Over the past few days I have been asked about changes made to how the tax on utilities is applied to some consumer accounts. Since there seems to be some confusion about the issue, I thought I might take this week's update and clarify who will be effected and share a little background.
First, let me be clear: the utility bill for your primary residence is not taxed by the state. It has historically been exempt and will continue to be.
What is really happening? Well, in addition to creating a framework to eliminate the state's individual income tax, the tax reform package we passed during the 2022 Regular Session also fixed several loopholes. One loophole in particular allowed folks with multiple homes to take advantage of the primary residence exemption from the utility tax. As a result of HB 8, those with multiple residential properties, or properties misidentified in the past, will no longer be exempt because we closed the loophole.
This sounds pretty straightforward and it is. However, the Department of Revenue is requiring that consumers fill out paperwork to remain exempt. This was not part of HB 8, but instead is a policy established by the department. Because of this, many are seeing a request to fill out a "Declaration of Domicile," on your utility bill, while others have received the form in a separate mailing. If you have not received anything like this, the best thing to do is reach out to the utility company and ask. It can also be downloaded directly from the department's website at
https://revenue.ky.gov/Forms/51A380%20%281-23%29.pdf. I want to stress that you still need to have a conversation with your utility company because they may have a different process.
So, why make the change? Well, closing this loophole is part of our work to become more competitive by broadening the tax base and lowering tax rates. Also, while taxes are a necessary part of government, they must be fairly applied. Outdated tax laws only lead to some people paying more than their fair share while others pay less than theirs.
Ultimately, our goal is to move away from taxing productivity, so HB 8 also includes a plan to eliminate the individual income tax, gradually while ensuring each cut is sustainable. As of January, the state's individual income tax rate will decrease to 4.5%, leaving as much as $650 million in the paychecks of working Kentuckians across the state. We will continue to lower the rate as the state meets budget and economic conditions until it is eliminated entirely.
Again, just to make clear, we are not taxing the electricity, water, or other utility you use at your primary residence. If your utility bill is for your primary residence and your utility company has the proper paperwork on file, you will not see an increase in your bill because of HB 8.
I appreciate the opportunity to clear up the confusion about the utility tax and share about our work. I hope you will reach out if I can provide additional information about this or any other issue.
As always, I hope you will feel free to contact me with any questions or issues. I can be reached through the toll-free message line in Frankfort at 1-800-372-7181. Please feel free to email me at Randy.Bridges@lrc.ky.gov. If you would like more information about the legislature, you can visit the Legislative Research Commission website at legislature.ky.gov.
