House Bill 8 went into effect at the start of the year. Under the new law, the state income tax dropped from 5% to 4.5%.
An official estimate has the measure costing the state more $1 billion every two years.
In an attempt to make up for the lost revenue, the Legislature imposed a 6% sales tax on services that were previously tax-free. These range from cosmetic surgery to parking services.
Other newly taxed goods are fitness and recreation services, like the dance classes held at Bravo Dance Studio.
Owner Alex Ioukhnel recently announced price increases for his classes to accommodate the new tax. For group classes and the weekly dance parties, the price went from $10 to $12.
“We have wonderful students who have been supportive of us for many years and people who have been dancing here for a long time. It’s probably not going to affect them much,” Ioukhnel said.
Ioukhnel believes that longtime customers will have no problem with the slight price increase, but he does have concerns about attracting new customers.
“Unfortunately, we still have to put the 6% on our customers, we do have to do some additional efforts,” Ioukhnel said. “We have to give promotions, we probably have to give them more discounts in this case.”
Though the increases wouldn’t impact a person attending one or two classes by much, for folks who come to several classes a week, the price adds up.
Bravo Dance Studio regular Lee Johnson said he doesn’t believe he’ll be personally impacted by the price increase as much as other folks will be.
“Lower income people are going to be hurt harder than others,” Johnson said. “They’re now paying more in taxes where on their income taxes they probably weren’t paying as much.”
Jason Bailey, executive director of the progressive-leaning Kentucky Center for Economic Policy, agreed with Johnson's assessment.
“The income tax cut goes overwhelmingly to the people at the top — about two-thirds of the money goes to the top 20% of people,” Bailey said. “The consumption [sales] taxes are a bigger share of the family budget of the people who are at the bottom.”
The Kentucky General Assembly is considering cutting the income tax even further with House Bill 1, which would decrease tax from the newly implemented 4.5% to 4%.
Bailey said under the change, the sales taxes would only cover a fraction of the money lost from a decreased income tax, which makes up a sizable portion of the state revenue.
“It’s how we fund our schools, our universities and community colleges, our Medicaid system, which supports our hospitals and doctors' offices, our infrastructure, so many things that Kentuckians rely on every day,” Bailey said.
While HB1 hasn’t passed yet, if it does, Bailey expects the Legislature will introduce more sales tax changes, placing more businesses in a place to raise their prices.
