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An out-of-state commercial printer or mailer engaged in business in Kentucky is not required to collect use tax on sales of certain printing or direct mail advertising materials. To qualify, the advertising materials must be printed out-of-state and delivered out-of-state to the U.S. Postal Service for mass mailings to Kentucky residents who are not purchasers of the materials. In addition, the printer or mailer must maintain sales records to assist the Kentucky Department of Revenue and file reports if requested by the Department. If the printer or mailer agrees with these requirements, the purchaser of the advertising material becomes solely responsible for reporting and paying use tax. (H.B. 557, Laws 2006)


A manufacturer claimed that screws, gaskets, couplings, fittings, and fasteners were exempt as industrial tools, machinery, or as a result of their use within a qualified enterprise zone. The Board of Appeals, however, rule in favor of the Department of Revenue, which argued that the property should be classified as “repair parts” or “replacement parts” and therefore not entitled to an exemption under any of the taxpayer’s positions. While it was undisputed that the items were purchased to repair, maintain, or monitor existing machinery and equipment, Board did not agree that these items were considered “machinery”. In addition, the Board did not agree with the claim that some of the items qualified as exempt industrial tools because they did not come into direct contact with the manufactured product. (Order No. K-19502)


On March 18, 2005, Kentucky Governor Ernie Fletcher signed into law H.B. 272. Among the provisions of the bill is an adoption of affiliate agency nexus; and new taxes on telecommunication services and prepaid calling services. The bill adopts a definition of a retailer engaged in business in this state to include any retailer located outside the state of Kentucky that utilizes a representative in Kentucky, either full or part-time, if the use of the representative constitutes a marketplace for the retailer. The definition has an effective date of August 1, 2005. The state also provides that effective January 1, 2006, the provision of a prepaid calling service is subject to Kentucky sales and use tax. The bill defines a prepaid calling service as the right to access exclusively communications services, which are paid for in advance and which enable the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines in a known amount with use. Also, the bill provides for a 3% excise tax on the purchase of cable service, satellite broadcast and wireless cable service provided to a person whose primary use is in Kentucky billed after 2005. This is regardless of where or to whom those services are billed or paid. The bill allows for vendor compensation in regards to the collection of such tax. The full text of the bill can be found at (H.B. 272, Kentucky Revenue Cabinet, enacted March 18, 2005)


The State of Kentucky has passed H.B. 267, without the signature of the governor. The bill includes multiple tax provisions including specific items related to sales and use taxes. The bill states that notwithstanding KRS 139.340, a commercial printer or mailer engaged in business in the State of Kentucky will not be required to collect use tax on sales or printing or direct mail advertising materials that are both printed out of state and delivered out of state to the United State Postal Service for mass mailing to third-party Kentucky residents who are not purchasers of the advertising materials. This is subject to the provisions that the commercial printers or mailers: (1) maintain records relating to these sales to assist in the collection of the use tax owed; and (2) file reports as provided in KRS 139.730 if requested by the Kentucky Revenue Cabinet. If all requirements are met, the purchaser of the materials will be subject to use tax. Also contained in the bill is a maximum cap amount on the vendor compensation amount. For periods after June 30, 2005, the vendor compensation amount may not exceed $1,500. The bill also addressed the fact that effective August 1, 2005, a nonprofit institution is allowed a refund equal to 25% of the sales tax collected on the sale of donated goods if the refund is used exclusively for capital construction costs of other retail locations within Kentucky. This is subject to the following provisions: (1) the nonprofit institution must routinely sell such items; (2) the institution must provide job training and employment to disadvantaged and disabled individuals; (3) the institution spends at least 75% of its annual revenue on job training, job placement, and related community services; (4) the institution submits a refund application within 60 days after the new retail location opens for business; and (5) the institution provides records of capital construction costs for the new retail location and any other information requested. The maximum refund amount for any location is $1,000,000. Other areas of interest included in the bill relating to sales and use taxes are changes to the taxation of natural gas transmission services, enterprise zone tax incentives, energy and energy-producing fuels, and a retroactive credit for sales tax paid on business communications services. The full text of the bill can be found at the State of Kentucky’s website at (H.B. 267, Kentucky Revenue Cabinet, enacted March 19, 2005)


In an amendment to previous legislation, the State of Kentucky has changed the official definition of “Tangible Personal Property” to include items that are “perceptible to the senses, regardless of the method of delivery.” This new definition allows the state to tax all prewritten software meaning all computer software, including prewritten upgrades, and provides that tax can be collected on books, movies and files that are downloaded electronically. The changes take effect July 1, 2004. (Kentucky Sales Tax Facts, April 2004)



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