Study Shows Kentucky’s Tax Code Ranks as Most Improved

Sep 26, 2018

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A new study shows Kentucky’s business tax environment had the greatest improvement in the nation. The state ranked 23rd this year in the 2019 State Business Tax Climate Index published by the Tax Foundation, a 16 spot improvement over last year.

Kentucky went to a single rate individual and corporate income tax, eliminating some business tax credits. The state also expanded the sales tax base and began phasing out inventory tax credits, or taxes on inventory held in the state by businesses. Those changes went  into effect on July 1st. The annual State Business Tax Climate Index shows Kentucky adopted a revenue-positive tax reform, meaning the state should collect more from the changes. Senior policy analyst Jared Walczak said the Commonwealth is moving towards a more competitive tax code.

“The state actually improved its tax structure while increasing collections. This is a revenue positive reform. They made the overall code more neutral and competitive in the process,” Walczak said.  

Walczak says phasing out the state’s gross receipts tax would further improve Kentucky’s competitiveness. He said tax structure matters because the burden of those taxes are borne by individuals through lower wages and increased prices.

“Whatever level of revenue a state decides to raise you can do it in a better or worse way and Kentucky made the choice to improve its structure,” he said. “To make a more competitive tax code within the revenue goals that it set and we should see positive changes based on that.”  

Walczak said Kentucky improved its tax structure while also increasing revenue. Indiana ranked tenth in the State Business Tax Climate Index and Tennessee came in 16th.