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In Focus: Sales tax expansion will hit charities, too

Local non-profits say they weren’t warned change in state law would affect them

“I’m going to say it: It’s basically taxing a charity. I hate to say that, but it is.” 

That is the sentiment from Laura Guerrant, executive director of CASA of the Bluegrass, on the expansion of the 6-percent Kentucky sales tax that will now hit non-profits and charities as of this weekend. 

She’s not alone. Some organizations in the area are reeling, trying to figure out not only how the public will handle a 6-percent increase in prices, but how to pay for additional bookkeeping and tracking the move will require. 

Upon first hearing of change to Kentucky law that would expand that state’s sales tax, most had no clue it would affect non-profits. It was made clear the expansion would affect small businesses like lawn care services, beauticians and auto mechanics. It wasn’t until some dug deeper into the bill that they found out it affected events like fundraisers and auctions, even if they’re put on by registered 501c(3) non-profit organizations. 

It’s the first time services from non-profits and charities will have ever been taxed in the state of Kentucky. 

There are 12 different business categories chosen for inclusion in the expanded tax, but the selection process for which services were chosen is not clear. For example, sales tax will now be charged at small veterinarians’ offices, but not for vet services on larger farm animals.

It will be applied to any labor associated with a taxable retail sale, such as a mechanic installing parts, but not to the repair of air conditioners, water heaters or plumbing fixtures.

Also, your friendly neighborhood tree-trimmer will have to hike up his bill by 6 percent — landscaping, lawn care, pruning or removal of trees and snow plowing are all becoming taxable services.

Things like campsites, boat launch and dock fees are included in under facility and event admissions, as well as bowling centers, skating rinks, golf courses (both public and private), health spas, swimming pools, tennis courts and fitness/recreational sports centers. 

‘Another layer of bookkeeping’

Guests who purchase a ticket to CASA of the Bluegrass’ annual Derby Eve Gala will now have to be charged 6-percent sales tax, Guerrant said.

CASA of the Bluegrass is a non-profit group that works to train court appointed special advocates, who volunteer to represent the needs of children in family court cases involving abuse and neglect. CASA of the Bluegrass serves Anderson, Boyle, Franklin and Mercer counties, and it relies quite a bit on fundraisers and donations: The gala is the “bread and butter of fundraising” for CASA, Guerrant said.

Those tickets are already at a high price point, which means they are a good source of funding, but adding on 6 percent may affect some people’s decision to buy, she said.

“Will people be able to afford it? Will they pick and choose what charities to support? It’ll be interesting,” she said.

Live and silent auction items being purchased during the event will be taxed as well.

“Yet we, ourselves, are tax-exempt,” Guerrant said. “It’s going to be another layer of bookkeeping and financial tracking — in addition to the extensive work we already do.”

Robby Henson seconds that notion. The artistic director of Pioneer Playhouse says this is not just a “pass-through arrangement.” The outdoor theater in Danville will have to pay extra accounting costs to handle the new taxing arrangement. Suffice it to say — they are not thrilled. 

“I do understand that our state has a budget deficit, but in the face of this deficit, they pushed through a tax cut to the highest earners and are now forcing not-for-profit arts organizations — and a narrowly selected group of small, mom-and-pop businesses — to collect sales taxes to offset this tax shift,” he said.

The tax expansion is supposed to raise $436 million in just two years for the state. 

It will also affect the Danville-Boyle County Humane Society, by adding 6 percent to adoption fees, as well as spay/neuter services for pets of those considered low income through Happy Paws Spay and Neuter Clinic. 

Main Street programs, such as Heart of Danville, will also be affected.

“Unlike a lot of non-profits that have a ticketed fundraiser to generate revenue, we pride ourselves on our number of free community events,” said Nick Wade, executive director of the Heart.

Wade said while the tax on ticket sales or auction items will not impact the Heart as much, it now must start collecting sales tax on concessions sold at events, including beer. 

Wade says in terms of accounting and bookkeeping, it’s brand new territory for the Heart.

