I. 2026 Legislative Update
The Kentucky 2026 regular legislative session saw a number of important tax law changes.
House Bill 757 (“HB 757”)
IRC Conformity and Decoupling
HB 757 updates Kentucky’s Internal Revenue Code (“IRC”) conformity date to December 31, 2025 for tax years beginning on or after January 1, 2026, but decouples from several provisions of the One Big Beautiful Bill Act (“OBBBA”). As a result of the legislation, Kentucky decouples from OBBBA on the following provisions: IRC section 174A (deduction for domestic research and experimentation expenditures, but Kentucky would conform with IRC 174 as in effect December 31, 2024); IRC section 181 (deductions related to qualified film, television, live theatrical, and sound recording production); IRC section 139L (interest deduction for qualified lenders on qualified rural and agricultural real estate loans); IRC section 163(h)(3) (qualified residential interest limited to acquisition indebtedness on a principal residence and may not be claimed on more than one residence); and IRC section 163(j) (OBBBA changes to 163(j), but Kentucky would conform with December 31, 2024 version of IRC 163(j)). For domestic research and experimentation expenditures, House Bill 869 (“HB 869”) clarifies that taxpayers may subtract amortization of the expenditures computed under IRC section 174 as in effect December 31, 2024.
Delayed Deferred Tax Deduction
The Kentucky legislature enacted a deferred tax deduction in 2019 to mitigate the effect on certain tax attributes from the transition to combined reporting from the prior nexus consolidated filing regime. The deduction would be limited to publicly traded corporations and their affiliates. This deduction has been further delayed to the combined group’s tax year beginning on or after January 1, 2028.
Sales Tax Nexus Threshold
HB 757 eliminates the 200-transaction nexus threshold for marketplace providers and remote sellers. Under the revised KRS 139.450(2)(a) and KRS 139.340(2)(g), a marketplace provider or remote seller is subject to Kentucky sales and use tax collection requirements when its gross receipts from Kentucky sales exceed $100,000.
Data Brokering Services
HB 757 adds data brokering services as a new category of taxable services subject to KRS 139.200’s 6% sales and use tax. For purposes of the sales tax, “‘data brokering services’ means the act of collecting, aggregating, and analyzing personal data for sale to a third party while possession of the personal data is maintained by the person providing the data brokering services or by the third party, wherever located, regardless of whether the charge for the services provided is on a per use, per user, per license, subscription, or some other basis”. KRS 2.015(6) (as amended).
Religious Institution Sales Tax Exemption
HB 757 revises KRS 139.495 granting certain sales tax exemptions to certain nonprofits to specifically define a “religious institution.” For purposes of such sales tax exemptions, “‘religious institution’ means: (1) A resident nonprofit religious institution that has qualified for exemption” under IRC section 501(c)(3); “(2) Any resident, single member limited liability company that is: (a) [w]holly owned and controlled by a” nonprofit religious institution that qualified for exemption under IRC section 501(c)(3) and (b) is disregarded; or “(3) A resident nonprofit religious institution that has chosen not to apply” for exemption under IRC section 501(c)(3) “but would otherwise qualify for that designation….” This exemption applies to sales and purchases made “within the religious function”.
Prediction Market Operations Excise Tax
HB 757 imposes a 14.5% excise tax on the transaction fees of a prediction market operator, payable monthly and accompanied by a return by the twentieth day of the succeeding calendar month. A prediction market is a physical or online platform that allows consumers to buy, sell, or exchange contracts or take speculative positions based on the outcomes of future events. These markets enable participants to express predictions about real-world events, and they may include “a board of trade designated as a contract market by the Commodity Futures Commission.” A “transaction fee” is the charge imposed by a prediction market operator for completing a consumer’s purchase, sale, or trade of an event contract, including the amount the consumer pays to buy the contract. A responsible person may be held personally and individually liable, jointly and severally, for the excise taxes. HB 869 removed from the HB 757-revised KRS 138.506 statement that “[i]t is not the intent of the General Assembly to legalize these activities.” The tax already faces legal challenges in Kentucky state court from a group comprised of Kalshi, Polymarket, and Crypto.com1, and in federal court from the Commodity Futures Trading Commission.2
Fantasy Contest Operations Excise Tax
HB 757 defines online fantasy contests and imposes a 12% excise tax on a fantasy service provider’s adjusted gross fantasy contest receipts, payable monthly and accompanied by a return by the twentieth day of the succeeding calendar month. A “fantasy contest” is an online game with two or more participants where prizes are disclosed in advance and awarded based primarily on participants’ skill in selecting and managing rosters of real athletes whose real-world statistical performances determine outcomes. The results cannot be based on a single game, team outcome, or individual performance, must comply with federal law, and cannot involve betting against the contest provider or contests without an entry fee. A responsible person may be held personally and individually liable, jointly and severally, for the excise taxes. HB 869 removed from the HB 757-revised KRS 138.507 statement that “[i]t is not the intent of the General Assembly to legalize these activities.”
