US states have a lot of control over their tax policies. As a result, service taxes vary widely across states due to each state’s unique mix of industries, economic priorities, and social needs. A state with a thriving tourism industry might increase service taxes to benefit from visitors’ spending, while another state might keep them low to attract more businesses.

Politics also shape these tax policies. States that focus on social programs might raise service taxes to fund industries such as education and healthcare. States that favor a hands-off government might lower service taxes to encourage private-sector growth and keep more money in people’s pockets. These choices reflect each state’s history, voter priorities, and the cost of living.

Below, we’ll look at how Kentucky handles sales tax on services.

What’s in this article?

• Does Kentucky charge sales tax on services?
  
• Which services are taxable in Kentucky?
  
• How Kentucky handles sales tax for different types of businesses
  
• How to tell if you have to pay sales tax as a Kentucky business
  

Does Kentucky charge sales tax on services?

While Kentucky historically didn’t charge sales tax on services, legislative changes in 2022 and 2023 (specifically through House Bill 8 and House Bill 360) expanded the range of services subject to the state’s 6% sales tax. This includes more than 30 additional service categories such as marketing services, website design and development, personal fitness training, massage services (unless they’re medically necessary), and body modification services.

Kentucky’s approach to taxing services reflects a broader trend towards increasing state revenue by broadening the tax base beyond tangible goods. This shift helps the state address its fiscal needs and maintain funding for various public services. Businesses that provide these newly taxable services must now collect the sales tax from their customers.

Which services are taxable in Kentucky?

As of 2023, taxable services in Kentucky now include the following:

• Personal fitness and recreational instruction: Instructor-led classes or one-on-one instruction such as swimming lessons, fitness classes, personal training, yoga lessons, riding lessons, golf lessons, and baseball hitting lessons

• Massage services: Massage treatments, unless they’re medically necessary

• Cosmetic surgery procedures: Tattoo removal, Botox, microneedling, and other nonmedical body modifications

• Testing services: Laboratory testing services, unless they are medical, educational, or veterinary tests

• Rental spaces: Rental of spaces for meetings, conventions, weddings, and other short-term uses

• Interior decorating and design services: Commercial and residential interior design services

• Apparel and footwear repair: Labor to repair or alter apparel, footwear, watches, or jewelry

• Lobbying services: Lobbying services performed at the local, state, or federal level

• Photography and photofinishing services: Professional photography services and the processing of photographs

• Parking services: Fees for parking services, including valet parking

How Kentucky handles sales tax for different types of businesses

Here’s a broad overview of how Kentucky handles sales tax:

• General sales tax framework: Kentucky imposes a state sales tax of 6% on the gross receipts derived from retail sales of tangible personal property, digital property, and certain services. There are no local sales taxes so the tax rate is uniform across the state​.

• Service-based businesses: Service-based businesses in Kentucky are subject to sales tax if they provide services that fall within the taxable categories defined by the state. Businesses that offer these services must collect a 6% sales tax from their customers and remit it to the state.

• Special categories and exemptions: Certain businesses might qualify for exemptions or specific tax treatments. For example, medically necessary services such as certain medical treatments and procedures are exempt from sales tax. Businesses involved in manufacturing or agriculture and nonprofits might also be eligible for specific sales tax exemptions or reduced rates for certain business purchases.

• Compliance and documentation: Businesses in Kentucky are required to register with the state to obtain a sales tax permit. They must collect sales tax on all taxable sales, maintain accurate records of transactions, and file regular sales tax returns, typically on a monthly or quarterly basis.

• Remote sellers: Kentucky requires remote sellers (i.e., those with no physical presence in the state) with a major economic presence in the state (200 or more sales or over $100,000 in gross receipts from sales into the state) to collect and remit sales tax. This ensures that out-of-state businesses that contribute to the Kentucky economy also comply with sales tax requirements.

How to tell if you have to pay sales tax as a Kentucky business

As a Kentucky business, you need to pay sales tax if you meet the following criteria.

Selling taxable goods or services

• Goods: You sell tangible personal property such as clothing, electronics, furniture, and food. If you sell goods to other businesses for resale and if the purchasers provide valid resale certificates, those sales might be exempt from sales tax. Sales of goods used in manufacturing other goods might also be exempt.

• Services: You provide any of Kentucky’s now-taxable services. Some services are still exempt from sales tax, such as most medical, educational, and financial services.

Sales tax nexus

• Physical presence: You have a physical presence in Kentucky (e.g., store, office, warehouse, employees).

• Economic nexus: You exceed certain thresholds in sales or transactions in Kentucky. As of 2024, these thresholds are $100,000 or more in gross sales to Kentucky customers or 200 or more separate transactions with Kentucky customers in a calendar year.

To determine your sales tax obligations in Kentucky, first review Kentucky’s list of taxable services and goods and determine whether your business provides any of them. Next, assess whether you have a physical presence in Kentucky or whether you exceed the economic nexus thresholds. If you believe your sales might be exempt, consult the Kentucky Department of Revenue’s resources or a tax expert to confirm.