2. Office of Sales and Excise Taxes Division of Miscellaneous Taxes Division of Sales & Use Tax 2

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4. Tax Zappers - HB 69 makes it a Class D felony to possess a “tax zapper,” a device used on a computerized cash register to help a retailer hide sales subject to sales tax. These devices are contraband subject to seizure. All proceeds from the creation, sale, or usage of the device shall be forfeited. Retailers found in violation are also subject to revocation of their sales & use tax permit for 10 years. FFA - HB 488 amends KRS 139.497 to exempt from sales and use tax sales of tangible personal property by a federally chartered corporation if the sales occur at the corporation's annual national convention held in the Commonwealth. The exemption applies to sales between October 1, 2014, and December 31, 2021. Tourism Development Expansion – HB 493 expands the possibility of tourism development project designations across the state by lowering the minimum eligible costs for projects in counties classified as "enhanced incentive counties." For these counties the minimum eligible costs are reduced from $1 million to $500,000. Although the minimum eligible costs are lowered the sales tax incentive potential is increased from a maximum of 25% to 30% of approved costs for these new projects. According to the Cabinet for Economic Development website, there are 70 or more counties across the state designated as enhanced incentive counties. Applications for these smaller scale tourism attraction projects cannot be submitted before August 1, 2014 or after July 31, 2018. Blast Furnace Construction / Renovation – SB 74 creates an exemption for a blast furnace project as part of a Kentucky Industrial Revitalization Act (KIRA) supplemental project. The bill amends the current blast furnace exemption under KRS 139.480(21) which sunset in July 1994. Effective August 1, 2014. 4

5. School Tax (UGRLT) Clarifications – HB 170 clarifies that manufacturers, processors, miners, and refiners, which take advantage of the partial energy exemption allowed for energy costs, must report and pay the school tax directly to the Department (and provide a copy of the "energy direct pay authorization" to their providers of utility services). (KRS 160.613) The bill also clarifies that users of utility services paying the tax directly to the department are subject to the procedure outlined in KRS 160.6156 for requesting refunds. This clarifies the issue presented by taxpayers which are not utility providers. A few have argued that they are not subject to the two year statute of limitations for making refund requests under the current language. Also, a date certain (i.e. 30 days) for appealing denials of refund requests to the circuit court is inserted, thus now mandating timely appeals, and correcting an apparent oversight when these statutes were originally drafted in 2004. (KRS 160.6156) Administrative Clean-up – HB 445 Sections 6-7, 39 establish a 1.5% pari-mutuel excise tax on Historical Horse Racing wagers. The bill has retroactive provisions to September 1, 2011 and new provisions effective April 1, 2014. Sections 6-10 create a new pari-mutuel excise tax of 0.5% on online wagers made by Kentucky residents (Advance Deposit Wagering), effective August 1, 2014. Section 18 reduces the wholesale excise tax on beer & wine from 11% to 10% over a 4-year period beginning July 1, 2015. 5

6. Kentucky collected more than $20.7M in Sales Tax from SST registered retailers reporting sales into the state for FY13. This is up from $17.9M in FY12. For the 2013 calendar year, U.S. e-commerce sales totaled $263.3 billion. 6

7. After being routed through an expedited voting process, S.743 (MFA) passed the Senate May 6, 2013 in a 69-27 vote. If fully enacted, the MFA would grant certain states the authority to require remote sellers to collect and remit sales and use taxes on sales into the state. SST full member states could exercise remote collection authority the first day of a calendar quarter that is at least 180 days after S.743 is enacted and after the SST full member state has published a notice of intent to exercise the collection authority. Non-member states that adopt certain minimum simplification requirements could exercise remote vendor collection authority the first day of a calendar quarter that is at least 6 months after the date that the state enacts legislation to exercise the authority that meets the simplification requirements. 7

8. MFA is now assigned to the House Judiciary Committee and Chairman Bob Goodlatte (VA) has released a set of principles to provide guidelines on what he believes the bill should accomplish and what ways the House can improve the Senate version of the bill. 8 Basic Principles on Remote Sales Tax Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement. Simplicity – Governments should not stifle businesses by shifting onerous compliance requirements onto them; laws should be so simple and compliance so inexpensive and reliable as to render a small business exemption unnecessary. Tax Competition – Governments should be encouraged to compete with one another to keep tax rates low and American businesses should not be disadvantaged vis-a-vis their foreign competitors. States’ Rights – States should be sovereign within their physical boundaries. In addition, the federal government should not mandate that States impose any sales tax compliance burdens. Privacy Rights – Sensitive customer data must be protected.

9. On March 12, 2014, the US House Judiciary Committee held a Hearing on alternatives to the Marketplace Fairness Act (MFA), “Exploring Alternative Solutions to the Internet Sales Tax Issue.” This discussion provided a healthy debate on five remote sales tax collection plans for over 3 hours. Most House Judiciary Committee members seemed favorable to the MFA. No alternatives discussed could begin to resolve the sales tax collection issue as well as MFA can. To quote one statement made, “The question is whether Congress will provide the necessary framework to ensure that state collection efforts will be uniform, clear, predictable, and fair, or Congress will remain silent and allow state collection efforts to be confusing, unpredictable, burdensome, and potentially discriminatory.” This debate reflects one of the most candid and open debates on the issue of remote sales at the Federal level to date. This type of open information exchange should push Congress to ultimately act on some form of the MFA. 9

