AN ACT relating to sales and use tax.

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AN ACT relating to sales and use tax. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 139.480 is amended to read as follows: 3
Any other provision of this chapter to the contrary notwithstanding, the terms "sale at 4
retail," "retail sale," "use," "storage," and "consumption," as used in this chapter, shall not 5
include the sale, use, storage, or other consumption of: 6
(1) Locomotives or rolling stock, including materials for the construction, repair, or 7
modification thereof, or fuel or supplies for the direct operation of locomotives and 8
trains, used or to be used in interstate commerce; 9
(2) Coal for the manufacture of electricity; 10
(3) (a) All energy or energy -producing fuels used in the course of manufacturing, 11
processing, mining, or refining and any related distribution, transmission, and 12
transportation services for this energy that are billed to the user, to the extent 13
that the cost of th e energy or energy -producing fuels used, and related 14
distribution, transmission, and transportation services for this energy that are 15
billed to the user exceed three percent (3%) of the cost of production. 16
(b) Cost of production shall be computed on the ba sis of a plant facility, which 17
shall include all operations within the continuous, unbroken, integrated 18
manufacturing or industrial processing process that ends with a product 19
packaged and ready for sale. 20
(c) A person who performs a manufacturing or indust rial processing activity for a 21
fee and does not take ownership of the tangible personal property that is 22
incorporated into, or becomes the product of, the manufacturing or industrial 23
processing activity is a toller. For periods on or after July 1, 2018, th e costs of 24
the tangible personal property shall be excluded from the toller's cost of 25
production at a plant facility with tolling operations in place as of July 1, 26
2018. 27
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(d) For plant facilities that begin tolling operations after July 1, 2018, the costs o f 1
tangible personal property shall be excluded from the toller's cost of 2
production if the toller: 3
1. Maintains a binding contract for periods after July 1, 2018, that governs 4
the terms, conditions, and responsibilities with a separate legal entity, 5
which holds title to the tangible personal property that is incorporated 6
into, or becomes the product of, the manufacturing or industrial 7
processing activity; 8
2. Maintains accounting records that show the expenses it incurs to fulfill 9
the binding contract that include but are not limited to energy or energy -10
producing fuels, materials, labor, procurement, depreciation, 11
maintenance, taxes, administration, and office expenses; 12
3. Maintains separate payroll, bank accounts, tax returns, and other records 13
that demonstr ate its independent operations in the performance of its 14
tolling responsibilities; 15
4. Demonstrates one (1) or more substantial business purposes for the 16
tolling operations germane to the overall manufacturing, industrial 17
processing activities, or corporate structure at the plant facility. A 18
business purpose is a purpose other than the reduction of sales tax 19
liability for the purchases of energy and energy-producing fuels; and 20
5. Provides information to the department upon request that documents 21
fulfillment of the requirements in subparagraphs 1. to 4. of this 22
paragraph and gives an overview of its tolling operations with an 23
explanation of how the tolling operations relate and connect with all 24
other manufacturing or industrial processing activities occurring at the 25
plant facility; 26
(4) Livestock of a kind the products of which ordinarily constitute food for human 27
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consumption, provided the sales are made for breeding or dairy purposes and by or 1
to a person regularly engaged in the business of farming; 2
(5) Poultry for use in breeding or egg production; 3
(6) Farm work stock for use in farming operations; 4
(7) Seeds, the products of which ordinarily constitute food for human consumption or 5
are to be sold in the regular course of business, and commercial fertilizer to be 6
applied on land, the products from which are to be used for food for human 7
consumption or are to be sold in the regular course of business; provided the sales 8
are made to farmers who are regularly engaged in the occupation of tilling and 9
cultivating the soil for the production of crops as a business, or who are regularly 10
