Kentucky Gov. Matt Bevin (R) has approved legislation repealing the state bank franchise tax, enacting marketplace provisions, and excluding Department of Revenue letter rulings from open records requests.
H.B. 354, signed into law March 26, eliminates the bank franchise tax effective January 1, 2022, and imposes the corporation income tax and the limited liability entity tax on financial institutions beginning January 1, 2021. A refundable income tax credit in the amount of the bank franchise tax paid by the financial institution will be allowed during the transition year. The bill passed the Senate on a 34–3 vote March 13 and cleared the House 87 to 8 later that same day.
The measure is a cleanup bill to last year’s tax overhaul (H.B. 487), but language was added to the bill March 13 that prohibits former and current DOR employees from divulging unappealed final department rulings, requests for guidance, private letter rulings, and alternative apportionment requests and responses. The bill also exempts such information from the state Open Records Act.
Mark Sommer of Frost Brown Todd LLC filed an open records request in 2012 with the Kentucky Finance and Administration Cabinet and the DOR seeking to compel them to publish final tax rulings. Tax Notes intervened in the case on behalf of Sommer in July 2013.
A divided Kentucky Supreme Court on November 1, 2018, affirmed the court of appeals' decision in Department of Revenue v. Sommer that the DOR must publish redacted final letter rulings. The DOR filed a motion for reconsideration, which is still pending.
H.B. 354 also imposes collection obligations on marketplace facilitators with 200 or more transactions or more than $100,000 in facilitated sales or sales on their own behalf in the state during the preceding or current calendar year, effective July 1, 2019.
The bill also makes changes to the state’s combined reporting requirement, including clarifying the “tax haven” language. Under H.B. 487, a unitary business group is required to file a combined return if the group did not elect to file a consolidated return for tax years beginning on or after January 1, 2019. Business groups were dissatisfied with the requirement.
The Council On State Taxation in a March 20 letter encouraged Bevin to work with the legislature to repeal the state’s adoption of mandatory unitary combined reporting or pass additional reforms to “ameliorate the negative business impact.”
H.B. 354 clarifies that a tax haven does not include jurisdictions that have entered into an income tax treaty with the United States, eliminating the requirement that the income and apportionment factor of entities doing business in those jurisdictions be taken into account when determining the total income of a combined group. It also amends the law to exclude the income and apportionment factor of members of a combined group that are incorporated in the United States but earn 80 percent or more of their income outside the country.