Erica Horn

Article Dean Dorton

By: Erica Horn, CPA, JD | ehorn@deandorton.com

Businesses that pay property taxes on inventory in Kentucky are entitled to a credit against their 2019 Kentucky individual income, corporation income, or limited liability entity taxes (other than the $175 minimum LLET) equal to 50% of the property taxes paid on the inventory. This is double the percentage of property tax for the credit available in 2018 when the credit was first effective. The credit will continue to increase by 25 percentage points until the credit equals 100% of inventory property taxes paid in 2021.

“Inventory” is defined as “goods held for sale in the regular course of business.” The types of qualifying inventory range from retailers’ inventory to raw materials, in-process, and finished goods inventory of manufacturing companies. To qualify for the credit, property taxes due on inventory must be paid to the taxing jurisdiction on or before December 31 of the tax year.

The Department of Revenue has created an “inventory tax calculator” to assist in calculating of the credit:

Inventory tax credit calculator

The credit is nonrefundable and cannot be carried forward.

Article Dean Dorton

Yesterday, March 26, 2019, Governor Bevin signed House Bill 354, which the General Assembly passed earlier this month. This legislation reverses the dramatic negative effect on many nonprofits caused by last year’s tax bill and the Kentucky Department of Revenue’s interpretation of it. The applicable provisions of House Bill 354 became effective upon the Governor’s signature meaning that the changes are effective today!

To whom does the new law apply?

The new law exempts from tax sales of admissions and most fundraising activities by nonprofit educational, charitable, or religious institutions that are exempt from income tax pursuant to Section 501(c)(3) of the Internal Revenue Code, and provides the same exemptions for “nonprofit civic, governmental, or other nonprofit organizations.”

For 501(c)(3)’s, House Bill 354 restores the law related to sales of admissions to the understanding of the law prior to July 1, 2018. The bill also broadens the law to allow for the vast majority of fundraising activities to be exempt from sales tax. The exemptions for the second group of nonprofits – “nonprofit civic, governmental, or other nonprofit organizations” – is new.

House Bill 354 does not provide a definition for this second group, but those surrounding the drafting process related to the bill understand the provision to apply to other groups covered by Section 501(c) of the Internal Revenue Code, such as civil leagues, business leagues, chamber of commerce, social and recreational clubs, and fraternal beneficiary societies and associations.

Tell me, again, what the law covers.

The law exempts from sales tax:

  • Admissions to events and activities sponsored by nonprofit organizations, and
  • Sales at fundraising events, with the exception of:
    • Sales related to the operation of a retail business, including, but not limited to, thrift stores, bookstores, surplus property auctions, recycle and ruse stores, or any ongoing operations in competition with for-profit retailers.

When does the law become effective?

The law became effective upon the Governor’s signature yesterday, March 26, 2019. This means you can stop charging sales tax on admissions and auctions at fundraising events. However, be sure to remit any sales tax you have already collected, and no refunds are allowed for prior periods in which sales tax was collected. Furthermore, we don’t recommend closing your sales tax account right away. The Department of Revenue will be issuing guidance on how to proceed in the near future.

If you have any questions, please contact your Dean Dorton advisor or Erica Horn at ehorn@deandorton.com.

Article Dean Dorton

Erica Horn, Associate Director of Tax Services, was one of 55 leaders selected from a large pool of applicants to be part of the 2018 Leadership Kentucky program. Leadership Kentucky, founded in 1985, joins together a selected group of leaders, with a variety of career accomplishments and volunteer activities, to gain insight into complex issues facing the state. The program provides a thought-provoking experience focusing on the attributes of leadership and what it means to be a leader.

Erica Horn, center, accepts her Leadership Kentucky graduation certificate

Once a month from June through December, for two and one-half days, Erica and her classmates visited various regions of the Commonwealth, attending programs and workshops and touring a variety of businesses to develop an enhanced view and give new meaning to the word “community,” a meaning that spans the entire state.

Through Leadership Kentucky, Erica and her classmates spent time at Berea College, Eastern Kentucky University, the Brown Theatre in Louisville, the National Quilt Museum in Paducah (a city known for its crafts and folk art, and one of nine UNESCO Creative Cities in the country), the State Penitentiary (Kentucky’s maximum security prison) in Eddyville, the University of Pikeville, Pikeville Medical Center, Keeneland’s Thoroughbred sales, Bluegrass Stockyards, the State Capitol (where she met with legislative and executive branch leaders), and several elementary and secondary school programs in Northern Kentucky.

Erica most enjoyed learning about the different communities across the Commonwealth (especially Paducah and Pikeville), becoming more aware of the amazing things done throughout the state, and getting to know her classmates. One of the most interesting things she learned was “how incredibly difficult it would be to be a correctional officer at the State Penitentiary in Eddyville.”

The program concluded with a graduation ceremony in December at the Metropolitan Club in Covington. Erica’s involvement with the community neither started nor ended in 2018, however. She recently received a Doctor of Humane Letters (Honoris Causa) from Transylvania University for her leadership and service to Central Kentucky. Having previously served eight years as Chair of the Board of Directors of GleanKY, Erica currently serves as Development Committee Chair for the organization that she co-founded. GleanKY is a nonprofit corporation that gathers and redistributes excess fresh fruits and vegetables to nourish Kentucky’s hungry.

Other Dean Dorton team members who are Leadership Kentucky alumni are Paula Hanson, Class of 1995 and long-time Leadership Kentucky board member, and Elizabeth Woodward, Class of 2014.