Premium Cigars Excise Tax
HB 757 creates a separate category for premium cigars, imposing an excise tax at the rate of 6% of the distributor’s actual selling price, beginning July 1, 2026. Other “tobacco products, except snuff, chewing tobacco, and premium cigars” continue to be taxed at the rate of 15% of distributor’s actual selling price.
Electric Vehicle Charging License and Fee
Beginning in 2027, an electric vehicle power dealer must obtain an annual retail electric vehicle charging license prior to operating an electric vehicle charging station. The annual license fee equals the amount of $100 per electric vehicle charging port. Electric vehicle charging stations constructed using funds from the National Electric Vehicle Infrastructure Funding Program are not subject to licensure requirements for the first five years of their operations and the expiration of the long-term stewardship requirement from 23 CFR section 680.106.
Professional Sporting Events Sales Tax Incentive
On or after July 1, 2026, a sponsoring entity may apply for a sales tax incentive equal to 100% of Kentucky sales tax generated from admissions and related sales (such as food, souvenirs, parking, suites, sponsorships, and other hospitality services) at a qualifying attraction, paid directly to the sponsor once per attraction per year. The incentive does not require refunds to customers, is reduced by vendor compensation, and does not accrue interest. A “qualifying attraction” is a publicly ticketed series of professional sporting events held at a venue for at least three consecutive days, attracting at least 100,000 total admissions, and hosted by a sponsoring entity under an agreement with the facility operator. The venue may be public, nonprofit-controlled park property, public university property, or suitable private property within a consolidated or urban-county government.
School Occupational Tax
Beginning on or after January 1, 2027, no new school occupational taxes may be imposed where the “school district [] does not already have one imposed” and the existing rate may not be increased. Prior to April 27, 2026, counties with 500,000 or more residents could increase their school tax rate by 0.25%.
House Bill 869 (“HB 869”)
Economic Development Tax Credit
HB 869 establishes a refundable economic development tax credit for approved companies that receive preliminary approval after July 1, 2026. The credit is based on wages paid to full-time employees who are Kentucky residents and subject to state income tax, at a rate of 2.25% for employees “maintained at an economic development project located in a heritage county” and 1.25% for employees at projects in all other counties. The total credits available may not exceed $4 million per taxable year, of which no more than $1 million may be claimed for wages paid in non-heritage counties. “‘Heritage county’ means a county where the county population ranking determined by the cabinet … scores greater than or equal to ninety-seven (97).”
Certified Mixed-Use Rehabilitation Credit
HB 869 also creates a refundable and transferrable certified mixed-use rehabilitation credit designed to encourage the rehabilitation of large mixed-use buildings in designated urban core areas. The credit is equal to 20% of the eligible rehabilitation expenses. “Eligible rehabilitation expenses” include the building and construction materials, costs of fixture installation, and labor and mechanics costs associated with a vacant structure that has at least 225,000 square feet of gross leasable area and a vacancy rate of at least 50% for six continuous months. The total credits available may not exceed $25 million per eligible taxpayer, and $50 million across all participants preliminarily approved for each calendar year. Eligible taxpayers must apply for preliminary approval by December 31, 2027, and each December 31 of the calendar year preceding the year in which the certified mixed-use rehabilitation will occur. By January 15, 2028, and each January 15 thereafter, the Kentucky Economic Development Finance Authority shall provide preliminary approval and the anticipated credit amount.
