Kentucky Blue Ribbon Commission - Items Still Under Consideration

MEMORANDUM

To:	Blue Ribbon Commission on Tax Reform
From:	Staff
Re:	Items Still Under Consideration
Date:	November 18, 2012

Dear Commission, below see the tax reform proposals that are still under consideration:

Individual Income Taxes

Proposal # 1: Add additional tax rates for higher income individuals on the income tax

Proposal # 2: Change the reference to the Federal Code from December 31, 2006 to December 31, 2012

Proposal # 4: Eliminate or reduce the income tax

Proposal # 6: Enact a state Earned Income Tax Credit

Proposal # 7: Implement a tax deduction for 529 college savings plan contributions

Proposal # 8: Limit itemized deductions

Proposal # 9: Make taxable income equal to the federal Adjusted Gross Income (AGI) less a significant standard deduction and tax credit for low income households

Proposal # 10: Tax Retirement income

Proposal # 11: Remove the spousal division on income and deductions

Corporate Taxes

Proposal # 14: Create an R&D Tax Credit

Proposal # 28: Exempt business-to-business transactions, including the purchases of business inputs used for the manufacture of goods

Sales and Excise Taxes

Proposal # 29: Apply transient room taxes to entire hotel accommodation price

Proposal # 30: Apply sales tax to pre-written computer software

Proposal # 32: Charge sales tax only on materials used to build a manufactured home, or 50 percent of the retail cost

Proposal # 34: Exempt mail charges for direct mail from sales tax

Proposal # 35: Extend sales tax to the auction price of a thoroughbred horse

Proposal # 36: Remove the sales tax from livestock antibiotics

Proposal # 38: Impose a gross receipts tax of between 1 and 3 percent on both residential and business utilities

Proposal # 39: Impose a gross receipts tax of up to 3 percent for residential utilities

Proposal # 41: 1) Increase collection of out-of-state and Internet sales; 2) Support federal legislation allowing states to require remote firms to collect sales tax

Proposal # 42: Increase the tax rate on cigarettes and other tobacco products

Proposal # 43: Raise the sales tax

Proposal # 46: Review the sales and use tax on equine products

Property Taxes

Proposal # 47: Allow school districts to maintain the current property tax assessment rate even when the new assessment surpasses the four percent cap

Proposal # 48: Create a tax credit for the bourbon industry to offset the property tax on stored barrels of bourbon, without reducing local property taxes to school districts

Proposal # 49: Eliminate personal property taxation

Proposal # 50: Exempt Inventory from Property Tax

Proposal # 51: Freeze the state property tax rate at 12 cents per $100 of value

Proposal # 52: Increase funding for PVA offices, or create a dedicated funding stream for PVA offices

Proposal # 55: Identification of public service companies for taxation

Proposal # 57: Amend the Constitution to eliminate the homestead exemption for those over 65 while putting in place a statutory means-tested property tax circuit breaker for those over 65

Proposal # 58: Remove the HB44 recall provisions for local and school real property taxes

Severance Taxes

Proposal # 61: Clarify the definition of “gross value” under severance tax

Other Taxes / Issues

Proposal # 62: Eliminate Tax Increment Financing programs (TIFs)

Proposal # 63: Establish a Kentucky estate tax with modest exemption limits

Proposal # 64: Impose the Pari-mutuel tax on advance deposit wagers made by Kentucky residents on live races conducted at Kentucky race tracks

Proposal # 65: Sunset or provide regular review of tax incentives

Proposal # 66: Broaden the hospital provider tax to include doctors

Road Fund Issues

Proposal # 67: Implement a trade-in credit for new car purchases

Proposal # 70: Modify the index in the gas tax rate to tie it to the inflation rate of transportation infrastructure construction costs

Local Taxation Issues

Proposal # 71: Allow all classes of local governments to have a local option food and beverage tax

Proposal # 72: Amend the Constitution to allow a local general sales tax

Proposal # 73: Switch to a statewide restaurant tax of one percent instead of localities having different restaurant taxes

Proposal # 74: Allow single sales factor apportionment as a defined option to the city/county business tax calculation

Simplicity, Compliance and Tax Administration

Proposal # 76: Allow non-renewal of professional licenses, driver’s licenses and vehicle registration if taxpayers are delinquent on state taxes to improve collections

Proposal # 80: Create a uniform occupational tax statewide form

Proposal # 86: Installment payment agreement clarification

Proposal # 87: Make LLC members personally responsible for all taxes & make corporate officers personally liable for motor vehicle usage tax

Proposal # 89: Review the disparity in the tax code and law between documented and undocumented boats

Proposal # 90: Sales tax successor liability to enhance the Department of Revenue’s collection efforts

Proposal # 93: Return to a balanced interest rate on taxes owed to and by the state

Proposal #96: Eliminate the estate tax

40 Million in Tax Credits for Investors

(Proposed Angel Investor Act)

The Kentucky Online Action Group found the pre-filing of Angel Investment Act (shown on the right), which is the result of a proposal submitted by the Kentucky Blue Ribbon Tax Reform Commission. The act provides 40 million in tax credits for investors.

