2026 HB 757, the state revenue bill, was also passed. It outlines numerous tax and administrative changes within the Commonwealth. The changes that may impact cities include: 

Sunset of the State’s Tax Increment Financing (TIF) Programs 

The legislation sunsets the state’s three TIF programs beginning on the effective day of the act. However, the sunset language only applies to new TIF projects and all projects that are currently under one of the state’s TIF programs will not be impacted. No existing TIF projects may be amended or have their activation date extended.  

Current TIF Programs 

A permanent fix to currently enacted TIFs that are impacted by the lowering of the state’s income tax was not included. However, the legislation does extend the timeframe for state tax revenues when calculating modified new revenues for income tax to 2048, and it amends the formula for calculating modified new tax revenue. The new formula will divide the individual income tax rate of 5% by the individual income tax rate for the calendar year in which the new revenues for the income tax are being computed. The result will be subtracted by 1, multiplied by 25%, and then added to 1.  

The legislation also amends the definition for new development areas within Louisville TIF districts to include a development area that has existed for 30 years and may be extended for a period not to exceed an additional 25 years.  

2025 HB 606 Corrections 

The bill also provides clean-up language for 2025 HB 606 from the prior session relating to the creation of regional industrial taxing districts. It clarifies that governing bodies of local governments constituting a multicounty region must provide written notice to all local governments with territory wholly or partially in the boundaries of a multicounty region no less than 30 days before entering an interlocal agreement to develop real estate as part of a regional economic development project.  

Territories used in a regional economic development project can be organized into a taxing district to 1) provide for establishment, operation, and maintenance of the district and governmental services therein; 2) pay the debt service on bonds issued to finance the cost of infrastructure development in the district; and 3) invest in future regional economic development projects located in the jurisdiction of any local government that is a party to the interlocal agreement. The amendments provide for the creation of a board of trustees to control and manage the affairs of the district. Territory within the district may be subject to annexation without the consent of the governing bodies of all the local governments party to the interlocal agreement. 

Importantly, the amendments clarify that cities are not required to be a part of the district, and that cities located within the district’s geographic boundaries can still impose a local occupational license fee. However, if part of the district is located within city jurisdiction, it may not impose an occupational license fee until all cities party to the interlocal agreement approve of the imposition of the occupational license fee and the rate. People who pay both city and county license fees can credit their city license fee against their county license fee. 

HB 757 also provides that wage assessments may be imposed upon salaries, wages, commissions, and other compensation earned by persons within the district for work done and services performed, rendered, or conducted within the district. Any wage assessments imposed in the district will expire and cannot be imposed upon the earlier of a) 20 years after the date of imposition; b) the date bonds for the district supported by the wage assessment are retired; or c) all loans paid to the Commonwealth for infrastructure are repaid. 

Kentucky Film Industry Tax Credit 

The legislation extends the Kentucky film industry tax credit until July 1, 2030. A reporting requirement to the Interim Joint Committee on Appropriations and Revenue every November while the refundable credit is available is required.  

Kentucky Certified Rehabilitation Tax Credit 

The legislation creates a rehabilitation tax credit on qualified rehabilitation expenses beginning April 2026. The amount of the tax credit is dependent on median family income and ownership of the property. The tax credit is both transferable and refundable. Insurance companies that are claiming a tax against the insurance premium tax will not be required to pay additional retaliatory taxes. The credit cap is dependent upon the application date, and the Kentucky Heritage Council will determine the maximum credit available for taxpayers.  

Property Taxes for Taxing Districts Subject to Recall 

The legislation specifies that if a petition to challenge the property tax levied within a taxing district is filed, the levy will be suspended. If the tax levy is not challenged, it will go into effect 45 days after its passage. If the taxing district is within a county with a population of 300,000 or more inhabitants, the tax is suspended if a petition to challenge the levy has been filed. If no petition has been filed, the levy will go into effect 50 days after its passage.  

Establishment of the Residential Housing Infrastructure Fund 

The legislation creates the Residential Housing Infrastructure Fund, which will provide low interest loans to local governments for building, upgrading, renovation, or expansion of infrastructure owned, maintained, or operated by the local government. 2026 HB 900 provided an initial appropriation to the fund of $5 million in both FY 2026-27 and FY 2027-28. 

Kratom Sales and Penalties  

The legislation bans the manufacturing, distribution, sale, and dispensing of kratom, kratom products, or any kratom extracts in the Commonwealth. Any processor or retailer who is found to be in violation will pay increased civil penalties of $5,000 for a first offense and no more than $10,000 for a second offense.  

Multi-Housing Construction by KHC 

The legislation specifies that any property that is acquired and leased by the Kentucky Housing Corporation may include new construction that would result in an increase of 48 units or more of residential multifamily housing must have written consent of the mayor and county judge executive prior to acquisition and lease.  

Municipal Interlocal Gas Utility  

The legislation creates municipal interlocal gas utilities which are interlocal agencies whose membership is only composed of city governments formed for the purpose of constructing and operating a gas utility system that is capable of acquiring, distributing, transmitting, furnishing, or selling natural gas to industrial and commercial customers. The legislation specifically states that these agencies shall not provide natural gas to residential customers unless the service is furnished at rates and a minimum monthly charge as determined by the Kentucky Public Service Commission or if it provides natural gas to a utility that then provides natural gas to residential customers. The bill outlines the governing body of the municipal interlocal gas utility in which city representation is required.  

Exemption From and Extension of Refund of Coal Severance Tax  

The bill amends the eligibility for a refund of taxes on severed coal within the Commonwealth if it is transported directly to a market outside the United States allowing a refund for transportation to both Canada and Mexico. The refund process is extended to 2028 and now permits severed coal in the amount of 2,500,000 tons that is exported through the United States to markets outside the United States and within North America for the refund process.  

Impacts of the Elimination of the Penny by the US Mint 

Due to the discontinuation of the penny by the US Mint, the legislation addresses how to satisfy debts owed to cities and local government entities. Cash transactions are to be rounded to the nearest five-cent increment when pennies are not available and for the final calculation of bills, invoices, taxes, and fees. Noncash transactions will not be impacted.