Alternative Jet Fuel Producer Credit
Beginning on or after January 1, 2029, but before January 1, 2035, alternative jet fuel producers may claim an alternative jet fuel producer credit up to $2.50 per gallon. The credits are provided at tiered rates: $0.50 per gallon for certain feedstock providers supplying eligible feedstock or synthetic blending components (“SBC”) to an alternative jet fuel producer; $1.50 per gallon for alternative jet fuel producers that process or blend eligible feedstocks or SBCs; $2.00 per gallon for alternative jet fuel producers that process or blend eligible feedstocks or SBCs to produce agriculturally based alternative jet fuel; and $2.50 per gallon for alternative jet fuel producers using eligible feedstock produced in the Commonwealth. The credits “may stack if the alternative jet fuel producer is the same as the feedstock producer” but are capped at $3.00 per gallon per entity. The aggregate annual cap is $20 million, with individual credits under the first two tiers limited to $2 million per taxable year.
Effective August 1, 2026, commercial airports located in Kentucky that purchase alternative jet fuel or agriculturally based alternative jet fuel may be granted a sales tax rebate of up to 75% of the Kentucky sales tax generated by the sale of such fuel, reduced by the vendor compensation.
House Bill 518 (“HB 518”)
Local Occupational License Tax Returns
HB 518 requires the Secretary of State, in conjunction with an advisory committee, to establish standardized forms in paper and electronic format and requires tax districts to accept the forms for net profits occupational license tax returns, gross receipts occupational license tax returns, and payroll occupational license tax returns. The forms are to be filed with the “Legislative Research Committee for referral to the Interim Joint Committee on Local Governance by June 24, 2027.” Once adopted, a tax district may (1) adopt the standardized forms as its exclusive electronic returns, (2) accept the standardized forms in addition to the tax district’s own forms, or (3) opt out of using the standardized forms, provided the tax district has an online filing and payment system established before January 1, 2025 or entered into a binding agreement to implement an online filing and payment system on or before July 1, 2026.
After July 1, 2029, taxing districts must adopt the standardized forms or accept the standardized forms alongside their own forms, subject to limited exceptions for taxing districts requesting exemption based on undue financial hardship or participation in an interlocal agreement providing for a single tax collection process, and for taxing districts that collect less than $200,000 in occupational license taxes during the preceding fiscal year or demonstrates that the cost of compliance would exceed over 5% of the taxing district’s annual budget.
Tax on Cannabis-Infused Beverages
The 2025 House Bill 775 (“HB 775”) imposes a tax in the amount of $1.92 per gallon of cannabis-infused beverage on the use, sale, or distribution by sale or gift of cannabis-infused beverages. The manufacturer selling or transferring cannabis-infused beverages to non-distributors and non-retailers or other person selling or transferring cannabis-infused beverages to distributors, retailers, licensees, or consumers must pay and report the tax by the 20th day of the month after the transfer of the cannabis-infused beverage. The distributor shall also pay and report the tax by the 20th day of the month after the transfer of the cannabis-infused beverage to the retailer or consumer in Kentucky. Lastly, HB 775 also imposes an 11% wholesale sales tax on cannabis-infused beverages.
End of Court Deference to State Agency Interpretations
The 2025 Senate Bill 84 follows the national trend reaffirming the court’s role in interpreting statutes. Kentucky courts will no longer defer to an administrative body’s interpretation of a statute or regulation. Rather, the courts will review an administrative interpretation de novo.
II. Executive & Administrative Updates
The Kentucky Department of Revenue (“KDOR”) has provided guidance on recent tax law changes and other administrative updates in Kentucky Sales Tax Facts (Summer 2026) and the Kentucky Administrative Regulations. Additional guidance may be found at TaxAnswers.ky.gov.
Pay Phone Receipts3
As of August 1, 2026, pay phone services are reclassified as communications services subject to the 6% sales tax under KRS 139.200 and the 3% utility gross receipts license tax under KRS 160.613. Communications services remain subject to the 1.3% gross revenues tax under KRS 136.616.
