On April 13, 2018, Kentucky legislation passed a new tax bill into law. Instead of reading the thousands of pages of the new tax law, which I know many of you enjoy dearly, I thought a summary of some of the main highlights would be useful. This does not include every single change in the tax law and is only intended to summarize the changes that will have a wider impact.
Sales tax changes effective July 1, 2018:
Newly taxed services include landscaping, janitorial, veterinarian services for small animals, fitness and recreational sports centers, commercial laundries, golf courses and country clubs, dry cleaning, pet grooming, weight loss centers and campgrounds and others.
Services and changes to install, repair and maintain tangible property used in manufacturing and industrial processing are exempt from taxation.
Modifications and enhancements to prewritten computer software have been clarified as not taxable whereas pre-written computer software is taxable.
Corporate income tax rate:
A flat 5% tax rate is used instead of a tiered rate that was capped at 6%. Corporations that were taxed below the 5% percent rate in the past will see a tax increase whereas corporations taxed at the 6% tax rate in the past will see a tax decrease.
The Kentucky Domestic Production Activities Deduction has been removed to match the federal removal of the deduction.
Individual income tax rate:
The federal 20% deduction for pass-through entities under Section 199A is disallowed at the state level.
Newly disallowed itemized deductions include medical expenses, taxes paid and casualty and theft losses. Mortgage interest deductions and charitable contributions are still allowed.
Effective July 1, 2018, the tax rate will be reduced from an average of 5.8% to 5% for everyone from the tiered bracket that capped at 6%.
As always, if you have any questions regarding any of these changes, feel free to reach out to any of us at Mackey Advisors 859) 331-7755.