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Kentucky Considering Sales Tax on Financial Planning Services

Legislation

After passing in the state House of Representatives, legislation that would affect retirement plan professionals and participants in a variety of ways is now before the state Senate. 

H.B. 8, whose primary sponsor is Rep. Jason Petrie (R-Logan), passed the House by a 67-23 margin on March 4, just a week after it was introduced. The bill was subsequently referred to the Senate Committee on Appropriations and Revenue on March 8. 

The measure would cut the state income tax from 5% to 4% in 2023, and then continue reducing it by 0.5 percentage points each year thereafter—as long as revenues raised by an expanded sales tax are sufficient to cover the lost revenue. 

H.B. 8 would impose a 6% tax on gross receipts derived from a variety of services, including personal financial planning and personal investment management. It also would eliminate the tax credit for fiduciaries, which it defines in the same was as Internal Revenue Code Section 7701(a)(6). The bill defines “modified gross income” as the greater of either: 

  • adjusted gross income as defined in 26 U.S.C. sec. 62, including any four amendments in effect on Dec. 31 of the taxable year, and adjusted to include: (1) interest income derived from obligations of sister states and political subdivisions thereof; and (2) lump-sum pension distributions taxed under the special transition rules of the Small Business Job Protection Act of 1996 (SBJPA), sec. 1401(c)(2); or 
  • adjusted gross income as defined in the bill and adjusted to include lump-sum pension distributions taxed under the special transition rules of SBJPA, sec. 1401(c)(2).

Another bill, H.B. 201, which was introduced on Jan. 4, 2022, includes a provision that would require a dollar-for-dollar reduction to the retirement income exclusion. No action has been taken on that bill yet. 

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