Kentucky Brings in New Tax Legislation
Gov. Fletcher signs new tax modernization legislation
which includes changes to help create a more pro-business
environment.
By Michelle Janowitz
Governor Fletcher at the
tax modernization bill signing; Photo by Kentucky
Cabinet for Economic Development
Governor Ernie Fletcher made history in Kentucky
when he signed House Bill (HB) 272, legislation to
reform Kentucky's archaic and biased tax system. The
legislation, passed by the Kentucky Senate and House
on March 8, will set into motion the first comprehensive
reconstruction in decades to a revenue system primarily
based on a 19th century economy. HB 272 includes most
of the components pinpointed in the governor's original
tax modernization proposal--"JOBS for Kentucky."
"This reform accomplishes several objectives,"
says Gov. Fletcher. "It reduces the tax burden
on the poor, provides tuition tax credits for families
of Kentucky students at in-state public and private
post-secondary institutions, improves the tax climate
for economic development, repeals a corporate license
tax that was established in 1906, and offers significant
environmental incentives. This is truly a historic
occasion. No significant progress was possible under
our old, antiquated tax system--a system that punished
the poor, stifled job growth, and did little to encourage
economic development and investment or to attract
the entrepreneurs who create jobs."
As part of the legislation, the state's income tax
model will undergo some structural changes. The top
income tax rate on corporations, currently 8.25%,
will be cut to 7% this year and then down to 6% by
2007. Also, the top income tax rate will be reduced
to 5.8% from 6% on income from $8,000 to $75,000,
which was only about a third of the reduction sought
by Gov. Fletcher. However, the reform will result
in 216,000 low-income tax filers, representing 496,000
total Kentuckians, being removed from the income tax
rolls.
"Although I believe further individual income
tax cuts are needed to have a more stimulating impact
on the economic climate in Kentucky, this legislation
is an excellent step forward," says Gov. Fletcher.
The legislation also closes some business tax loopholes,
including the exemption for corporations that do business--but
have no "physical presence"--in Kentucky.
Legislators concurred with the governor that the exemption
has been unfair to Kentucky companies. Now all businesses
will be treated the same, regardless of the form of
organization.
Other tax credits created through this legislation
will be for historic preservation, biodiesel (which
will reduce air pollution), and brownfield development
(which will help Kentucky's cities by slowing the
loss of green space to development and eliminating
the potential health risks associated with blight).
The constitutionally flawed corporate license tax
and the "intangible property" tax on accounts
receivable and bonds will be repealed as well. Experts
say these two taxes are the biggest impediment to
economic development in Kentucky.
Tax reform expert Dr. William Fox of the University
of Tennessee says the tax modernization legislation
is significant, particularly for economic development.
"Few things are talked about more and accomplished
less than tax reform," says Fox. "I applaud
the governor and the general assembly for bringing
together a comprehensive tax plan. It's good for business
and it's good for Kentucky."
Incentives for Growth
In line with making Kentucky's business environment
as hospitable as possible, the Kentucky Economic Development
Finance Authority (KEDFA) preliminarily approved logistics
and package delivery company UPS for tax credits up
to $20 million under the Kentucky Jobs Development
Act (KJDA). KJDA is an incentive program aimed at
increasing the number of Kentucky service and technology-related
jobs. These tax credits were approved for UPS's expansion
announced in February, which will come in the form
of an airfreight-servicing hub in Louisville, KY.
The project is expected to create 400 new full-time
and up to 600 new part-time jobs over the next 10
years, with an estimated annual payroll of $12 million.
"UPS is grateful that the state extended this
offer," says John Hindman, UPS Airlines Vice
President of Public Affairs. "UPS wants to continue
to build on the highly successful partnership UPS
and Kentucky have long enjoyed."
Based on current plans, UPS will construct a 785,257-square-foot
airfreight-servicing hub at its current site, which
will be responsible for the loading, unloading, sorting,
distribution, buildup, and breakdown of airfreight
volume. The $82.5 million expansion will allow UPS
to offer international and North American overnight,
expedited, second day, and deferred airfreight services
through this facility.
