Kentucky Gov. Matt Bevin signed House Bill 354 (HB354) into law effective March 26, 2019. While HB354 contains significant changes to the state’s corporate income tax and sales tax, this alert focuses on the bill’s sales and use tax implications.
HB354 overhauled some of the legislation enacted in 2018 via HB487. Since passing HB487, lawmakers have agreed they erred in subjecting nonprofit organizations to tax on their sales of admissions. As such, effective March 26, 2019, sales of admissions by nonprofit educational, charitable or religious institutions are no longer subject to Kentucky’s sales tax. In addition, this exclusion applies to sales of admissions by nonprofit civic, governmental or other nonprofit organizations.
Furthermore, HB354 clarified that “fundraising event sales” by these organizations are not subject to Kentucky’s sales tax. However, this does not include any sales related to the operation of a retail business such as thrift stores, bookstores or any ongoing operations in competition with for-profit retailers.
HB354 made these definitional changes within Chapter 139 of the Kentucky Revised Statutes:
- Effective March 26, 2019, “admissions” no longer includes fees paid for fishing tournaments or boat ramps
- The term “marketplace provider” replaced “marketplace facilitator.” A “marketplace provider” is broadly defined as:
- Anyone who directly or indirectly performs various activities (including but not limited to selling items in a marketplace on behalf of a marketplace retailer) and
- Anyone who directly or indirectly collects payments, processes payments or collects a commission or fee via a retail sale in the marketplace
Marketplace Provider – Economic Nexus
Effective July 1, 2019, a marketplace provider that makes retail sales on behalf of marketplace retailers in Kentucky resulting in sales of more than $100,000 or 200 or more transactions is subject to Kentucky’s sales and use tax. This threshold is based on the immediately preceding calendar year or current calendar year. A marketplace provider must begin collecting this tax by the first day of the calendar month that begins no later than 30 days after the threshold is surpassed.
In addition, HB354 requires that the marketplace provider collect tax on the purchase price regardless of whether the seller would have been required to collect the tax had the sale not been facilitated by the marketplace provider. A marketplace provider also must register for a separate sales and use tax permit number to report and remit the tax due on all sales it facilitates for marketplace retailers.
The marketplace retailer is relieved of all liability for the collection and remittance of tax on sales facilitated by the marketplace provider. Also, no class action may be brought against a marketplace provider on behalf of purchasers in any way related to an overpayment of tax collected by the marketplace provider.
Cost of Production: Energy Exemption for Tollers
In another significant departure from HB487, the passing of HB354 allows tollers to exclude the costs of their own tangible personal property, effective July 1, 2018, in their computation of production costs if these conditions are met:
- Maintain binding contract governing terms with a separate legal entity that holds title to the tangible personal property
- Maintain account records showing expenses to fulfill contract such as labor, depreciation and taxes
- Maintain separate bank accounts, tax returns and payroll to demonstrate independent operations in tolling
- Demonstrate business purpose for the tolling operations
Open Records Act
HB354 also allows the Department of Revenue to keep certain documents unavailable to the public, such as private letter rulings and final tax rulings that are not appealed.
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