Yes, religious, educational and other 501(c)(3) organizations must collect sales tax on the rental of rooms, athletic facilities, and other spaces. However, if the organization renting the space is a religious, educational or other 501(c)(3) organization, the rental of space will be exempt from tax provided that the rental is for a purpose consistent with exempt function of the organization.
Lowering Kentucky’s individual income tax and expanding the base of services subject to sales tax was a point of emphasis during the 2022 Session of the Kentucky General Assembly. This article provides answers to a few frequently asked questions we've encountered about the tax changes, which became effective January 1, 2023.
With legislation enacted in 2022, the Kentucky General Assembly imposed sales tax on over thirty services not previously subject to tax and made other changes that will increase costs for businesses and individuals alike. You can find a list of the specific services and most changes here. In exchange the legislature lowered Kentucky’s individual income tax rate to 4.5% for 2023, and the House of Representatives has lowered it again to 4.0% for 2024.
The Department of Revenue (“DOR”) has been working steadily to issue guidance on numerous issues raised by the 2022 changes. That guidance is being posted to a DOR website called “Tax Answers.” Through the site, taxpayers can access two newsletters (June and September Sales Tax Facts) and FAQs on several of the newly taxable services to help them navigate the changes.
Some of the common questions we’ve been asked are listed below. As you read through the answers please keep in mind that specific facts and circumstances can change the taxability of transactions and we encourage you to reach out to your Dean Dorton advisor or other professional advisor if you have further concerns.
1. Must religious, educational and other 501(c)(3) organizations collect sales tax on space (conferences rooms, auditoriums, etc.) rented by the organization?Dean Dorton2023-01-10T15:20:15-05:00
2. Do I need to send a “declaration of domicile” to my utility providers for my utilities to be exempt from sales tax?Dean Dorton2023-01-10T15:24:49-05:00
A Kentucky resident must provide their utility providers a declaration of domicile for their utilities to be exempt from sales tax if the resident owns more than one residential property in Kentucky. Take a look at DOR’s FAQs on residential utilities for additional information.
If an individual is a resident of another state, such as Florida, but has a second home in Kentucky, it is advisable for the out-of-state resident to send a letter to the utilities stating the Kentucky residence is not their primary place of domicile and they should be charged sales tax on their utilities.
3. I own a hair salon. Are my services subject to sales tax?Dean Dorton2023-01-10T15:25:49-05:00
Hair stylists and barbers are not (yet?) subject to sales tax on the basic services they provide.
4. What is included in the categories of “leisure, recreational, and athletic instructional services” and “recreational camp tuition and fees?”Dean Dorton2023-01-10T15:31:45-05:00
Concerning leisure, recreational, and athletic instructional services, DOR anticipates posting an FAQ before the end of January 2023. At this juncture, however, it is noted that “educational” instructional services are not listed as being taxable. Thus, piano lessons or private tutoring on school subjects appear to be exempt from tax.
