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Tax Reform

2023 Session tax corrections, status updates

Last Updated: 7/14/2023

SALT Parity Implementation

Due to the relief measures passed via HB5, the Kentucky Department of Revenue, tax practitioners, and taxpayers have until August 31, 2024, to make pass-through entity tax elections for 2022 tax returns. This time frame also provides ample time for official guidance and the election forms to be published by the Department.

The Department is developing a new Form 740-PTET. Please visit the Department's website to view the official announcement. When further guidance is published, that information will be posted here. 

In the interim, please submit pass-through entity tax questions to KyCPA Government Affairs Director, P. Anthony Allen at aallen@kycpa.org. Frequently asked questions will then be organized and sent to the Department for further review. Questions will be regularly shared with the membership via the Member Meetup, Tax Community. 

Once further guidance has been published by the Department, KyCPA will send out a notice to members regarding pertinent updates. 

House Bill 5, SALT Parity Corrections, Current Version

Current Status: HB5 was signed by Governor Andy Beshear on March 31, 2023. HB5 is now law, please review specific provisions and the emergency effective dates. 

Below are links to the bill's final language and key provisions outlined by Section regarding updates to the pass-through entity tax. 

HB5 FINAL legislation

Key Provisions

  • Sections 6-9, 14 SALT Parity/PTET corrections, pp 44-47 
    • Additional KRS references and statutory definitions detailing entities, owners, and the designation of an authorized person to make a pass-through entity tax election
      • These corrections were specifically included to ensure compliance with U.S. IRS Notice 2020-75 guidance and are intended to include all pass-through entities
    • Pass-through entity tax elections can be made after March 31, 2023 but before August 31, 2024, for 2022 tax returns
      • No late payment, late filing, or other similar penalties will be imposed on the electing entity
      • No interest will apply to the pass-through entity tax paid by the electing entity
    • For 2022 and 2023 tax years, electing entities will not be required to make estimated payments and no tax penalty will be assessed
    • The pass-through entity tax credit was made refundable 
    • The pass-through entity tax provisions are now immediately effective upon passage into law

House Bill 360, Revenue Legislation, Current Version 

Current Status: HB360 was signed by Governor Andy Beshear on March 24, 2023. HB360 is now law, please review specific provisions and accompanying effective dates. 

Below are links to the bill’s final language and key provisions outlined by Section.

HB360 FINAL Legislation

Key Provisions

  • Sections 4-15, 2022 Session HB8 corrections 
    • Car rental and ride sharing tax, pp 3-9
  • Cosmetic surgery services, pp 11
  • Executive employee recruitment services, pp 14
  • Extended warranty services/prewritten computer software access services, pp 14
  • Lobbying services, pp 18, 19
  • Marketing services exemption, pp 20, 33
  • Telemarketing services, pp 30, 33
  • Prewritten computer software access services, pp 14, 31, 60
  • Residential and nonresidential security system monitoring services, pp 34
  • Testing services, pp 35
  • Residential utilities sales tax, multi-unit residential rental facility or mobile home and recreational vehicle park resident sales tax exemption, pp 42
  • Water and sewer projects, allow the governmental exemption to flow through to the contractor purchases, with an amendment to allow all government water and sewer projects, pp 58, 59
  • Exempt the sublease or sub-rental of space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties, and other short-term social events if the tax is paid by the primary lessee to the lessor, pp 59, 60
  • For nonprofit civic or other nonprofit organizations that operate a fundraising event solely with volunteers, sales of concessions for leisure, recreational, or athletic fundraising purposes of sales of leisure, recreational, or athletic services are exempt from sales tax, pp 63, 64
  • Sections 16, 22, & 23 SALT parity relief
  • Pass-through entity tax, credits, pp 64, 65, 83-96 
    • Retroactive to 1/1/2022
    • Pass-through entity tax election
    • Pass-through entity tax credit:
      • Pass-through entity tax credit equal to 100% of the tax paid 
        • NOTE: The pass-through entity tax credit was returned to 100% by the free conference committee report following advocacy by the SALT parity coalition and KyCPA 
    • The Department (of Revenue) shall prescribe forms and may promulgate administrative regulations as needed to administer this section
    • Credits for taxes paid to other states, pp 95, 96
      • NOTE: This provision was added by Senate amendments following advocacy by the SALT parity coalition and KyCPA
    • NOTE: Review HB5 updates to HB360's SALT parity relief provisions for additional details
  • Section 17, IRC conformity
    • Update to 1/1/2023, pp 65-73
  • Sections 18-20 Restaurant revitalization grants
    • Restaurant revitalization grants that covered business expenses during the entirety of the federal program will now be deductible, pp 73-83
    • For taxable years beginning on/after 1/12020 but before 3/11/2023
  • Section 21, Individual income tax rate reduction conditions, pp 83-91 
  • Section 26, tax increment financing agreements, pp 107-116
    • For projects approved prior to 1/1/2023, the state revenues received by the Commonwealth from individual income tax shall be computed using modified new revenues for income tax, making the new revenues equal to those that would have been calculated at the income tax rate of 5%, but only for calendar years 2023, 2024
  • Sections 28-34, rural housing trust fund, pp 119-128
  • Section 49, motor vehicle usage tax, including recreational vehicle definition, pp 155-159
  • Sections 50, 51, property tax, valuation method for multi-unit rental housing, pp 159-172
  • Section 53, centralized tax reporting and distribution system for state and local transient room taxes, pp 173
  • Sections 55-57, effective dates, pp 173, 174
  • Section 58, emergency clauses, pp 174  

SALT Parity Retroactivity: Discussions with clients regarding the retroactive implementation, election into the pass-through entity tax, and cost/benefit analysis of an election will be critical for the remainder of the tax season. It will be important to weigh the advantages/disadvantages associated with making this election and whether tax savings will be realized on 2022 and/or 2023 tax returns under each client's unique circumstances. 

To assist with communications to clients regarding SALT parity relief and the evolving tax climate, please utilize this sample client letter/memo from KyCPA. 

Questions?

If you have specific questions, please email KyCPA Government Affairs Director, P. Anthony Allen at aallen@kycpa.org. 

AICPA PTET Map Apr 2023

Kentucky Department of Revenue, Sales Tax FAQs Update

The Department has provided responses to the frequently asked questions submitted by KyCPA following our joint sales tax webinar on January 24, 2023. Please CLICK HERE to review the FAQs list and responses provided by the Department. 

State tax reform resources

The Kentucky General Assembly passed significant tax reform via House Bill 8 on April 13, 2022. The Kentucky Department of Revenue is expected to administer regulatory guidance regarding the implementation of the new tax reform changes via their Tax Answers website. Any specific guidance administered by the Department will be posted on this website for ease of access.

Other tax reform measures that passed during the 2022 Regular Session include unemployment insurance reform via House Bill 4 and House Bill 144. Other tax changes passed into law include House Bill 607 regarding a new tax structure for pari-mutuel wagering. 

Most of the tax changes included in House Bill 8 will become effective January 1, 2023. Specific provisions, including the new transient room and electric powered vehicle taxes have specific effective dates. 

Ta Answers

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