Deal reached on bill filled with tax credits for cars, houses and military members

Negotiators for the state House and Senate have agreed on a compromise bill that would overhaul the state’s economic development incentive programs and kick-start mega-transportation projects, such as the $4.1 billion Ohio River bridges project in Jefferson County.

At least two new tax credits were added to the bill in the last day, upping the proposal price tag by more than $40 million over the next year.

Overall, lawmakers say they don’t know how much the wide-ranging proposal may cost taxpayers. “I think some of the provisions will be hard to quantify,” said Rep. Robin Webb, D-Grayson.

Despite their lack of knowledge about the bill’s fiscal impact, many lawmakers felt certain the proposal would stimulate the economy enough to offset any revenue losses. “This overriding economic stimulus will more than pay for the credits,” said Rep. Tommy Thompson, D-Owensboro, and the sponsor of House Bill 3.

Added to the bill overnight is a provision that would exempt active-duty military members from paying state income taxes beginning January 1. The proposal would cost the state about $18 million a year, Thompson said.

The proposal is aimed at Fort Campbell soldiers in Christian County , most of whom live across the border in Tennessee, which has no state income tax. “They’ll now stay in Kentucky and perhaps build a house in Kentucky and buy a new car in Kentucky,” Thompson said.

Also included in the compromise is a never-before-considered tax credit for people who buy cars. Those who trade in a used car to purchase another new or used car would only pay sales taxes on the difference between the value of the two vehicles. The tax credit would last for one year starting in September and would be capped at $25 million, Thompson said.

Currently, new cars are taxed at their full value, with no consideration given to the value of any trade-in vehicle. “New car sales, which create a lot of employment in the state, have been depressed because of the economy,” Thompson said.

Because the tax credit for new car owners was not part of the House-approved or Senate-approved version of the economic incentives bill, the two chambers would have to suspend their rules to allow a vote on the bill. Both the House and Senate are expected to approve the measure, along with a proposed fix for a nearly $1 billion projected budget shortfall, later on Wednesday.

The compromise economic incentive bill also includes a provision that would give a tax credit of up to $5,000 to people who purchase newly built homes. The provision, which was included in a bill that died earlier this year, has been pushed by the home industry as a way to stimulate the economy. Opponents have said it encourages sprawl.

The new home tax credit would last for one year and the total credits allowed would be capped at $25 million.

In general, the original purpose of Gov. Steve Beshear’s proposed incentives bill was to streamline a confusing array of tax incentive programs offered to businesses by the state and to make information about those programs more accessible to the public.

The proposal also makes the incentives offered to businesses who locate in Kentucky more generous. Companies that invest more than $500 million would actually be eligible for up-front cash payments under the program, although the General Assembly is not providing any money to fund that portion of the bill.

Other incentive programs in the bill include a roughly $1 million break on the state’s pari-mutuel tax for tracks that lure a Breeders’ Cup Challenge race and a tax break on renovation expenses at the Kentucky Speedway in Gallatin County if the track lands a NASCAR Sprint Cup Race.

- John Stamper and Jack Brammer

Filed Under: KY General Assembly