Fixing Kentucky’s Nonprofit Tax Bill

August 10, 2018; Louisville Courier-Journal

A month ago, NPQ reported on the impact that a new tax bill was having on nonprofits in the state of Kentucky. The bill, in conjunction with a recent decision by the state’s Supreme Court, meant that nonprofits would have to collect sales tax on a variety of items including admission to special events and, potentially, sales of silent auction items. Now, it seems some steps are being taken to change this.

An op-ed piece in the Lexington Courier-Journal by Robert Stivers, Kentucky State Senate president, states that a bill is already being forwarded that would exempt nonprofits from having to collect these sales taxes. In the headline of the article, Stivers argues that it wasn’t the legislature that created this requirement, but they are going to fix it. In fact, he argues, nonprofits have technically had to collect the tax all along and the Department of Revenue had simply chosen not to enforce the existing law. It was only the state Supreme Court decision that forced the DoR’s hand and required enforcement.

The new bill is a pre-filed bill for 2019 that has been submitted by Kentucky House Speaker Pro Tempore David Osborne. (A “pre-filed” bill is one that has been written and submitted in advance of a legislative session and is available for public review and printing. It is somewhat like announcing, “We are going to do this as soon as the next session starts.”) Stivers says the bill has an emergency clause and that he anticipates the General Assembly will act on the bill quickly. Stivers supports its passage.

This is good news, of course, for nonprofits in the Bluegrass State. It is worth noting that there had been a constant drumbeat of negative press and other pressure on the legislature as the impact of the new tax bill became apparent. The Kentucky Nonprofit Network, the state association, had a press release decrying the new bill and stating they would work with the legislature. There have been many articles like this one from the Kentucky Insider about how local nonprofits are dealing with the new reality.

The fact that the state’s nonprofits were so surprised by this new reality suggests they were not aware of the 1970s-era laws that required them to collect sales tax in the first place. They also seemed blindsided by the new tax bill and state Supreme Court decision. These would suggest that attention was not being paid. But, once the reality set in, they started making noise. The moral of this story for nonprofits is be aware of what is going on and make your voices heard.—Rob Meiksins