engaged in the occupation of raising and feeding livestock or poultry or producing 11
milk for sale; and provided further that tangible personal property so sold is to be 12
used only by those persons designated above who are so purchasing; 13
(8) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals to be 14
used in the production of crops as a business, or in the raising and feeding of 15
livestock or poultry, the products of wh ich ordinarily constitute food for human 16
consumption; 17
(9) Feed, including pre-mixes and feed additives, for livestock or poultry of a kind the 18
products of which ordinarily constitute food for human consumption; 19
(10) Machinery for new and expanded industry; 20
(11) Farm machinery. As used in this section, the term "farm machinery": 21
(a) Means machinery used exclusively and directly in the occupation of: 22
1. Tilling the soil for the production of crops as a business; 23
2. Raising and feeding livestock or poultry for sale; or 24
3. Producing milk for sale; 25
(b) Includes machinery, attachments, and replacements therefor, repair parts, and 26
replacement parts which are used or manufactured for use on, or in the 27
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operation of farm machinery and which are necessary to the operat ion of the 1
machinery, and are customarily so used, including but not limited to combine 2
header wagons, combine header trailers, or any other implements specifically 3
designed and used to move or transport a combine head; and 4
(c) Does not include: 5
1. Automobiles; 6
2. Trucks; 7
3. Trailers, except combine header trailers; or 8
4. Truck-trailer combinations; 9
(12) Tombstones and other memorial grave markers; 10
(13) On-farm facilities used exclusively for grain or soybean storing, drying, processing, 11
or handling. The exemption applies to the equipment, machinery, attachments, 12
repair and replacement parts, and any materials incorporated into the construction, 13
renovation, or repair of the facilities; 14
(14) On-farm facilities used exclusively for raising poultry or livestock. The exemption 15
shall apply to the equipment, machinery, attachments, repair and replacement parts, 16
and any materials incorporated into the constructio n, renovation, or repair of the 17
facilities. The exemption shall apply but not be limited to vent board equipment, 18
waterer and feeding systems, brooding systems, ventilation systems, alarm systems, 19
and curtain systems. In addition, the exemption shall apply whether or not the seller 20
is under contract to deliver, assemble, and incorporate into real estate the 21
equipment, machinery, attachments, repair and replacement parts, and any materials 22
incorporated into the construction, renovation, or repair of the facilities; 23
(15) Gasoline, special fuels, liquefied petroleum gas, and natural gas used exclusively 24
and directly to: 25
(a) Operate farm machinery as defined in subsection (11) of this section; 26
(b) Operate on -farm grain or soybean drying facilities as defined in subsection 27
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(13) of this section; 1
(c) Operate on -farm poultry or livestock facilities defined in subsection (14) of 2
this section; 3
(d) Operate on-farm ratite facilities defined in subsection (23) of this section; 4
(e) Operate on-farm llama or alpaca facilities as defined in subsection (25) of this 5
section; or 6
(f) Operate on-farm dairy facilities; 7
(16) Textbooks, including related workbooks and other course materials, purchased for 8
use in a course of study conducted by an institution which qualifies as a nonpro fit 9
educational institution under KRS 139.495. The term "course materials" means only 10
those items specifically required of all students for a particular course but shall not 11
include notebooks, paper, pencils, calculators, tape recorders, or similar student 12
aids; 13
(17) Any property which has been certified as an alcohol production facility as defined 14
in KRS 247.910; 15
(18) Aircraft, repair and replacement parts therefor, and supplies, except fuel, for the 16
direct operation of aircraft in interstate commerce and used exclusively for the 17
conveyance of property or passengers for hire. Nominal intrastate use shall not 18
subject the property to the taxes imposed by this chapter; 19
(19) Any property which has been certified as a fluidized bed energy production facility 20
as defined in KRS 211.390; 21
(20) (a) 1. Any property to be incorporated into the construction, rebuilding, 22
modification, or expansion of a blast furnace or any of its components or 23
appurtenant equipment or structures as part of an approved supplemental 24
