The Kentucky CPA Journal



2022 Legislative review

Issue 2
April 22, 2022

By P. Anthony Allen

Thursday, April 14, 2022, marked the end of the 60-day Regular Session of the Kentucky General Assembly with the passage of significant legislative reforms, tax modernization, and the next two-year budget for the Commonwealth. 

With supermajorities in both chambers of the General Assembly, Republicans passed overrides on multiple Gubernatorial vetoes; however, differences were not limited to party affiliation alone. House and Senate Republicans compromised on various budget proposals, tax reform, and re-districting bills. Political differences aside, the General Assembly and the Governor agreed upon non-controversial measures, including tornado aid, unemployment insurance relief, and CPA scholarship opportunities. 

The most consequential piece of legislation for the CPA profession was HB8, Kentucky's tax modernization initiative. With a formula to lower the individual income tax rate and broaden the sales tax base, the Society was able to protect the profession and deter the implementation of a sales tax on professional services. The Society successfully advocated for the inclusion of an update to Kentucky’s Internal Revenue Code conformity as of January 1, 2022, as part of the tax reform package. In addition to these initiatives, the Society collaborated with the Kentucky State Board of Accountancy on HB275 to improve the CPA profession in the Commonwealth. 

Due to support through your membership, contributions to the KyCPA–PAC, and involvement with our policy initiatives, the Society received the financial support and professional expertise to elevate key legislative priorities in the General Assembly. The Society’s advocacy team met directly with policymakers and collaborated with business stakeholders to ensure representation of your interests in Frankfort. With over 1,000 bills reviewed and monitored, this article will evaluate the Society’s priority issues during the 2022 Regular Session.  

Biennial budget

Following two years of economic uncertainty due to the COVID-19 pandemic and unprecedented one-year budgets, the primary focus of the 2022 Session remained fixated on the Commonwealth’s next biennial budget. In the final days of the Session, the General Assembly moved forward to pass all budget legislation, including HB1 (Executive), HB241 (Transportation), HB243 (Legislative), and HB244 (Judicial). During the Gubernatorial veto period, the Governor issued specific line-item vetoes on all the budget bills except HB244. Although the Governor requested specific amendments, the General Assembly moved to pass their complete budget proposals into law via veto override. 

Key highlights of the Executive budget include eight percent raises for state employees in the fiscal year 2023 and twelve percent raises in the subsequent, designed to increase state employee recruitment and retention. This budget also exceeds statutorily required appropriations to the Kentucky Employees Retirement System and the Teachers Retirement System at approximately $1.5 billion. All biennial budget appropriations, including general, restricted and federal, total approximately $50 billion, with 41 days of reserves allocated to the Budget Reserve Trust Fund or (Rainy Day Fund). Other key provisions include the allocation of State Fiscal Recovery Funds from the American Rescue Plan Act of 2021 to various state projects, funding for education, transportation, broadband infrastructure, and economic development initiatives. 

Tax modernization

With record tax revenues projected for 2021 and flushed with federal stimulus, Kentucky House Republicans saw a unique opportunity to implement significant reforms to the state’s tax code. HB8 became the embodiment of tax modernization this Session. The primary goal was to lower the individual income tax rate, broaden the sales tax base, and projections that foster economic and population growth to compensate for lost revenues. HB8 does not make any changes to Kentucky’s corporate tax rate. 

HB8’s primary objective is to decrease the individual income tax rate to zero percent on a graduated scale outlined by statute. The Kentucky Department of Revenue and the Office of State Budget Director, starting September 1, 2022, will review reduction conditions set forth by HB8 as applied to the fiscal year 2022. They will submit a report to the Interim Joint Committee on Appropriations & Revenue no later than September 5, 2022, on whether an individual income tax rate reduction will occur. Reduction conditions specified as the balance in Kentucky’s Budget Reserve Trust Fund (Rainy Day Fund) at the end of a fiscal year must be greater than or equal to ten percent of General Funds for that fiscal year. In addition, the General Fund at the end of a fiscal year must also be greater than or equal to General Fund appropriations plus the amount of reduction in the General Fund from a one percent reduction to the individual income tax rate. If these specific conditions are not met, a reduction in the individual income tax rate will not occur and the current tax rate will remain unchanged. If reduction conditions are met as applied to the fiscal year 2022, then the individual income tax rate will decrease by half a percent to four and a half percent beginning January 1, 2023. For future rate reductions, the General Assembly must review and affirm that conditions are met. 

