GENERAL ASSEMBLY APPROVES ADDITIONAL BUDGET-RELATED MEASURES, SENDS TO GOVERNOR FOR CONSIDERATION

FRANKFORT, Ky. (April 1, 2026)—During a busy day 57 of the 2026 Legislative Session, along with final legislative approval of the two-year state executive branch budget and biennial road plan, lawmakers also approved additional budget related measures, including the state revenue budget, House Bill (HB) 757, and the legislative branch (HB 503) and judicial branch (HB 504) budgets. The measures were carried in the Senate by Senate Budget chair Chris McDaniel, R-Ryland Heights.

REVENUE BILL

Honoring U.S. Senator Mitch McConnell

A provision of HB 757 authorizes the placement of a privately funded statute in the State Capitol Building honoring Mitch McConnell in recognition of his consequential and unprecedented longstanding service to Kentucky, the United States and his historic leadership at the national level.

Modernizes Kentucky’s tax system and reporting rules

  • Removes outdated rules, like the 200-transaction threshold for sales tax collection

  • Allows taxpayers to fix estimated tax payment mistakes without filing a new return

  • Updates reporting requirements for major entities, such as the Tennessee Valley Authority.

  • Maintains sales tax exemptions for religious institutions, provided they are not directly competing with private businesses

Decouples Kentucky from federal tax changes, with one exception

  • Kentucky will no longer automatically follow certain updates to federal tax law, allowing state leaders to keep Kentucky’s tax rules stable and predictable.

  • The one exception is for new federal child savings accounts, commonly called “Trump Accounts,” which are a type of Individual Retirement Account (IRA) designed for kids.

  • An IRA is a special savings account that helps people set aside money over time, often with tax benefits.

  • Under this federal program, parents can save up to $5,000 per year for a child under 18.

  • The federal government also contributes $1,000 for children born between 2025 and 2028.

  • By staying connected to these accounts, Kentucky families can still take advantage of this new savings opportunity while the state maintains control over its broader tax system.

  • Kentucky does not adopt certain new federal tax exemptions, including those related to tips, overtime pay, and vehicle interest deductions

Creates new taxes and closes gaps in existing ones

  • Establishes a tax on fantasy sports operators and limits participation to those 21 and older (starting 2027)

  • Applies sales tax to data broker services and payphone transactions

  • Creates a 14.25 percent tax on prediction market platforms, while clarifying treatment to avoid conflicts with federal law

  • Caps taxes on premium cigars at 6 percent of the distributor’s price

Phases out or ends outdated tax breaks

  • Ends state participation in certain Tax Increment Financing (TIF) programs over time, while permanently stabilizing existing projects by adjusting the revenue formula tied to income tax changes

  • Eliminates tax credits that saw little use, like:

  • Hiring unemployed workers

  • GED completion incentives

  • Ends certain energy-related tax exemptions, including for fluidized bed energy facilities

  • Sunsets the film sales tax refund program in 2030

Supports housing and redevelopment projects

  • Sets aside 15 percent of historic tax credits for owner-occupied housing and 85 percent for other projects

  • Defines and prioritizes workforce and affordable housing in redevelopment incentives

  • Allows longer-term development agreements for certain economic projects

  • Expands support for the redevelopment of the Humana Building by advancing additional tax credit provisions to facilitate its conversion into a large-scale hotel and convention space, strengthening Kentucky's ability to compete for major national events

Supports tourism and major events

  • Creates a targeted sales tax exemption for on-site sales at Valhalla Golf Club during major golf tournaments, helping Kentucky to attract high-profile events that drive tourism and local economic activity

Adjusts local and regional tax authority

  • Allows regional industrial districts to collect occupational license taxes from workers and businesses

  • Relevant to a partnership between Madison, Fayette and Scott Counties

  • Lets cities choose which local tax rate to apply within those districts

  • Adds expiration rules and guardrails on those taxes

Improves tax fairness and compliance

  • Requires third-party buyers of delinquent property taxes to notify taxpayers every six months

  • Extends the inheritance tax filing deadline from 18 to 24 months

  • Expands early payment discounts for estates

  • Clarifies that closing costs associated with tax-exempt equipment purchases are not subject to sales tax, providing consistency and preventing unexpected costs for businesses and local governments

Updates energy, agriculture and infrastructure policy

  • Establishes governance and limitations for certain industrial gas pipeline systems, including prohibiting service to residential customers

  • Adds fluorspar to the list of taxed natural resources under severance taxes

  • Requires inspection and regulation of electric vehicle charging stations

  • Defines ethanol types and includes fuel-grade ethanol in gasoline definitions

  • Removes certain fuel tax refunds for taxi companies

Increases transparency and accountability in government

  • Requires publication of the state’s tax expenditure report

  • Requires agencies using federal funds to pay for their own audits

  • Requires KSP to charge for security at non-state events

  • Allows executive branch agencies to help fund the Personnel Board

Supports infrastructure and public programs

  • Creates a housing infrastructure loan fund through the Kentucky Infrastructure Authority

  • Establishes funding structures for out-of-home care and hospital support programs

  • Keeps funding tied to jail canteen accounts within those accounts

Makes changes to education and school tax transparency

  • Requires public notice for school tax increases, including online posting

  • Sets limits on how long certain school-related tax rates can remain in place

  • Phases out certain niche school-related taxes over time, including limits on occupational taxes after January 1, 2027, and a sunset of certain personal property taxes by 2027 or 2028

  • This provision does not relate to standard property tax revenues that support local school district funding

  • The occupational tax language pertains to Sen. Amanda Mays Bledsoe’s proposed SB 76. 

Adds consumer protections and public policy updates

  • Bans the sale of kratom products in Kentucky

  • Adds safeguards against deceptive AI-generated political ads by requiring proof of intent to mislead

  • Increases lobbyist registration fees

LEGISLATIVE BRANCH BUDGET

HB 503 provides for the operations of the legislative branch. It authorizes a 2 percent staff pay increase in both fiscal years. The final version of the bill includes funding to support a study of judicial branch compensation. 

JUDICIAL BRANCH BUDGET

HB 504 allocates almost $1 billion total over the biennium to support branch operations. $10 million total proposed by the Senate is maintained in the final version of the bill to support additional judgeships established in the 2022 Legislative Session.

Also passing was HB 816, which allows payment of unpaid claims against the state.

Find all these budget bills and more by visiting Legislature.ky.gov.