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Governor's Tax Reform Plan Unveiled

On Tuesday, February 4, Governor Beshear announced his much-anticipated tax reform plan called "Kentucky Competes." According to plan estimates, full implementation of the plan would generate $210 million a year for the Commonwealth. "This plan simplifies our tax code, creates an even more attractive business climate for current and future businesses, and offers some relief to every working Kentuckian," said Beshear.

The plan is the culmination of recommendations made to the Governor by the Governor's Blue Ribbon Commission on Tax Reform, led by Lt. Governor Jerry Abramson.

Among the tax increases that are sure to garner much debate include:

· Raising the cigarette tax from 60 cents to $1 per pack and creating a tax on e-cigarettes of 20 cents per pack; and,

· Expanding the 6% sales tax to the labor associated with installation and repair of taxable goods (i.e., car repairs) and certain recreational activities and personal services (i.e., gym memberships).

Other Highlights Include:

The plan seeks to eliminate the retirement income tax exemption for retirees earning more than $80,000 a year, while creating a Refundable Earned Income Tax Credit for the state's low-wage earners.

Small businesses will likely be in favor of the plan's angel investor tax credit and corporations will back the proposal lowering the top income tax rate from 6% to 5.9%. Additionally, the plan calls for the phase-in of a single-sales-factor apportionment formula that would replace the current three-factor apportionment formula that multi-state corporations must use for calculating corporate income apportioned to Kentucky.

For a complete list of the plan recommendations, click here.

Amending the state tax code in an election year is no easy legislative task. Recognizing this, the Governor stated that he will not ask the House or Senate to vote on any bill or version of the bill unless the consensus is reached by a majority in both chambers. This process of building consensus between both chambers has worked before; the state's unfunded public pension liability issue was resolved in the last session by using a similar strategy.

McBrayer will continue to monitor the progress of the proposal, as it makes its way through the General Assembly's regular session.

This article is intended as a summary of state and federal law and does not constitute legal advice.

Required Disclosure under Circular 230:

Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party.


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