Gov. Beshear Provides Vehicle Property Tax Relief and Proposes Temporary Cut in State Sales Tax

Kentuckians would see around $1.2 billion in tax savings

FRANKFORT, Ky. (Feb. 16, 2022) – To help Kentuckians combat rising prices due to inflation brought on by the global pandemic, Gov. Andy Beshear announced today that he is providing immediate vehicle property tax relief and proposed a temporary 1% drop in the state sales tax.

Under the Governor’s proposal, Kentuckians would see tax relief of approximately $1.2 billion, of which $873 million is directly related to sales tax savings and $340 million is from the reduction in vehicle property taxes.

“A booming economy and the best state budget in 25 years means we can do more to help our working families and small businesses buy and sell the essential goods and services that are costing more and that are simply priced too high,” Gov. Beshear said. “We have all had enough – and today I am doing something about it by providing immediate vehicle property tax relief and proposing a cut in the sales tax.”

Gov. Beshear Provides Vehicle Property Tax Relief
The Governor signed an executive order that will stop an increase in vehicle property taxes caused by soaring used car values, which in Kentucky rose approximately 40% since last year.

The property valuation for the average motor vehicle in Kentucky rose from $8,006 to $11,162 in just one year. The Governor said the abrupt adjustment warrants a change and under his order, for example, a Kentuckian will pay a tax amount similar to last year – if they own the same vehicle in the same condition and are living in the same county – and they will not pay taxes on the inflated value for the next two years.

The Governor said those who have already paid their 2022 taxes do not need to worry – they will be getting a refund from their local county clerk’s office.

According to Kentucky state law, only the General Assembly can exempt all or any portion of the property tax applied to motor vehicles. For the first time, in Senate Joint Resolution 99 (R.S. 2022), the Kentucky Senate stated that the Governor has the authority to provide vehicle property tax relief, and in response, Gov. Beshear has acted quickly.  

Gov. Beshear Wants Sales Tax Cut
The Governor also is working with Kentucky House Democratic Caucus Whip Angie Hatton of Whitesburg, who is filing legislation to support cutting the state sales tax from 6% to 5% from July 1, 2022, through June 30, 2023.

The sales tax proposal decreases sales tax costs for all Kentucky families by more than 16%, as the U.S. inflation rate is 7.5%, on purchases at retailers, restaurants and items at grocery stores that are not food or medicine, because those items are already tax-free. Building and hardware materials and clothing purchases will also benefit from the sales tax reduction.         

This historic step would help families until the high U.S. annual inflation rate retreats, which is projected to be through 2022 and into 2023.

The Governor will propose adjustments to his recommended budget to accommodate the reduction in revenues.

The Governor also cautioned against those in Frankfort who are using evasive terms like “comprehensive tax reform.” He said these groups only want to do one thing: raise the sales tax on our hard-working families and, likely, apply it to critical items like food and medicine. In return, they would lower income tax rates on the most profitable corporations and our most economically fortunate Kentuckians.

“Our families don’t need this type of ‘reform.’ They need relief,” Gov. Beshear said. “So, if we are going to alter our tax structure, let’s do it to address the current inflation and in a way that will help our families. Let’s do it in a way that will make things cost less for all Kentuckians.”

“I’m proud to sponsor this legislation, because Kentuckians deserve this relief and, during a time of record revenues, the state can afford to provide it,” Rep. Hatton said. “I want to thank Gov. Beshear for taking quick action to lower our vehicle property taxes and for backing my legislation to temporarily cut our sales tax for a year. These moves would benefit all of us, but there is no doubt they are desperately needed in regions like mine in Eastern Kentucky, which has had to do more with less for so long that there’s just not any more to give.”

The Governor said the cuts are possible because Kentucky’s economy continues to surge. Last year, the commonwealth shattered every economic development record in the books. Private-sector new-location and expansion announcements included a record $11.2 billion in total planned investments and commitments to create a record 18,000-plus full-time jobs across the commonwealth in the coming years. Kentucky’s average incentivized hourly wage for projects statewide in 2021 was $24 before benefits, a 9.4% increase over the previous year.

Kentucky recently placed seventh overall in Site Selection magazine’s annual Business Climate Rankings. The commonwealth ranked third nationally in the 2020 projects per capita ranking and fifth in the 2021 Prosperity Cup rankings, positioning the state among national leaders for business climate.

Kentucky saw an all-time record-setting budget surplus in fiscal year 2021 and enters 2022 with an estimated $1.9 billion more than budgeted.

And 2022 is off to a great start. In January alone, new and expanding private-sector businesses in Kentucky announced projects totaling nearly $670 million in new investments and more than 1,400 new jobs.

On Jan. 28, Gov. Beshear announced S&P Global Ratings revised Kentucky’s financial outlook to positive from stable and affirmed its “A-” credit rating. S&P cited a reduced reliance on one-time items to balance the budget and a higher balance in the state’s rainy day fund as primary factors influencing the change.

“We can keep our economy moving, make historic investments in education, health care and the jobs of the future, all while we provide our families and small businesses tax relief,” Gov. Beshear said. “We have the resources to do so, and I urge lawmakers in Frankfort to immediately act to reduce the state sales tax.”