103 KAR | Title 103 KAR — Finance and Administration Cabinet - Department of Revenue

Chapter 1 General Administration

103 KAR 1:010 Protests {#sec-103-kar-1-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:010}

Section 1. Definition. "Notice" means a letter, memorandum, or other document from the department that:

(1) Notifies the taxpayer that tax has been assessed and is due, or a request for refund has been partially denied or denied in full; and

(2) Explains the taxpayer's right to protest the assessment, refund denial, or refund reduction, and the time period for filing a protest.

Section 2. Protest - Assessments.

(1) Taxpayers shall be notified of additional tax assessments by mail. Payment including interest from the original due date, in the absence of protest, shall be made within sixty (60) days from the date of the notice informing the taxpayer that tax is owed.

(2) A written protest may be filed by the taxpayer, or other persons representing the taxpayer, against additional assessments. The department may require the taxpayer to furnish a "Declaration of Representative," Form 20A100 if a representative is serving on behalf of the taxpayer. The time period for submitting a supporting statement may be extended as provided in KRS 131.110(1).

(3) A taxpayer or taxpayer representative may submit a written protest and supporting statements to the department by one (1) of the following methods:

(a) Hand delivery to the department at 501 High Street, Frankfort, Kentucky 40601, or a department Taxpayer Service Center location as listed on the department's Web site;

(b) By the United States postal service or express mail service to the address listed in the notice; or

(4) When determining if the protest was timely filed, the department shall record the submission as:

(a) The date stamped as received by the department, if hand delivered;

(b) The postmark date from the United States post office, if the postal service is used, but excluding the date from a postage meter;

(d) The electronic date and time received, if electronically delivered. If the protest is submitted to the department electronically, the taxpayer shall also mail a copy of the protest and supporting statements to the department at the address listed in the notice.

(5) The department shall acknowledge receipt of the taxpayer's protest in writing within ninety (90) calendar days from the date received by the department.

(6) Scheduling options for a conference shall be communicated to the taxpayer by the department within forty-five (45) days of the taxpayer's written request for a conference.

Section 3. Protest - Refund Denials.

(1) The department shall send the taxpayer a notice by mail of any denial or partial denial of any refund applied for, including a refund claimed upon any return.

(2) The department shall include with each notice of the denial:

(a) References to the statutes and administrative regulations that are the basis for the denial; and

(b) The date by which the taxpayer may protest the denial.

(3) If the taxpayer disagrees with the disallowance of any refund, the taxpayer may file a written protest and supporting statements with the department by the methods set forth in Section 2 of this administrative regulation.

(4) If the taxpayer or taxpayer representative has submitted all supporting statements and documentation requested by the department, but has not received a determination regarding the refund request from the department within 180 calendar days from the date the request was submitted, the taxpayer may file a protest on the claim as if the refund has been denied by the department.

Section 4. Protest - Transfer.

(1) Unless the assessment results from an audit performed by the Office of Field Operations, the department shall attempt to resolve the protest within the taxing area from which the assessment was issued.

(2) If the protest cannot be resolved by the taxing area, the taxing area shall transfer the protest to the Division of Protest Resolution.

(3) A taxpayer may request in writing that a protest be transferred to the Division of Protest Resolution by the methods outlined in Section 2 of this administrative regulation for consideration by the department.

(4) The taxing area shall complete the transfer within forty-five (45) days of receipt of the taxpayer's written request to transfer the protest to the Division of Protest Resolution.

(5) The Division of Protest Resolution shall acknowledge receipt of the protest in writing to the taxpayer within forty-five (45) days of the transfer. The acknowledgement shall contain:

(a) The name and contact information of the department employee assigned to the taxpayer's protest; and

(b) The name and contact information of the employee's direct supervisor.

Section 5. Final Ruling. If the department cannot resolve the protest after transfer to the Division of Protest Resolution, the department shall issue a final ruling to the taxpayer.

Section 6. Failure by the department to meet any of the deadlines imposed by this administrative regulation:

(1) May justify a waiver of penalties, in accordance with 103 KAR 1:040; and

(2) Shall not be interpreted to allow a reduction in any tax, interest, or fees assessed by the department.

History

RELATES TO: KRS 49.220, 49.250, 131.010, 131.030, 131.081, 131.110, 131.180
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Kentucky Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. This administrative regulation provides guidance regarding a taxpayer's protest rights and outlines procedures to facilitate the filing, processing, and disposition of a protest.
History: GA-1; 1 Ky.R. 137; 324; eff. 12-11-1974; 3 Ky.R. 381; eff. 12-1-1976; 9 Ky.R. 1150; eff. 5-4-1983; 17 Ky.R. 1126; eff. 11-21-1990; 44 Ky.R. 1595, 2186; eff. 5-4-2018; TAm eff. 9-12-2018; 46 Ky.R. 46, 862, eff. 10-4-2019.

103 KAR 1:040 Waiver of penalties {#sec-103-kar-1-040 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:040}

Section 1. Enumeration of Circumstances Constituting Reasonable Cause. The Department of Revenue shall employ the criteria established in this section to determine if the taxpayer has demonstrated reasonable cause to waive penalties.

(1) Erroneous advice by Department of Revenue. The taxpayer may demonstrate good cause for reliance on erroneous written advice from the department in accordance with KRS 131.081(6).

(2) Death or serious illness of taxpayer or immediate family. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by the death or serious illness of the taxpayer or a member of that taxpayer's immediate family. If the taxpayer is not an individual, the death or serious illness shall be that of an individual having sole authority to execute the return or a member of the individual's immediate family. The following factors shall be considered in a determination of the applicability of this subsection:

(a) Relationship of parties involved;

(b) Date of death;

(d) Length of time from the date of death or serious illness to the date prescribed by law for filing a return, including any extension granted;

(e) Explanation of how the event prevented compliance; and

(f) Explanation of other business obligations that were impaired.

(3) Death or serious illness of taxpayer's tax return preparer. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by the death or serious illness of the taxpayer's tax return preparer. The following factors shall be considered in a determination of the applicability of this subsection:

(a) Name of preparer;

(b)

Date of preparer's death; or
Date and nature of preparer's serious illness;

(c) Length of time from the date of death or serious illness of the tax preparer to the date prescribed by law for filing a return, including any extension granted; and

(d) Explanation of how the death or serious illness prevented compliance.

(4) Unavoidable Absence of Taxpayer. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by the unavoidable absence of the taxpayer. For a corporation, partnership, estate, trust, or similar entity, the absence shall have been of an individual having sole authority to execute the return or report. The following factors shall be considered in a determination of the applicability of this subsection:

(a) Dates and reasons for the absence; and

(b) Explanation as to how the event prevented compliance.

(5) Destruction or unavailability of taxpayer records by a catastrophic event. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by the destruction or unavailability of the taxpayer's records by a catastrophic event. The following factors shall be considered in a determination of the applicability of this subsection:

(a) Date and description of catastrophic event;

(b) Supporting documentation such as a copy of the police, fire, or insurance report;

(d) Explanation of all other means explored to secure needed tax information.

(6) Inability to obtain records in custody of third party. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by the inability to obtain taxpayer's records in the custody of a third party. The following factors shall be considered in a determination of the applicability of this subsection:

(a) The records in the custody of a third party and the third party's identity;

(b) Explanation of why the records were needed to comply;

(d) Explanation of when and how the taxpayer became aware that the necessary records were unavailable;

(e) Supporting documentation such as copies of letters written and responses received in an effort to get the needed information; and

(f) Explanation of all means explored to secure the needed tax information.

(7) Employee Theft or Defalcation. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by employee theft or defalcation. The employee theft or defalcation shall be directly related to the financial records or funds required to file a return or report or pay a tax.

(8) Undue hardship. Penalties may be waived if the enforcement of the penalty or fee would constitute an undue hardship on the taxpayer, and if waiver of the penalty or fee would facilitate collection of the tax liability. A taxpayer shall demonstrate that reasonable care and prudence was exercised in providing for payment of the tax, but the taxpayer was unable to pay the tax.

(a) The following factors shall be considered in determining undue hardship:

Nature of the tax which the taxpayer has failed to pay;
Amount and nature of the taxpayer's expenditures in light of the income the taxpayer could, at the time of the expenditures, reasonably have expected to receive prior to the date prescribed by law for the payment of the tax;
Reasonableness of the taxpayer's efforts to conserve sufficient assets in marketable form to satisfy the tax liability;
Potential loss due to the sale of property at a sacrificed price. If a market exists, the sale of property at the current market price shall not be considered as resulting in an undue hardship;
Equity in assets, including repayment ability;
Family size;
Necessary living expenses, if a taxpayer is an individual, or necessary business expenses;
Income from all sources, both taxable and nontaxable, including income of the nonliable spouse to the extent used for the necessary living expenses of a family;
Stability of income and anticipated increases or decreases;
Current status of business;
Possibility of payment through an installment agreement; and
Age and health of the taxpayer.

(b) The following factors shall be considered in determining if waiver of a fee or penalty facilitates collection of the tax liability:

Dischargeability of tax liability in bankruptcy;
Collectability of the tax, penalty, and interest directly from the taxpayer, as determined from the taxpayer's financial statements;
Availability of sources of funds for payment not under the control of the taxpayer; and
Past and current compliance with Department of Revenue filing and payment requirements.

(9) Human error. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by human error and the delay or failure is the first occurrence over the last twelve (12) calendar months if the taxpayer is a monthly or quarterly filer, or twenty-four (24) months if the taxpayer is an annual filer, and Department of Revenue records show that the taxpayer took appropriate steps to eliminate the delinquency in a timely manner.

(10) Erroneous advice by tax advisor. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by the receipt of erroneous advice from a tax advisor or other professional on whom a taxpayer had a reasonable right to rely. The taxpayer shall establish the presence of the following three (3) factors for the Department of Revenue to consider the applicability of this subsection:

(a) Unfamiliarity of the taxpayer with the tax laws, and actual reliance by the taxpayer on the advice of the tax advisor;

(b) Supporting documentation of full disclosure by the taxpayer of all relevant facts provided to the tax advisor or other professional retained and advice received, including:

A copy of the advice requested;
A copy of the advice provided; and
A statement from the tax advisor explaining the circumstances; and

(11) Reliance on substantial legal authority. Penalties may be waived if the delay or failure to file a return or report or pay a tax was caused by reliance on substantial legal authority for the particular tax treatment of an item of gross income, deduction, exemption, credit, or basis. The following factors shall be considered in a determination of the applicability of this subsection:

(a) Actual reliance by the taxpayer at the time of failure to file the return or report or to pay the tax; and

(b) Conspicuous, full disclosure by the taxpayer in the return, if a return was filed, of the position that is contrary to the Department of Revenue's position, including all copies of or citation to the Internal Revenue Code, the Kentucky Revised Statutes, final and temporary regulations of the Internal Revenue Service and the Department of Revenue, Revenue Rulings, Revenue Procedures, and Private Letter Rulings of the Internal Revenue Service, case law interpreting the previous items, or any other relevant legal authority which provides that the tax treatment is more likely than not correct.

