Kentucky governor's tax commission issues report

LOUISVILLE, Ky. (AP) -- A panel appointed by Gov. Steve Beshear to review Kentucky's tax system on Monday recommended dozens of changes that include lowering individual and corporate tax rates, raising the cigarette tax and expanding the sales tax to certain services.

Changes suggested by the Governor's Blue Ribbon Commission on Tax Reform would generate about $659 million in additional state revenue each year, said Lt. Gov. Jerry Abramson, who headed the group that spent months studying the state's tax code.

He said the proposals would create a fairer tax code for families and businesses.

"The changes would position Kentucky to create more jobs, further grow our economy and fund many of the services the commission heard were needed all across the commonwealth," Abramson said.

The Democratic governor praised the group for its efforts to propose a tax code that's fairer, simpler and more responsive to a modern economy.

"I will review this report and will discuss the findings with legislators as we seek ways to make sure our state has the resources it needs to meet the needs of our people," the governor said in a statement.

It will be up to lawmakers to decide whether to make changes to state tax laws. The state General Assembly convenes next month. Democrats control the state House, while Republicans are in charge of the Senate.

State Rep. Rick Rand, chairman of the House budget committee, said House leaders looked forward to meeting with the governor and Senate leaders to discuss tax modernization efforts.

"It will take all of us working together to accomplish any meaningful changes," said Rand, D-Bedford.

The commission recommends more than 50 proposals, including lowering the state's top corporate tax rate to 5.8 percent from 6 percent. Individual income tax rates also would drop from 5.8 percent to 5.5 percent for adjusted gross income between $8,001 and $75,000. For income of $75,001 and higher, the rate would fall from 6 percent to 5.8 percent.

The commission proposed broadening the state sales tax to selected services. The group didn't single out any specific services in its report, but suggested the tax apply to services that are household- or consumption-based or apply to luxury items.

Another recommendation would raise the state's cigarette tax to $1 a pack from the current 60 cents. The proposed cigarette tax hike, if approved by lawmakers, would be the second since 2009 when it was doubled from 30 cents a pack.

To boost education funding, the group recommended imposing a 1 percent gross receipts tax on residential and business utilities. That revenue would be earmarked for elementary and secondary education.

The group also recommended exempting the sales and use tax on certain equine products to boost the state's horse industry.