Penny Shortage4
KRS 45.345 requires that cash transactions be rounded to the nearest nickel when pennies are not available. Under this framework, if the total amount due (including tax) ends in $0.01, $0.02, $0.06, or $0.07, then the total amount is rounded down to the nearest nickel; if the total amount due (including tax) ends in $0.03, $0.04, $0.08, or $0.09, then the total amount is rounded up to the nearest nickel. An accompanying amendment to KRS 139.210 reinforces “the retailer’s responsibility to collect and remit the correct amount of tax due.”
Video Streaming Services5
Since July 1, 2019, video streaming services have been classified as multichannel video programming services under KRS 136.602(8) and subject to, inter alia, a 3% excise tax and a 2.4% gross revenues tax. KDOR confirmed that this classification encompasses separately stated audio-visual content accessed through the same streaming service. Accordingly, “a one-time charge to stream a single movie selection is a taxable multichannel video programming service.”
Drop Shipments6
Drop shipments are shipments from a third-party seller to the customer of the retailer. KDOR treats these arrangements as two transactions: one from the manufacturer or wholesaler to the retailer and another from the retailer to the customer. For wholly intrastate transactions, the retailer provides a resale certificate to the manufacturer or wholesaler and remits sales tax on the final sale to the customer. Where the retailer is out-of-state, the nonresident retailer should issue a resale certificate and note its nonresident status. In such scenario, the Kentucky customer is subject to the 6% use tax and reporting and remitting requirements.
III. Trends to Watch
A. Limited Liability Entity Tax
Kentucky’s limited liability entity tax (“LLET”) imposes a tax on every business that is protected from liability by the laws of the state, including corporations, LLCs, S-Corporations, limited partnerships, and other types of businesses.[7] The LLET has been a subject of discussion over the past few years and legislation has been introduced to provide targeted relief or full repeal. During the 2024 session House Bill 55 (HB 55) was introduced to sunset the LLET for taxable years beginning on January 1, 2025, and House Bill 120 (HB 120) was introduced to limit LLET’s application only to entities with gross receipts of $100,000 or more. Both bills died in committee. The General Assembly may continue to evaluate Kentucky’s LLET in future years and consider changes similar to HB 55 and HB 120, or alternatives such as shifting the LLET’s minimum fee to the annual organization fee paid to the Kentucky Secretary of State.
B. Continued Reduction of the Individual Income Tax Rate and Expansion of Sales Taxes to Services
Kentucky has joined a growing number of states seeking additional tax revenue by expanding its sales tax base to services. Kentucky has reduced its individual income tax in recent years (currently at 3.5%) and has sought to fill the gap in revenue by looking to services on which it can levy its sales tax. Kentucky greatly expanded the number of services subject to sales tax effective January 1, 2023. In 2026, the General Assembly added data brokering services as a new taxable category. Kentucky may seek to continue reducing its individual income tax rate by further expanding the list of taxable services in future years.
C. Property Tax Assessment Reduction Opportunities
As interest rates have greatly risen over the last year and both residential and commercial real estate values have declined relative to their upward trend of the last several years, there may be opportunities for certain property owners to seek a reduction in their property tax assessments. Property owners may wish to review recent sales of comparable properties to see if their current assessment is in line with the market. Commercial real estate owners may wish to review their cap rate and income stream, particularly if their operating expenses have grown, their property remains vacant or their income stream has otherwise been affected by the economy. Kentucky property tax season begins in May, so property owners should begin reviewing their assessments once set in eary April.
D. Pass Through Entity Tax Election
During the 2023 legislative session, the General Assembly enacted legislation that provided for a refundable pass-through entity tax credit equal to 100% of the entity owner’s proportionate share of the tax paid based on the pro rata share of the owner’s income from the entity. The state and local tax (“SALT”) cap deduction under the Tax Cuts and Jobs Act was raised and extended by the OBBBA; however, the General Assembly may reevaluate Kentucky’s Pass Through Entity Tax election in future years.
