Cover: 2020 legislative preview
Issue 5
December 18, 2019
By Shelby Williams
On November 5, after a very close and contentious race, Andy Beshear defeated Matt Bevin by 5,136 votes to secure the seat as Governor. For the first time in modern Kentucky history, there will be a Democrat Governor who will work with Republican Super Majorities in both the House and Senate. Republicans holding the Super Majority will make for an interesting session, since having the majority allows the General Assembly to override any veto the Governor may deliver. Thus, we will likely continue to see a conservative tilt in legislative tax policy in 2020.
However, Department of Revenue leadership is Governor appointed, so with a change in leadership we are likely to see a philosophical change as well. In addition to the Department of Revenue, we will see leadership changes in the Office of the State Budget Director and the State Board of Accountancy, which KyCPA works with regularly. We look forward to working with the new administration and continuing our relationship with the legislature and Department of Revenue as a resource for tax and business policy.
The upcoming 2020 60-day “long” session kicks off on January 7 and is slated to end on April 15. Throughout the session, KyCPA will advocate for our members on tax, license, and general business issues, along with any other issue that affects the CPA profession. Below is a preview of some of the key issues we will be closely watching next year.
Tax reform
Although 2018 was the “big year” for tax reform in Kentucky, the General Assembly had some major cleanup efforts during the 2019 session. Among numerous changes, the legislation made admissions to nonprofit events tax exempt, established a de minimis sales tax standard for services, and created a threshold for the new Marketplace Facilitators tax. KyCPA supported several issues that were addressed, including the Commonwealth’s conformity with the Internal Revenue Code, which reduces potential differences between federal and state tax laws, and additional taxpayer rights, like equalized interest rates.
While much progress was made, there are still several issues that need to be addressed. KyCPA has identified the following:
Mandatory unitary combined reporting: The legislature’s adoption of mandatory unitary combined reporting (UCR) represents a major shift in how multi-state companies calculate their income tax. If Kentucky retains UCR, the legislature should adopt taxpayer-friendly, fair and simple UCR provisions.
Adopt partnership audit legislation: The American Institute of CPAs (AICPA) and other state tax organizations recently approved a model state statute proposed by the Multistate Tax Commission (MTC). The MTC model statute provides uniformity and incorporates the changes needed for states to conform to the regime, as well as establishes more uniform standards for reporting federal audit adjustments for all taxpayers to the states. In order for Kentucky to collect its share of liabilities flowing from the IRS partnership audit and avoid substantial legal and administrative concerns, KyCPA supports adoption of the model statute.
Repeal or simplify the Limited Liability Entity Tax (LLET): The LLET is a unique tax that KyCPA believes should be repealed. However, if the LLET is retained, KyCPA supports legislation to align Kentucky’s LLET Cost of Goods Sold (COGS) definition with that of the COGS definition for federal and Kentucky income tax purposes. By bringing Kentucky in line with the federal and its own income tax definition for COGS, it will both enhance compliance by businesses and improve enforcement by the state.
KyCPA will be pushing for these improvements and will be monitoring other legislation that could affect CPAs, such as expanding the sales tax to professional services and calls to weaken or eliminate professional licensing requirements in Kentucky.
Pension reform
In July of this year, Governor Matt Bevin called a five day special session to address the pension crisis in Kentucky. The general assembly ended up passing House Bill 1, which delivers vital pension relief and a path forward for Kentucky’s regional universities and quasi-governmental agencies, who provide critical services to citizens across the Commonwealth.
The options found in House Bill 1 would allow the state’s approximately 118 quasi-governmental agencies (including local health departments, regional state-supported universities and community colleges, domestic violence shelters and others) to keep their employees in the Kentucky Employees Retirement System’s (KERS) nonhazardous plan at increased costs, or move all or a portion of their employees to an alternative retirement program. Agencies that leave KERS would have to pay their unfunded liabilities, which are earned but yet-unfunded benefits, in either a lump sum or in installments to the state.
You can expect to hear much more about pensions in the 2020 session. It will be interesting to see if Beshear makes it a priority to fully fund the systems as Bevin did in the last state budget plan.
Infrastructure investment
Most legislators acknowledge the gas tax desperately needs to be modernized because revenues fluctuate on the price of gas rather than road usage. Hybrid and electric vehicles are also not taxed at the same level as gas-only vehicles. Expect road contractors, business organizations and others to bring another bill in 2020.
Cybersecurity
Protecting consumer data and sensitive information is a rising priority across the country. During the 2019 session, at least 43 states and Puerto Rico introduced or considered close to 300 bills that deal significantly with cybersecurity. Thirty-one states enacted cybersecurity-related legislation in 2019. Kentucky already has a security breach notification law, and attempts have been made in recent sessions to strengthen this law.
Cybersecurity legislation often has a direct impact on CPA firms, who hold personal information related to their clients. While KyCPA supports efforts to protect consumer data, legislation should carefully strike a balance between consumer protection and the compliance burden on businesses.
Sports betting
The U.S. Supreme Court’s decision in 2018 to strike down a 1992 federal law that banned sports betting in most of the country opened the door for Kentucky and other states to legalize the activity. Proponents of expanded gambling in Kentucky scored a big victory with Democrat Andy Beshear winning the state’s gubernatorial race. Beshear was a vocal supporter of expanding gambling laws in Kentucky, expressing his support for bringing land-based casinos to the state. With the legislature now having the Governor’s support, this will be a bipartisan issue that is sure to come up in 2020.
These are just a few of the major issues to be considered by the 2020 Kentucky General Assembly. As always, if you have any suggested legislation that will positively impact the CPA profession, feel free to contact KyCPA. Be sure to keep up to speed with the session by reading our weekly legislative updates, and don’t forget to contact your legislators.
About the author: Shelby Williams is the government affairs director of The Kentucky Society of CPAs. She can be reached at swilliams@kycpa.org.