HB8 includes a wide-ranging list of additional services that will become subject to Kentucky's six percent sales tax rate to compensate for lost revenue from the individual income tax rate decrease. New services subject to the sales tax are listed below:

  • Photography and photofinishing services
  • Marketing services
  • Telemarketing services
  • Public opinion and research polling services
  • Lobbying services
  • Executive employee recruitment services
  • Website design and development services
  • Website hosting services
  • Facsimile transmission services
  • Private mailroom services include:
    • Presorting mail and packages by postal code
    • Address barcoding
    • Tracking
    • Delivery to postal service
    • Private mailbox rentals
  • Bodyguard services
  • Residential and nonresidential security system monitoring services
  • Private investigation services
  • Process server services
  • Repossession of tangible personal property services
  • Personal background check services
  • Parking services include:
    • Valet services
    • The use of parking lots and parking structures
    • Excluding any parking services at an educational institution 
  • Road and travel services provided by automobile clubs as defined in KRS 281.010
  • Condominium time-share exchange services
  • Rental of space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties, and other short-term social events
  • Social event planning and coordination services
  • Leisure, recreational, and athletic instructional services
  • Recreational camp tuition and fees
  • Personal fitness training services
  • Massage services, except when medically necessary
  • Cosmetic surgery services
  • Body modification services, including tattooing, piercing, scarification, branding, tongue splitting, transdermal and subdermal implants, ear pointing, teeth pointing, and any other modifications that are not necessary for medical or dental health
  • Testing services, except testing for medical, educational, or veterinary reasons
  • Interior decorating and design services
  • Household moving services
  • Specialized design services, including the design of clothing, costumes, fashion, furs, jewelry, shoes, textiles, and lighting
  • Lapidary services, including cutting, polishing, and engraving precious stones
  • Labor and services to repair or maintain commercial refrigeration equipment and systems when no tangible personal property is sold in that transaction, including service calls and trip charges 
  • Labor to repair or alter apparel, footwear, watches, or jewelry when no tangible personal property is sold in that transaction
  • Prewritten computer software access services 

The exemption of professional services from the sales tax base expansion to include accounting, bookkeeping, tax filing, and personal financial planning and investment management services was a key initiative this Session. The sales tax base expansion includes professional services that may lead to tax pyramiding (a tax on a tax), complex sourcing issues, increased compliance and administrative costs and may make Kentucky an unfavorable outlier amongst other states. During direct advocacy efforts with members of the General Assembly, the Society had the opportunity to inform policymakers of the practical consequences of expanding the sales tax to professional services. 

The Society’s top legislative priority this Session includes an update to Kentucky’s conformity with the Internal Revenue Code (IRC) as of January 1, 2022. The inclusion of this key provision will assist practitioners with tax filing procedures and update the Commonwealth’s overall tax code. This update will encompass Restaurant Revitalization Grants and allow deductibility of business expenses covered by these funds after the effective date of conformity. Other key provisions advocated by the Society include:

  • establishing the effective date of HB8’s tax provisions on January 1, 2023, to avoid compliance issues for the Department of Revenue and provide ample time for administrative implementation. 
  • maintaining the de minimis threshold at $6,000 for services included in the sales tax base expansion. 
  • encouraging the inclusion of definitions for services listed in HB8’s broadening of the sales tax base, therefore providing additional statutory guidance to the Department of Revenue.

In addition to the income and sales tax provisions, HB8 created new tax structures for electric vehicles, car and ride-sharing services and updated tax amnesty guidance. The electric vehicle taxes will not take effect until 2024. The Finance Cabinet and Department of Revenue are to procure services for a tax amnesty program between October 1 and November 29, 2022. If the Department were unable to secure a successful bid for the procurement of services, then the tax amnesty program can forego implementation until a similar sixty-day period in 2023. The tax amnesty program will cover all taxes, fees, penalties, or interest subject to the administrative jurisdiction of the Department, except for ad valorem taxes on real property, motor vehicles, motorboats, and personal property. The program also includes certain federal obligations referred to the Department for collection.

Each of these provisions was critical to protecting the profession, ensuring administrative procedures were clearly outlined in statute, and promulgating sound tax policy in the Commonwealth. From the inception of tax reform discussions in Frankfort last year, the Society’s advocacy team met with key policymakers, establishing direct lines of communication that produced critical amendments during the legislative process. 