(12) Ignorance of Reporting Requirements. Ordinary business care and prudence shall require that a taxpayer be aware of tax obligations. Penalties may be waived in isolated cases if a taxpayer is not aware of the reporting requirements. Ignorance of the law may be considered in conjunction with other facts and circumstances including limited education or the lack of previous tax and penalty experience.

(13) Miscellaneous. If the cause for penalty waiver submitted by the taxpayer does not fall within the other reasonable cause guidelines provided in this section, the Department of Revenue may decide that the written statements submitted by the taxpayer establish a reasonable cause for noncompliance with the applicable tax statute. A cause for noncompliance which appears to a person of ordinary prudence and intelligence as a reasonable cause for delay in filing a return or paying a tax and which clearly negates negligence, willful disregard of administrative regulations, or fraud may be accepted. The facts and circumstances of each case shall be considered.

Section 2. Taxpayer's Support for Reasonable Cause.

(1) Responsibility for request. The taxpayer shall:

(a) Request reduction or waiver of any penalty, in writing; and

(b) Provide all supporting documentation necessary to substantiate reasonable cause.

(2) Time of request. A taxpayer shall:

(a) Attach a statement requesting waiver for reasonable cause to a return; or

(b) Request waiver after notice of assessment.

(3) Request by representative of taxpayer. A request from a taxpayer's representative shall be considered a request by the taxpayer if the taxpayer has provided a properly signed power of attorney or the Department of Revenue is satisfied by any other written statement that the representative has been authorized to act for the taxpayer.

History

RELATES TO: KRS 131.010, 131.030, 131.081, 131.175, 131.180, 131.440(2), 133.180, 133.220, 138.885, 139.185, 141.180, 141.340, 141.990, 142.357, 143.085.
STATUTORY AUTHORITY: KRS 131.130, 131.175
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.175 authorizes the Commissioner of the Department of Revenue to waive the penalty, but not interest, if the failure to pay is due to reasonable cause. KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer Kentucky's tax laws. This administrative regulation establishes the criteria used to determine if the taxpayer has demonstrated reasonable cause to justify the waiver of penalties.
History: 103 KAR 001:040. 32 Ky.R. 1810; Am. 33 Ky.R. 376; eff. 9-1-2006; 45 Ky.R. 1297; eff. 2-1-2019; Crt eff. 1-7-2019.

103 KAR 1:060 Electronic fund transfer {#sec-103-kar-1-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:060}

Section 1. Definitions.

(1) "Credit method" means the method of payment where the taxpayer or his authorized agent initiates the transfer of funds from the taxpayer or agent controlled account in a financial institution to the designated Commonwealth bank account to satisfy taxes or fees due.

(2) "Debit method" means the method of payment where the taxpayer or his authorized agent authorizes the Department of Revenue or its authorized agent to initiate the transfer of a set amount of funds on a set date from a taxpayer or agent-controlled account in a financial institution to satisfy taxes or fees due based on required information transmitted to the department prior to the department effecting the transfer.

(3) "Lookback period" means the twelve (12) month period ending on September 30 of the year immediately preceding the current calendar year. For example, the lookback period for calendar year 2001 is the period beginning on October 1, 1999 and ending on September 30, 2000.

Section 2. Reporting and Payment Requirements.

(1) Any taxpayer whose average payment per reporting period during the lookback period for the sales and use tax required to be collected or paid under KRS Chapter 139 exceeds $25,000 or any employer whose average payment per reporting period during the lookback period for the income tax required to be withheld under KRS 141.310 exceeds $25,000 shall submit to the department a properly executed Revenue Form 10A070 "Authorization Agreement for Electronic Funds Transfer" stating the method requested to be used and upon written approval of the method by the department shall pay the tax by electronic fund transfer using the debit method or other method approved by the department, including the credit method, provided the method complies with the guidelines set out in subsection (3) of this section.

(2) Persons required by KRS 131.155(2) to remit funds by electronic fund transfer on behalf of other taxpayers shall conform to the provisions of subsection (1) of this section. In addition, these persons shall, for each taxpayer represented and for each payment period, provide the information necessary to properly credit the account as required in subsection (3) of this section.

(3) Execution of any electronic fund transfer transaction shall conform to the guidelines and procedures of each participating financial institution. Any electronic transfer of funds shall provide information necessary to properly credit the taxpayer account, including:

(a) Taxpayer account number;

(b) Type tax code;

(d) Amount of transfer;

(e) Date of payment transfer; and

(f) Any other information deemed necessary by the department to properly credit the account.

(4) The department may withdraw approval to utilize the credit method or any method employed other than the debit method if the taxpayer or his authorized agent fails to provide required information necessary to effect the transfer and credit funds to the proper taxpayer account.

(5) Any taxpayer or employer may volunteer to pay the tax by electronic fund transfer by making a written request to the department and, if approved by the department, shall be subject to the same requirements as any taxpayer or employer required to electronically transfer the tax. The taxpayer or employer shall comply with the electronic fund transfer requirements until a written request to change methods is filed and approved by the department.

Section 3. Alternative Payment Method.

(1) A taxpayer or authorized agent for a taxpayer or taxpayers shall make a request to remit funds by electronic means other than the previously approved method. This request may be either written or oral.

(2) The department may approve this method if extreme circumstances are demonstrated.

(3) The following information shall be provided with the request or upon approval of the request:

(a) Reason for requesting alternate remittance method; and

(b) Method of remittance proposed.

Section 4. Procedures.

(1) Due date of electronic fund transfer.

(a) The due date of any electronic fund transfer for any tax shall be governed by the applicable law and administrative regulations pertaining to that tax.

(b) The initiation date recorded in the automated clearing house system by the originating financial depository institution for any electronic fund transfer shall be the payment date.

(2) Manner of electronic fund transfer. Separate electronic fund transfers shall be made for each type tax account number designated as an electronic fund transfer account under the provisions of KRS Chapter 131.

(3) Overpayment or underpayment of tax. Any overpayment of tax may be applied toward the amount due for the next tax period or may be refunded upon request by the taxpayer or employer. If the amount of tax liability for a taxable period exceeds the total amount electronically transferred for the same period, the taxpayer or employer shall pay the additional tax due.

Section 5. Change in Reporting and Payment Requirements for Electronic Fund Transfer. After the department makes a determination regarding a taxpayer's or employer's reporting and payment requirements for electronic fund transfer, the taxpayer or employer shall comply with the requirements until a written request to change is filed with and approved by the department.

Section 6. Penalties and Interest. Any taxpayer or employer who fails to comply with the provisions of this administrative regulation shall be subject to penalties as provided in KRS 131.180 and 131.990 and interest as provided in KRS 131.183.

Section 7. Form 10A70 may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601, or at any Kentucky Department of Revenue Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m. or online at https://revenue.ky.gov.

History

RELATES TO: KRS 131.155, 131.180, 131.183, 131.990, Chapter 139, 141.310
STATUTORY AUTHORITY: KRS 131.130, 131.155(3)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. KRS 131.155(3) requires the department to promulgate administrative regulations establishing electronic fund transfer requirements for the payment of taxes and fees administered by the department. This administrative regulation establishes requirements relating to the remittance of funds to the department via electronic fund transfer.
History: 21 Ky.R. 143; Am. 911; eff. 9-12-94; Recodified as 103 KAR 1:060, 8-14-2000; Am. 27 Ky.R. 2552; 3072; eff. 5-14-2001; 46 Ky.R. 48, 862, eff. 10-4-2019.

103 KAR 1:070 Uniform collection procedures {#sec-103-kar-1-070 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:070}

Section 1. Definitions.

(1) "Agency" is defined by KRS 45.237(1)(a) and 45.241(1)(c).

(2) "Debt" is defined by KRS 45.237(1)(e) and 45.241(1)(a).

Section 2. Invoicing and Letter Collections.

(1) Each agency's mailing practices shall provide for written notification that is sufficient to insure that the debtor understands the nature of the debt and instructions for researching returned mail in order to obtain a more current address.

(2) Invoices shall be mailed to the debtor within five (5) working days after the debt becomes due and contain clear and detailed information regarding the debt, who to contact with questions, and where to send the payment.

(3) The invoice shall contain the following components so that adequate information is provided:

(a) A header that identifies the name and address of the billing agency, the debtor, invoice number, invoice date, customer number, due date, and the total amount due;

(b) A body section that contains:

Any specialized contract or agreement numbers and the billing period covered by the invoice.
Detail specifically identifying the debt, and if more than one (1) item is listed, the total amount due;
A statement indicating if any interest or other charges may be imposed on late payments, insufficiently funded checks, collection actions, etc.; and
Instructions regarding the appeals process; and

(c) A contact person or organizational unit, including address and phone number, with whom the debtor can correspond if the debtor has questions regarding the invoice.

(4) The agency shall keep a copy or an electronic record of letters sent to a debtor.

(5) The agency shall maintain a file, in an electronic medium if available, on each past-due account, including documentation of all correspondence and all telephone contacts or meetings.

(6) The agency shall establish a system to ensure that it reviews the debt if it receives no response by the date specified.

(7) If the debtor does not respond to the original invoice, the agency shall send an additional letter notifying the debtor that the account may be forwarded to the Department of Revenue for collection action.

Section 3. Debtor Appeal Rights. Unless an agency is exempt from the provisions of KRS Chapter 13B, as specifically provided in KRS 13B.020, any debtor of an agency shall have all the rights contained in that chapter to appeal the finality of its debt.

Section 4. Telephone Collections.

(1) If the debtor does not respond satisfactorily to the written notification of the debt, the agency shall attempt to contact the debtor by telephone.

(2) While engaged in a telephonic discussion with a debtor for payment, the agency shall:

(a) Attempt to secure a commitment for full payment of the debt;

(b) Negotiate an agreement with the shortest possible payment time frame as provided in Section 6 of this administrative regulation, if the debtor is unable to pay the debt in full;

(d) Document any new agreements reached; and

(e) If the debtor has filed a bankruptcy proceeding, the agency shall obtain from the debtor the bankruptcy court and case number. Upon verification of the bankruptcy proceeding, the agency shall discontinue further collection action.

(3) During any telephone conversation with the debtor, representatives of the agency shall not:

(a) Threaten violence, use obscene language, or make harassing phone calls;

(b) Call the debtor at work, if the debtor objects;

(d) Reveal the past due debt to a third party, such as a neighbor or employer. However, collection personnel may report the debt to the agency's attorney;

(e) Call at unusual times (after 8 a.m. and before 9 p.m. is assumed convenient); and

(f) Initiate a conversation with a debtor, if it is known that the debtor is represented by an attorney, without first obtaining permission from the attorney.

Section 5. Interest, Late Fees, and Other Penalties.

(1) To determine the interest rate to charge, the agency shall first look to the source of the debt. If it arises from a promissory note or contract, the note or contract may state the amount of interest that applies and when it begins to accrue. An agency may have specific statutes regulating interest rates. If no statute specifically regulates the interest rate on debts owed to the agency, and a criminal or civil judgment has been obtained, the judgment interest rate contained in KRS 360.040 shall be applicable.

(2) The agency shall calculate accrued interest as follows: Unpaid principal (only) multiplied by the interest rate divided by 365 multiplied by the number of days delinquent or since the last interest calculation.

(3) The agency shall add other late fees or penalties if these types of fees and penalties are addressed in a written agreement or applicable by statute.