project, as defined in[by] KRS 154.26-010; and 25
2. Materials, supplies, and repair or replacement parts purchased for use in 26
the operation and maintenance of a blast furnace and related carbon 27
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steel-making operations as part of an approved supplemental project, as 1
defined in[by] KRS 154.26-010. 2
(b) The exemptions provided in this subsection shall be effective for sales made: 3
1. On and after July 1, 2018; and 4
2. During the term of a supplemental project agreement entered into 5
pursuant to KRS 154.26-090; 6
(21) Beginning on October 1, 1986, food or food products purchased for human 7
consumption with food coupons issued by the United States Department of 8
Agriculture pursuant to the Food Stamp Act of 1977, as amended, and required to 9
be exempted by the Food Security Act of 1985 in order for the Commonwealth to 10
continue participation in the federal food stamp program; 11
(22) Machinery or equipment purchased or leased by a business, industry, or 12
organization in order to collect, source separate, compress, bale, shred, or otherw ise 13
handle waste materials if the machinery or equipment is primarily used for 14
recycling purposes; 15
(23) Ratite birds and eggs to be used in an agricultural pursuit for the breeding and 16
production of ratite birds, feathers, hides, breeding stock, eggs, meat , and ratite by-17
products, and the following items used in this agricultural pursuit: 18
(a) Feed and feed additives; 19
(b) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals; 20
and 21
(c) On-farm facilities, including equipment, machinery, attachments, repair and 22
replacement parts, and any materials incorporated into the construction, 23
renovation, or repair of the facilities. The exemption shall apply to incubation 24
systems, egg processing equipment, waterer and feeding systems, brooding 25
systems, ventilation systems, alarm systems, and curtain systems. In addition, 26
the exemption shall apply whether or not the seller is under contract to 27
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deliver, assemble, and incorporate into real estate the equipment, machinery, 1
attachments, repair and replacement parts, and any materials incorporated into 2
the construction, renovation, or repair of the facilities; 3
(24) Embryos and semen that are used in the reproduction of livestock, if the products of 4
these embryos and semen ordinarily constitute food for human consumption, and if 5
the sale is made to a person engaged in the business of farming; 6
(25) Llamas and alpacas to be used as beasts of burden or in an agricultural pursuit for 7
the breeding and production of hides, breeding stock, fiber and wool products, 8
meat, and llama and alpaca by -products, and the following items used in this 9
pursuit: 10
(a) Feed and feed additives; 11
(b) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals; 12
and 13
(c) On-farm facilities, including equipment, machinery, attachments, repair and 14
replacement parts, and any materials incorporated into the construction, 15
renovation, or repair of th e facilities. The exemption shall apply to waterer 16
and feeding systems, ventilation systems, and alarm systems. In addition, the 17
exemption shall apply whether or not the seller is under contract to deliver, 18
assemble, and incorporate into real estate the eq uipment, machinery, 19
attachments, repair and replacement parts, and any materials incorporated into 20
the construction, renovation, or repair of the facilities; 21
(26) Baling twine and baling wire for the baling of hay and straw; 22
(27) Water sold to a person regularly engaged in the business of farming and used in the: 23
(a) Production of crops; 24
(b) Production of milk for sale; or 25
(c) Raising and feeding of: 26
1. Livestock or poultry, the products of which ordinarily constitute food 27
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for human consumption; or 1
2. Ratites, llamas, alpacas, buffaloes[buffalo], cervids or aquatic 2
organisms; 3
(28) Buffaloes[Buffalos] to be used as beasts of burden or in an agricultural pursuit for 4
the production of hides, breeding stock, meat, and buffalo by -products, and the 5
following items used in this pursuit: 6
(a) Feed and feed additives; 7
(b) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals; 8
and 9
(c) On-farm facilities, including equipment, machinery, attachments, repair and 10
replacement parts, and any materials i ncorporated into the construction, 11
renovation, or repair of the facilities. The exemption shall apply to waterer 12
and feeding systems, ventilation systems, and alarm systems. In addition, the 13
