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Tax Alert: Sales Tax in Kentucky

 

Tax Alert: Sales Tax in Kentucky

Recently, Kentucky House Bill 487 passed, which contained significant changes to Kentucky Tax laws. For purposes of this communication, we would like to highlight one major change regarding Kentucky Sales Tax. This new bill requires that, as of July 1, 2018, certain service businesses begin charging and collecting 6% sales tax on labor and service sales. The following services have been included in the list of transactions now subject to sales tax:

  1. Labor and services for certain repair, installation and maintenance of personal tangible property, including digital property

  2. Extended warranties

  3. Facilities/Event Admission Fees

  4. Indoor skin tanning services

  5. Janitorial and laundry services

  6. Landscaping services

  7. Limousine services

  8. Diet and weight reducing centers (non-medical)

  9. Rentals of campsites

  10. Pet care services

  11. Veterinarian services

 

Click the links above to jump down to more details about each of these categories.

 

If your business is included in one or more of the above categories, you may need to start charging, collecting, and remitting sales tax. You may also need to apply for a sales tax account number if you do not already have one. Kentucky tax registration forms and instructions can be found here.

 

As with many of the recent tax law changes, there are still some questions to be answered. As we are made aware and provided more guidance from lawmakers and the Kentucky Department of Revenue we will pass this information along. As valued clients, please do not hesitate to contact us with any questions or concerns you may have regarding this or any other tax law changes.


Installation & Repairs:

This category is fairly straightforward and simple. You take your car to the mechanic or body shop, and instead of being charged sales tax on only the parts, as in the past, you will now be charged sales tax on the service/labor as well. Additionally, repairs to other personal property, such as a computer, will now be subject to sales tax. The Kentucky Department of Revenue has clarified that installation or repairs of real property, such as to HVACs, water heaters and plumbing fixtures are not subject under the new law. Contractors and construction businesses will continue to pay and charge sales tax as has been their custom under the existing law.


Extended Warranties:

Consumers of extended warranties for servicing, repairing, and maintaining personal tangible property and digital property will have to cough up an extra 6 cents on the dollar. Examples of subject extended warranties include vehicles, computers, cell phones, certain appliances and any other non-real property items. However, Guaranteed Auto Protection (GAP) and credit life insurance sales are excluded from sale taxes. Further, parts used to make repairs under a warranty contract are not subject to sales tax when purchased by the repairer or when used. Since the warranty was subject to sales tax when sold, the subsequent repairs would have been included in the value and thus sales tax already paid.


Facilities/Event Admission Fees:

Gym memberships, bowling centers, skating rinks, golf courses, tennis courts, swimming pools, sports league fees, rentals of facilities and lockers, entry fees, gun clubs and shooting ranges, bingo, go-carts, batting cages, and zip lines are all examples of the many businesses that must now charge sales tax to their customers. Admission fees, initiation fees, monthly fees, and membership fees are all included as charges subject to sales tax. 

 

Nontaxable admission charges include team membership fees, professional and fraternal order membership fees, instructor-led recreational classes, educational classes, day care and summer camp facilities, licenses and general facility rentals such as conference rooms, ballrooms and temporary storage.

 

Most organizations including non-profit organizations and other governmental agencies will be required to collect and remit sales tax on the above-mentioned fees. The entities excluded from this obligation include horse racetracks, historical sites, county fairs, elementary, and secondary schools and school-sponsored clubs and organizations.


Indoor skin tanning services:

Tanning services including tanning beds and booths and spray tanning are now subject to sales tax. Federal excise tax and now Kentucky sales tax – talk about double taxation!


Janitorial and Laundry Services:

Subject services include but are not limited to, residential and commercial cleaning, carpet, upholstery, and window cleaning. Industrial laundry services, including but not limited to, industrial uniform supply, protective apparel supply and industrial mat and rug supply.  Linen supply services, including but not limited to, table and bed linen supply and non-industrial uniform supply services. Non-coin operated laundry and dry-cleaning services are also now subject to sales tax.


Landscaping services:

Landscaping services that are now subject to sale tax include but are 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:

Sales tax must be collected if a driver is provided. 


Diet and weight reducing centers (non-medical):

Sales and use tax must be collected when providing non-medical diet and weight reducing services. Jenny Craig, Weight Watchers, and the like are examples of the types of services that must begin charging sale tax.


Rentals of campsites:

Taxable accommodations will now include 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 state-wide or local transient room taxes.


Pet care services:

Pet care services includes pet boarding, grooming, pet sitting and pet obedience training.


Veterinarian services:

All services provided by veterinarians are subject to sales tax. No surprise to anyone who lives in Kentucky, veterinarian services subject to sales tax excludes the following types of animals:  Equine, cattle, swine, sheep, goats, llamas, alpacas, ratite birds, buffalo, and cervids. 

 

Moreover, questions have arisen regarding the liability of veterinarian offices for sales tax on certain purchase made in the course of their business. For example, outside laboratory testing is subject to sales tax when paid by the veterinarian and again when these charges are pass along to the veterinarian’s customer. Additionally, items the veterinarian office uses in the course of providing services (such as supplies) are subject to sales tax when purchased.  A resale certificate can be provided to vendors for such items that are truly product sales such as medicines (not administered by the veterinarian), pet toys, food, collars and other products customers leave with.   

 


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