The Kentucky 2022 Sales and Excise Tax Legislation House Bill 8 breakdown
From The KY Dept of Revenue -
2022 Sales and Excise Tax Legislation Overview (HB 8, HB 659, SB 121) House Bill 8 HB 8 expands the sales and use tax base to include a number of new services effective January 1, 2023. Where new service definitions are provided, the definition and statutory reference are listed together. The $6,000 de minimis threshold found in KRS 139.470(23) applies to otherwise taxable services. Any provider of new taxable services that exceeds $6,000 in gross receipts in 2021 or 2022 must be registered for the collection of the sales and use tax beginning on January 1, 2023.
The new services enacted by HB 8 are subject to both sales tax under KRS 139.200 and use tax under KRS 139.310. House Bill 8, continued The following services are affected by the legislative change:
The following services are affected by the legislative change:
(q) Photography and photo finishing services. KRS 139.010(30) defines “photography and photofinishing services ”to mean“
(a) 1. The taking, developing, or printing of an original photograph, or 2. Image editing including shadow removal, tone adjustments, vertical and horizontal alignment and cropping, composite image creation, formatting, watermarking, printing, and delivery of an original photograph in the form of tangible personal property, digital property, or other media.
(b) Photography and photofinishing services does not include photography services necessary for medical or dental health.”
(r) Marketing services. KRS 139.010(22) defines “marketing services” to mean “developing marketing objectives and policies, sales forecasting, new product developing and pricing, licensing, and franchise planning.”
(s) Telemarketing services. KRS 139.010(47) defines “telemarketing services” to mean “services provided via telephone, facsimile, electronic mail, or other modes of communications to another person, which are unsolicited by that person, for the purposes of:
(a) 1. Promoting products or services; 2. Taking orders; or 3. Providing information or assistance regarding the products or services; or
(b) Soliciting contributions.”
(t) Public opinion and research polling services.
(u) Lobbying services.
(v) Executive employee recruitment services.
(w) Website design and development services.
(x) Website hosting services.
(y) Facsimile transmission services (currently taxable as communication services under KRS 139.195).
(z) Private mailroom services, including:
1. Presorting mail and packages by postal code;
2. Address barcoding;
4. Delivery to postal service; and
5. Private mailbox rentals.
(aa) Bodyguard services.
(ab) Residential and nonresidential security system monitoring services.
(ac) Private investigation services.
(ad) Process server services.
(ae) Repossession of tangible personal property services.
(af) Personal background check services.
(ag) Parking services;
a. Valet services; and
b. The use of parking lots and parking structures; but
2. Excluding any parking services at an educational institution.
(ah) Road and travel services provided by automobile clubs as defined in KRS 281.010.
(ai) Condominium time-share exchange services.
(aj) Rental of space for meetings, conventions, short term business uses, entertainment events, weddings, banquets, parties, and other short-term social events.
(ak) Social event planning and coordination services.
(al) Leisure, recreational, and athletic instructional services.
(am) Recreational camp tuition and fees.
(an) Personal fitness training services.
(ao) Massage services, except when medically necessary.
(ap) Cosmetic surgery services.
KRS 139.010(5):(a) defines “cosmetic surgery services” to mean “modifications to all areas of the head, neck and body to enhance appearance through surgical and medical techniques. (b) Cosmetic surgery services does not include reconstruction of facial and body defects due to birth disorders, trauma, burns, or disease.”
(aq) 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.
(ar) Testing services, except testing for medical, educational, or veterinary reasons. However, small animal veterinarian testing services became taxable in 2018 under HB 487.
(as) Interior decorating and design services.
(at) Household moving services.
(au) Specialized design services, including the design of clothing, costumes, fashion, furs, jewelry, shoes, textiles, and lighting.
(av) Lapidary services, including cutting, polishing, and engraving precious stones.
(aw) 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.
(ax) Labor to repair or alter apparel, footwear, watches, or jewelry when no tangible personal property is sold in that transaction.
(ay) Prewritten computer software access services. KRS 139.010(33) defines “prewritten computer software access services” to mean “the right of access to prewritten computer software where the object of the transaction is to use the prewritten computer software while possession of the prewritten computer software is maintained by the seller or a third party, wherever located, regardless of whether the charge for the access or use is on a per use, per user, per license, subscription, or some other basis.”
In addition to the new services subject to sales and use tax, other changes within HB 8 are also effective on January 1, 2023, and include the following: KRS 139.260 is amended to allow all the newly taxable services (KRS 139.200(2)(g) through (ay)) to be purchased for resale. For example, a purchaser of taxable website design services who then resells the service to an end customer (in this instance, a web designer that subcontracts out to another entity to design a portion of the website), may issue a fully completed resale certificate to the entity that performed the service.
“Limousine services” is removed from KRS 139.200 as a service subject to sales tax. Effective January 1, 2023, limousine service providers are under a new section of KRS Chapter 138 that imposes a 6% excise tax on car rental and ridesharing services. House Bill 8, continued The amended definition for “extended warranty services” now includes extended warranty contracts for real property and all contracts for tangible personal property and digital property regardless of whether the property itself is taxable or exempt.
Effective January 1, 2023, “extended warranty services” in KRS 139.010(14) is amended to mean “services provided through a service contract agreement between the contract provider and the purchaser where the purchaser agrees to pay compensation for the contract and the provider agrees to repair, replace, support, or maintain tangible personal property, digital property, or real property according to the terms of the contract, [if: 1. The service contract agreement is sold or purchased on or after July 1, 2018, and 2. The tangible personal property or digital property for which the service contract agreement is provided. Is subject to tax under this chapter or under KRS 138.460.”]
The effect of this language change (deletions and additions) is to not only add extended warranty contracts for real property, but to also include all contracts for tangible personal property and digital property regardless of whether the property itself is taxable or exempt. For example, separately charged extended warranties purchased on exempt property such as farm equipment, machinery for new expanded industry and motor vehicles sold to certain out-of-state residents will no longer be exempt from sales and use tax. However, all entity-based exemptions are still valid so the purchase of an extended warranty contract by a tax-exempt purchaser, such as a 501(c)(3) charitable organization or a governmental entity, may still be exempt from the tax.
An amendment to KRS 139.480 creates a new sales and use tax exemption for drugs and over-the-counter drugs “that are purchased by a person regularly engaged in the business of farming and used in the treatment of cattle, sheep, goats, swine, poultry, ratite birds, llamas, alpacas, buffalo, aquatic organisms, or cervids.”
The terms “drug” and “over-the-counter drug” have the same meaning as defined in KRS 139.472(3). The exemptions from sales tax for admissions to historical sites found in KRS 139.200(2)(c)(2) and KRS 139.482 have been removed. However, these historical sites are typically non-profits whose sales of admissions remain exempt from the tax under KRS 139.498.
The exemption from sales and use tax for residential electricity, natural gas, fuels, water, and sewer services found in KRS 139.470(7) is amended to specify that these purchases are only exempt if they are “purchased and declared by the resident as used in his or her place of domicile.” “Place of domicile” is further defined as “the place where an individual has his or her legal, true, fixed, and permanent home and principal establishment, and to which, whenever the individual is absent, the individual has the intention of returning.” DOR is developing further guidance for both consumers and utility providers on how to claim and document the residential utility exemption beginning for periods on or after January 1, 2023.
KRS 139.730 is amended to require that “any event coordinator of a festival or similar event shall provide the department with a list of vendors selling at the event any tangible property, digital property, or services” subject to sales and use tax (effective July 14, 2022).