10. 10 STATEACTIONCOMMENTS AlabamaAffiliate NexusEnacted 2003 ^ArizonaAffiliate NexusIntroduced Feb. 2012 ArkansasAffiliate Nexus and "Click-Through Nexus"Enacted-April 2011 CaliforniaLegislation adopting a Constitutional Nexus StandardPassed by Senate May 2011 California"Click-Through Nexus/Remote Reporting/Constitutional NexusDelay Enacted Sept.2011/Effective Feb.2012 Colorado Effective 3-1-10-Vendors are required to note Use Tax due on invoice and supply yearly summaries to state and customer.Litigation Pending-Judicially Enjoined ColoradoRepeal of Remote-Seller Reporting/Nexus Presumption Provisions*Adjourned w/o passage May 2011 Connecticut"Click-Through" NexusEnacted May 2011 FloridaAffiliate Nexus/"Click-Through"/ReportingIntro. Jan. 2013/Adjourned w/o passing ^FloridaDefine "Mail Order Sale" to include Internet SalesIntroduced in House-Mar. 2013 Georgia"Click-Through Nexus/Affiliate NexusEnacted- Oct. 2012 Hawaii"Click-Through Nexus/Affiliate NexusPassed in House-Mar. 2014 IllinoisAffiliate Nexus and "Click-Through Nexus"Enacted-March 2011 IndianaAffiliate Nexus and "Click-Through Nexus"Introduced in Senate Jan. 2014 ^IowaAffiliate NexusEnacted Jun. 2013 KansasAffiliate Nexus/Click-Through NexusPassed-Feb. 2013/Enacted Apr. 2013 KentuckyPurchaser Notification RequirementEffective July 1, 2013 LouisianaAffiliate Nexus/Click-Through NexusAdjourned w/o passage June 2011 MaineAffiliate Nexus/Remote Reporting/Click-Through NexusEnacted-June 2013 ^Maryland"Click-Through" NexusIntro. Feb. 2012/passed Sen. Mar. 2012 Massachusetts"Click-Through" NexusIntroduced in the Senate Jan. 2013 MichiganAffiliate Nexus/Click-Through NexusIntroduced in House-Nov. 2013 Minnesota"Click-Through" Nexus/Affiliate Nexus as part of Omnibus Tax BillEnacted-May 2013 Mississippi"Click-Through" NexusPassed in House-Feb. 2013 ^Missouri"Click-Through" Nexus/ Affiliate NexusEnacted-July 2013 ^NevadaProposed by Gov. Gibbons 2010-droppedNo 2013 activity New JerseyAffiliate NexusPassed by Assembly Mar. 2012

11. 11 STATEACTIONCOMMENTS ^New MexicoRemote Seller "Gross Receipts" billPocket vetoed by Gov. 2013 New YorkEnacted affiliate-based nexus on 6-01-08Upheld by NY Court of Appeals-Apr.2013 North CarolinaRemote Reporting enacted 8-30-09; invoice & yearly summaries requiredAmazon Suit Settled North Carolina"Click Through Nexus"Effective Aug. 2009 ^North Dakota OhioAffiliate Nexus/Click-Through NexusPassed H.4-13/S.6-13-Vetoed OklahomaPurchaser Notification Requirement/Affiliate Nexus intro. Jan. 2012Enacted June ‘10/Permanently adopted May ’11 OklahomaAmend "sale" to include out-of-state internet sale to in-state customerIntroduced April 2014 ^PennsylvaniaAffiliate based Nexus and "Click Through Nexus"Introduced in House Mar. 2013 Rhode IslandAffiliate based Nexus and "Click Through Nexus"Enacted July 2009 South Carolina"Click-Through" NexusIntroduced Senate-Jan. 2014 ^South DakotaAffiliate Nexus/Remote ReportingEnacted-March 2011 ^Tennessee"Click-Through" NexusIntro. in the House Jan. 2014 ^TexasAffiliate Nexus (Click-Through" Nexus removed)Passed by Senate June 2011 UtahAffiliate Nexus (Click-Through" Nexus removed)Introd. in Senate; adjourned w/o passage UtahAffiliate NexusEnacted March 2012 UtahExpand Affiliate Nexus/add "Click-Through" Adjourned w/o passage-Mar. 2013 Vermont"Click-Through" Nexus & Remote Seller NoticeEnacted May 2011** VirginiaRemote Collection Procedures contingient on Federal AuthorityPassed by House-Feb. 2013 ^Washington West VirginiaAffiliate NexusPassed House/Senate Enacted May 2013 WisconsinRemote ReportingIntroduced Nov. 2013 ^D.C. * Contains lesser Notice Provisions and requires the DMA to drop its pending lawsuit ** Remote Seller Notice effective 7-1-2011; "click-through" effective when 15 or more states adopt similar requirements ^ These states believe their existing statutes give them "click through" collection authority.

12. Richard Dobson, Executive Director Office of Sales & Excise Taxes 501 High Street, Station 50 Frankfort, KY 40601 (502) 564-5523 Ricky Haven, Director Jim Oliver, Director Division of Sales & Use Taxes Division of Miscellaneous Taxes 501 High Street, Station 53 501 High Street, Station 63 Frankfort, KY 40601 (502) 564-5170 (502) 564-2935 website: http://revenue.ky.gov Sales and Use Tax (502) 564-5170 Motor Fuels Tax (502) 564-3853 Telecommunications Tax (502) 564-5170 Motor Vehicle Usage Tax (502) 564-4455 Financial Tax (502) 564-4810 Excise Tax (502) 564-6823 12

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