Kentucky Sales Tax Update

On July 1, 2018, Kentucky businesses that provide certain services will be required to collect the 6% sales and use tax from their customers for providing these services. Also, the businesses affected by this change must register for a sales and use tax account number by July 1, 2018.

While the new sales tax applies to many types of services, it is not a blanket requirement for all types of services. For example, personal care services provided by barbers and hairdressers are still not taxable services. 

The provisions of Kentucky’s tax reform legislation extend Kentucky’s sales and use tax to a number of services. The following is a list of services that are now taxable for sales and use tax purposes effective July 1, 2018:

Extended Warranty Services
The sale of extended warranty services to repair, support, or maintain tangible personal (movable) property, such as cars, or digital property, such as computers, is taxable to the purchaser on the initial sale of the extended warranty contract. This sales tax will apply to service contract agreements sold on or after July 1, 2018.

The dealers should report the tax collected on the sale of extended warranties on their sales and use tax return (Form 51A102) for the tax period in which the sale occurred. The dealer may claim a resale exemption for parts purchased and installed to complete repairs under the extended warranty because sales tax applies at the time the extended warranty is sold.

Facility/Event Admission Fees
Effective July 1, places requiring admissions to be taxed are bowling centers, skating rinks, health spas, swimming pools, tennis courts, weight training facilities, fitness and recreational sports centers and golf courses — both public and private (including country clubs).[1]

These admissions are taxable regardless of whether the fee paid is per use or in any other form, including but not limited to: an initiation fee, monthly fee, membership fee, or any combination of these. In addition, non-profit 501(c)(3) groups must collect this sales tax unless they fall into sales tax exemptions[2]. Admissions to racetracks[3], historical sites[4], and part of admissions to county fairs[5], elementary and secondary schools, and non-profit 501(c)(3) school-sponsored clubs and organizations are exempt from the sales tax. All other entities engaged in sales of admissions must begin collecting the sales and use tax.

Indoor Skin Tanning Services
This includes but is not limited to tanning booths or beds, as well as spray tanning services.

Janitorial Services
This includes but is not limited to residential and commercial cleaning and carpet services, as well as upholstery and window cleaning.

Labor Charges for Installation or Repair of Tangible Personal (Movable)  Property, Digital Property or Services Sold
Labor is taxable if it is part of a taxable retail sale. For example, the labor bill of a mechanic to install repair parts in a car would be subject to the sales tax. However, labor associated with the repair of real property (real estate) such as HVAC units, water heaters or plumbing fixtures will not be subject to the tax. However, contractors will still pay sales and use tax on their purchase of tangible personal (movable) property (i.e. materials) to complete their construction contracts.
In addition, charges for labor or services to apply, install, repair or maintain tangible personal (movable)  property directly used in manufacturing or industrial processing are exempt,  if the charges for labor or services were separately stated on the invoice, bill of sale, or similar document given to purchaser.

Landscape Services
This includes but is not limited to lawn care and maintenance, tree trimming, pruning or removal, landscape design and installation, landscape care and maintenance, and snow plowing and removal.

Limousine Services
The sales tax must be collected if a driver is provided.

Industrial Laundry/Dry Cleaning Services
This includes but is not limited to industrial uniform supply, protective apparel supply, and industrial mat and rug supply.

Linen supply services
This includes but is not limited to table and bed linen supply and non-industrial uniform supply services.

Non-coin operated laundry and dry cleaning services/Non-medical diet and weight reducing services/Pet care services
This includes but is not limited to grooming and boarding, pet sitting and obedience training.

Rentals of Campsites
This includes campsites, campgrounds and Recreational Vehicle (RV) parks. Rentals for a continuous period of 30 days or more to a person are excluded from sales tax. These new accommodations subject to sales tax will not be subject to the statewide or local transient room taxes.

Veterinary Services
The tax applies to small animals like cats and dogs. It does not apply to large animals like horses, cattle, swine, sheep, goats, llamas and alpacas, flightless birds, buffalo, and livestock. The small pet owners will pay sales tax on all charges that a veterinarian bills its customers for, including the cost of lab tests and prescription drugs.

Pollution-Control
Eliminates the pollution control exemption for sales and use taxes.
Retailers that sell these services should charge a 6% sales tax on the full sales price charged to their customers and may claim a resale exemption on their purchase of items provided to the customer as part of the service.

This resale exemption is limited to tangible (movable) personal property or digital property sold to the customers as part of the retail sale. There is no resale exemption for the resale of services.[6]

In addition, Kentucky will require online or remote retailers selling tangible (movable) personal property or digital property delivered to or transferred electronically to a Kentucky purchaser to register and collect sales tax if: (1) the retailer had 200 or more transactions with Kentucky purchasers in the current or previous calendar year; or (2) the retailer had gross receipts from such transactions to a Kentucky purchaser in the current or previous calendar year that exceeds $100,000.

According to the Supreme Court case of South Dakota v. Wayfair, physical presence is no longer necessary for a state to require a taxpayer to collect and remit sales and use tax for purchases made by in-state customers if the aforementioned criteria is met.
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This bill also enacted a 50 cents per pack cigarette tax increase ($0.60 to $1.10 per 20-count pack of cigarettes and proportionate tax rate increase for 25-count packs), as well as a cigarette inventory floor stocks tax of 50 cents. All cigarette licensees and retailers must take a physical inventory as of June 30, 2018 at 11:59 p.m. They must then file and pay the inventory floor stocks tax.
 
Lastly, the Kentucky Department of Revenue launched a website, TaxAnswers.ky.gov, to provide additional information and resources regarding the tax reforms made during the 2018 session of the General Assembly.
 
For more information on business law, feel free to contact attorney Elliott Stapleton in Cincinnati, Ohio.
 

• See also: https://taxanswers.ky.gov/Sales-and-Excise-Taxes/Pages/Do-I-Need-to-Register-for-a-Sales-and-Use-Tax-Account.aspx

[1] See https://taxanswers.ky.gov/Sales-and-Excise-Taxes/Pages/Facility-and-Event-Admission-Fees-FAQs.aspx for DOR guidance into specific examples of taxable and non-taxable categories of admissions.

[2] See KRS Chapter 139

[3] KRS § 138.480

[4] KRS § 139.482

[5] KRS § 139.470

[6] KRS § 139.260