Testing Services

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As part of the provisions of House Bill (HB) 8 enacted in 2022 and HB 360 enacted in 2023, receipts from the sales of laboratory testing services became subject to sales and use tax on 01/01/2023, excluding laboratory testing:
1) for medical, educational, or veterinary reasons; or
2) required by a federal, state, or local statute, regulation, court order, or
other governmental-related requirement.

What is the scope of testing services that become taxable as of 01/01/2023?

Taxable testing services are limited to testing processes performed in a laboratory setting. Processes that rely on field testing with a mobile unit qualify as a laboratory setting.

Are home or commercial property inspections included under taxable testing services?

No, inspections of real property that rely solely upon observation are not in the scope of taxable testing services. However, testing of a technical nature that requires the application of chemicals, collection of samples for analysis, use of specialized equipment, etc. within a laboratory setting are included within the category of taxable testing services.

Can the Department provide a listing of activities that are and are not included in taxable testing services to better illustrate the scope of the services included?

Examples of services that are testing services when performed in a laboratory setting include, but are not limited to:

Mold, radon, and carbon monoxide testing
Water and soil testing analysis
Concrete samples taken to verify proper strength
Various technical tests performed by engineers
Quality control testing of manufactured products

Examples of services that are not testing services include, but are not limited to:

Drug testing of employees or potential employees-medical exclusion
Educational achievement test costs-educational exclusion
Termite and various pest control inspections-physical observation without testing performed
Testing to obtain various professional certifications (CPA, MD, DVM, DDS, Esq)-educational exclusion
Testing and recalibration of in-process manufacturing machinery-KRS 139.470(22)
Inspection of construction site to verify use of rebar-physical observation without testing performed
FDA testing of food products-governmental-related requirement

What additional types of charges billed with taxable laboratory testing services are subject to sales and use tax?

If other miscellaneous charges for equipment, transportation, lodging, etc. are billed as part of the cost incurred to perform testing services, then all receipts from these charges are part of gross receipts subject to sales and use tax. The definition of “gross receipts" in KRS 139.010 includes all charges incurred by the retailer and passed on to the customer in the performance of taxable services except those specifically enumerated in statute.

Are laboratory testing services performed by out-of-state providers for Kentucky customers subject to Kentucky sales and use tax?

Yes, the sales and use tax on services is based upon where the customer receives the service and not necessarily where the service is performed. Therefore, if an out-of-state service provider has a laboratory that performs a testing service on a sample for a Kentucky-based customer and bills the Kentucky customer for the testing services performed, the charges are subject to Kentucky sales and use tax. See KRS 139.105 and Kentucky Administrative Regulation 103 KAR 30:190 for additional sourcing guidance.

Are laboratory testing service providers eligible to claim a resale exemption for any of their purchases used in their business operations?

No, the purchases of equipment or any items consumed or used by a testing service provider while providing the taxable services are retail purchase transactions subject to taxation and are not eligible for exemption as purchases for resale.

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