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State Seal Commonwealth of Kentucky Governor Ernie Fletcher’s Communications Office
Governor Ernie Fletcher Praises General Assembly for Passing Historic Tax Modernization Legislation
Press Release Date:  March 8, 2005
Contact:  Doug Hogan
Jeannie Lausche

Frankfort, KY: Governor Ernie Fletcher today praised the General Assembly for passing an historic tax modernization package. The final form of the legislation included virtually all of the components in the Governor’s original tax modernization proposal, JOBS for Kentucky.
“This reform accomplishes several objectives,” said Governor Fletcher.  “It reduces the tax burden on the poor, provides tuition tax credits for families of Kentucky students at in-state public and private postsecondary institutions, improves the tax climate for small businesses, repeals a corporate license tax that was established in 1906 and offers significant environmental protection.”
The legislation, finalized over the weekend and passed by the Kentucky Senate and House today, will begin the first comprehensive overhaul in a half-century to a revenue system largely based on a 19th century economy.
“This is truly an historic occasion,” continued Governor Fletcher. “No significant progress was possible under our old, antiquated tax system – a system that punished the poor, stifled small business and did little to encourage economic development and investment or to attract the entrepreneurs who create jobs.”
The top income tax rate will be reduced to 5.8 percent from 6 percent on income from $8,000 to $75,000. That was about a third of the reduction sought by Governor Fletcher. But the reform will result in 216,000 low-income tax filers, representing 496,000 total Kentuckians, being removed from the income tax rolls.
“Although I believe further individual income tax cuts are needed to have a more stimulating impact on the economic climate in Kentucky, this legislation is an excellent step forward,” Governor Fletcher added.
The top income tax rate on corporations, currently 8 percent, will be cut to 7 percent this year and next and to 6 percent in 2007. The Governor had proposed an immediate cut to 6 percent.
The legislation also closes some business tax loopholes, including the exemption for corporations with sales – but no “physical presence” – in Kentucky. Legislators concurred with the governor that the exemption has been unfair to Kentucky companies.
Another benefit of the legislation includes a tuition tax credit of up to $500 for Kentuckians with children in Kentucky’s postsecondary educational institutions, public or private.
Other tax credits are created for historic preservation, putting such projects within reach of more Kentuckians; biodiesel, which will reduce air pollution, and brownfields development, which will help restore our cities, slow the loss of green space to development and eliminate blight that in some cases poses a potential public health risk.
The excise tax on cigarettes, which at three cents was the lowest in the nation and had not been increased in decades, will rise to 30 cents a pack, with part of the revenue to be dedicated to cancer research at the University of Louisville and the University of Kentucky.
“It’s time to raise our cigarette tax,” concluded Governor Fletcher. “It sends a healthy message.”
A development fund for equine breeders will help preserve Kentucky’s status as the horse capital of the world – a status that has been endangered by aggressive incentive programs in other states.
A longstanding disincentive to investment – the “intangible property” tax on stocks and bonds – will be repealed, as will the unconstitutional license tax on corporations.

The legislation will now be sent to Governor Fletcher for his signature.


Last updated: Thursday, June 02, 2005