Let’s Get Local: Kentucky Tax Effect on MRX

As everyone was celebrating the start of 2023, Kentucky was gearing up for House Bill 8 to take effect. At a high level, starting on January 1, 2023, Kentucky sales and use tax expanded its application to include more than 30 new categories— including market research. If you didn’t know, you do now. This means that market research firms in Kentucky will be required to collect 6% sales tax from their clients this year according to Kentucky House Bill 8.[1]

With Kentucky being just across the river from us here in Cincinnati, we wanted to understand its implications a bit better. Here is what we found:

Who does this affect?

For market research, this tax will include polling services (political, cultural, medical/healthcare, etc.), surveying, focus groups, interviews, usability research, and more in Kentucky.

There are some exemptions

According to the verbiage in the house bill, companies and organizations may outsource their research to providers outside of Kentucky, exempting them from the extra sales tax, as Kentucky generally sources their sales by destination when it comes to tax. Overall, most sales tax increases are not noticeable enough to cause consumers to change their behavior[2], but this is not always the case. When convenient, such as with market research, consumers may cross state lines in response to increased sales tax even though they are still supposed to pay a lower sales tax rate on items bought out of state. Kentucky-based research firms may feel the effects of this sales tax in 2023.

Positives for Kentuckians

The bill isn’t necessarily entirely negative, though. While House Bill 8 increases the sales and use tax to 6%, it also lowers Kentucky’s income tax from 5% to 4.5%.[3] In comparison to Kentucky’s 6% sales tax, their neighbors in Tennessee experience the highest sales tax in the United States at 9.55%.

While generally sales tax can have an effect on price, as supplies to make a product increase in price due to tax, market research firms don’t necessarily have to deal with this as we don’t always sell physical products. However, demand for market research from clients in Kentucky may change. The increased sales tax will have an effect on the price of the supplies needed for their products and other aspects of their business, possibly leaving less budget for things like research[4].

Kentucky House Bill 8 is already in effect. We’ll have to closely watch the implications of this bill within our industry along with many other legislative changes that will impact market research in the coming year. As always, we have to give a shout-out to Howard Feinberg and everyone representing our industry in government!

[1] Kentucky sales tax: Additional services subject to sales tax and other excise tax changes effective January 1, 2023. Blue & Co., LLC. (2022, December 9). Retrieved January 18, 2023, from https://www.blueandco.com/kentucky-sales-tax-expansion-hb8/

[2] Scott R. Baker, Associate Professor of Finance, & Lorenz Kueng, Assistant Professor of Finance. (2019, May 10). How do people respond to sales tax increases? Kellogg Insight. Retrieved January 18, 2023, from https://insight.kellogg.northwestern.edu/article/effects-of-sales-tax-increase-on-consumers

[3] Ky implements sales tax on services: Tattoos, fitness & more … (n.d.). Retrieved January 18, 2023, from https://www.kentucky.com/news/politics-government/article270597877.html

[4] Hartman, D. (2016, October 26). Sales tax effect on supply & demand. Small Business – Chron.com. Retrieved January 18, 2023, from https://smallbusiness.chron.com/sales-tax-effect-supply-demand-20815.html