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Sales Tax Changes for Utilities

The recent passage of House Bill 8 by the Kentucky legislature introduced several changes to the collection of sales tax within the state that will go into effect on January 1, 2023. The bill expands the tax base not only by adding a number of services that will become subject to the tax, but also by amending some of the existing sales tax exemptions, including the exemption for residential utilities. Currently, residential customers are not required to pay the 6% state sales tax on utilities. However, the new legislation modifies KRS 139.470(7) so that this exemption will apply only to the consumer’s “place of domicile,” which is defined as “the place where an individual has his or her legal, true, fixed, and permanent home and principal establishment, and to which, whenever the individual is absent, the individual has the intention of returning.”

Given this change, utility providers should examine their databases to identify residential customers with more than one address and/or meter.  Effective January 1st, the utility will be required to charge and collect sales tax for all locations other than the customer’s place of domicile.  Although it is the customer who is ultimately responsible for filing the new form with their utility provider to declare a location a place of domicile and claim the exemption, utility providers are encouraged to start notifying their customers of this change and requesting documentation of place of domicile in applicable situations. For current residential customers with only one address/meter, there is a presumption that that location is the customer’s place of domicile, and the customer will remain exempt from the sales tax.  However, going forward, all new customers, as well as existing customers in the case of a “triggering event” (for example, if the customer moves), should file the appropriate paperwork with their utility provider to designate their residence a place of domicile.

The Kentucky Rural Water Association (KRWA) provides some resources and templates for declaration of domicile.  In addition, the June 2022 newsletter from the Kentucky Department of Revenue provides additional information on House Bill 8 and the related utility provisions.  The Kentucky Department of Revenue also provides a Q&A that addresses questions around rental customers and links to their declaration of domicile forms. You can also contact a member of our team for additional information and advice on what this change means for you or your organization.

Link to KY Department of Revenue

Link Q&A to the below:

Link KRWA to the below: