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Sales tax on services brewing in Kentucky

Written on Jan 20, 2022

OSCPA staff report 

The Bluegrass state is expected to make tax reform a significant part of its agenda in 2022 as the General Assembly considers lowering the income tax rate and broadening the sales tax base. 

The state’s almost $2 billion surplus from its general almost $2 billion surplus from its general fund means lawmakers have more possibilities to creating impactful tax legislation, unlike previous years. The Kentucky Society of Certified Public Accountants has noted: 

“The Tax Foundation’s recent report, Aligning Kentucky’s Tax Code for Aligning Kentucky’s Tax Code for Growth, researches multiple options the Commonwealth can take to lower the individual income tax rate, adjust business and property taxes, and broaden the sales tax base to maintain current revenues while reforming the state’s overall tax structure. This broadening of the sales tax base may include professional services. Such professional services could encompass legal, accounting, and many other services provided by CPAs and other professions. The expansion of the sales tax base to include professional services may potentially 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.” 

OSCPA has successfully defeated past efforts in Ohio to assess sales tax on CPA services and will be keeping a close eye on this Kentucky legislation.