Section 6. Payment Agreements.

(1) The agency shall develop payment schedule guidelines for collection staff to use if making a payment agreement with a debtor.

(2) The agency shall, as nearly as practicable, use the following concepts in all payment guidelines:

(a) Debtors may make payments by credit cards, debit cards, electronic checks, or automated clearinghouse debit (See KRS 45.345);

(b) If a minimum payment has not already been established, the agency shall use the following payment schedule to determine a minimum payment amount:

(c) The agency may waive the minimum standards listed above if the debtor demonstrates to the agency that imposition of the minimum standards would cause an undue hardship on the debtor or the debtor's dependents;

(d) If a payment agreement extends for more than six (6) months, the agency shall send the debtor a confirmation letter;

(e) The agency shall verify information regarding the debtor and request additional asset information for enforcement purposes if the debtor's promise is not kept or the arrangements are not followed;

(f) The agency shall inform the debtor that any tax refund or other amounts due or that become due during the tenure of the agreement from any other agency will be offset to the debt; and

(g) If the debtor defaults on a payment agreement, the case shall be referred through normal referral procedures to the Department of Revenue for further enforced collection activity.

Section 7. Debtor Information.

(1) An agency shall collect and record sufficient information when a transaction for goods and services is initiated in order to facilitate effective collection measures. This information shall include:

(a) Current address;

(b) Current telephone number;

(d) The name of any bank where they have an account and the account numbers, if available.

(2) The agency shall maintain current information regarding the debtor on all active accounts.

(3) The agency may obtain debtor information with a written application form, an interview, or both. The minimum information to be contained on any application form or acquired in any interview shall be defined in the agency's policies and shall be sufficient to ensure collection of the account. If obtaining information from a business, the agency shall specify the type of business entity involved and obtain a list of owners with their Social Security numbers or FEINs, if applicable, and their phone numbers.

(4) If specifically authorized to do so, an agency may develop written policies to address when to delay or withhold services to a delinquent debtor.

(5) An agency shall explore new technologies and collection practices that can be integrated with its current policies, procedures, and information systems that will improve efficiencies in its collection practices.

Section 8. Determining Ability to Pay.

(1) Each state agency has a duty to make all reasonable efforts to collect the full amount of monies owed to it or otherwise charged to it for collection (Section 52 of the Kentucky Constitution and KRS 45.260). An agency shall employ all available legal, and cost-effective means that are appropriate to the circumstances in its collection efforts. A means of collection may be considered cost effective if it is reasonable to expect the costs of collection to be less than the debt.

(2) The agency may consider any debt, including interest and penalties or any portion of the debt, uncollectible if the debtor has no money or other thing of value owing or held by any other state agency that has not been credited to the debt, and it is reasonable to conclude, after all reasonable efforts to collect the debt have been made, that one (1) or more of the following is true:

(a) The debtor does not, and will not for the foreseeable future, own or have the right to own assets from which the state agency can collect the debt;

(b) It is reasonably estimated that the cost of collecting the debt would equal or exceed the amount of the debt;

(c) The debtor is deceased and there are no assets in the debtor's estate from which the state agency can collect the debt;

(d) The debtor is a corporation that is not, and for the foreseeable future will not, be engaged in any income-producing activity, and no assets exist from which the agency can collect the debt;

(e) The debtor's estate is subject to a pending bankruptcy proceeding in which it is reasonable to conclude that the debt will be discharged and that the state agency will receive none or an insubstantial share of the assets of the bankruptcy estate; or

(f) The agency is, and will be for the foreseeable future, unable to collect the debt from the debtor or from anyone owing the debtor money or holding assets of or from the debtor.

(3) If an agency determines that one (1) or more of the circumstances listed in subsection (2) of this section exists after the appropriate collection steps listed in this administrative regulation have been taken or if the Department of Revenue has returned the debts, because it has determined that the collection of the debt is not feasible or cost effective, the debt may be charged off as uncollectible.

History

RELATES TO: KRS 13B.020, 45.237-45.241, 45.260, 45.345, 360.040
STATUTORY AUTHORITY: KRS 45.238(6), 45.241(5)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 45.238(6) and KRS 45.241(5) require the Finance and Administration Cabinet to promulgate administrative regulations for those agencies without statutory procedures for collecting debts and to prescribe standards and procedures for effective administration regarding collection of debts, notices to persons (all individuals and business entities) owing debt, information to be monitored concerning the debts, an appeals process, and the writing off of debts. This administrative regulation establishes the above requirements, guidelines for collecting accounts receivable, and the minimum collection actions required for collecting debts.
History: 32 Ky.R. 1010; 1218; eff. 2-3-2006; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 1:092 General administration policies and circulars {#sec-103-kar-1-092 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:092}

Section 1. The following general administration policies and circulars of the Department of Revenue are rescinded and shall be null, void, and unenforceable:

(1) Revenue Circular 10C001 - Tax Provisions of the Enterprise Zone Law. This circular is being rescinded because it restates KRS 154.45-010(7), 154.45-010(9), and 306 KAR 1:010. Furthermore, this policy is obsolete because Enterprise Zones are phasing out across the Commonwealth and are replaced with the Kentucky Enterprise Initiative under the provisions of KRS 154.20-200 to 154.20-216.

(2) Revenue Circular 10C030 - Kentucky Tax Registration Application. This circular is being rescinded because it is obsolete in part because it references the General Business License Fee imposed by KRS 154.12-219 that was repealed effective July 1, 2004. The circular also restates statutory authority concerning who is required to apply for tax registrations and certificates.

(3) Revenue Policy 10P010 - Due Dates for Payment of Tax. This policy is being rescinded because it restates KRS 446.030(1).

(4) Revenue Policy 10P011 - Records Retention Requirements. This policy is being rescinded because it is obsolete.

(5) Revenue Circular 40C003 - Taxation of federal and certain nonfederal obligations and their income for Kentucky income and intangible property tax purposes. This circular is being rescinded because the guidance provided was incorporated in 103 KAR 1:130 - Taxation of federal and certain nonfederal obligations and their income for Kentucky income and property tax purposes.

History

RELATES TO: KRS 131.130(1)
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. The Department of Revenue has many policies and circulars, a number of which predate the enactment of KRS Chapter 13A, that conflict with current tax laws. This administrative regulation rescinds general administration policies and circulars.
History: 33 Ky.R. 1189; 1789; eff. 2-2-2007; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 1:120 Employee access to Federal Tax Information (FTI) {#sec-103-kar-1-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:120}

Section 1. Definitions.

(1) "Applicant" means an individual who applies for employment with the Finance and Administration Cabinet, Department of Revenue, or a contractor working on behalf of those agencies who have, or will likely have, access to federal tax information in their regular course of business.

(2) "Classified employee" is defined by KRS 18A.005(7).

(3) "Contract Staff" means an individual employed with the Finance and Administration Cabinet, Department of Revenue, or a contractor working on behalf of those agencies who does not meet the definition of a classified employee with KRS Chapter 18A status.

(4) "Criminal background investigation" means a local, state, or national fingerprint-supported criminal history background investigation performed in accordance with KRS 131.032.

(5) "Department" is defined by KRS 131.010(2).

(6) "Disqualifying offense" means a conviction, plea of guilty, Alford plea, or plea of nolo contendere to any felony, misdemeanor, or offense the nature of which indicates that the employee constitutes an unreasonable and immediate risk to the security of FTI or confidential taxpayer information, unless the department determines there are mitigating circumstances that sufficiently remediate the existing risks.

(7) "Federally funded time-limited employee" is defined by KRS 18A.005(15).

(8) "Federal tax information" or "FTI" means a return or return information received directly from the IRS or obtained through an authorized secondary source, such as the Social Security Administration (SSA) or any entity acting on behalf of the IRS pursuant to an Internal Revenue Code (IRC) Section 6103 (p)(2)(B) Agreement.

(9) "Responsible agency" means an office within the Cabinet, Department, or an entity under contract with the cabinet or department, that employs or offers employment to an individual in a position for which the job duties include access to FTI.

(10) "Unclassified employee" means an employee who meets the criteria established in KRS 18A.115.

Section 2. Requirement for Criminal Background Investigations.

(1) The cabinet, department, or responsible agency shall require prospective or current employees, including contract staff, whose job duties include access to FTI, to submit to a fingerprint-based local, state, or national criminal background investigation as a condition of initial or continued employment:

(a) After the individual is offered a job but before they begin working; and

(b) At least one (1) time every five (5) years thereafter.

(2) The cabinet, department, or responsible agency that requests a fingerprint-based local, state, or national criminal background investigation on behalf of a prospective or current employee shall incur all fees associated with the cost of each background investigation requested.

(3) The cabinet, department, or responsible agency shall not employ any person in a position for which job duties include access to FTI or confidential taxpayer information if the individual refuses to consent to a fingerprint-based state or national criminal background investigation.

(4) The cabinet, department, or responsible agency shall notify each prospective or current employee determined to have a disqualifying offense.

Section 3. Disqualification. The cabinet, department, or responsible agency shall not employ or offer employment to an individual with a disqualifying offense listed in Section 1 of this administrative regulation or whose background investigation reveals any factor that bears upon the fitness of the individual to work in a position with access to FTI or confidential taxpayer information. The department shall have the sole discretion to determine if a prospective or current employee of the department is suitable to work in a position with access to FTI or confidential taxpayer information to ensure its protection and security in accordance with KRS 131.190, IRS Publication 1075, and Finance and Administration Cabinet Standard Procedure 6.1.2 entitled "Confidentiality of State and Federal Information".

Section 4. Individuals Ineligible to be Hired. The cabinet, department, or responsible agency may refuse to employ, contract with, or permit to work as an employee, any applicant that submits to a background investigation if one (1) or more of the following conditions apply:

(1) The applicant refuses to provide photo identification;

(2) The applicant fails to submit their fingerprints at an authorized collection site as directed, within five (5) business days of being offered employment;

(3) Upon completion of the criminal background investigation, the cabinet or department receives notice that the applicant is found to have a disqualifying offense; or

(4) Final and acceptable disposition of a criminal charge or offense related to a disqualifying offense is not provided to the department within sixty (60) days of fingerprint submission.

Section 5. Notice of a Disqualifying Offense and Appeals - Applicants.

(1) The cabinet, department, or responsible agency shall notify applicants determined to have a disqualifying offense.

(2) If an applicant wishes to obtain information concerning the disqualifying offense or challenge the accuracy of a criminal background investigation, the department shall refer the individual to the appropriate state or federal law enforcement agency.

Section 6. Notice of a Disqualifying Offense and Appeals – Current Employees.

(1) A current employee with classified status found to have a disqualifying offense upon completion of the criminal background investigation may be:

(a) Immediately removed from duties with access to FTI or confidential taxpayer information;

(b) Immediately placed on administrative leave pending an internal review of the disqualifying offense; or

(c) Dismissed from employment if the nature of the disqualifying offense presents an immediate, serious, and irreparable risk to FTI or confidential taxpayer information if the employee's job duties require access to FTI or confidential taxpayer information.

(2) A cabinet or department classified employee whose background investigation reveals a disqualifying offense shall be eligible for reconsideration under an internal department review process and determination in accordance with KRS Chapter 18A.