exemption shall apply whether or not the seller is under contract to deliver, 14
assemble, and incorporate into real estate the equipment, machinery, 15
attachments, repair and replacement parts, and any materials incorporated into 16
the construction, renovation, or repair of the facilities; 17
(29) Aquatic organisms sold directly to or raised by a person regularly engaged in the 18
business of producing products of aquaculture, as defined in KRS 260.960, for sale, 19
and the following items used in this pursuit: 20
(a) Feed and feed additives; 21
(b) Water; 22
(c) Insecticides, fungicides, herbi cides, rodenticides, and other farm chemicals; 23
and 24
(d) On-farm facilities, including equipment, machinery, attachments, repair and 25
replacement parts, and any materials incorporated into the construction, 26
renovation, or repair of the facilities and, any gas oline, special fuels, liquefied 27
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petroleum gas, or natural gas used to operate the facilities. The exemption 1
shall apply, but not be limited to: waterer and feeding systems; ventilation, 2
aeration, and heating systems; processing and storage systems; product ion 3
systems such as ponds, tanks, and raceways; harvest and transport equipment 4
and systems; and alarm systems. In addition, the exemption shall apply 5
whether or not the seller is under contract to deliver, assemble, and 6
incorporate into real estate the eq uipment, machinery, attachments, repair and 7
replacement parts, and any materials incorporated into the construction, 8
renovation, or repair of the facilities; 9
(30) Members of the genus cervidae permitted by KRS Chapter 150 that are used for the 10
production o f hides, breeding stock, meat, and cervid by -products, and the 11
following items used in this pursuit: 12
(a) Feed and feed additives; 13
(b) Insecticides, fungicides, herbicides, rodenticides, and other chemicals; and 14
(c) On-site facilities, including equipment, machinery, attachments, repair and 15
replacement parts, and any materials incorporated into the construction, 16
renovation, or repair of the facilities. In addition, the exemption shall apply 17
whether or not the seller is under contract to deliver, assemble, an d 18
incorporate into real estate the equipment, machinery, attachments, repair and 19
replacement parts, and any materials incorporated into the construction, 20
renovation, or repair of the facilities; 21
(31) (a) Repair or replacement parts for the direct operation or maintenance of a motor 22
vehicle, including any towed unit, used exclusively in interstate commerce for 23
the conveyance of property or passengers for hire, provided the motor vehicle 24
is licensed for use on the highway and its declared gross vehicle weight with 25
any towed unit is forty -four thousand and one (44,001) pounds or greater. 26
Nominal intrastate use shall not subject the property to the taxes imposed by 27
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this chapter; and 1
(b) Repair or replacement parts for the direct operation and maintenance of a 2
motor vehicle operating under a charter bus certificate issued by the 3
Transportation Cabinet under KRS Chapter 281, or under similar authority 4
granted by the United States Department of Transportation. 5
(c) For the purposes of this subsection, "repair or replacement parts" means tires, 6
brakes, engines, transmissions, drive trains, chassis, body parts, and their 7
components. "Repair or replacement parts" shall not include fuel, machine 8
oils, hydraulic fluid, brake fluid, grease, supplies, or accessories not essential 9
to the operation of the motor vehicle itself, except when sold as part of the 10
assembled unit, such as cigarette lighters, radios, lighting fixtures not 11
otherwise required by the manufacturer for operation of the vehicle, or tool or 12
utility boxes; 13
(32) Food donated by a retail food establishment or any other entity regulated under 14
KRS 217.127 to a nonprofit organization for distribution to the needy; 15
(33) Drugs and over -the-counter drugs, as defined in KRS 139.472, that are purchased 16
by a person regularly engaged in the business of farming and used in the treatment 17
of cattle, sheep, goats, swine, poultry, ratite birds, llamas, alpacas, 18
buffaloes[buffalo], aquatic organisms, or cervids; 19
(34) (a) Building materials, fixtures, or supplies purchased by a construction 20
contractor if: 21
1. Fulfilled by a construction contract for a sewer or water project with: 22
a. A municipally owned water utility organized under KRS Chapter 23
96; 24
