Tax policy in Kentucky

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Tax policy in Kentucky

Tax rates in 2017

Personal income tax: 2% to 6%

State sales tax: 6.00%

Corporate income tax: 4.00% to 6.00%

Tax revenues in 2016

Total tax collections: $11.78 billion

Tax collections per capita: $2,655

Total state expenditures • State debt • Kentucky state budget and finances

Kentucky generates the bulk of its tax revenue by levying a personal income tax, a general sales tax and select sales taxes (otherwise known as excise taxes). The state derives its constitutional authority to tax from the article "Revenue and Taxation" of the state constitution.

Tax policy can vary from state to state. States levy taxes to help fund the variety of services provided by state governments. Tax collections comprise approximately 40 percent of the states' total revenues. The rest comes from non-tax sources, such as intergovernmental aid (e.g., federal funds), lottery revenues and fees. The primary types of taxes levied by state governments include personal income tax, general sales tax, excise (or special sales) taxes and corporate income tax.

HIGHLIGHTS

According to the United States Census Bureau, Kentucky collected $11.78 billion in tax revenue in 2016. The state's tax revenue per capita was $2,655.

Tax rates

Personal income tax

See also: Personal income tax

Kentucky utilized a personal income tax rate ranging from 2 percent to 6 percent in 2017. An individual's tax liability varies according to his or her tax bracket. A tax bracket is the income range to which a tax rate applies.

The table below summarizes personal income tax rates for Kentucky and neighboring states in 2017.

Personal income tax rates, 2017
State	Tax rates		Number of brackets	Brackets
	Lowest	Highest		Lowest	Highest
Kentucky	2%	6%	6	$3,000	$75,001
Tennessee	State Income Tax of 6% on Dividends and Interest Income Only
Virginia	2%	5.75%	4	$3,000	$17,001
West Virginia	3%	6.5%	5	$10,000	$60,000
Note: For complete notes and annotations, please see the source below. Source: Tax Policy Center, "Individual State Income Tax Rates 2000-2017," accessed October 26, 2017

Personal exemptions

States that collect a personal income tax allow individuals to claim personal exemptions on income taxes each year. The personal exemption indicates that only a person's income above a certain level is subject to taxation.

Exemptions work by reducing the amount of an individual's taxable income. Both state and federal taxes allow exemptions. The state exemptions for Kentucky and its neighboring states as reported by the Tax Policy Center are reported in the chart below.

Personal exemptions, 2017
State	Single	Married	Dependents
				Kentucky	$20	$40	$20
Tennessee	State Income Tax of 6% on Dividends and Interest Income Only
Virginia	$930	$1,860	$930
West Virginia	$2,000	$4,000	$2,000
Note: For complete notes and annotations, please see the source below. Source: Tax Policy Center, "Individual State Income Tax Rates 2000-2017," accessed October 26, 2017

Capital gains tax

See also: Capital gains tax

A capital gains tax is a tax levied on the profit gleaned from the sale of a capital asset. Examples of capital assets include stocks, businesses, land parcels, homes, personal items and more. Capital gains are taxable at both the federal and state levels. While the federal government taxes capital gains at a lower rate than regular personal income, states usually tax capital gains at the same rates as regular income.

The table below summarizes uppermost capital gains tax rates for Kentucky and neighboring states in 2015.

Uppermost capital gains tax rates by state, 2015
State	State uppermost rate	Combined uppermost rate
			Kentucky	6%	28.6%
Tennessee	0%	25%
Virginia	5.8%	28.5%
West Virginia	6.5%	28.9%
Note: For complete notes and annotations, please see the source below. Source: Tax Foundation, "The High Burden of State and Federal Capital Gains Tax Rates," accessed October 26, 2017

Sales tax

See also: Sales tax

Almost all states employ a statewide sales tax, which ranges from 2.9 percent in Colorado to 7.25 percent in California. Additionally, many states allow the levying of local sales taxes, which are then added to the state's tax.