CPA licensure

Following three years of consideration, the Kentucky General Assembly and Governor Andy Beshear passed and signed HB275 into law. This legislation aims to address three primary issues related to the CPA profession in the Commonwealth.

HB275 would permit the State Board to financially support accounting-related scholarship programs that assist students enrolled in Kentucky-based colleges or universities. The provision’s purpose is to boost enrollment in accounting programs, as the number of retiring Kentucky CPAs are currently outpacing those entering the profession.  

The legislation would eliminate the requirement that out-of-state CPAs seeking to acquire a Kentucky license through reciprocity obtain the one year of experience in an accounting or auditing position, required in KRS 325.261(6), within five years of successfully passing the CPA exam. This requirement currently exists for Kentucky-based CPAs but has inadvertently created a burden of entry for out-of-state CPAs seeking reciprocity from a state that did not have this specific requirement at the time of their licensing. 

Members of the State Board of Accountancy, its agents, and employees would be immune from suit for any discretionary act performed by them in good faith. Several other Kentucky professional licensing boards have similar language, including the Medical Licensure Board, Board of Pharmacy, Board of Dentistry, Board of Psychology, and the Board of Physical Therapy. This statutory amendment will bring the Board in line with other licensing boards in the state. 

Unemployment insurance

In this Session, the General Assembly tackled unemployment insurance (UI) reform following the administrative issues experienced during the height of COVID-19 and increasing dependency on benefits before the pandemic. The reform package via House Bill 4 will add work search requirements, statutory structures for suitable work applications, and limits on the duration of UI benefits based upon the state average unemployment rate at the time an application for benefits is submitted. On average, Kentucky individuals remain on UI benefits thirty percent longer than individuals in all surrounding states before the pandemic. HB4 creates additional requirements to qualify for UI benefits and encourages individuals to reenter the workforce more expeditiously. The General Assembly voted to override a gubernatorial veto of the bill and pass the reform measures into law effective January 1, 2023. 

The General Assembly also took relief measures via HB144, which proposes to maintain the UI rate schedule to 2020 levels. This will provide additional relief to businesses throughout the state and appropriate approximately $242 million of State Fiscal Recovery Funds from the American Rescue Plan Act of 2021 to restore the fund balance to pre-pandemic levels. HB144 passed the General Assembly and the Governor concurred by signing the bill into law on March 24, 2022. 

Other tax measures 

The 2022 Regular Session included multiple reform measures encompassing other tax provisions, including new wagering structures and local taxes. Some bills were able to cross the finish line. However, a few major initiatives fell short of the final passage.  

There was a significant campaign to pass local tax reform this Session via House Bills 475 and 476. HB475 proposed an amendment to Section 181 of the Kentucky Constitution that would provide authority to the General Assembly to authorize localities the ability to assess local taxes, provide a ballot question with the amendment, and propose this question before Kentucky voters for ratification during the 2022 November election. If the Constitutional amendment were to pass and be ratified by Kentucky voters, HB476 would provide additional statutory guardrails by outlining the General Assembly’s authority over what specific local taxes could be implemented. Both measures passed the Kentucky House earlier in the Session and were under consideration by the Senate. However, the two proposals failed to advance to a final vote by the end of the Session. The Society remained neutral on the passage of both bills. However, if they receive further consideration in future Sessions, the Society strongly recommends centralized local tax collection and guiding sound administrative procedures. 

The General Assembly also considered new statutory structures for pari-mutuel and sports wagering. House Bill 606 sought to address sports wagering formally in the Commonwealth by imposing a new statutory tax structure. HB606 passed the House but did not make it to a floor vote in the Senate. HB607 creates new taxes and amends the tax rates on pari-mutuel wagering beginning August 1, 2022. HB607 passed both Chambers and was signed into law by the Governor on April 8, 2022. The Department of Revenue will now work to implement the new tax structures of HB607 in addition to the tax modernization and unemployment insurance provisions passed into law. 


Leveraging the expertise of the CPA profession provides the Society the credibility to advise policymakers on tax, audit, and professional CPA issues. Your involvement is critical to providing this advice and protecting the profession. Following this Session, the Society will proactively offer its professional, expert, and practitioner guidance to the Department of Revenue for the implementation of clear administrative guidance regarding the reforms included in the multiple tax changes passed this Session.