b. A water district or water commission formed or organized under 25
KRS Chapter 74; 26
c. A sanitation district established under KRS Chapter 220 or formed 27
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pursuant to KRS Chapter 65; 1
d. A nonprofit corporation created under KRS 58.180 to act on behalf 2
of a governmental agency in the acquisition and financing of 3
public projects; 4
e. Regional wastewater commissions formed under KRS Chapter 5
278; 6
f. A municipally owned joint sewer agency formed under KRS 7
Chapter 76; or 8
g. Any other governmental agency; and 9
2. The building materials, fixtures, or supplies: 10
a. Will be permanently incorporated into a structure or improvement 11
to real property, or will be completely consumed, in fulfilling a 12
construction contract for the purpose of furnishing water or sewer 13
services to the general public; and 14
b. Would be exempt if purchased directly by the entities listed in 15
subparagraph 1. of this paragraph. 16
(b) As used in this subsection, "construction contract" means a: 17
1. Lump sum contract; 18
2. Cost plus contract; 19
3. Materials only contract; 20
4. Labor and materials contract; or 21
5. Any other type of contract. 22
(c) The exemption provided in this subsection shall apply without regard to the 23
payment arrangement between the construction contractor, the retailer, and 24
the entities listed in paragraph (a) 1. of this subsection or to the place of 25
delivery for the building materials, fixtures, or supplies; 26
(35) (a) On or after February 25, 2022, the rental of space for meetings, conventions, 27
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short-term business uses, entertainment events, weddings, banquets, parties, 1
and other short -term social events, as referenced in KRS 139.200, if the tax 2
established in KRS 139.200 is paid by the primary lessee to the lessor. 3
(b) For the purpose of this subsection, "primary lessee" means the person who 4
leases the space and who has a contract with the lessor of the space only if: 5
1. The contract between the lessor and the lessee specifies that the lessee 6
may sublease, subrent, or otherwise sell the space; and 7
2. The space is then sublet, subrented, or otherwise sold to exhibitors, 8
vendors, sponsors, or other entities and persons who will use the space 9
associated with the event to be conducted under the primary lease; 10
(36) Prewritten computer software access services sold to or purchased by a retailer that 11
develops prewritten computer software for print technology and uses and sells 12
prewritten computer software access services for print technology; 13
(37) (a) Currency or bullion. 14
(b) As used in this subsection: 15
1. "Bullion": 16
a. Means bars, ingots, or coins, which are: 17
i. Made of gold, silver, platinum, palladium, or a combination 18
of these metals; 19
ii. Valued based on the content of the metal and not its form; 20
and 21
iii. Used, or have been used, as a medium of exchange, security, 22
or commodity by any state, the United States government, or 23
a foreign nation; and 24
b. Does not include medallions or coins that are incorporated int o a 25
pendant or other jewelry; and 26
2. "Currency": 27
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a. Means a coin or currency made of gold, silver, platinum, 1
palladium, or other metal or paper money that is or has been used 2
as legal tender and is sold based on its value as a collectible item 3
rather than the value as a medium of exchange; and 4
b. Does not include a coin or currency that has been incorporated into 5
jewelry;[ and] 6
(38) Medicinal cannabis as defined in KRS 218B.010 when sold, used, stored, or 7
consumed in accordance with KRS Chapter 218B; and 8
(39) (a) Bees used in a commercial enterprise for: 9
1. The production of honey or wax for sale; or 10
2. The pollination of crops, the products of which: 11
a. Ordinarily constitute food for human consumption; or 12
b. Are to be sold in the regular course of business; and 13
(b) The following items used in that commercial enterprise: 14
1. Sugar and high fructose corn syrup; 15
2. Medication and other chemicals used to control mites, fungi, and 16
parasites; 17
3. Hive components, including but not limited to hive bodies, hive s tands, 18
and woodenware; 19
4. Hive accessories, including but not limited to queen excluders, bucket 20
feeders, and pollen traps; 21
5. Beeswax foundation and frames; 22
6. Extractors, decapping tanks, and knives; 23
7. Beekeeping apparel; and 24
8. Machinery and equipment designed exclusively for the management 25
of bees and products derived from bees. 26
Section 2. This Act takes effect August 1, 2026. 27