CLA, Lobbying Group Intervene to Protect Laundry Owners’ Sales Tax Exemption in Kentucky
Laundry owners in Kentucky dodged a bullet this spring – a bullet aimed directly at their bottom line… in the form of a 6 percent sales tax.
Due to the state’s more than $50 billion underfunded pension system for its teachers, as well as state and county employees, Kentucky Governor Matt Bevin proposed a very bleak biennial budget that featured major cuts across all state agencies, including education.
“Legislators did not want to cut education, so there was some talk about making minor tax changes to help boost the budget funding,” explained Karen Thomas Lentz, a partner at Commonwealth Alliances, a government affairs consultancy based in Frankfort, Ky., and working for the Coin Laundry Association on behalf of the industry. “The House proposed some minor changes, but the Senate said that it was not interested in minor tax changes and would be proposing a bare bones budget.”
During the final week of the session, as legislative leaders were meeting behind closed doors to discuss the budget, there was talk of expanding the state sales tax to include specific services.
“I asked if there had been discussion about laundry services, and a member of the leadership confirmed that laundry services were on the list for consideration,” Lentz said. “I took that opportunity to talk with him about the difference between coin-operated laundry services and drycleaning or other laundry services. I explained that the only way to collect the proposed 6 percent sales tax on coin-operated laundry services would be to tax the business owner. At first, he tried to argue that you could retrofit the machines to charge more to cover the tax. However, I explained that it would be very costly to retrofit the machines, if that could even be done. And he finally agreed to make our case to the group when they got back into the discussion again.”
At the end of the day, legislators passed a package of tax reform bills that are estimated to bring about $400 million in additional tax revenue during the 2018-2020 budget period – but the coin laundry tax exemption was spared.
The reforms did include a flat 5 percent income tax for all individuals and companies, a sales tax levy on previously untaxed services, and an increase in the tax on cigarettes. Citing concerns that the tax reform bills fail to make the state more financially stable, Governor Bevin vetoed the tax package; however, the legislature overrode the veto and the tax reform package became law.
In a nutshell, here’s what this means for vended laundry owners in Kentucky, according to Lentz:
What’s the current sales tax situation in the state?
House Bill 487 applied the 6 percent sales tax to a number of services, including industrial laundry services, as well as individual drycleaning and non-coin-laundry services.
What was done to protect laundromat operators’ existing sales tax exemption?
We talked with key legislators who were working on tax reform to emphasize that, if the tax were to be applied to coin laundry services, it would be a tax on the business owner rather than the individual utilizing the service, since you cannot add 6 percent to a coin laundry washer or dryer.
Specifically, what does this mean for laundry owners in Kentucky?
If you are operating a coin laundry, there is no impact. We were glad that legislators working on the tax bill finally understood that you cannot put a sales tax on a coin laundry machine. I was glad that common sense won out and we retained the exemption.
However, if you also provide drycleaning services, you will be responsible for collecting and submitting 6 percent to the state, beginning July 1, 2018.
What does the future hold, with regard to this or other legislation potentially impacting the vended laundry industry in the state?
House Bill 487 was considered to be “Tax Reform 1.0,” and they are already discussing “Tax Reform 2.0” coming either later this year in a special session or next year during the regular session. We will need to ensure that changes are not made that impact coin laundry. Also, in the next phase of tax reform, there will be consideration given to eliminating the inventory tax paid to both the state and to local taxing districts, which would be a benefit for the laundromat industry.
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