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State Seal Auditor Of Public Accounts
State Auditor's Office Discovers as much as $3,000,000 in Uncollected Tax Revenue for Local Governments. Mistakes in billing Inventory - in - transit Tax may yield windfall for some municipalities
Press Release Date:  March 22, 2005
Contact:  Jeff Derouen
Phone: (502) 573-0050
Fax: (502) 573-0067
Pager: (888) 222-5670

Statewide, as much as $3,000,000 over five years has gone uncollected and may be available for local taxing districts, especially community fire districts.  A lack of communication, dating to 1999, in how local governments were to bill the inventory - in - transit tax is to blame.  Auditors from the Kentucky State Auditor's Office discovered the problem during a routine county audit.

Inventory - in - transit tax is a levy placed on any personal property located in a warehouse or distribution center, which will not stay at the location for more than six months, and is there for the purpose of subsequent shipment to an out-of-state destination.  Property that stayed longer than six months is taxed as inventory at the corresponding higher rate. 

Prior to 1999, the tax was collected for state use only. That year the tax was also applied to county, municipal, school, and other special taxing districts such as fire departments. As an economic development tool the legislature exempted the state inventory - in - transit tax beginning in January of 2000.  The same bill phased out the tax for county, municipal governments and schools over a two-year period.  It allowed local special taxing districts to determine on their own whether to continue to collect the tax or exempt companies in their districts from paying the tax. 

Many districts did not exempt entities required to pay the tax, however the taxes were not collected and distributed.  When informed the Department of Revenue began a review of counties and their taxing procedure.  Of 40 counties reviewed for the 2000 taxing year, 17 required additional tax bills.  The net supplemental tax bills equaled $604,062.57.  Statewide, local taxing districts may be able to collect as much as $3,000,000 in unbilled inventory - in - transit taxes.

"This is a tax that is on the books and available to local taxing districts.  Hopefully this information will allow the Governor's Office for Local Development and the Department of Revenue, working with local taxing districts and county PVA's, the opportunity to properly bill this tax.  Certainly local taxing districts can choose, for the community good, to exempt businesses in their area from these taxes or they can begin to collect that which is owed them.  The legislature obviously wanted to give them this choice.  This is another example of the importance of having an independent watch dog over the taxpayer's money," said State Auditor Crit Luallen.

The Department of Revenue has committed to work with local taxing districts to communicate and educate on this matter.  The Auditor's Office will incorporate additional audit procedures to determine if the inventory - in - transit tax is properly billed in the future.  Luallen commended Mark Treesh, Commissioner of the Department of Revenue, for his efforts, and that of his staff, in addressing this situation.


Last updated: Friday, May 06, 2005