IV. Select Case Updates
Dep’t of Revenue v. Rent-A-Center East, Inc., Nos. 2024-CA-1162-MR, 2024-CA-1167-MR, 2025 WL 3683246 (Ky. App. Dec. 19, 2025)
Rent-A-Center East, Inc. (Rent-A-Center) rented household goods to Kentucky consumers under rent-to-own agreements pursuant to which “Rent-A-Center ‘retain[ed] title to the property at all times….’” Id. at *4. In response to the assessed ad valorem tangible personal property taxes, Rent-A-Center claimed the property was exempt under Section 170 of the Kentucky Constitution as “household goods”, and in the alternative, that the property should be taxed under the lower inventory tax rate. The Board of Tax Appeals denied the constitutional exemption, but applied the inventory rate. The Court of Appeals strictly construed the household goods exemption and concluded that “the pivotal language at issue … the phrase ‘of a person’ … denotes ownership of the household goods; consequently, to claim the household goods exemption … the household goods must be owned by the person and used in their home.” Id.
Lowe’s Home Cntrs, L.L.C., v. Montgomery Cnty. Prop. Valuation Admn’r, No. 2024-CA-0307-MR (Ky. App. Aug. 22, 2025), discretionary review granted, No. 2025-SC-0493-D – Property Valuation Appeal
Taxpayer owned real property in Montgomery County, Kentucky. In 2020, Taxpayer appealed the Property Valuation Administrator’s (PVA) assessment of its property, which was based on data from 2008. Pursuant to KRS 49.220(5), while the PVA’s assessment is entitled to a presumption of validity, this presumption disappears once the taxpayer presents competent rebuttal evidence—here, expert testimony and analysis from Lowe’s. The burden then shifts to the PVA to support its assessment with substantial evidence. The Court of Appeals held that the Boad of Assessment Appeals and the Circuit Court improperly required Lowe’s to prove its case during the prima facie phase and failed to shift the burden to the PVA once Lowe’s presented its expert evidence. Furthermore, the Court found that the PVA’s reliance on decade-old, unadjusted cost approach without annual revaluation or depreciation was unsupported by substantial evidence, and that the PVA’s expert’s use of leased property comparable for an owner-occupied, non-leased property was fundamentally flawed. Thus, the Court found that the only substantial evidence of value in the record was Lowe’s expert evidence and no reasonable body should have failed to adopt it. Accordingly, the Court reversed the Circuit Court and remanded the case for further consideration consistent with the opinion. PVA sought discretionary review, which the Kentucky Supreme Court granted in August 2026.
Dep’t of Revenue v. Hale, Inc., 707 S.W.3d 522 (Ky. App. 2025) – Sales and Use Tax Food Exemption
Hale, Inc. d/b/a Lotsa Pasta (Lotsa Pasta) is a small café and grocery store that sells pre-packaged food items. Lotsa Pasta also made in bulk and packaged food items like salads and spreads in its kitchen. During audit, KDOR determined that salads and spreads made and packaged by Lotsa Pasta were subject to sales tax because KDOR took the position that such items were not exempt grocery items but rather taxable “prepared foods” under KRS 139.485. On appeal, the Court of Appeals found that while Lotsa Pasta’s self-packaged food items come within the category of “prepared food” because Lotsa Pasta combines ingredients together before packaging the final food item for sale, the Court also found that Lotsa Pasta was engaged in a food manufacturing business, which would thus exclude the “prepared foods” manufactured by Lotsa Pasta from the statute’s definition of “prepared food.” Because the food items were not for immediate consumption, they were exempt from sales tax.
The authors’ law firm represents Lotsa Pasta in this action.
