By: Rick Shields, Principal, CPA, CFE
Effective January 1, 2023, Kentucky implemented numerous changes to its sales tax laws.
Historically, not-for-profits have been able to take advantage of numerous Kentucky sales tax exemptions. In practice, that has allowed not-for-profits to operate as though sales tax does not apply to their operations.
Kentucky has been expanding the type of transactions that are subject to sales tax in recent years. The most recent expansion is likely to impact not-for-profit organizations operating in Kentucky.
Below is a list of transactions that are likely to apply to not-for-profits that previously were not subject to sales tax.
For a more detailed analysis of the new sales tax legislation, read this article.
Receipts from the use of parking lots and parking structures provided by not-for-profit entities are now subject to sales tax. However, any parking services provided at an educational institution are excluded.
Rental of Space for Events
Not-for-profit organizations receiving payments for the rental of space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties, and other short-term social events are liable for sales and use tax on those receipts.
The only exception would be rental of space to another not-for-profit that has an exemption for purchases.
The rental of space for “short-term business uses” and “short-term social events” means an agreement to rent space for business uses or social events where the term of the rental is less than 30 days.
Additional revenue streams which may be included with these transactions and are now subject to sales tax include charges for IT support, charges for set up or take down of seating arrangements, and charges for hanging signage.
Lobbying services performed at the local, state, and federal levels are subject to sales and use tax.
Public Opinion and Research Polling Services
Receipts for public opinion and research polling services are now subject to sales tax.
Rental of Space for Campsites
The one percent state transient room tax now includes campgrounds and RV parks.
In addition, the new language requires those facilitating the rental of accommodations to collect the room tax on their total charges for the rental of accommodations.
Receipts from a customer for a continuous stay of 30 days or more are exempted.
Recreational Camp Tuition and Fees
Tuition and related charges for camps of all types, whether not-for-profit or for-profit, that include recreation as more than 10 percent of planned activities for participants will become taxable as of January 1, 2023.
Receipts from the sales of massage services, unless documented via prescription as medically necessary by a licensed medical practitioner, including chiropractors, are subject to sales and use tax starting January 1, 2023.
The prescription must specify the dates or timeframe for requested massage services.
It is the responsibility of the massage provider to maintain the prescription documentation as proof of medically necessary services rendered.
Massage service providers should report their total receipts for all massage services rendered (taxable and exempt) for the reporting period on the “Total Receipts” line of the return. They should then click on the “Deductions Worksheet” tab of the return and include all medically necessary massage services listed in “Total Receipts” on the “Other” deduction line.
Chiropractic care is not within the overall category of massage services.
Receipts from the sales of testing services are subject to sales tax, except testing for medical, educational, or veterinary reasons.
Testing services are technical processes performed upon a product or property that require analysis to determine whether the object tested meets desired criteria.
The sales and use tax on services is based upon where the customer receives the service and not necessarily where the service is performed.
Therefore, if an out-of-state service provider has a laboratory that performs a testing service on a sample for a Kentucky-based customer and bills the Kentucky customer for the testing services performed, the charges are subject to Kentucky sales and use tax.
Not-for-profits that needs to set up an account for sales tax reporting may do so here.
If you have any questions about the new Kentucky sales tax laws and if they apply to your not-for-profit, please contact a Blue & Co. advisor today.