(3) A cabinet or department classified employee may submit a written request for an internal employment reconsideration review to the Division of Human Resources no later than fourteen (14) calendar days from the date of notice of a disqualifying offense issued pursuant to Section 2 of this administrative regulation.

(4) A cabinet or department classified employee who requests a reconsideration of dismissal may be retained on staff during the review process subject to the following factors:

(a) The nature and severity of the disqualifying offense;

(b) The disposition of the offense;

(d) The employee's personnel history; and

(e) Whether the employee is assigned duties that require access to FTI or confidential taxpayer information.

(5) The request for an internal employment reconsideration review shall include the following information:

(a) A written explanation of each disqualifying offense, including:

A description of the events related to the disqualifying offense;
The number of years since the occurrence of the disqualifying offense;
The age of the offender at the time of the disqualifying offense; and
Any other relevant and mitigating circumstances regarding the offense;

(b) Official documentation showing that all fines, including court-imposed fines, costs, or restitution, have been paid, or documentation showing adherence to a payment schedule, if applicable;

(d) Employment and character references, including any other evidence demonstrating the ability of the individual to perform the employment responsibilities and duties competently.

(6) After review, the department may reverse the dismissal if the department determines that the disqualifying offense, along with any mitigating circumstances, does not bear upon the fitness of the individual to work in a position with access to FTI or confidential taxpayer information.

(7) No later than thirty (30) calendar days from receipt of the written request for the reconsideration review, the cabinet, department, or responsible agency shall notify the employee of the final determination of the reconsideration review by the department.

(8) The employee may appeal the results of a reconsideration review to the Personnel Board in accordance with KRS 18A.095.

Section 7. Challenges to Criminal History Record Information. An individual subject to a criminal background investigation required by KRS 131.032 and this administrative regulation shall have the right to request and inspect his or her criminal history record and to request correction of any inaccurate information.

Section 8. Pardons, Diversions, and Expungements. An applicant, classified employee, unclassified employee, federally funded time-limited employee, or contract employee who has received a pardon for a disqualifying offense, has had a disqualifying offense dismissed after successful completion of a diversion program, or has had a disqualifying offense expunged, shall not be barred from employment in a position with job duties that include access to or use of FTI or confidential taxpayer information, for reasons related to the underlying disqualifying offense(s).

History

RELATES TO: KRS 18A.095, 131.032, 131.081, 131.130, 131.190, 131.990
STATUTORY AUTHORITY: KRS 42.014, 131.032(2)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 42.014 requires the Office of the Secretary to establish internal organization, functions and duties as necessary to fulfill the duties of the cabinet. KRS 131.032(2) requires the Department of Revenue to promulgate administrative regulations to establish requirements concerning criminal background investigations for employees, including contract staff, with access to or use of federal tax information (FTI). This administrative regulation establishes the guidelines to implement the requirements set forth in KRS 131.032 and Internal Revenue Service (IRS) Publication 1075.
History: 44 Ky.R. 833, 1209; eff. 1-5-2018; 46 Ky.R. 1588, 2224; eff. 5-5-2020.

103 KAR 1:130 Taxation of federal and certain nonfederal obligations {#sec-103-kar-1-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:130}

Section 1. Income Taxation. Interest income from United States government obligations upon which states are prohibited by federal law from imposing a tax shall be excluded from gross income when calculating Kentucky income tax liability. Only the interest income from exempt United States government obligations included in the taxpayer's federal taxable income may be deducted from the taxpayer's gross income for Kentucky income tax purposes.

Section 2. This section contains two (2) lists of certain agencies, authorized corporations, and banks of the United States government from which Kentucky taxpayers may receive interest income. These lists are not all-inclusive, nor are they intended to be conclusive of the taxable or exempt status of a particular obligation issued by or in conjunction with a listed department, agency, instrumentality, or other entity.

(1) The list in this subsection shall serve as examples of departments, agencies, and instrumentalities that issue United States government obligations from which interest income shall be exempt from state taxation.

(a) U.S. Treasury (Bonds);

(b) U.S. Treasury (Series EE and HH Savings Bonds and I Bonds);

(d) U.S. Treasury (Bills);

(e) U.S. Treasury (Notes);

(f) U.S. Treasury (Note and Bond "Strips");

(g) Commodity Credit Corporation;

(h) Central Banks for Cooperatives and Banks for Cooperatives;

(i) Farm Credit Banks;

(j) Federal Land Bank Associations;

(k) Production Credit Associations;

(l) Farm Credit System Financial Assistance Corporation;

(m) Federal Deposit Insurance Corporation;

(n) Federal Financing Bank;

(o) Federal Home Loan Banks;

(p) Federal Savings and Loan Insurance Corporation;

(q) General Insurance Fund, Department of Housing and Urban Development, Rental Housing Insurance, War Housing Insurance Project, Rental Housing Project, Armed Services Housing, National Defense Housing Insurance, Neighborhood Conservation Housing Insurance;

(r) Guam (Bonds);

(s) Puerto Rico (Bonds);

(t) Virgin Islands (General Obligation Bonds and Public Improvement Bonds);

(u) American Samoa (Industrial Development Bonds);

(v) Student Loan Marketing Association (SLMA or "Sallie Mae");

(w) Tennessee Valley Authority (Bonds); or

(x) United States Postal Service.

(2) The list in this subsection shall serve as examples of organizations which issue obligations from which interest income shall be taxable for Kentucky income tax purposes.

(a) Bank Certificates of Deposit;

(b) Farmers Home Administration;

(d) Federal National Mortgage Association (FNMA or "Fannie Mae");

(e) Government National Mortgage Association (GNMA or "Ginnie Mae");

(f) Inter-American Development Bank;

(g) International Bank for Reconstruction and Development (World Bank); or

(h) International Monetary Fund.

Section 3. Property Taxation. A claim by a taxpayer that property or capital subject to the ad valorem taxes imposed by KRS 136.290, 136.300, 136.310 or 136.320 is exempt under federal law shall be supported by specific statutory or binding case authority. In the absence of statutory or binding case authority, all intangible property shall be taxable. Securities merely guaranteed by the U.S. government shall be taxable as intangible property.

Section 4. Exempt federal obligations shall be classified as:

(1) Direct obligations of the United States such as U.S. Treasury bonds, U.S. Treasury notes or U.S. Treasury bills; or

(2) Direct obligations of U.S. government agencies.

Section 5.

(1) The following list is provided as a general reference of obligations exempt from state ad valorem taxation imposed by KRS 136.290, 136.300, 136.310, or 136.320:

(a) Banks for Cooperatives;

(b) Central Banks for Cooperatives;

(d) Farmers Home Administration;

(e) Farmers Home Corporation;

(f) Federal Credit Union;

(g) Federal Savings and Loan Associations (Kentucky);

(h) Federal Deposit Insurance Corporation;

(i) Federal Farm Credit Corporation;

(j) Federal Home Loan Bank (Stocks and Bonds);

(k) Federal Housing Administration;

(l) Federal Intermediate Credit Banks;

(m) Federal Land Banks;

(n) Federal Maritime Board and Maritime Administration;

(o) Federal Reserve Banks;

(p) Federal Savings and Loan Insurance Corporation;

(q) General Insurance Fund;

(r) Guam Bonds;

(s) Municipal Obligations (Kentucky);

(t) National Farm Loan Association;

(u) Panama Canal Bonds;

(v) Production (Agricultural) Credit Association or Corporation;

(w) Puerto Rican Bonds;

(x) Student Loan Marketing Association;

(y) Tennessee Valley Authority;

(z) U.S. Housing Authority;

(aa) U.S. Postal Service Bonds; or

(bb) Virgin Island Bonds.

(2) The following list is provided as a general reference of obligations that are taxable entities for state ad valorem taxation imposed by KRS 136.290, 136.300, 136.310, or 136.320:

(a) Federal Home Loan Bank Deposits;

(b) Federal Home Loan Mortgage Corporation Bonds;

(d) Government National Mortgage Corporation Bonds; or

(e) Retail Repurchase Agreements.

History

RELATES TO: KRS 136.290, 136.300, 136.310, 136.320, 141.019, 141.900
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.019(1)(a) and 141.900(10)(a) and (12)(a) provide an exclusion from gross income when calculating Kentucky income tax for income that is exempt from state taxation by the Kentucky Constitution and the Constitution and statutory laws of the United States and Kentucky. KRS 136.290, 136.300, 136.310, and 136.320 impose an ad valorem tax on the total value of the capital of federally or state chartered savings and loan associations, savings banks, and other similar institutions and domestic life insurance companies authorized to transact business in Kentucky, with property and payroll both within and without this state. This administrative regulation establishes the requirements relating to taxation of federal and certain nonfederal obligations in accordance with those statutes.
History: 103 KAR 001:130. 33 Ky.R. 1190; Am. 1790; eff. 2-2-2007; 45 Ky.R. 1299; eff. 2-1-2019; Crt to Am; filing deadline 7-7-2027.

103 KAR 1:150 Electronic data match and levy procedures {#sec-103-kar-1-150 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:150}

Section 1. Definitions.

(1) "Debt" is defined by KRS 131.670(1).

(2) "Debtor" is defined by KRS 131.670(2).

(3) "Delinquent taxpayer" is defined by KRS 131.670(4).

(4) "Department" is defined by KRS 131.670(3).

(5) "Financial Institution" is defined by KRS 131.670(5).

(6) "Levy" is defined in KRS 131.500(10).

Section 2. Electronic Data Match and Levy Program Implementation. The department shall have access to identifying information for a delinquent taxpayer or debtor who the department has identified to a financial institution through a data match for the purpose of levying the account of the delinquent taxpayer or debtor to pay the delinquent tax or debt.

Section 3. Electronic Data Match Reporting. A financial institution shall:

(1) Select a preferred matching method in the Data Matching Memorandum of Agreement;

(2) Exchange information with the department by way of an automated data exchange system. If the financial institution demonstrates to the department that it does not have the necessary computer capabilities to exchange information by way of an automated data exchange system, the department may issue a waiver to allow the financial institution to exchange information by paper;

(3) Submit information to the department on a quarterly basis in the format prescribed by the Financial Data Match Specifications Handbook, using either the all accounts method or matched accounts method.

(a) If a financial institution agrees to provide the information according to the all accounts method, the financial institution shall:

Submit to the department, or the department's authorized agent, within fifteen (15) days after requested by the department, data files of open accounts for the data match; and
Report the name, record address, Social Security number, Federal Employer Identification number, and account status on any account maintained by the financial institution;

(b) If a financial institution agrees to provide the information according to the matched accounts method, the financial institution shall, within fifteen (15) days after submission to the financial institution by the department of an inquiry, file:

Match the inquiry file of delinquent taxpayers and debtors identified and provided by the department, or by the department's authorized agent, against open accounts maintained by the financial institution; and
Submit a report of matched accounts to the department or its authorized agent containing the name, record address, Social Security number, Federal Employer Identification number, and account status on any account maintained by the financial institution;

(4) Maintain a security process to assure that information received from the department or its authorized agent concerning a delinquent taxpayer or debtor shall:

(a) Be maintained and safeguarded as confidential; and

(b) Not be copied or given to any other entity without the written permission of the department, or the delinquent taxpayer or debtor; and

(5) Incur no liability for providing a file to the department in accordance with an approved format as described by the Financial Data Match Specifications Handbook.