"We greatly appreciate UPS reaffirming its
remarkable commitment to Kentucky and Louisville by
again expanding operations here," says Louisville
Mayor Jerry Abramson. "Our community's investment
in the airport expansion project continues to pay
off in terms of economic dividends and opportunities
for business. UPS has become a tremendous part of
the economic engine created through our airport project."
Benson International is another company expanding
to Kentucky that is preliminarily approved for tax
credits under another incentive program--the Kentucky
Industrial Development Act (KIDA). This program is
aimed at increasing manufacturing employment.
Benson International, a manufacturer of steel and
aluminum truck trailers and bodies, announced in March
that it will locate a new $10 million, 180,000-square-foot
facility on 14 acres in Cadiz, KY in the Trigg County
Industrial Park. This facility will house two complete
production lines, and is expected to create 250 new
full-time jobs.
"While Benson International has always been
a significant part of our family of companies in the
past, we are developing and executing a plan to make
it a more significant part of our future," says
James H. "Buck" Harless, Chairman of the
Board, International Industries, Inc. "This new
state-of-the-art facility will position Benson to
meet and exceed those expectations. On behalf of our
ÔEmployee Owners,' I want to express our appreciation
to Gov. Fletcher, his staff, and the great folks of
Trigg County for their untiring efforts to make our
plan a reality. We look forward to being a greater
part of the Kentucky business community."
Kentucky Fast Facts
- Population (2003): 4,117,827
- Largest Cities (2003): Lexington, 266,798;
Louisville, 248,762; Owensboro, 54,312; Bowling
Green, 50,663; Covington, 42,687
- Targeted Industries: Automotive parts
suppliers, rubber and plastics products, industries
delivering high-value-added
products and services that are time-sensitive, information
technology, and logistics
- Key Incentives: Kentucky Industrial
Development Act (KIDA); Kentucky Rural Economic
Development Act, Kentucky Jobs Development Act (KJDA),
Bluegrass State Skills Corporation, Kentucky Economic
Development Finance Authority loans
SIDEBAR:
Broadband Equals Business
Kentucky understands that broadband technology
is synonymous with quality jobs for the state, which
is why late last year Gov. Ernie Fletcher revealed
his "Prescription for Innovation: Delivering
Broadband Technology for a 21st Century Kentucky."
This plan will provide broadband (high-speed Internet)
access to all Kentuckians by 2007, and hopefully
bring new momentum to the high-tech sector in Kentucky.
Currently, Kentucky ranks 44th in the proportion
of high-tech businesses, 45th in residential computer
use, and 43rd in residential Internet use in comparison
to neighboring states. Based on recently published
studies by the New Millennium Research Council,
it is estimated that a full-scale broadband deployment
could facilitate the creation of around 14,000 jobs,
as well as add more than $5 billion to the Gross
State Product (GSP) in Kentucky.
The comprehensive broadband deployment and adoption
plan will leverage state, federal, and private investment.
The improvements will start with broadband Internet
access and computer use and will eventually grow
to encompass the number of high-tech companies and
jobs created.
The plan will also produce the most sophisticated
telecommunications inventory map in the nation,
using advanced satellite mapping technology and
grassroots data collection. The maps will not only
illustrate service gaps, but will serve as an economic
development resource for communities to illustrate
existing infrastructure for locating companies.
Additionally, the initiative will mobilize local
leadership teams in each community and produce community-specific
implementation plans to empower local leaders and
increase citizen demand for expanding broadband
technology.
"There is an increasingly large gap between
those who have technology and those who do not,"
says Gov. Fletcher. "Kentucky remains on the
wrong side of this digital divide. While Internet
access on its own is not a silver bullet solution
for prosperity, adequate access to the global marketplace
through broadband infrastructure enables knowledge-based
economic development and has the ability to enhance
the lives of our citizens and businesses. The future
of our economy depends on our success and we owe
it to our children to deliver."
ConnectKentucky, a technology-based economic development
alliance uniting the public and private sector,
will lead this grassroots initiative, bringing together
community leaders and citizens to identify applications
and support the build-out of infrastructure necessary
to provide better government services, improved
educational opportunities, healthcare access, and
an expanded marketplace for local businesses.