LWAGLVKY 1 LLC c/o Walgreen Co. v. Jefferson Cnty. Prop. Valuation Adm’r, No. 2024-CA-0302-MR (Ky. App. Dec. 13, 2024), discretionary review granted, No. 2025-SC-0015 (Ky. 2025) – Property Valuation
The Supreme Court of Kentucky granted discretionary review of lower-court rulings that upheld Jefferson County’s real property tax assessments on several Walgreens-occupied stores—valuations that averaged two to three times those of similar nearby retail properties. The Property Valuation Administrator (PVA) used a “drugstore valuation formula” that capitalized each store’s above-market contract rent under long-term triple-net leases, effectively valuing the leased-fee interest rather than the fee-simple estate. Walgreens contends that this methodology (1) violates state and federal equal-protection guarantees by singling out Walgreens-leased properties as a separate class of real estate, (2) conflicts with Kentucky precedents requiring uniform valuation at fair cash value and use of market, not contract, rent, and (3) lacks substantial evidentiary support. Although the lower courts agreed that the PVA singled out Walgreens in valuing Walgreens-leased properties using the “drugstore valuation formula,” the Kentucky Board of Tax Appeals, Jefferson Circuit Court, and Court of Appeals all affirmed the PVA.
The authors’ law firm represents Walgreens in this action.
Dunn v. Solomon Found., Nos. 2022-CA-0399-MR and 2022-CA-0401-MR (Ky. App. Apr. 28, 2023), aff’g, No. 21-CI-00191 (McCracken Cir. Ct. Oct. 12, 2021), rev’g, 723 S.W.3d 711 (Ky. 2025) – Religious Exemption
The Solomon Foundation (“Solomon”) is a Church Extension Fund for the Restoration Movement church financially supports this cause through investments, loans, and other financing transactions. Solomon owns a Church Property in McCracken County, leased to local churches, and sought a property tax exemption as a religious institution under Section 170 of the Kentucky Constitution. The McCracken PVA denied the application, asserting that the same institution of religion must both own and occupy the property, and, that Solomon is not a religious institution. The Court of Appeals affirmed the McCracken County Circuit Court and held that Solomon is a religious institution and that the subject property is “owned and occupied” by “institutions of religion” and therefore is entitled to the tax exemption. Both PVA and the Department of Revenue, which intervened at the Circuit Court, sought discretionary review, which the Supreme Court of Kentucky granted on October 18, 2023.
The Supreme Court of Kentucky reversed the lower courts, interpreting the phrase “institution of religion” under Section 170 of the Kentucky Constitution to mean “a church, religious sect, society, or denomination.” Applying this framework, the Court concluded that, while Solomon supports and promotes the religious objectives of its member churches, the nature of its contributions constitute “a kind of fellowship”, rather than a community of individuals organized for worship, instruction, or dissemination of a particular faith or tenet. The Court declined to address whether Section 170 of the Kentucky Constitution requires unity of ownership and occupation.
The authors’ law firm represented The Solomon Foundation in this action.
Grand Lodge of Kentucky Free & Accepted Masons v. Plummer, No. 2023-CA-1080-MR, 2024 WL 2983182 (Ky. App. June 14, 2024), discretionary review granted, 2024-SC-0410 (Ky. Mar. 12, 2025)– Property Tax
The case is an appeal from the Kenton Circuit Court’s judgment affirming the ad valorem tax assessments of the residents of Spring Hill Village, a retirement community owned by a tax-exempt entity, Grand Lodge of Kentucky Free and Accepted Masons. The issue presented is the proper method of valuing the residents’ possessory interests of an exempt property. The Court determined that “[t]he residents… are non-exempt lessees who must pay ad valorem tax on the rights they obtain…. [T]he value of the leasehold is calculated by ‘subtracting the fair market value of the land as a whole if sold subject to the lease from the fair market value of the land as a whole if sold free and clear of the lease.’” Id. at *4 (internal citations omitted) (emphasis added by Grand Lodge). Grand Lodge and the residents sought discretionary review, and the case is currently pending before the Kentucky Supreme Court on discretionary review.
Dep’t of Revenue v. Ralcorp Frozen Bakery Prods., Inc., 2023-CI-00193 (Ky. Franklin Cir. Ct. Jan. 27, 2024), aff’d, 2026 WL 118897 (Ky. App. Jan. 16, 2026) – Manufacturing Machinery Exemption
Ralcorp, a bulk manufacturer of food products, operates a food manufacturing plant in Louisville, Kentucky, where it produces items like frozen pancakes and biscuits for major restaurants and retailers. Ralcorp asserted that the machinery it uses for palletizing, shrink wrapping, and labeling food products and necessary to comply with federal and state laws should be considered part of “machinery actually engaged in manufacturing,” which would make it eligible for a lower state tax rate and local tax exemption for tangible personal property tax purposes. The KDOR disagreed.
