Kentucky nonprofits may receive sales tax exemption


Requiring Kentucky nonprofits to collect sales tax was an unintended consequence of two unrelated actions earlier this year that the General Assembly will likely correct next year, according to a local legislator.

Nonprofit organizations found themselves included in changes to the state's tax structure when a new law designed to bring additional revenue went into effect July 1.

Under that law, a number of services became subject to sales tax for the first time, including things like event admission fees, landscaping, veterinary, campsite rentals, laundry/dry cleaning and certain labor.

Laws requiring religious and nonprofit educational and charitable organizations to pay sale tax on tangible items and admissions to spectator-type events have been on the books since the 1970s, but the Department of Revenue was not enforcing them, according to 2nd District State Rep. Richard Heath, R-Mayfield.

"They (the Department of Revenue) used Section 170 of the state constitution to say nonprofits were exempt," Heath said. "And then the Kentucky Supreme Court ruled in March that Section 170 did not exempt nonprofits from being taxed. Then we passed the budget in April (with the changes), and it looks like it all came out together.

"Actually, what we did in the legislature had nothing to do with that Supreme Court ruling."

Heath said it wasn't until a local pastor told him his church was going to have to collect tax on every bingo card it sold that he realized the impact.

"That certainly wasn't our (General Assembly) intention," he said, "and we're going to fix it as soon as we get back to Frankfort in January."

David Boggs, Barbecue on the River director, said people attending this year's Porkstock, the Sept. 26 kickoff fundraiser the night before the festival, will have to pay the sales tax on admission.

While admitting "it will affect us," Boggs said he did not expect it would have a significant impact on the fundraiser's success.

Unlike Porkstock, the festival doesn't charge admission, Boggs added, therefore attendees will not be charged sales tax during Barbecue on the River. The 24th annual BBQ event is set for Sept. 27-29.

Heath is one of several co-sponsors of a bill pre-filed for the 2019 regular session by House Speaker Pro Tempore David Osborne designed to exempt nonprofits from the sales tax.

He said he is hopeful that any nonprofits that did not comply or were unsure about whether they needed to comply would be forgiven because of all the confusion. One possibility might be to make the 2019 legislation retroactive, he added.

According to Danielle Clore, Kentucky Nonprofit Network executive director, organizations are having to spend time and money trying to understand the new laws, determine how the changes affect them and adjust their business practices to comply.

"The administrative burden and potential impact on the individual donations that are essential to their missions is enormous," Clore said. "We are pleased that Speaker Pro Tempore Osborne and other members of the General Assembly agree that addressing this problem as soon as possible is imperative."

Heath said if for some reason a special session was called prior to January, perhaps to work on comprehensive tax reform, it might be addressed then.

"But I'm not anticipating that," he said. "With this an election year, we're all busy on the campaign trail."

When the issue does come up in the 2019 session, "I would say there would be overwhelming support on both sides," Heath said.

According to the Mayfield legislator, it is not uncommon for the General Assembly to fix some type of unintended consequence the year after passing new legislation.

"We go back every year and fix something that we passed the year before ... it's an ongoing process," Heath said.

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