating rinks; health spas; swimming pools; tennis courts; weight training facilities; fitness and recreational sports centers; and golf courses (both public and private).
  • Tanning services.
  • Residential and commercial cleaning services, along with carpet, upholstery, and window cleaning.
  • Labor charges for installation or repair of tangible personal property, digital property, or services sold. (Labor associated with the repair of fixtures to real property such as HVAC units, water heaters, or plumbing fixtures will not become subject to tax.) 
  • Landscaping services.
  • Limousine services.
  • Laundry and dry cleaning services.
  • Non-medical diet and weigh-reducing services.
  • Pet care.
  • Campsite rentals.
  • Veterinary services for small animals.
Josh James fell in love with college radio at Western Kentucky University's student station, New Rock 92 (now Revolution 91.7). After working as a DJ and program director, he knew he wanted to come home to Lexington and try his hand in public radio.