Gov. Andy Beshear signed an executive order Wednesday that halted vehicle tax increases for the next two years. He also announced a plan to introduce legislation that would cut the sales tax in Kentucky from six to five percent.
Both measures were announced as part of a plan to help Kentuckians with record-high inflation.
“We are here today to address something that has impacted every Kentucky family and small business – the rising prices due to inflation,” Beshear said. “While the challenge is temporary, it has now reached a 40-year-high, directly due to the effect of a once-in-every-hundred-year pandemic.”
Vehicle taxes increased roughly 40 percent over the past year, raising the valuation of an $8,006 used car to $11,162.
For vehicle taxes, rates will be frozen at last year’s level, meaning that there will be no increases for the next two years. For those that have already paid, they will receive a refund. The tax relief would total roughly $1.2 billion, with $873 million from sales tax savings. The remaining $340 million will be 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,” 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.”
While the announcements will certainly help Kentuckians, both serve as political strategies for Beshear against the Republican-led legislature. Under Kentucky law, the General Assembly is the only body that can exempt motor vehicle tax. But under Senate Joint Resolution 99, they gave the power to the governor to issue an executive order.
“But, for the first time last week, the Senate passed a joint resolution that as opposed to saying I do not have executive authority, which we’ve seen a lot of these last couple of years, they say I do have the power to do this,” Beshear said. “So, if the legislature says I have the power to help Kentuckians, you bet I’m going to do it.”
The governor also announced a 1 percent sales tax decrease, which is legislation introduced by Rep. Angie Hatton (D-Whitesburg), that would take effect July 1 and run through June 30, 2023. The reduction in sales tax would lower Kentuckians’ tax load by more than 16 percent, while the inflation rate runs at 7.5 percent. The sales tax mainly affects items that aren’t food or medicine, as those items are already tax-free. Clothes, hardware, and building supplies will also be included in the tax cut.
“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,” 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.”
With the sales tax decrease, Beshear used it to address the potential tax reform planned in the General Assembly this session. He mentioned the term “comprehensive tax reform,” that’s being thrown around the General Assembly but only serves to hurt Kentucky families while lowering taxes on corporations and wealthy Kentuckians, he said.
“Our families don’t need this type of ‘reform.’ They need relief,” 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.”
