Legislature approves tax break for small business

By Senator Denise Harper Angel

FRANKFORT — Small businesses -- in many ways the lifeblood of Kentucky's economy -- will save more than $40 million in taxes each year under a plan approved by lawmakers in special session this week. We took only five working days to approve the plan while also providing tax incentives to help lure a $1 billion clean-coal, zero-emissions power plant to Henderson County, making this an incredibly efficient and successful special session.

Gov. Fletcher called the session last week so we could revise portions of his "tax modernization" plan that proved to be a burden on small businesses. Under the Governor's plan, many small businesses and other groups saw their tax bills grow dramatically.

Under the fix we approved, businesses with less than $3 million in profits will be exempt from the what's called the alternative minimum calculation (AMC), while businesses with profits of more than $3 million but less than $6 million will have the AMC gradually phased in. Certain charities, cooperatives and other groups like homeowners associations will be exempt.

The AMC under the Governor's plan had proven extremely problematic and even unfair to many of the state's 70,000 small businesses, because it is based on gross receipts or gross profits rather than net profits. As a result, some high-volume businesses with narrow profit margins -- and even some businesses that showed no net profit at all -- had seen their tax bills soar. In addition, the corporate tax rate will also decrease to 6 percent.

In addition, the bill also eliminates significant confusion caused by the Governor's tax plan. It conforms to federal language on the "pass through" -- allowing small business income to be taxed with an attachment to the individual return of the owner, as does the federal government. Under the Governor's tax modernization, Kentucky no longer recognized "pass-through"' status, resulting in two very different tax systems and a great deal of confusion and consternation among Kentucky taxpayers.

The second issue taken up by the special session was tax incentives to help lure FutureGen, a demonstration and research facility focused on clean-coal, zero-emission power, to Kentucky. The federal Department of Energy is leading the consortium that will build the $1 billion facility. FutureGen would produce hydrogen and electricity from coal, while capturing carbon dioxide and containing it underground instead of releasing it into the atmosphere. The result is a cleaner environment, a beneficial use for a reclaimed surface mine on the Green River in Henderson County, and untold economic gains for Kentucky and the surrounding area.

Seven states have submitted 12 bids for the project, with 3-5 finalists expected to be named in July. If Kentucky is one of the finalists, several site tests will be conducted to compare our proposal to the others. The winning bid should be announced late next year.

Our package could total as much as $90 million in tax incentives. The bill sets up a sales tax exemption for the purchase of materials needed to construct, repair, renovate, or upgrade FutureGen.

As a member of the legislature's Subcommittee on Energy, I am very interested in projects that can help Kentucky's economy benefit from our state's mineral wealth. It is estimated FutureGen will generate 1,300 jobs during its construction phase, and 125-150 high-paying professional jobs after that. There will also be the benefit to related industries — the extra coal that will be needed for the plant, the mining equipment and other heavy machinery necessary for the plant's operations, and other economic sectors — and the various spin-offs that could come from hydrogen energy and coal gasification.

The simple fact of becoming the world's center for clean-coal and hydrogen energy research would have a positive impact on every Kentuckian. Our universities would edge closer to their educational and research goals, and our economy would expand in even unrelated areas because of the focus on our area.

Barring another special session, the General Assembly will not meet as a whole until January. Regardless of whether I'm in Frankfort or here at home, I urge you to call our toll-free Message Line in Frankfort at 1-800-372-7181 and let me know how you feel on any topic or e-mail me at denise.harperangel@lrc.ky.gov.

(June 28, 2006)