Kentucky has just made sweeping changes to their sales and use tax regulations. Plenty of other state names could go into that sentence. With the end of Quill changing nexus definitions across the nation, it's a good time to change those laws. In Kentucky, the changes had some unintended consequences. The changes inadvertently conflict with the Kentucky Jobs Retention Act.
When a new law is implemented, conflicts with earlier laws essentially repeal the old laws. In this case, that means that manufacturers like Toyota and General Electric could lose some tax advantages they were promised when they brought their plants into the state.
A rock and a hard place
It's the norm for towns to offer juicy tax incentive to large corporations in exchange for jobs in their communities. The Kentucky Jobs Retention Act allows negotiated "inducements" of as much as 75% of the cost of a project in the form of tax credits. Incentives of this kind are designed to bring companies like Toyota in on the theory that the companies will stay on after the project, increasing the community's tax base and providing jobs for the long term. Towns often compete aggressively to offer the best deal to corporations.
Cutting off the incentives midstream is not really an option.
On the other hand, Kentucky had plenty of loopholes in manufacturing sales tax which they wanted to close. Sales tax bills often are tailored to suit a particularly vocal industry, and frequent changes can create a set of sales tax rules that looks like Frankenstein's monster -- stitched together from so many different initiatives that the result looks a bit unnatural.
Legislators didn't mean to repeal the Kentucky Jobs Retention Act, but the new law makes a lot of the old law's provisions illegal.So Kentucky's Governor Bevin vetoed it.
Sales tax cleanup bill
The legislature's plan is to override the veto and then get to work on a "cleanup bill" that will keep what they want from the sweeping reforms of the new tax bill while also allowing the essential tax inducements for Ford and Toyota and their ilk. The corporations have released statements expressing their interest in the legal tussle. Their announcements have been that neutral: "We are watching this with interest" is the thrust of the official statements.
The counties that rely on the plants in question understand that to mean that the corporations will up sticks and leave if they lose their tax inducements.
It's not just Kentucky. Tax reform bills are popping up all over, and will continue to do so. The responses include vetoes, court cases, and plenty
of public outcry. Cleanup bills are sure to follow.
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