UK study: Ky. needs a tax overhaul, tax on services

To keep Kentucky's tax revenue growing, a University of Kentucky study says the state needs an overhaul of its tax system.

Researchers blamed the risk for tax revenue growth on the need to tax services, such as hair cuts, dry cleaning, and landscaping; a shift in personal income from taxable sources such as a person's wages to non-taxable sources such as benefits; the rise of sales over the internet and through catalogs; and an aging population spending less.

The study by the UK's Center for Business and Economic research looked at the buoyancy of the state's general fund which is measuring whether revenue is keeping pace with the economy.

"The 41-year trend illustrates the downward slope of buoyancy," wrote Michael Childress and William Hoyt in the study. "Given the systemic nature of these changes, the long-term decline in general fund revenue buoyancy will likely continue in the absence of tax reform."

The researchers found that Kentucky brings in three-fourth of its revenue from two main sources: individual income tax and the sales and use tax. But Childress and Hoyt observed those two sources are growing slower than the economy.

"We are spending more of our income on services - personal, financial, and other. We are ordering more of those tangible goods from Internet," Dr. Hoyt tells WKYT.

Service industry businesses - like Lexington's Posh Salon & Spa - are not ready to tack on the extra tax. If the state starts taxing service, hair stylist Deshauna Wilson, a single parent raising three children, says it would come at the expense of her industry.

"You don't think about your hair before you think about food. It's just coming down to the point where we'll probably have to look at some other source of income," says Wilson.

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