Whitesburg KY

Businesses brace for new sales tax

Tax changes taking effect in July have businesses and local governments eager to find out what will be taxed, what won’t be and who should be paying for it.

House Bill 487, dubbed at the time as a “tax cleanup bill,” did several things, including expanding the state’s 6 percent sales tax to several previously untaxed services.

A brief list of the affected businesses include extended warranty services, facility rentals and event fees, indoor tanning services, janitorial services, labor installation or repair of personal property or digital property, landscape services, limousine services, laundry or dry cleaning services, nonmedical diet and weight loss services, pet care, rentals of campsites and veterinary services.

Due in part to the rapid path House Bill 487 took before finally being passed at the last possible chance in late April, experts at the Department of Revenue are trying to clarify a number of questions nonprofits and business owners have before July 1.

Glenn Waldrop, a spokesperson for the state Department of Revenue, said business owners are encouraged to send their questions to the department, but shouldn’t consider themselves exempt from collecting tax just because they might not have been notified yet.

“We suggest for everyone, if they have any questions whatsoever, to check the site and reach out to us for further questions,” Waldrop said. “We have the ability through our database to send letters to people we might know will need to collect tax, but not everyone is in the database. If they do start the process for sales tax identification, we can be more aware if we need to reach out to them.”

Some business owners like Darrell Harley, of Harley’s Auto Services, see the changes as more of the same. Harley said he already collects sales taxes for parts and assumes taxing labor will be similar, but it isn’t clear whether mechanics will be required to report both taxes separately or if one 6 percent tax can be collected on the entire bill.

“It’s really just a pass through from the customer to the government and we’re in the middle,” Harley said. “I just don’t know what exactly they are expecting or what the processes will be.”

While he doesn’t see the way he does business changing dramatically under the new tax regulations, Harley said he does believe customers will have some opinions when they see the added tax on their next repair bill.

“It’s not a luxury to have to have your car worked on,” Harley said. “It’s a pain in the rear end. They are already having car problems, then an entity that doesn’t have anything to do with working on their car wants 6 percent.”

The new taxes are also creating a confusing situation for government entities. Since the new sales taxes cover things like swimming pools, golf courses and even picnic shelters that municipal park systems provide, city and county governments are having to deter- mine their best course of action.

In western Kentucky, Daviess County Judge-Executive Al Mattingly said the county was still conferring with County Attorney Jim Hendrix about what the overall impact of added sales tax might be, but it seemed clear to him that the county wouldn’t be exempt from the added sales tax. He said the county would probably raise prices on taxed services to compensate for the 6 percent increase instead of adding to what the county subsidizes, but the fact that local governments are having to make such a decision sets a bad precedent.

“I think it was shortsighted for revenue to put tax on something that’s already paid for by taxing,” Mattingly said. “Our shelters are built and supported by general revenue taxes and now the state is telling us we have to tax those taxpayers for using them.”

So far, the county may only have to add sales tax to picnic shelters or the fee that sports leagues pay when they rent baseball facilities, but the City of Owensboro has a different situation.

Amanda Rogers, Owensboro Parks and Recreation Department director, said she would have to calculate what added sales tax would be for services from admissions to public pools and Edge Ice Center to golf course memberships.

Rogers said the department has received some small breaks like news that lessons offered at public pools or the skating center will avoid taxes, but some tough decisions still have to be made. She said once the impact of the added taxes is found, the city should probably ask whether it should pass on the costs to customers.

“I think it’s definitely a good question,” Rogers said. “All of our recreational services like sports leagues and golf courses are subsidized so we can keep costs to a point where they are open to all citizens. How we pay for that tax is going to play into that openness.”

Angela Hamric, Owensboro finance manager, said city leaders will meet to decide the issue, but the answer seemed pretty straightforward from an accounting standpoint.

“When you go to the concession stand and buy a candy bar, if price is a dollar, sales tax is included in that,” Hamric said. “The tax is simply a pass through that we collect and submit to the state. It’s a net-zero effect in our budget. All our prices include sales tax, and we will plan to continue that until further recommendation.”

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