General Assembly Week in Review
June 23, 2006
FRANKFORT — Proposed adjustments to the state's tax modernization effort have already taken significant steps forward just two days into the General's Assembly's special session. Gov. Fletcher issued the call for the special session on Wednesday after House and Senate leaders came to a compromise plan to reduce the tax bills for more than 70,000 small businesses in Kentucky. Under the tax modernization plan passed in 2005, loopholes were closed that allowed many large businesses to pay very little in taxes, and in some cases none at all. The plan instituted an alternative minimum calculation, which required all businesses in Kentucky to calculate their tax bill three ways, and then pay the highest of the three amounts. The three methods were: • • • 7 percent of all net income. Either 9.5 cents for every hundred dollars of gross revenue, or 75 cents for every hundred dollars in gross profits, whichever was less. A simple fee of $175, meaning that every business paid at least that amount.
Some single-owner businesses and small partnerships were among those hit by the new minimum, because taxes on that income had previously been collected at the individual level. Also affected were high-volume, low-margin businesses such as grocery stores and car dealerships, since the new calculation was based in part on total revenue, which did not accurately reflect their actual profits. Under the plan agreed to by leadership and passed by the House Appropriations and Revenue Committee on Friday, businesses with gross profits of less than $3 million would be exempt from the alternative minimum calculation, with the minimum being phased in for businesses with profits under $6 million. In addition, the corporate tax rate would be dropped to from 7 percent to 6 percent effective January 1, 2007. The governor amended his original proclamation after the legislature had convened, adding the possibility of tax incentives for clean-coal power plants. The plan is part of the state's effort to land FutureGen, a zero-emissions coal-based power plant. The $1 billion prototype plant would use coal to produce hydrogen energy in an effort to make the nation more energy-independent. Seven states has submitted bids to the Department of Energy, with the finalists being selected in July. State leaders hope that increased tax incentives for the plant would aid the state's already high hopes. To keep up with any bills that may interest you during the session, you can access the General Assembly’s home page at http://www.lrc.state.ky.us.