Kentucky's state sales tax was 6.00% percent in 2017. The state did not levy any local sales taxes, meaning that the total sales tax was 6.00% percent. The table below displays the state tax rates, average local tax rates, and average combined tax rates for Kentucky and its neighboring states.

Combined sales tax rates, 2015
State	State sales tax	Average local sales tax	Combined
Kentucky	6.00%	0.00%	6.00%
Tennessee	7.00%	2.46%	9.46%
Virginia	5.30%	0.33%	5.63%
West Virginia	6.00%	0.29%	6.29%
Note: For full annotations, see the source below. Source: The Tax Foundation, "State and local sales tax rates, 2017," accessed October 26, 2017

The table below summarizes sales tax rates for Kentucky and neighboring states in 2017 as well as the state's policy with respect to types of items commonly exempted from sales tax (i.e., food, prescription drugs and nonprescription drugs).

Sales tax rates, 2017
State	Sales tax rate	Exemption status
		Food	Prescription drugs	Nonprescription drugs
Kentucky	6.0%	Exempt	Exempt	Taxable
Tennessee	7.0%	5	Exempt	Taxable
Virginia	5.3%	2.5	Exempt	Exempt
West Virginia	6.0%	Exempt	Exempt	Taxable
Source: Tax Policy Center, "Sales Tax Rates 2000-2017," accessed October 26, 2017

Excise taxes

See also: Excise taxes

Excise taxes, also known as selective sales or differential commodity taxes, are levied for the sales of specific goods or services. Excise taxes are considered indirect taxes because they are not charged directly to individuals. In most cases, the excise tax is paid by the producer or seller of an item. The cost of the tax is then included in the sale price of the item and passed on to the consumer. The tables below provide excise tax rates for motor fuel, alcohol and cigarettes in Kentucky and neighboring states.

Fuel excise tax rates, 2017 (in cents per gallon)
State	Gasoline			Diesel			Gasohol
	Excise tax	Other taxes	Total tax	Excise tax	Other taxes	Total tax	Excise tax	Other taxes	Total tax
Kentucky	24.6¢	1.4¢	26¢	21.6¢	1.4¢	23¢	24.6¢	1.4¢	26¢
Tennessee	20¢	1.4¢	21.4¢	17¢	1.4¢	18.4¢	20¢	1.4¢	21.4¢
Virginia	16.2¢	0¢	16.2¢	20.2¢	0¢	20.2¢	16.2¢	¢	16.2¢
West Virginia	20.5¢	11.7¢	32.2¢	20.5¢	11.7¢	32.2¢	20.5¢	11.7¢	32.2¢
Note: For full annotations, see the source below. Source: Tax Policy Center, "State Motor Fuels Tax Rates 2000-2011, 2013-2017," accessed October 26, 2017

Alcohol excise tax rates, 2017 (in dollars per gallon)
State	Liquor		Wine		Beer
	Tax rate	Does general sales tax apply?	Tax rate	Does general sales tax apply?	Tax rate	Does general sales tax apply?
Kentucky	$1.9	Yes	$0.5	Yes	$0.1	Yes
Tennessee	$4.4	Yes	$1.2	Yes	$1.3	Yes
Virginia	See footnote 1	Yes	$1.5	Yes	$0.3	Yes
West Virginia	See footnote 1	Yes	$1.0	Yes	$0.2	Yes
Note: For full annotations, see the source below. 1"In 17 states, the government directly controls the sales of distilled spirits. Revenue in these states is generated from various taxes, fees, price mark-ups, and net liquor profits." 2"General sales tax applies to on-premise sales only." Source: Tax Policy Center, "Alcohol Rates 2000-2010, 2013-2017," accessed October 26, 2017

State cigarette taxes, 2017 (in cents per pack)
State	Tax rate	National ranking
			Kentucky	60¢	43
Tennessee	62¢	42
Virginia	30¢	50
West Virginia	120¢	32
Note: For full annotations, see the source below. Source: Tax Policy Center, "State Cigarette Taxes, 2017," accessed October 26, 2017

Corporate income tax

See also: Corporate income tax

Kentucky levies a corporate income tax rate of 4.00 to 6.00 percent. The table below compares the corporate income tax rates of some of its neighboring states.

