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Prepare to pay (or collect) sales tax on many services in 2023 Consumers should be ready to pay — and businesses should prepare to collect — Kentucky sales tax on a host of services starting next year as a result of sweeping tax reform passed by the Kentucky General Assembly in 2022.

Dozens of services, from pet grooming and personal training to ride-sharing and meeting space rentals, will become subject to Kentucky’s 6% sales tax starting Jan. 1, 2023.

The newly taxable services are part of House Bill 8, which also sets in motion the reduction of the Kentucky individual income tax rate to 4% over time (down from 6%) if certain budgetary milestones are achieved starting in 2023. The income tax rate won’t decrease more than 1 percentage point in any calendar year, however.

The expansion of taxation on various services is intended to offset revenue losses from the reduced individual income tax.

The newly taxable services include:

Marketing and business services

  • Prewritten computer software access services – aka, software as a service subscription
  • Marketing services
  • Web site design and development services
  • Web site hosting services
  • Telemarketing services via telephone, facsimile, electronic mail or other modes of communications to promote products or services, take orders, provide information or assistance regarding products or services, or solicit contributions
  • Public opinion and research polling services
  • Lobbying services
  • Executive employee recruitment services

Event services

  • Rental of space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties and other short-term, social events
  • Social event planning and coordination services

Laundry services

  • Industrial laundry services, including but not limited to industrial uniform supply services, protective apparel supply services and industrial mat and rug supply services
  • Non-coin-operated laundry and dry-cleaning services
  • Linen supply services, including but not limited to table and bed linen supply services and non-industrial uniform supply services

Private mailroom services

  • Presorting mail and packages by postal code
  • Address barcoding
  • Tracking
  • Delivery to postal service
  • Private mailbox rentals

Security services

  • Residential and non-residential security system monitoring services
  • Bodyguard services
  • Private investigation services
  • Process server services
  • Repossession of tangible personal property services
  • Personal background check services

Parking services

  • Valet services
  • The use of parking lots and parking structures (excluding any parking services at an educational institution)
  • Road and travel services provided by automobile clubs as defined in KRS 14 281.010

Recreational and personal care services

  • Leisure, recreational, and athletic instructional services, including golf and tennis lessons or fees for youth to participate in a sport, such as Little League
  • Recreational camp tuition and fees
  • Personal fitness training services such as fitness classes, yoga lessons, golf
  • Condominium time-share exchange services
  • Massage services, except when medically necessary
  • Cosmetic surgery services
  • Body modification services, including tattooing, piercing, scarification, branding, tongue splitting, transdermal and subdermal implants, ear pointing and any other modifications that are not necessary for medical or dental health
  • Indoor skin tanning services, including but not limited to tanning booth or tanning bed services and spray tanning services
  • Non-medical diet and weight reducing services

Household/office services

  • Interior decorating and design services
  • Household moving services

Apparel and jewelry services

  • Specialized design services, including the design of clothing, costumes, fashion, furs, jewelry, shoes, textiles, and lighting
  • Lapidary services, including cutting, polishing, and engraving precious stones
  • Labor to repair or alter apparel, footwear, watches, or jewelry when no tangible personal property is sold in that transaction

Miscellaneous services

  • Extended warranty services
  • Photography (including sitting fees) and photo finishing services
  • Facsimile transmission services
  • Pet care services, including but not limited to grooming and boarding services, pet sitting services and pet obedience training services
  • Testing services, except testing for medical, educational or veterinary reasons
  • Labor and services to repair or maintain commercial refrigeration equipment and systems when no tangible personal property is sold in that transaction including service calls and trip charges

Electric vehicles

H.B. 8 also creates a new tax — initially, 3 cents per kilowatt hour starting Jan. 1, 2024 — on energy distributed through electric vehicle charging stations. Receipts from the tax will be deposited into the state Road Fund. The tax will be subject to annual revisions.

The bill also establishes an initial registration and annual renewal registration fee of $120 for electric vehicle owners and $60 for electric motorcycle and hybrid vehicle owners. Receipts will be evenly split between the state General Fund and Road Fund.

For more information on the tax implications regarding Kentucky H.B. 8, contact Mitchell & Associates, PLLC at 270-827-5828.