Section 4. Levy.

(1) If a financial data match occurs, a financial institution shall:

(a) Hold, encumber or surrender an account to the department upon receipt of a Notice of Levy, Revenue Form 12B020, which is incorporated by reference in 103 KAR 3:010, Section 2(1)(rr);

(b) Address and send to the department notices, paperwork, tapes or other electronic communication resulting from a financial institution data match program; and

(2) The match of an account holder to a delinquent taxpayer or debtor record provided by the department shall not constitute a levy. An account shall not be held, encumbered, or surrendered to the department without a financial institution having received a notice of levy from the department.

Section 5. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Data Matching Memorandum of Agreement", July 2008; and

(b) "Financial Data Match Specifications Handbook", edition 11/07.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Revenue, Division of Collections, 501 High Street, 8th Floor, Frankfort, Kentucky 40620, Monday through Friday, 8 a.m. to 5 p.m.

History

RELATES TO: KRS 131.670, 131.672, 131.674, 131.676, 205.772, 205.774
STATUTORY AUTHORITY: KRS 131.672(7)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.672(7) requires the Department of Revenue to promulgate an administrative regulation to establish the procedures to be followed by the Department of Revenue and Kentucky financial institutions in implementing and operating a data match and levy system to assist the Department of Revenue in collecting delinquent taxes and debts owed to the Commonwealth. This administrative regulation establishes the electronic data match and levy procedures.
History: 35 Ky.R. 675; 1435; eff. 1-5-2009; Crt eff. 6-7-2019; TAm eff. 4-2-2021; Cert to Am 6-5-2026 - Am due 12-5-2027.

103 KAR 1:160 Mandatory electronic filing and payment requirements {#sec-103-kar-1-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:160}

Section 1. Definitions.

(1) "Commercial mobile radio service" and "CMRS" is defined by KRS 65.7621(4).

(2) "Corporation" is defined by KRS 141.010(4).

(3) "Department" is defined by KRS 131.010(2).

(4) "Electronic fund transfer" is defined by KRS 131.010(14).

(5) "Employer" is defined by KRS 141.010(9).

(6) "Limited liability pass-through entity" is defined by KRS 141.010(16).

(7) "Pass-through entity" is defined by KRS 141.010(22).

(8) "Person" is defined by KRS 446.010(33).

(9) "Reasonable cause" is defined by KRS 131.010(9).

(10) "Specified tax return preparer" means, with respect to any calendar year, any tax return preparer unless the preparer reasonably expects to file ten (10) or fewer individual income tax returns during the calendar year.

(11) "Taxpayer" is defined by KRS 131.010(4).

Section 2. Tax Returns, Reports, Statements, and Tax Payments.

(1) The tax returns, reports, schedules, and statements relating to the taxes subject to this administrative regulation shall be electronically filed with the department.

(2) The tax or fee payments relating to taxes or fees included in this administrative regulation shall be made by electronic fund transfer.

Section 3. Income Taxes. The following income tax returns, reports, schedules, statements, and payments shall be submitted electronically:

(1) Individuals. Individual income tax returns, reports, statements, and related tax payments filed by a specified tax return preparer to report taxes imposed pursuant to KRS 141.020;

(2) Corporations and limited liability pass-through entities. Corporation income and limited liability entity tax returns, reports, statements, and related tax payments filed by corporations and limited liability pass-through entities in accordance with KRS 141.201(3), 141.202, and 141.0401(4) to report and pay corporation and limited liability entity taxes imposed pursuant to KRS 141.040 and 141.0401 if the corporation or limited liability pass-through entity has gross receipts in an amount equal to, or greater than, $1,000,000 on its annual federal income tax return in the current year;

(3) Pass-through entities. Pass-through entity returns, reports, statements, and related tax payments filed to report and pay taxes in accordance with the requirements under KRS 141.206 if the pass-through entity reports gross receipts in an amount equal to, or greater than, $1,000,000 on its federal income tax return; and

(4) Employers.

(a) Reports, statements, and payment requirements imposed upon employers with regard to the deduction and withholding of income taxes from wages paid pursuant to KRS 141.310 and 141.315 shall be filed and paid electronically as provided under 103 KAR 18:150; and

(b) Annual withholding statements filed pursuant to KRS 141.335 and 141.150 shall be filed electronically as provided under 103 KAR 18:050.

Section 4. Sales and Excise Taxes and Fees. The following returns, reports, statements, and payments shall be submitted electronically when filing, reporting, and paying sales and excise taxes and fees:

(1) Cigarettes, tobacco products, and vapor products excise taxes and license fees.

(a) License applications, license fees, excise taxes, returns and reports, stamp orders, and statements filed and paid pursuant to KRS 138.135, 138.140, 138.143, 138.146, and 138.195, as provided under 103 KAR 41.220; and

(b) Enforcement and administrative fees required to be filed and paid pursuant to KRS 365.390;

(2) Commercial mobile radio service (CMRS) fees. Returns and payments to report and pay the CMRS prepaid service charges collected and remitted to the department in accordance with KRS 142.115;

(3) Gasoline, special fuels, and liquefied petroleum gas motor fuels excise taxes and fees. Reports, excise taxes, and fees required to be filed and paid pursuant to KRS 138.240, 138.250, 138.260, 224.60-145, and 234.320;

(4) Multichannel video programming and communications services excise taxes. Returns, reports, statements, and related tax payments required to be filed and paid in accordance with KRS 136.620 to report the taxes imposed pursuant to KRS 136.604 and 136.616;

(5) Sales and use taxes.

(a) Returns, reports, supplementary schedules, and related tax payments required to be filed and paid to report retail sales or services subject to the tax imposed pursuant to KRS 139.200; and

(b) Returns, reports, supplementary schedules, and related tax payments required to be filed and paid for the storage, use, or other consumption of tangible personal property, digital property, and extended warranty services subject to the tax imposed pursuant to KRS 139.310;

(6) Statewide transient room taxes. Returns, reports, statements, and related tax payments required to be filed and paid in accordance with KRS 142.402 to report the tax imposed pursuant to KRS 142.400;

(7) Tire fees. Returns, reports, and related fee payments required to be filed and paid to report sales of new motor vehicle tires and the number of waste tires received and pay fees pursuant to KRS 224.50-868; and

(8) Utility gross receipts license taxes. Returns, reports, statements, and related tax payments required to be filed and paid in accordance with KRS 160.615 to report the taxes imposed pursuant to KRS 160.613 and 160.614.

Section 5. Penalties for Noncompliance. Any person, taxpayer, or tax preparer who fails or refuses to comply with the requirements of this administrative regulation shall, unless it is shown to the satisfaction of the department that the failure is due to reasonable cause, pay applicable penalties as provided under KRS 131.990.

Section 6. Waiver.

(1) A person, taxpayer, or tax preparer required to electronically file a return, report, or statement may contact the department to request a waiver as authorized by KRS 131.250(2). A written request for waiver of the electronic filing requirement shall be submitted to the department via the method required for the particular tax involved. The contact information by tax type may be found on the Department of Revenue's Web site at http://revenue.ky.gov.

(2) The Department may waive the electronic fund transfer requirement if a taxpayer is unable to remit funds electronically, as provided in KRS 131.155(4).

Section 7. Effective Date. The returns, reports, statements, or payments required to be submitted electronically by this administrative regulation shall be effective for tax periods beginning on or after October 1, 2021.

History

RELATES TO: KRS 65.7621, 131.010, 131.130, 131.155, 131.250, 131.990, 136.604, 136.616, 136.620, 138.135, 138.140, 138.143, 138.146, 138.195, 138.240, 138.250, 138.260, 139.200, 139.310, 141.010, 141.020, 141.040, 141.0401, 141.150, 141.201, 141.202, 141.206, 141.220; 141.310, 141.315, 141.330, 141.335, 142.115, 142.400, 142.402, 160.613, 160.614, 160.615, 224.50-868, 224.60-145, 234.320, 365.390, 446.010.
STATUTORY AUTHORITY: KRS 131.130, 131.155; 131.250
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of Kentucky tax laws. KRS 131.250(1) authorizes the department to require any tax return, report, or statement to be electronically filed to facilitate the administration of the taxes it administers. KRS 131.155(1) authorizes the department to require any tax payment to be made by electronic fund transfer to facilitate the administration, payment, or collection of the taxes. KRS 131.155(3) requires the department to promulgate administrative regulations establishing electronic fund transfer requirements for the payment of fees and taxes administered by the department. This administrative regulation establishes requirements for the electronic filing of tax returns, reports, and statements, and for tax payments to be made by electronic fund transfer for certain taxes administered by the department.
History: 47 Ky.R. 1710, 2356; eff. 8-3-2021.

Chapter 2 Inheritance Tax

103 KAR 2:005 Life Mortality Table {#sec-103-kar-2-005 omnilex-key=us-ky-regs-official--title-103--103 KAR 2:005}

Section 1. Table 1, Life Table for the Total Population: United States, published by the United States Department of Health and Human Services, National Center for Health Statistics, and made available at revenue.ky.gov under the Inheritance Tax tab, shall be utilized when computing the value of a beneficiary's life estate, annuity, remainder interest, or any other interest in the estate that is based on the life expectancy of the beneficiary or some other person. Table 1, Life Table for the Total Population: United States, prescribed and published by National Center for Health Statistics as of January 1 of the year of the decedent's death shall be used.

History

RELATES TO: KRS 140.100
STATUTORY AUTHORITY: KRS 131.130, 140.100(2)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. KRS 140.100(2) requires the application of the appropriate United States life mortality tables when ascertaining the value of future, contingent, or limited estates, which includes life estates and annuities. This administrative regulation establishes the appropriate United States life mortality table as required by KRS 140.100(2).
History: 103 KAR 002:005. 16 Ky.R. 2614; eff. 7-12-90; Recodified from 103 KAR 7:025, 10-12-2006; 40 Ky.R. 355; 782; eff. 11-1-2013; 46 Ky.R. 2104, 2601; eff. 6-30-2020; 52 Ky.R. 195, 703; eff. 2-3-2026.) COMPILER'S NOTE: 2025 RS HB 6, enacted by the General Assembly on March 27, 2025, altered the information to be provided at the time an administrative regulation is filed. Aside from formatting changes necessary to upload the regulation into the LRC's publication application, this regulation has been published as submitted by the agency.

103 KAR 2:020 Lien on ''Qualified Real Estate'' {#sec-103-kar-2-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 2:020}

Section 1. Definition. "Qualified real estate" is defined by KRS 140.300(4).

Section 2. If qualified real estate is reported at its agricultural or horticultural value in lieu of the fair cash value, the commencement date for the five (5) year lien that is required by KRS 140.350 shall be the decedent's date of death.

Section 3.

(1) This administrative regulation shall replace Revenue Policy 92P117.