Corporate income tax rates, 2016
State	Tax rate	Brackets		Number of brackets
		Lowest	Highest
Kentucky	4.00% to 6.00%	$50,000	$100,000	3
Tennessee	6.50%	Flat Rate		1
Virginia	6.00%	Flat Rate		1
West Virginia	6.50%	Flat Rate		1
Note: For complete notes and annotations, please see the source below. Source: Tax Foundation, "State Corporate Income Tax Rates and Brackets for 2015," accessed October 26, 2017

Property tax

See also: Property tax

Most often, property tax applies to real estate, although some states levy property taxes on other types of personal property, such as automobiles. Generally speaking, an individual's property tax liability is determined by the tax rate and the tax base, which is "determined by both the assessed value of the property and ... the share of the assessed value that is subject to tax." To learn more about property taxes, including tabulation methods, see this page. Property tax rates can vary substantially from locality to locality within a state.

The table below provides the mean amount of property taxes paid in 2012, as well as property tax as a mean percentage of home value for 2014, in Kentucky and neighboring states.

Mean property taxes paid per state, 2012 and 2014
State	Mean property taxes paid (2012)	Property tax as a percent of home value (2014)
Kentucky	$1,339	0.80%
Tennessee	$1,372	0.75%
Virginia	$2,860	0.81%
West Virginia	$718	0.53%
Source: Tax Policy Center, "Residential Property Taxes in the United States," November 18, 2013 Source: Tax Foundation, "Facts & Figures 2016: How Does Your State Compare?", accessed October 27, 2017

The table below lists per capita state and local property tax collections for Kentucky and neighboring states for fiscal year 2013.

State and local property tax collections per capita, 2013
State	Collections per capita
		Kentucky	$732
Tennessee	$838
Virginia	$1,430
West Virginia	$798
Source: Tax Foundation, "Facts and Figures 2016: How Does Your State Compare?" accessed October 26, 2017

Estate and inheritance taxes

See also: Estate and inheritance taxes

Estate and inheritance taxes are levied on the property of deceased individuals (decedents). Generally speaking, an estate tax is applied to the value of a decedent's property and is paid from the estate before distribution to any heirs. By contrast, an inheritance tax is paid by the heir or heirs of a decedent's assets.

Kentucky does not levy an estate tax, although residents are liable for the federal estate tax. The table below summarizes the estate tax rates for Kentucky and neighboring states in 2016.

Estate taxes, 2016
State	Exemption threshold	Minimum rate	Maximum rate
Kentucky	N/A
Tennessee	N/A
Virginia	N/A
West Virginia	N/A
Note: For complete notes and annotations, please see the source below. Source: Tax Foundation, "Facts and Figures 2015: How Does Your State Compare?" accessed October 5, 2015

Kentucky is one of six states that levies an inheritance tax. The table below summarizes the inheritance tax rates for these six states in 2015. Inheritance tax liability often varies depending on the relationship of the heir to the decedent. For instance, a decedent's spouse or child may have a different inheritance tax liability than the decedent's sibling or a friend.

For the purposes of the below table, Class A beneficiaries are spouses, children, and often siblings. Class B beneficiaries are non-immediate family members. Class C beneficiaries are non-family members. Class D is for-profit organizations; Class E is for foreign charitable organizations; Class F is for unknown heirs; and Class G is recognized charities.

