The Kentucky Chamber of Commerce held a Tax Summit in Lexington yesterday. The conference was well attended and included approximately ten House members who attended as participants. Governor Bevin was called to a meeting in DC and unable to speak in person, however, he sent a video where he discussed his vision for tax reform in Kentucky. Additionally, Speaker Hoover was added to the agenda and spoke during lunch. A complete summary is below, but a few highlights to make you aware of:
- Speaker Hoover announced that the House will appoint a Working Group on Tax Reform to begin meeting after the special session on pension reform.
- All speakers seemed to advocate moving from an income based taxing system to a consumption based system.
- Multiple speakers, including the Governor and Speaker Hoover, indicated complete elimination of the income tax isn't feasible, and decreases would need to be phased in.
- Local governments will no longer advocate for LIFT, which limits local options sales tax to specific projects with a sunset period. Instead they will advocate for broad authority related to local option sales tax.
- Everything is on the table.
- Reviewing tax expenditures will be a key part of the process. The Governor has often said that Kentucky's exemptions are more than revenues.
Jennifer Barber, with Frost Brown Todd, began the conference with a presentation on what tax reform in KY might look like. Her slide presentation is attached. Jennifer noted that an additional 1 cent on the sales tax would raise approximately 580M annually and if the sales tax was expanded to include services, an additional 2.78B would be realized.
Dr. Bill Fox, from the University of Tennessee, and well known to those who've followed various tax reform efforts in Kentucky was the next presenter. His slides are available HERE. Dr. Fox identified the key elements of a good tax system to be: raising appropriate level of revenues, a system that provides competitiveness, low administration and compliance costs, and a system that is fair. He also suggested that state and local taxes should be looked at together. Kentucky is relatively low compared to the national average (ranked 40th) when looking at total state and local tax collection and Kentucky is also weak in revenue growth. Dr. Fox outlined the following policy options:
- Broaden the tax base and lower the rates in order to make the system more elastic and reduce behavioral distortions.
- Enhance KY's competitiveness by shifting to more consumption and less to capital and labor taxation.
Dr. Fox goes on to discuss specific recommendations which you can find in slides 17 through 22 of his presentation.
There was a panel discussion on local government and local issues. Participating in the panel were JD Chaney (KY League of Cities), Eric Kennedy (KY School Boards Association) and Judge Tommy Turner (KY Association of Counties). As mentioned earlier, a main takeaway was that local governments are no longer going to focus on the LIFT approach but rather support broad constitutional authority for a local sales tax. The panel agreed that if given the local option authority they would be willing to have a discussion on the repeal of other taxes, like the inventory tax that Governor Bevin has suggested he'd like to see repealed. The group said that statewide, the inventory tax provides roughly 140M annually. KSBA mentioned that, if given the opportunity, they'd like to see a reform of the SEEK formula included in tax reform, but seemed to recognize that might not be feasible. Finally, in response to questions about streamlining procedures, local governments shared that they are not in favor of centralized collection.
There was also a panel with policymakers that included Senator Ralph Alvarado, Rep. Jonathan Shell, Budget Director John Chilton and moderated by Mark Sommer. Sommer had several slides and they are available HERE.
Sommer asked the group what tax reform / tax modernization actually means. Several of the responses included looking at a code that has not changed in many years, moving away from a system where prosperity is taxed thereby placing KY at a competitive disadvantage, and including in the system the ability to reward and retain current industry/employers, in addition to creating a system that will attract new job. Sommer questioned whether lawmakers should look at treating for-profit medical systems the same as not-for-profit systems, specific to property tax and briefly mentioned the unfairness of the provider tax.
In response to a question about the LLET tax, and how burdensome it is to small employers, Director Chilton explained that the state receives 80M in revenues annually from this tax. Rep. Shell discussed the need to look at the sales tax exemptions and also talked about the need to phase down the income tax rates and explained that complete elimination would require too much of an increase in the sales tax - roughly 14% to 15%. Senator Alvarado mentioned the possibility of taxing opioids. Last session, there was legislation introduced to do this, however it did not move. Rep. Shell ended the discussion by talking about the need for a broad look at tax reform and the need to shift ability and responsibility to local governments.
Juva Barber (KBT), Nick D'Andrea (UPS), and Laurie Maudlin (Appian in Indiana) were speakers for the panel on Infrastructure. Barber outlined the need for additional infrastructure funding, to not only maintain the current system but also to address new projects. She discussed the problems with funding improvements to Kentucky's roadways, but also the need to invest more in the other modes of transportation, specifically rail, aviation, waterways, and public transit. She mentioned the KY Infrastructure Coalition, which has been formed to advocate for additional transportation infrastructure funding. Maudlin talked about her involvement in the successful effort in Indiana to raise additional revenue for transportation. She shared that their success began with being able to demonstrate to policymakers that all other options had been explored and that raising the gas tax was the only option left. D'Andrea talked about the UPS decision to invest so heavily in Kentucky and that without adequate infrastructure that would not have happened, but that continued improvements are needed as well as mega projects like the Brent Spence Bridge. D'Andrea discussed the successful Tennessee effort and explained that a big part of that success was being able to work with legislators to identify what projects would be addressed with the increased revenue.
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