(2) Revenue Policy 92P117 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 140.300(5), 140.320, 140.350
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes requirements for determining the commencement date for the five (5) year lien that is required by KRS 140.350 when qualified real estate is reported at agricultural or horticultural value for inheritance tax purposes.
History: 33 Ky.R. 2801; 3149; eff. 5-4-2007; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 2:030 Policies and circulars relating to inheritance tax {#sec-103-kar-2-030 omnilex-key=us-ky-regs-official--title-103--103 KAR 2:030}

Section 1. These policies merely restate or summarize the requirements or provisions of the inheritance and estate tax statutes of KRS Chapter 140 as well as other pertinent parts of KRS Chapters 6, 21, 61, 131, 161, 164, 304, 342, 395, and 411. The following policies are hereby formally rescinded and shall be null, void, and unenforceable:

(1) Revenue Policy 92P010 (6/1/83), relating to deferred payment of inheritance tax (KRS 131.183 and 140.222);

(2) Revenue Policy 92P015 (12/1/86), relating to deferred payment of inheritance tax when beneficiary dies (KRS 140.222, 140.224 and 395.195);

(3) Revenue Policy 92P020 (6/1/83), relating to the statutory limit for collection of inheritance tax (KRS 140.160 and 140.210);

(4) Revenue Policy 92P025 (9/1/87), relating to filing requirement (KRS 140.160(2), 140.190, 140.210(2), and 140.220);

(5) Revenue Policy 92P026 (9/1/87), relating to filing requirements (KRS 140.010, 140.190, and 140.210);

(6) Revenue Policy 92P029 (12/1/92), relating to interest for late payments of inheritance tax (KRS 131.010, 131.175, and 140.210);

(7) Revenue Policy 92P030 (12/1/92), relating to penalty for undervaluation of assets (KRS 131.010, 131.180, 140.210, and 140.991);

(8) Revenue Policy 92P031 (12/1/92), relating to penalties for late filing and late payment of inheritance tax (KRS 131.010, 131.180, 140.160, 140.210, and 140.991);

(9) Revenue Policy 92P035 (8/16/95), relating to valuation of real estate (KRS 131.110 and 140.165);

(10) Revenue Policy 92P040 (Revised 12/1/86), relating to power of appointment-taxation of remainder interest (KRS 140.040 and 140.110 (1));

(11) Revenue Policy 92P050 (Revised 7/13/90), relating to power of appointment in donor's and donee's estates (KRS 140.040 and 140.080(1)(a));

(12) Revenue Policy 92P060 (6/1/83), relating to assessment of real property for inheritance tax purposes (KRS 140.165. and 140.330);

(13) Revenue Policy 92P080 (Revised 7/10/90), relating to qualified real estate (KRS 140.300(4)(c) and case law);

(14) Revenue Policy 92P090 (6/1/83), relating to qualified real estate (KRS 140.300(4)(b) and case law);

(15) Revenue Policy 92P100 (6/1/83), relating to qualified real estate (KRS 140.320);

(16) Revenue Policy 92P110 (6/1/83), relating to qualified real estate (KRS 140.300 and 140.320);

(17) Revenue Policy 92P115 (12/1/86), relating to conveyance of "Qualified Real Estate" (KRS 140.300 through 140.360);

(18) Revenue Policy 92P116 (12/1/86), relating to conveyance of "Qualified Real Estate" (KRS 140.300 through 140.360);

(19) Revenue Policy 92P117 (12-1-86), relating to conveyance of "Qualified Real Estate" (KRS 140.300 through 140.360) rescinded in 103 KAR 2:020 (May, 2007);

(20) Revenue Policy 92P120 (Revised 7/10/90), relating to taxability of jointly held property (KRS 140.050 and case law);

(21) Revenue Policy 92P130 (Revised 11/20/90), relating to taxability of jointly held government bonds (KRS 140.050, and case law);

(22) Revenue Policy 92P140 (6/1/83), relating to taxability of bequest of inheritance tax (KRS 140.010 and case law);

(23) Revenue Policy 92P150 (6/1/83), relating to taxability of partnership property located in another state (KRS 140.010 and case law);

(24) Revenue Policy 92P160 (Revised 6/30/88), relating to partnership property located in Kentucky owned by a nonresident decedent (KRS 140.010 and case law);

(25) Revenue Policy 92P165 (12/1/86), relating to credit life insurance (KRS 140.030(2), 140.090(1), and case law);

(26) Revenue Policy 92P166 (9/1/87), relating to assignment of life insurance proceeds (KRS 140.090(1) and case law);

(27) Revenue Policy 92P167 (9/1/87), relating to paid-up life insurance policies (KRS 140.030(2) and 304.1-030);

(28) Revenue Policy 92P170 (6/1/83), relating to remainder interests (KRS 140.010);

(29) Revenue Policy 92P180 (1/29/88), relating to trusts (KRS 140.020 and case law);

(30) Revenue Policy 92P190 (6/1/83), relating to transfer with retained possession, enjoyment or income therefrom (KRS 140.020);

(31) Revenue Policy 92P200 (Revised 12/1/86), relating to transfers in contemplation of death (KRS 140.020);

(32) Revenue Policy 92P210 (Revised 9/1/87), relating to Life estates-wills (KRS 140.100 and case law);

(33) Revenue Policy 92P220 (12/1/86), relating to wrongful death (KRS 140.010, 140.090(1), KRS 411.130);

(34) Revenue Policy 92P235 (11/14/88), relating to Kentucky public employee's retirement plans (KRS 6.525, 21.470, 61.690, 140.063(1)(c), 161.700, and 164.2871);

(35) Revenue Policy 92P245 (9/1/87), relating to deferred compensation (KRS 140.010, 140.020, and case law);

(36) Revenue Policy 92P250 (6/1/83), relating to federal civil service retirement plan annuities (KRS 140.063);

(37) Revenue Policy 92P255 (11/1/97), relating to death benefits (KRS 61.705, 140.090(1), 161.655, and 342.720);

(38) Revenue Policy 92P260 ((12/1/86), relating to deduction of interest on federal estate taxes (KRS 140.090);

(39) Revenue Policy 92P261 (9/1/87), relating to deductions (KRS 140.010 and 140.090(1));

(40) Revenue Policy 92P262 (9/1/87), relating to deductions (KRS 140.090(1));

(41) Revenue Policy 92P263 (9/1/87), relating to deduction of interest on installment obligations (KRS 140.090(1)(h) and 395.195);

(42) Revenue Policy 92P264 (11/14/88), relating to deduction of selling expenses (KRS 140.090(1)(h) and 395.195);

(43) Revenue Policy 92P265 (12/1/86), relating to exemption of annuities payable to a beneficiary (KRS 140.063);

(44) Revenue Policy 92P270 (6/1/83), relating to casualty losses (KRS 140.090);

(45) Revenue Policy 92P280 (6/1/83), relating to power of appointment-minor beneficiary (KRS 140.040 and 140.080);

(46) Revenue Policy 92P290 (6/1/83), relating to power of appointment in donee's estate (KRS 140.040 and case law);

(47) Revenue Policy 92P300 (6/1/83), relating to power of appointment in donee's estate (KRS 140.040, 140.090, and case law);

(48) Revenue Policy 92P310 (6/1/83), relating to classification of beneficiaries-remarried daughter-in-law (KRS 140.070);

(49) Revenue Policy 92P311 (9/1/87), relating to classification of beneficiaries-spouse of stepchild (KRS 140.070);

(50) Revenue Policy 92P330 (Revised 11/20/90), relating to classification of beneficiaries great-nieces, great nephews, nieces, and nephews by marriage (KRS 140.070);

(51) Revenue Policy 92P335 (9/1/87), relating to nonresident beneficiaries (KRS 140.010, 140.070, and 140.080);

(52) Revenue Policy 92P336 (Revised 7/13/90), relating to exemption for the mentally disabled (KRS 140.080(1));

(53) Revenue Policy 92P340 (Revised 12/1/86), relating to contested wills (KRS 140.010 and 140.090(1));

(54) Revenue Policy 92P345 (3/1/88), relating to federal income tax refund or liability (KRS 140.010 and 140.090(1));

(55) Revenue Policy 92P350 (Revised 12/1/96), relating to previously-taxed property (KRS 140.095); and

(56) Revenue Policy 92P360 (6/20/89), relating to confidentiality of tax returns (KRS 131.190(1) and 140.160).

Section 2. Revenue Circular 92C200 (revised 7/1/89), Relating to Custody and Control of Securities, Deposits or Other Property by Financial Institutions (KRS 140.250), is no longer valid as KRS 140.250 was repealed in 2000 Ky. Act Ch. 151, sec. 7 effective July 13, 2000. Accordingly, Revenue Circular 92C200 is hereby rescinded and shall be null, void, and unenforceable.

Section 3. Revenue Policy 92P070 (Revised 12/1/86), Relating to Contested Wills, merely restates or summarizes the requirements or provisions of the inheritance and estate tax statutes of KRS Chapter 140, 394, and case law. Accordingly, Revenue Policy 92P070 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 131.130
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. The Department of Revenue has many policies and circulars that predate the enactment of KRS Chapter 13A and conflict with, or are redundancies of, current tax laws. This administrative regulation formally rescinds the previously issued policies and circulars relating to taxes administered by the Department's Office of Sales and Excise Taxes.
History: 33 Ky.R. 2802; 3149; eff. 5-4-2007; 46 Ky.R. 51, eff. 10-4-2019; Crt eff. 6-2-2026.

Chapter 5 Ad Valorem Tax; Administration

103 KAR 5:160 Property valuation administrator office employees: payment of leave upon separation {#sec-103-kar-5-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:160}

Section 1. Payment of Annual Leave and Compensatory Time Upon Separation.

(1) If a property valuation administrator or deputy property valuation administrator is separated from employment as a result of termination, resignation, retirement, or death, he or she shall be paid in a lump sum for accumulated annual leave. The accumulated annual leave for which he or she is paid shall not exceed the amounts established by 101 KAR 3:015 Section 1(2)(j). Following payment of annual leave upon separation, leave remaining after the payment of the maximum provided shall be removed from the balance.

(2) A property valuation administrator or deputy property valuation administrator who reverts to the classified or unclassified service, or resigns or is terminated one (1) day and is employed the next workday, shall retain his or her accumulated annual leave in the receiving agency.

(3) A property valuation administrator or deputy property valuation administrator may request in writing that his or her accumulated annual leave not be paid upon resignation, and that all or part of the amount of his or her accumulated annual leave that does not exceed the amount established by this section be waived, if the successor employer has agreed to credit him or her with an equal amount of annual leave.

(4) Upon separation from state service, a property valuation administrator or deputy property valuation administrator shall be paid for all unused compensatory time as established by 101 KAR 3:015, Section 5 (2)(g).

(5) Upon the death of a property valuation administrator or deputy property valuation administrator, his or her estate shall be entitled to receive a lump sum for the unused portion of his or her accumulated annual leave and compensatory time.

History

RELATES TO: KRS 132.370
STATUTORY AUTHORITY: KRS 131.130(1), 132.370(9)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 132.370(9) requires the Department of Revenue to promulgate administrative regulations which allow property valuation administrators and their deputies to receive lump-sum payments for accrued annual leave and compensatory time when separated from employment because of termination by the employer, resignation, retirement, or death. This administrative regulation establishes the procedure for receiving the lump-sum payments.
History: 27 Ky.R. 1968; Am. 2424; eff. 2-27-2001; 46 Ky.R. 53, eff. 10-4-2019; Crt eff. 6-2-2026.