Inheritance taxes, 2015
State	Heir type	Exemption threshold	Rates
Kentucky	Class A Class B Class C	100% exempt $1,000 $500	0% 4% to 16% 6% to 16%
Iowa	Class A Class B Class C Class D Class E Class F Class G	100% exempt No exemption No exemption No exemption No exemption No exemption 100% Exempt	0% 5% to 10% 10% to 15% 15% 10% 5% 0%
Maryland	Spouses and lineal heirs Others	100% exempt No exemption	0% 10%
Nebraska	Immediate relatives Remote relatives Others	$40,000 $15,000 $10,000	1% 13% 18%
New Jersey	Class A Class C Class D Class E	100% exempt $25,000 $500 100% Exempt	0% 11% to 16% 15% to 16% 0%
Pennsylvania	Spouses Lineal heirs Siblings Others	100% exempt No exemption No exemption No exemption	0% 4.5% 12% 15%
Note: For complete notes and annotations, please see the source below. Source: Tax Foundation, "Facts and Figures 2015: How Does Your State Compare?" accessed October 5, 2015

Tax revenues

See also: Kentucky state budget and finances

The table below breaks down state government tax collections by source in 2016 (comparable figures from surrounding states are also provided to give additional context). Figures for all columns except "2016 population" and "Per capita collections" are rendered in thousands of dollars (for example, $2,448 translates to $2,448,000). Figures in the columns labeled "2016 population" and "Per capita collections" have not been abbreviated.

State tax collections by source ($ in thousands), 2016
State	Property taxes	Sales and gross receipts	Licenses	Income taxes	Other taxes	Total	2016 population	Per capita collections
Kentucky	$577,544	$5,603,120	$505,377	$4,888,920	$203,905	$11,778,866	4,436,974	$2,655
Tennessee	N/A	$9,704,247	$1,516,966	$1,862,601	$302,355	$13,386,169	6,651,194	$2,013
Virginia	$30,367	$6,886,378	$826,306	$12,990,685	$486,021	$21,219,757	8,411,808	$2,523
West Virginia	$6,957	$2,566,690	$128,478	$1,990,391	$435,454	$5,127,970	1,831,102	$2,800
United States	$18,364,298	$442,909,995	$52,164,396	$392,286,910	$24,538,146	$930,263,745	322,762,018	$2,882.20
Source: U.S. Census Bureau, "2016 annual survey of state government tax collections by category," accessed June 26, 2017

The table below lists 2016 tax collections by source as percentages of total collections. About 47.6 percent of Kentucky's total state tax collections came from sales taxes and gross receipts.

State tax collections by source (as percentages), 2016
State	Property taxes	Sales and gross receipts	Licenses	Income taxes	Other taxes
Kentucky	4.9%	47.6%	4.3%	41.5%	1.7%
Tennessee	N/A	72.5%	11.3%	13.9%	2.3%
Virginia	0.1%	32.5%	3.9%	61.2%	2.3%
West Virginia	0.1%	50.1%	2.5%	38.8%	8.5%
Source: U.S. Census Bureau, "2016 annual survey of state government tax collections by category," accessed April 4, 2016

Tax ballot measures

Voting on taxes
Ballot measures
By state
By year
Not on ballot
Local City taxes County taxes School taxes Property taxes Sales taxes Income taxes Other taxes

See also: Taxes on the ballot and List of Kentucky ballot measures

Ballotpedia has tracked the following ballot measures relating to taxes in Kentucky.

1. Kentucky Property Tax Exemptions, Amendment 2 (1998)
2. Kentucky Poll Tax and Separate Schools, Amendment 1 (1996)
3. Kentucky Tax Exemption for Property Owned by Institutions of Religion Amendment 4 (1990)
4. Kentucky Proposes a Change in Property Taxes on the Disabled, Amendment 2 (May 1981)
5. Kentucky Highway Fund Taxes Referendum (1945)
6. Kentucky Household Goods Tax Exemption Referendum (1955)
7. Kentucky Veteran Bonus Sales Tax Referendum (1959)
8. Kentucky Agricultural Land Assessment Referendum (1969)
9. Kentucky Senior Residence Tax Exemption Referendum (1971)

Recent news

The link below is to the most recent stories in a Google news search for the terms Kentucky taxes. These results are automatically generated from Google. Ballotpedia does not curate or endorse these articles.

Tax policy in Kentucky - Google News

See also

• Kentucky
• Kentucky state budget and finances
• Personal income tax
• Sales tax
• Corporate income tax
• Property tax

External links

• Tax Policy Center
• Federation of Tax Administrators
• Tax Foundation

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