The Kentucky House, led by Speaker of the House Greg Stumbo, will present their 2010-2012 budget proposal this week. It will differ from Governor Beshear’s proposal a few weeks ago. The most prominent difference will likely be the absence of any revenue from expanded gaming.
The budget will include changes to Kentucky’s tax laws that will raise revenue but will not be presented as tax increases – go figure!
We understand some of the proposed tax law changes will be:
Acceleration of sales tax payments to the state. This is not new revenue; taxpayers will just be required to send sales tax collections to the state sooner. The earlier due dates may affect only the larger retailers – or maybe all retailers…I guess we’ll see!
Net operating loss carry forwards. Unlike the federal tax rules, individuals and businesses that experience net operating losses cannot carry them back against prior year profits to recoup previously paid income taxes. Kentucky tax law only allows a carry forward. Though details are not yet available, we understand from media reports that the 2010-2012 budget proposal will suspend the utilization of Kentucky net operating loss carry forwards for two years. Because this change will adversely affect businesses that are already under financial stress, many will voice opposition to this proposal.
Sales tax on long-term lodging. Currently, short-term hotel rentals are subject to sales tax, while long-term rentals (over 30 days) are not. We understand the proposal will be to tax all stays in hotels, even those over 30 days.
Foreign-earned income exclusion. Under present tax rules, Kentucky residents on long-term assignments in foreign countries do not pay state income tax on their first $80,000 of salary. (Under federal tax rules, the exclusion has been adjusted to $91,400 for inflation.) The exclusion exists because U.S. citizens in foreign countries often experience higher costs of living. Also, many foreign countries impose higher income taxes than the combined federal, state and local taxes here. Without the exclusion, there would be double taxation in many cases. We understand the proposal will eliminate this exclusion.
Tax Amnesty. In the past, many states, including Kentucky, have instituted short-term programs, whereby those who have outstanding tax disputes or have not filed tax returns can avoid interest and penalties if they pay their taxes in full. Governor Beshear proposed to waive interest and penalties on tax assessments protested by January 19 if the tax liability is paid in full by June 15, 2010.
Sales tax exemptions. A theme common in many proposals is to eliminate some of the sales or income tax exemptions that currently exist. We will have to wait on the House’s budget proposal to see which exemptions are in jeopardy. (See our prior MCM Tax Alert on sales taxes.)
If you have concerns about any of these or other proposals you would like to express, you should contact your representative and senator. Click here to find those who represent you.