103 KAR 5:180 Procedures for sale of certificates of delinquency by county clerks {#sec-103-kar-5-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:180}

Section 1. Definitions.

(1) "Clerks fees" means any fee required to be collected by a county clerk for the filing, recording, release, processing, or other handling of a certificate of delinquency or a lien created by a certificate of delinquency.

(2) "Control" means:

(a) Ownership of, or the power to vote, directly or indirectly, twenty-five (25) percent or more of a class of voting securities or voting interests of a registrant or applicant, or a person in control of a registrant or applicant;

(b) The power to elect a majority of executive officers, managers, directors, trustees, or other persons exercising managerial authority of a registrant or applicant;

(c) The power to exercise influence, directly or indirectly, over the management or policies of a registrant or applicant;

(d) Holding the position of an officer, director, general partner, or managing member of the registrant or the applicant or in a position of similar status or performing similar duties and functions of the registrant or the applicant; or

(e) Being entitled to receive twenty-five (25) percent or more of the profits from the registrant or applicant.

(3) "Current certificate of delinquency" means a certificate of delinquency which relates to the most recent tax year and which has not been offered in a prior year's county clerk's sale.

(4) "Department" means the Kentucky Department of Revenue.

(5) "Person" means any individual, corporation, business trust, estate, trust partnership, limited liability company, association, organization, joint venture, government or any subdivision, agency or instrumentality thereof, or any other legal or commercial entity.

(6) "Priority Certificate of Delinquency" means a current certificate of delinquency which relates to a property on which a potential purchaser already owns a prior year certificate of delinquency.

(7) "Protected Certificate of Delinquency" means a certificate of delinquency which is:

(a) Currently involved in litigation;

(b) Part of an ongoing bankruptcy proceeding of which the county clerk has received actual notice; or

(8) "Related entities" or "related interests" means a relationship between two persons in which a person:

(a) Can exercise control or significant influence over another person;

(b) Is related by blood, adoption, or marriage to another person;

(d) Is an agent or affiliate of another person.

(9) "Sale" means the annual sale by the county clerk of certificates of delinquency to third party purchasers.

Section 2. Establishing Sale Date.

(1)

(a) The Department of Revenue shall develop a preliminary statewide schedule for certificate of delinquency sales and shall notify each county clerk on or before May 1 of each year of the proposed date of the county's sale.

(b) A county clerk may, within five (5) business days of notification of the preliminary schedule, make a written request to the department to change the proposed sale date for his or her county.

(d) Any adjustments shall be made after consultation with the county clerk and shall be completed on or before May 15 of that same year.

(e) The department shall publish the final sale schedule as soon as practicable after May 15 of each year.

(2)

(a) The county clerk shall notify the county attorney of the sale date as soon as practicable after May 15 of each year.

(b) Between ten (10) and fifteen (15) days prior to the sale date, the county attorney shall provide the county clerk a list of all protected certificates of delinquency.

(3) Except as provided in KRS 134.127, the county clerk shall not assign any current certificate of delinquency prior to the sale.

Section 3. Purchaser's Registration with the County Clerk.

(1) A third party purchaser shall register with the county clerk prior to participating in the county's sale. A new registration shall be required for each year's sale.

(2) A third party purchaser's registration shall include:

(a) The purchaser's name, physical address, mailing address and phone number;

(b) A copy of the Certificate of Registration required by 103 KAR 5:190;

(c) A list of the priority certificates of delinquency the purchaser intends to purchase. This list shall be clearly marked and shall include the total amount due for all priority certificates of delinquency listed and the following information for each priority certificate of delinquency listed:

The current year's tax bill number;
The taxpayer name;
The amount due on the current certificate of delinquency;
The prior year certificate of delinquency's tax bill number;
The prior year certificate of delinquency's tax year;
The book and page numbers where the prior year certificate of delinquency is filed, if applicable;
The account or parcel identification number if the county uses that number to identify specific properties; and
If requested by the county clerk, a copy of the prior year certificate of delinquency;

(d) A list of the current certificates of delinquency the purchaser intends to purchase. This list shall be clearly marked and shall include the total amount due for all certificates of delinquency listed and the following information for each certificate of delinquency listed;

The taxpayer name;
The amount due on the certificate of delinquency;
The current year's tax bill number; and
The account or parcel identification number if the county uses that number to identify specific properties.

(e) The following sworn statement: "I hereby certify that I am not participating in this sale in conjunction with any related person or related entity to obtain any advantage over other potential purchasers at the sale.";

(f) The deposit required by the county clerk pursuant to Section 4 of this administrative regulation; and

(g) Payment of the registration fee of five (5) dollars for each certificate of delinquency included on the purchaser's list of priority certificates of delinquency and ten (10) dollars for each certificate of delinquency included on the purchaser's list of current certificates of delinquency. The total registration fee shall not exceed $250.

(3)

(a) Except as provided by paragraphs (b) and (c) of this subsection, the registration material required by subsection (2) of this section shall be submitted to the county clerk no later than fifteen (15) days prior to the sale.

(b) The deposit required by Section 4 of this administrative regulation shall be submitted to the county clerk no later than five (5) days to the sale.

(c) The list of current certificates of delinquency required by subsection (2)(d) of this section shall be submitted to the county clerk no later than ten (10) days prior to sale.

(d) The county clerk shall include these deadlines in all advertisement required by KRS 134.128(5).

(4) Prior to the sale, the county clerk shall:

(a) Review each registration and confirm that each registrant has complied with KRS 134.129 and that related entities or related interests are not participating or attempting to participate in the sale in a manner designed to subvert the fairness of the sale or to deprive other participants from an equitable opportunity to purchase certificates of delinquency at the sale. If the county clerk determines that a purchaser has violated or has attempted to violate this section, the county clerk shall notify the county attorney and the Department of Revenue of the violation or attempted violation;

(b) Review all the lists of priority certificates of delinquency for purchase submitted by purchasers to verify that the registrant has a priority right to purchase the listed certificates of delinquency;

(c) Review the submitted priority purchase lists to identify multiple purchasers interested in the certificates of delinquency on the same property and, based upon the information submitted, determine the registrant that holds the prior year claim for the most recent tax year; and

(d) No later than forty-eight (48) hours prior to the sale, make available to each third party purchaser registered for the sale, copies of all lists of priority certificates submitted pursuant to subsection (2)(c) of this section.

Section 4. Deposit Requirement.

(1) A purchaser shall deposit funds with the county clerk at the time of registration in the following amounts:

(a) 100% of the value of each certificate of delinquency included on the purchaser's list of priority certificates of delinquency;

(b) All clerk's fees associated with each certificate of delinquency included on the purchaser's list of priority certificates of delinquency;

(c) Twenty-five (25) percent of the value of each certificate of delinquency included on the purchaser's list of current certificates of delinquency. A purchaser shall not be required to pay an additional deposit if the certificate of delinquency is included on both lists, and if both lists clearly indicate that the certificate is included on both lists. A purchaser may deposit more than the minimum amount required by the county clerk.

(2) The county clerk shall apply the deposit to payment of any certificate of delinquency purchased at the sale.

(3) The county clerk shall refund any unused portion of the deposit to the purchaser no later than ten (10) business days after the completion of the sale.

(4) The county clerk shall:

(a) Accept payment of the deposit in a method of payment that complied with KRS 134.126(1)(b); and

(b) Not require that a deposit be made in cash. inadequate deposit, the county clerk shall allow the third party purchaser an opportunity to submit additional funds to reach the correct deposit amount. The deposit shall be paid in full by the day of the sale.

Section 5. Payment.

(1) Payment of any outstanding balance, after application of all deposits, shall be made at a time determined by the county clerk, but no later than ten (10) business days after the sale. The total amount due shall include all clerk's fees for all certificates of delinquency purchased at the sale.

(2) The county clerk shall:

(a) Accept payment of the deposit in a method of payment that complied with KRS 134.126(1)(b);

(b) Not require that a deposit be made in cash; and

(3)

(a) If full payment is not made for the certificates of delinquency at the time designated by the county clerk, the county clerk shall not assign any certificate of delinquency for which full payment has not been received and those certificates of delinquency shall be available for payment pursuant to KRS 134.127(1)(b).

(b) The county clerk shall have discretion as to how to allocate partial payments.

(c) If the purchaser's failure to make payment results in additional cost or expense to the county clerk, the county clerk shall forfeit the purchaser's deposit to cover those additional costs and expenses.

Section 6. Conduct of the Sale.

(1)

(a) The county clerk may sell the requested priority certificates of delinquency to the purchasers who submitted a list prior to the sale at the beginning of the sale, or as soon as practicable after the sale.

(b) The purchaser holding a certificate of delinquency from the most recent tax year shall have priority.

(c) If a purchaser holding a certificate of delinquency from the most recent tax year declines to purchase the priority certificate of delinquency, the purchaser holding a prior certificate of delinquency from the next most recent year shall be allowed to purchase the certificate of delinquency if included on their list of priority certificates of delinquency.

(2)

(a) The certificates of delinquency remaining at the time of the sale shall be sold as established by subsection (3) of this section.

(b) The order of selection of lots by registered purchasers shall be determined by a random drawing on the day of the sale.

(c) The purchaser who draws the lowest number during the random drawing shall have the first turn to choose a lot for purchase. Thereafter, purchasers shall select lots to purchase in order based on the random drawing from lowest to highest.

(d) Purchasers who are not present for the random drawing shall be placed at the bottom of the selection list behind the purchasers who were present for the random drawing.

(3)

(a) Except as provided in paragraph (b) of this subsection, the certificates of delinquency remaining at the time of sale shall be sold in lot sizes as follows:

In counties with 500 or fewer certificates of delinquency to be sold, the certificates of delinquency shall be sold in lots of up to five (5);
In counties with more than 500 and less than 1,000 certificates of delinquency to be sold, the certificates of delinquency shall be sold in lots of up to ten (10);
In counties with at least 1,000 and not more than 2,500 certificates of delinquency to be sold, the certificates of delinquency shall be sold in lots of up to twenty-five (25);
In counties with at least 2,500 and not more than 7,500 certificates of delinquency to be sold, the certificates of delinquency shall be sold in lots of up to fifty (50); and
In counties with more than 7,500 certificates of delinquency to be sold, the certificates of delinquency shall be sold in lots of no more than fifty (50) for the first four (4) rounds, and, for all subsequent rounds, shall be sold in lots not to exceed two (2) percent of the total number of current certificates of delinquency included in the pool for the sale.

(b) For any round of a sale, if, there are more certificates of delinquency to be sold than purchasers participating in the sale, the lot size used for that round shall not create fewer lots than the number of purchasers participating.

(4) The county clerk shall set a reasonable time limit for purchasers to make their selections.

(5) A purchaser may withdraw from the sale at any time prior to completion of the sale. If a purchaser withdraws from the sale, the purchaser shall not make any further purchases in any later round of the sale. Another purchaser shall not take the place of the withdrawing purchaser.

(6) A purchaser may purchase less than a full lot of certificates of delinquency. If a purchaser purchases less than a full lot in three (3) consecutive rounds, the purchaser shall be considered to have withdrawn from the sale after the partial lot purchase.