“We’ve been around 32 years and have never had to worry about collecting and paying sales tax,” he said. “It adds another component to keep track of throughout the year, and we will have to sit down with our accountant to determine the best ways to keep track of this data.” 

Pioneer Playhouse’s Managing Director Heather Henson said the data-management part is going to be a huge change. The playhouse has one staff member, Callie Minks, who manages the office. The expansion couldn’t have happened at a worst time for them; their season is underway, and now they must change dinner and ticket prices, learn how to track the tax, report it, set up an account to pay it …

“It’s an enormous amount of work added to her job,” she said.

The playhouse has never been given any guidelines to follow, nor were they ever notified about the impending change — they found out about it on a fluke, Heather Henson said.

MInks just happened across the information when she read that campgrounds would now have to charge the sales tax — another way the playhouse will have to deal with the change, since they have a large campground. 

“If I’d have known months ago, I could have prepared for it,” Minks said.

“We had to talk to other theaters around the region, and look it up,” Heather Henson said. “The state told us we can watch a ‘webinar’ on what to do …” also not exactly convenient, when you’re a non-profit with one staff member, she said.

At first, there was confusion about whether the playhouse would even be taxed or not, since it’s a Kentucky National Historic Landmark, but events and admission fees to those are now taxed, too. 

According to Pamela Trautner, director of communications for Kentucky’s Finance and Administration Cabinet, only listings on the National Register of Historic Places are exempt. 

Trautner said the Department of Revenue “sent out email communications to various non-profit groups and verbally communicated with them as well.” 

“I learned about it at a meeting with a few other non-profit directors,” Guerrant says. “It was kind of sprung on us. I’ve not even began to attack how we’re going to handle it.”

Guerrant said CASA’s CPA will do the majority of the work, but she feels for smaller charities and non-profits which may “really be in trouble.”

In the non-profit sector, Guerrant says, each person wears so many hats as it is — “And then give us something like this on top of it. It’s frustrating, and I wish they had told us up front instead of us finding out about it elsewhere.”

Wade said non-profits can’t generate revenues the same way for-profit businesses do, but the change in state law means they’re now treated the same.

“It will impact how all non-profits in the state of Kentucky operate,” he said.

SO YOU KNOW 

According to TaxAnswers.ky.gov, the following services must begin charing the sales tax July 1: 

• Extended warranty services: to repair, support or maintain tangible personal property, such as cars or computers  

• Facility/event admission fees: bowling centers, skating rinks, health spas, swimming pools, tennis courts, weight training facilities, fitness and recreational centers/golf courses (public and private) 

• Indoor tanning

• Janitorial: includes, but not limited to, residential/commercial cleaning and carpet, upholstery and window cleaning 

• Labor charges for iInstallation or repair of tangible personal property, digital property, or services sold: Labor associated with the repair of fixtures to real property such as HVAC units, water heaters or plumbing fixtures will not be subject to the tax. Labor is taxable if it is part of a taxable retail sale. An example would be the labor bill of a mechanic to install repair parts in a car.

• Landscape: This includes but is not limited to lawn care and maintenance, tree trimming, pruning or removal, landscape design and installation, landscape care and maintenance, and snow plowing and removal.

• Limousine: The sales tax must be collected if a driver is provided.

• Laundry/dry cleaning: This includes industrial laundry services, linen supply services and non-coin operated laundry and dry cleaning services.

• Non-medical diet and weight reducing services 

• Pet care: This includes but is not limited to grooming and boarding, pet sitting and pet obedience training.

• Rentals of campsites: This includes campsites, campgrounds and recreational vehicle parks. Rentals for a continuous period of 30 days or more to a person are excluded from sales tax. These new accommodations subject to sales tax will not be subject to the statewide or local transient room taxes.

• Veterinary: Includes services for small animals. Sales and use tax does not need to be collected when veterinary services are provided for equine, cattle, swine, sheep, goats, llamas, alpacas, ratite birds, buffalo, and cervids.