Tax Reform

2023 Session tax corrections, status updates

Last Updated: 12/4/2023

SALT Parity (PTET) 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 (PTET) elections for 2022 tax returns. 

The Department has made all PTET forms available for the 2022 tax year. Please visit the Department's website to view the official announcement and links. Following tax practitioner feedback and KyCPA's proactive outreach to the Department, a new Form 740-PTET ELECT is now available for PTE elections. 

KyCPA and the Department co-hosted a joint PTET webinar on August 29, 2023. KyCPA's Tax Committee worked diligently to organize over 115 FAQs received from Kentucky tax practitioners following the webinar. The PTET FAQs summary document can be accessible HERE. KyCPA is continuing to work with the Department to address remaining questions. 

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

House Bill 5, SALT Parity Corrections, Current Version

Current StatusHB5 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 StatusHB360 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. 

AICPA PTET Map Apr 2023

State tax reform resources

The Kentucky General Assembly passed significant tax reforms during the 2022 and 2023 Legislative Sessions. The Kentucky Department of Revenue has administered 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.

Ta Answers

Other tax reform measures that passed during the 2023 Legislative Session include:

  • House Bill 1, the decrease in the individual income tax rate from 4.5% to 4.0% effective January 1, 2024. 
  • House Bill 360, modifications to the expanded sales tax base, Kentucky's U.S. Internal Revenue Code conformity update to January 1, 2023, and various other tax provisions. 
  • House Bill 553, sports wagering legalization.


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