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Kentucky Legislature Passes Partnership Audit Bill 

Posted on Apr. 7, 2020

The Kentucky General Assembly has passed a revenue bill that would conform the state to the IRS’s centralized partnership audit regime, create new tax breaks for specific industries, and levy a tax on vaping products.

H.B. 351, sponsored by House Appropriations and Revenue Chair Steven Rudy (R), passed the Senate April 1 on a 20–8 vote, with five senators not voting — some said they needed more time to review the bill.

Mark Sommer of Frost Brown Todd LLC told Tax Notes April 6 that the bill clarifies affiliated groups definitions for mandatory combined reporting provisions, which he said is a “definitional fix that is helpful.”

Under H.B. 351, producers of coal selling to markets outside North America could apply for severance tax rebates. The rebates would be available beginning on or after August 1, 2020, but before July 1, 2022, and would be limited to 10 million tons of coal, according to the bill.

The bill would create a sales and use tax exemption for “distilled spirits or wine at a plant facility or on the premises of a distiller, rectifier, winery, or small farm winery” or “malt beverages at a plant facility or on the premises of a brewer or microbrewery.”

It would expand an existing tax credit for farmers that is designed to encourage them to sell agricultural assets to new farmers. It would also expand the state's biodiesel production tax credit to apply to renewable chemical production. 

The 244-page bill would also impose a $1.50 tax on closed vapor cartridges and levy a 15 percent tax on the distribution price of open vaping systems.

According to Sommer, “an interesting section [of the bill] requires the [Department of Revenue] to essentially post everything a taxpayer would or could want to know about property taxation in Kentucky — essentially a one-stop portal for all things property tax."

“Interestingly, no significant fuel tax changes were legislated, despite significant lobbying over the last two years seeking funds for infrastructure rebuilds,” Sommer added.

H.B. 351 has been sent to Gov. Andy Beshear (D) for his signature. During an April 3 press conference, Beshear said he was reviewing the bill.

“It’s going to take a number of days to fully review it,” the governor said.

Beshear added that he will exercise his line-item veto on a new section on use of restricted funds that “would grind a whole lot of government almost to a halt.”

The legislature also passed a one-year $11.4 billion state budget (H.B. 352) rather than a two-year budget because of concerns about the COVID-19 pandemic. Most House members voted remotely after new rules were enacted over concerns about the coronavirus pandemic.

A fiscal analysis of the budget bill was not available by press time. 

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