The KBTA disagreed with KDOR and concluded that the manufacturing process includes palletizing and labeling, as the products are not considered saleable until these steps are completed. The Franklin Circuit Court affirmed, explaining that the test is not whether the manufacturing process ends when the product can be eaten, but when the product is ready for sale. The Circuit Court found that palletization and labeling were necessary steps for Ralcorp’s manufacturing process, which ends when the packaged products are packed on pallets, secured with shrink wrap, and labeled with an SSCC barcode, as the customers will not accept the product until these steps have been completed.
The Court of Appeals affirmed: “Ralcorp’s products must be traceable to be saleable, and Ralcorp’s machinery makes its products traceable. Ralcorp’s machinery is therefore entitled to the favorable tax treatment for machinery ‘actually engaged in manufacturing’….” 2026 WL 118897 at *7.
City of Hazard v. Commonwealth, No. 23-CI-82 (Franklin Cir. Ct. May 14, 2024), rev’d sub. nom., Commonwealth v. Perry Cnty. Fiscal Court, 2025 WL 2809422 (Ky. App. 2025)
The City of Hazard sued the Commonwealth of Kentucky arguing that KRS 91A.400, which allows a limited number of small cities to impose restaurant taxes, is arbitrarily restrictive and based on outdated city classifications, thus unconstitutional. The Franklin Circuit Court initially ordered KRS 91A.400 be severed and Hazard, and other similarly situated cities, be added to the list of eligible cities. KRS 91A.400, as initially amended by the court, could be read to authorize any city to impose a restaurant tax. The court subsequently limited the scope of the relief to Hazard and did not require the statute be severed. The Commonwealth appealed to the Court of Appeals arguing that Hazard lacks standing since a court cannot provide the relief Hazard seeks and, in the alternative, that KRS 91A.400 is rationally related to legitimate state objectives.
The Court of Appeals reversed, holding that the separation of powers principles preclude the judiciary from reclassifying a city or granting taxing authority. Further, the court concluded that it was neither arbitrary nor irrational for the legislature to limit the restaurant tax to cities classified as fourth or fifth class as of the date 2014 House Bill 331 replaced the six-class system with a two-class framework, characterizing this as “grandfathering”. Moreover, the court determined that the equitable doctrine of laches applied due to the “completely unreasonable” delay.
The authors’ law firm served as amicus curiae on behalf of the Kentucky Restaurant Association in this action.
September 10, 2026
1 Coalition for Fair Markets v. Kentucky Dep’t of Revenue, et al., 26-CI-00667 (Franklin Circuit Court, June 12, 2026) (pending)
2 USA, et al v. Commonwealth of Kentucky, et al., 3:26cv49 (E.D. Ky. June 23, 2026) (pending)
3 Kentucky Sales Tax Facts (Summer 2026) (available at https://revenue.ky.gov/News/Publications/Sales%20Tax%20Newsletters/Sales%20Tax%20Facts%20-%20Summer%202026.pdf).
4 Kentucky Sales Tax Facts (Summer 2026) (available at https://revenue.ky.gov/News/Publications/Sales%20Tax%20Newsletters/Sales%20Tax%20Facts%20-%20Summer%202026.pdf).
5 Kentucky Sales Tax Facts (Summer 2026) (available at https://revenue.ky.gov/News/Publications/Sales%20Tax%20Newsletters/Sales%20Tax%20Facts%20-%20Summer%202026.pdf).
6 Kentucky Sales Tax Facts (Summer 2026) (available at https://revenue.ky.gov/News/Publications/Sales%20Tax%20Newsletters/Sales%20Tax%20Facts%20-%20Summer%202026.pdf).
7 KRS 141.0401; see also Corporation Income and Limited Liability Entity Tax, Kentucky Department of Revenue (available at https://revenue.ky.gov/Business/Corporation-Income-and-Limited-Liability-Entity-Tax/Pages/default.aspx).
