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. 

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.    ​

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.​

​​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​

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.​

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.​

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. ​