Beshear orders change in Kentucky motor vehicle taxes, proposes sales tax cut

Beshear orders change in Kentucky motor vehicle taxes, proposes sales tax cut

February 17, 2022 0 By Steve Bittenbender

Kentucky Gov. Andy Beshear on Wednesday announced steps he’s taking and proposing to deal with rising inflation, including a call for a temporary reduction in the state’s sales tax.

Beshear also signed an executive order to reduce residents’ motor vehicle property taxes for this year and next year.

The governor said those steps were necessary because Kentucky families “are tired” after battling a once-in-a-lifetime pandemic for two years and an inflation rate that’s at a 40-year high.

“I’ve had enough,” he said. “We’ve all had enough.”

The proposal and order outlined by the governor are expected to provide $1.2 billion in relief for taxpayers, the governor said. However, that would require the Republican-led General Assembly to pass his proposal to cut the state sales tax by 1 percentage point to 5% starting in July.

Beshear, a Democrat, took a swipe at the GOP majorities in the General Assembly as he signed the order on vehicle property tax relief. He said it’s usually up to the legislature to set tax policy. But he noted a resolution the Senate passed last Friday that said he had the power to address the issue.

“So, if the legislature believes that I have the power to help Kentuckians, you bet I’m going do it,” said Beshear, alluding to powers lawmakers had previously stripped from his office over the past year.

Under Beshear’s order, he requested officials “to subtract any increase in the assessed value” of the vehicle as of Jan. 1 to the value it had on Jan. 1, 2021. Vehicles assessed next year would also have any increase subtracted from the 2021 valuation.

Anyone who has already paid their car tax at the higher rate will receive a refund of the difference within six months.

Beshear said his order is expected to reduce tax bills by about $340 million.

Kentucky’s vehicle property tax is assessed on its so-called “clean” retail value. Thanks to the drastic rise in used car prices last year, most Kentuckians saw their tax bill jump. In some cases, that increase was 40% or more.

GOP lawmakers had yet to comment on Beshear’s order. However, many have been critical of the policy the Department of Revenue uses to tax vehicles – a policy established more than a decade ago when Beshear’s father was the governor. While the Senate passed a resolution calling for Beshear to fix it, House lawmakers passed an emergency bill to change the assessment from a clean retail value to the average trade-in value.

The differences, however, between Beshear and GOP lawmakers on the car tax issue may likely be overshadowed by the larger debate on tax reform. Republicans have hinted strongly they would be bringing up the issue in Frankfort during the session. Now, they will need to determine how to handle the governor’s sales tax proposal.

Beshear was joined by state Rep. Angie Hatton, D-Whitesburg, on Wednesday. Hatton, the minority whip, will sponsor the bill that would cut the 6% sales tax for the 2022-23 fiscal year that starts July 1.

Hatton told reporters she had been in talks with the governor and his staff over the last couple of weeks on the plan to provide “immediate relief” to Kentuckians.

“While there’s lots of talk about long-term, broader tax reform – and some of that is definitely needed – when we do such a thing, we have to keep in mind the people who actually need help,” she said. “When I ran for this office, I ran to be a voice for the people who don’t necessarily have a loud voice in Frankfort, who were drowned out by power and money and who actually are the people who need help.”

The bill would also include adjustments to his budget proposal, although House Republicans have already passed their version of the spending plan. It also would include an optional second year, Hatton said, if inflation was still an issue and the state could still afford it.

Tax reform plans from Republicans and business groups typically center on reducing the state income tax and potentially offset that with an increase or adjustments to the sales tax.

Proponents of that policy say that would make Kentucky even more business-friendly and help attract new residents and investment in the commonwealth.

“We know from census data that low- and no-income-tax states are growing faster than states like Kentucky,” Kentucky Chamber of Commerce President and CEO Ashli Watts said in a statement. “By reducing taxes on work, we can keep more money in hard-working Kentuckians’ pockets while also growing our population and our economy and increasing wages. Minor temporary changes to our tax code will not set Kentucky on a path to long-term growth.”

However, critics point out that raising the sales tax or broadening how it’s applied does more harm to the state’s lowest-income families.

Beshear on Wednesday called for lawmakers to address inflation and tax reform in a nonpartisan way that can help everyone. He said his approach was “symbiotic” because it provides relief for everyone.

“What this does, is it both helps small businesses because people keep buying… but it also helps the families directly themselves,” he said.

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