While proposing tax credits for investors, the commission recommended some very serious tax changes for the rest of Kentucky citizens. Some of which include: 

- taxing retiree Social Security benefits, which were previously exempt from the state income tax;

- taxing Military retirees, IRAs, and other pension plans starting at $15,000 instead of the current level of $41,110;

- eliminating 75% of the total in itemized deductions for things like home mortgage interest and charitable contributions.

Looking at the proposals by the Blue Ribbon Commission, it seems obvious that it overlooked one important detail; the 2012 poverty level, which is currently set at $11,860 dollars for an individual.  Therefore, taxing retirees making about $15,000, is basically taxing people who earn just $3,140 dollars above the poverty level.

More Taxes, But No Government Spending Cuts

KENTUCKY BLUE RIBBON TAX REFORM COMMISSION SUPPORTS MORE TAXES, LESS DEDUCTIONS, AND NO GOVERNMENT SPENDING CUTS (11/18/2012)

The Louisville Courier Journal reports the Governor's Blue Ribbon Tax "commission already has made some controversial recommendations...

Recommendations that could touch the lives of every Kentucky taxpayer — from changing the state income and sales tax rates to increasing the cigarette tax."

Some of the most controversial include:

- Tax Social Security benefits, previously exempt from the state income tax, as the federal government does.

- Supports taxing retiree income starting at $15,000 instead of $41,110.

- Eliminate 75% of the total in itemized deductions for things like home mortgage interest and charitable contributions.

Read more at: http://www.courier-journal.com/article/20121118/PRIME08/311190012/Decisions-loom-Monday-for-Kentucky-tax-reform-commission

 

Will Kentucky Rob Poor to Fund Rich?

A report by Kentucky Online Action Group on Saturday, November 17, 2012 at 2:03pm 

KY TAX REFORM UPDATE: The Governor’s Blue Ribbon Tax Reform Commission recently voted to support an “angel investor” tax credit, giving wealthy investors "up to a 40% tax break" on monies used to fund start-up businesses. Meanwhile, the Blue Ribbon Tax Reform group still supports the proposal to "broaden the tax base" by including retirees earning $15,000 or less. This appears to be a prime example of how government takes from the poor and gives to the rich, through the tax code.



How does the government rob the poor to pay the rich? Through the tax code, of course. Under the "angel investor" tax credit, strongly supported by the Governor's tax reform group, a person with the money to do so, may fund a person, or group, to start a new business. In return, the person funding the new business receives part ownership, part of the profits, or another form of return from the new business. Now, in addition to getting some form of payback from the new start-up business, the Blue Ribbon Tax Commission wants to give "angel investors" a tax credit for up to 40 percent of the money put into the new start-up.

We do not have all the details on the tax commission's proposal, however, as an example, let us say the "angel investor" provides $100,000 dollars to a new start-up business. When the angel investor files state taxes,  he/she would receive a 40% tax credit on the $100,000 dollars. In other words, the angel investor receives a $40,000 reduction in taxes. Put another way, that is $40,000 dollars not collected in state income taxes. And Kentucky taxpayers will have to pay for that $40,000 tax credit. Under the Blue Ribbon Tax Commission's proposal, those Kentucky tax payers would include retirees making as little as $15,000 dollars a year, which is only $3,140 over the national poverty level.     

Kentucky's Tax Base, Broad as the Grand Canyon

The Kentucky Blue Ribbon Tax Reform Commission is looking for ways to "broaden the tax base." Well, if anyone pays taxes, it is almost everyone in Kentucky. 

How broad is the tax base? I conservatively estimate that well over 90 percent, if not 100 percent, of Kentucky's citizens pay at least some form of the various taxes, surcharges, and fees levied by the commonwealth.

In fact, if the overall breadth of Kentucky's tax base was compared to a landmark, it  may well be called the Grand Canyon of the Commonwealth. And with good reason, after reviewing just some of the obvious taxes paid by Kentuckians, which currently include: payroll taxes (medicare, social security, etc.); federal, state, and local income taxes; sales taxes on homes, autos, clothing and household items purchased; taxes and surcharges on cell phones, home phones, internet; cable, DSL, and satellite TV; sewer, electricity, and water; property taxes, or if you rent, the owner tacks that on. You pay taxes to get marriage licenses, driver licenses and pet licenses, you pay taxes each time you renew your vehicle, boat, or motorcycle registration. You pay taxes on dental, medical, auto, home, and life insurance, as well as gasoline, kerosene, diesel, propane, and every other form of fuel available. And if you think death is the only way out, you are wrong, because that is taxed too.

It seems the commonwealth already has has an extremely broad tax base. However, the Kentucky Blue Ribbon Tax Reform Commission recently proposed taxing retiree income starting at $15,000 dollars, basically $3,140 dollars above the 2012 U.S. individual poverty level of $11,860. This is little more than the poor feeding the poor, and far from a solution to the problem of free fall government spending.

 In conclusion, I offer a simple question to all who read this. At what point should the government spend less? When everyone, except the government, is living in poverty? That seems to be the plan, because the Blue Ribbon Tax Reform Commission failed to make a single recommendation to reduce government spending.