In the Commonwealth of Kentucky, there has been an ongoing discussion regarding the state income tax. Legislators are seeking to gradually reduce the state income tax rate, with the possibility of phasing it out in the future. However, there are certain fiscal criteria that must be met before income tax reductions could occur. Following is a summary:

  • In 2022, the Kentucky legislature voted to lower the state income tax rate from 5% to 4.5%
  • Earlier in this year, the state income tax was lowered again from 4.5% to 4%, effective            January 1, 2024
  • To further lower the state income tax, two parameters are required – a “rainy day” fund of at least 10% of the general fund revenue, as well as general fund revenues to exceed the cost of a 1% reduction in the state income tax
  • Only the rainy day fund requirement was met this fiscal year, with the general fund revenue obligation falling $435 million short
  • Unless the Kentucky legislature votes otherwise in the 2024 biennial session, the state income tax for 2025 will remain at 4%

While the state income tax continues to be a topic of much debate, Aquila Churchill Tax-Free Fund of Kentucky  maintains its primary objective of providing high current income that is generally free from federal and state income taxes by investing primarily in highly-rated municipal obligations issued in Kentucky.

We will continue to monitor this and other local developments. Having portfolio management teams located in the states where they invest enables Aquila Group of Funds to gain on-the-ground insights that may impact our mutual funds and shareholders.


This information is general in nature and is not intended to provide investment, accounting, tax or legal advice. It is not intended to represent a recommendation or solicitation related to any particular investment, security or industry sector.

Mutual fund investing involves risk; loss of principal is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. State-specific fund performance could be more volatile than that of funds with greater geographic diversification.

Before investing in any mutual fund offered by Aquila Group of Funds, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund’s prospectus. The prospectus is available from your financial professional, by clicking here, or by calling 800-437-1020.