(7)

(a) The county clerk shall apply the purchaser's deposit to the total amount due for the certificates of delinquency purchased.

(b) The purchaser shall pay any additional funds required on or before the payment deadline established by the county clerk pursuant to Section 4 of this administrative regulation.

(d) Any amount of deposit remaining after the sale shall be refunded to the purchaser.

(8) Purchasers shall only purchase those certificates of delinquency listed on the registration required by Section 3 of this administrative regulation.

(9) Any questions or controversies relating to the sale shall be addressed by the county clerk.

Section 7. Department of Revenue Oversight. The Commissioner of the Department of Revenue or his or her duly appointed representative shall have access to all sales and shall be permitted to review or audit the records relating to the sale of certificates of delinquency.

History

RELATES TO: KRS 134.127, 134.128
STATUTORY AUTHORITY: KRS 134.128(2)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 134.128(2) requires the Department of Revenue to promulgate administrative regulations to establish a process for the purchase and sale of certificates of delinquency to third parties. This administrative regulation establishes the process for the purchase and sale of certificates of delinquency to third parties.
History: 36 Ky.R. 1391; 2082-M; 2028-A; eff. 5-7-2010; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

Section 1. Definitions.

(1) "Affiliate" means any person who directly or indirectly through one (1) or more intermediaries controls, is controlled by, or is under the common control with, another person.

(2) "Agent" means a person authorized by agreement with a registrant to act on behalf of a registrant.

(3) "Applicant" means a person filing a complete application.

(4) "Application" means an Application for Certificate of Registration to Purchase Certificates of Delinquency, Form number 62A370A.

(5) "Commissioner" means the Commissioner of the Department, or his or her designee.

(6) "Control" means:

(b) The power to elect a majority of executive officers, managers, directors, trustees, or other person exercising managerial authority of a registrant or applicant;

(c) The power to exercise influence, directly or indirectly, over the management or policies of a registrant or applicant;

(e) Being entitled to receive twenty-five (25) percent or more of the profits from the registrant or applicant.

(7) "Department" means the Kentucky Department of Revenue.

(8) "Person" means any individual, corporation, business trust, estate, trust partnership, limited liability company, association, organization, joint venture, government or any subdivision, agency or instrumentality thereof, or any other legal or commercial entity.

(9) "Registrant" means a person registered to purchase a certificate of delinquency.

(10) "Related entities" or "related interests" means a relationship between two persons in which a person:

(a) Can exercise control or significant influence over another person;

(b) Is related by blood, adoption, or marriage to another person;

(d) Is an agent or affiliate of another person.

Section 2. Registration Requirement.

(1) A person required by KRS 134.129(1) to register annually shall file a notarized application with the department at least sixty (60) days prior to the purchase of any certificate of delinquency that requires registration under KRS 134.129 and this administrative regulation.

(2) Pursuant to KRS 134.129(4), the department shall consider the following criteria and information in its review and evaluation of an application:

(a) The applicant and its directors, officers, members, and managers shall:

Be current and in good standing on all taxes owed to the Commonwealth;
Be in good standing with regard to operations under a previously issued certificate of registration;
Not have previously operated without obtaining a certificate of registration under KRS 134.139 under circumstances that required registration; and
Have a satisfactory record with the Office of Consumer Protection within the Office of the Attorney General. A record shall be considered satisfactory if the Office of the Attorney General has not filed a civil or criminal complaint against or entered into an Assurance of Voluntary Compliance with the applicant or registrant that resulted in an injunction, judgment, or order which contained a finding of fact or conclusion of law that the applicant or registrant violated any provision of KRS Chapter 360, 365, 367, or 380;

(b) If the person is a related entity or has related interests with another person that is registered or intends to register with the department;

(c) If persons with related interests or related entities to the applicant meet the criteria established by KRS 134.129(4) and this administrative regulation;

(d) If the applicant is not an individual, whether the applicant is in good standing in the state of incorporation or formation; and

(e) If required by law to register to conduct business in the Commonwealth, if the applicant is in good standing with the Kentucky Secretary of State.

(3) The commissioner may permit an applicant to submit substituted information in lieu of the information required by this section or application if the required information is not available.

(4) Every nonindividual applicant, at the time of the filing of the application and after a certificate of registration is issued, shall be in good standing in the state of its incorporation or formation.

(5) Every applicant, at the time of the filing of the application and after a certificate of registration is issued, shall be registered and qualified to do business in this Commonwealth, and be in good standing with the Kentucky Secretary of State.

Section 3. Review of Application.

(1) The department shall review and investigate any matter related to an application to determine if the applicant meets the requirements of KRS 134.129 and this administrative regulation.

(2) The department shall approve an application and issue a certificate of registration to an applicant if the applicant meets the requirements of KRS 134.129 and this administrative regulation.

(3) The department shall deny the application and refuse to issue a certificate of registration if the applicant does not meet one or more of the requirements as set forth in KRS 134.129 and this administrative regulation.

(4) All certificates of registration shall expire on December 31 in the calendar year in which they are issued regardless of the date of issuance.

(5) A certificate of registration shall be not be transferred or assigned.

(6) The department shall deem an application abandoned if the applicant fails to:

(a) File a complete application;

(b) Timely provide any information required by this administrative regulation or requested by the department, or

Section 4. Denial, Suspension, or Revocation of Registration.

(1) The department shall revoke, suspend, refuse to issue a registration, or accept surrender of a registration in lieu of revocation or suspension, if the department finds that the person, applicant, or registrant:

(a) Failed to comply with the requirements of KRS 134.129 and this administrative regulation;

(b) Does not conduct business in accordance with the law;

(d) Has made any misrepresentations or false statements to or concealed any essential or material fact or has suppressed or withheld from the department any information which, if it had been properly and timely submitted or disclosed to the department, would have rendered the person ineligible to be registered under this administrative regulation;

(e) Has refused to permit an examination or investigation by the department of his or her books and affairs or has refused within a reasonable time to furnish any information or make any disclosure that may be required by the department under the provisions of this administrative regulation;

(f) Has abandoned an application by failing to provide the department any information required or requested by the department under this administrative regulation to complete an application;

(g) Has employed or contracted with a person who has had an application denied or certificate of registration revoked or suspended under this administrative regulation;

(h) Has failed to pay any required fee under this administrative regulation;

(i) Has failed to pay any state tax or to comply with any administrative or court order directing the payment of state tax; or

(j) Has violated any provision under this administrative regulation or order issued by the commissioner.

(2) Any person whose registration has been denied, suspended, revoked, or surrendered in lieu of revocation or suspension shall not participate in any business activity of a registrant under this administrative regulation and shall not engage in any business activity on the premises where a registrant under this administrative regulation is conducting its business.

(3) Any person who has had his or her application denied by the department shall not file another application until January 1 of the year following the denial.

(4) Any person who has had his or her certificate of registration revoked twice shall be permanently barred from applying for a certificate of registration.

(5) The commissioner may enter into a consent order with another person at any time for the purpose of resolving a matter arising under this administrative regulation. A consent order shall be signed by the person to whom it is issued or by the person's authorized representative and shall indicate agreement with the terms contained in the order.

(6) Any consent order that the commissioner enters into to resolve a matter arising under this administrative regulation shall be deemed an administrative action and a public record.

(7) The commissioner shall stay, suspend, or postpone the effective date of an order issued under this administrative regulation, pending the administrative proceeding and the issuance of a final order resulting from the proceeding, upon written request by the affected person or licensee.

(8) The surrender or expiration of a registration shall not affect the registrant's civil or criminal liability for acts committed prior to the surrender or expiration. The surrender or expiration of a registration shall not affect a proceeding to revoke or suspend a registration.

Section 5. Notice and Right of Appeal.

(1)

(a) The department shall provide written notice to:

An applicant if an application is denied; or
A registrant if a certificate of registration is suspended or revoked.

(b) The notice shall be sent by certified mail or personal delivery to the last known address of the applicant or registrant, as provided by the applicant or registrant, according to the records of the department.

(c) An applicant or registrant shall be deemed to have received a copy of the written notice three (3) business days following the mailing thereof.

(2) Any applicant or registrant who has had his or her application denied or registration suspended or revoked may file a written request for a hearing.

(3) A written request for a hearing shall:

(a) Be filed with the department within (10) ten days of the date of the denial, suspension, or revocation;

(b) Shall be made in good faith; and

(c) Briefly state the reason or reasons the person is aggrieved, together with the grounds to be relied upon as a basis for the relief to be sought at the hearing.

(4) A hearing shall be held within ten (10) days of the receipt of the written request for a hearing unless the parties agree otherwise.

(5) The commissioner shall appoint a hearing officer to preside over the matter. The hearing officer shall issue a recommended order within twenty-one (21) days of the hearing.

(6) The commissioner shall issue a final order within five (5) days of the issuance of the recommended order by the hearing officer.

(7) Any person aggrieved by the decision of the commissioner may file an appeal to the Franklin Circuit Court within thirty (30) days of the issuance of the final order.

Section 6. Fees. Each application shall be accompanied by a nonrefundable processing fee in the amount of $250.

Section 7. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) "Application for Certificate of Registration to Purchase Certificates of Delinquency", November 2009; and

(b) "Certificate of Registration", November 2009.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Revenue, 501 High Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 5 p.m.

History

RELATES TO: KRS 134.128, 134.129
STATUTORY AUTHORITY: KRS 134.128(2)3, 134.19(3)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 134.129(2) requires a person to hold a certificate of registration from the Department of Revenue prior to the payment of any certificate of delinquency that results in the person owning more than five (5) certificates of delinquency statewide, more than three (3) certificates of delinquency in any county, or investing more than $10,000 in the payment of certificates of delinquency statewide in a calendar year. KRS 134.129(3) requires the Department of Revenue to promulgate administrative regulations to establish registration requirements, an application process, and an administrative fee to offset the cost of processing and reviewing the application for a certificate of registration. KRS 134.128(2)(d)3 requires the department to define "related entities" and "related interests" for the purpose of regulating the sale of certificates of delinquency. This administrative regulation establishes the registration requirements and application process for persons to hold a certificate of registration prior to the payment of a certificate of delinquency.
History: 36 Ky.R. 1394; 2040-A; eff. 4-2-2010; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 5:220 Installment payment plan guidelines for third party purchasers of certificates of delinquency {#sec-103-kar-5-220 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:220}

Section 1. Definitions.

(1) "Base amount" means the amount paid by a third-party purchaser for a certificate of delinquency.

(2) "Certificate of delinquency" is defined by KRS 134.010(1).

(3) "Default" means:

(a) The failure to pay on or within fifteen (15) days of a payment due date under a payment plan document; or

(b) Commencement of any legal action by a person other than the third-party purchaser affecting the title or requiring the sale of the subject property.

(4) "Department" means the Department is defined by KRS 134.010(5).

(5) "Optional certificate" means a certificate of delinquency that is not a qualifying certificate.

(6) "Payment plan" means a monthly installment plan described in the payment plan document.

(7) "Payment plan document" means the agreement between the property owner and the third-party purchaser detailing the terms of a payment plan.

(8) "Person" means any individual, corporation, business trust, estate, trust, partnership, limited liability entity, association, organization, joint venture, government, or any subdivision, agency or instrumentality thereof, or any other legal or commercial entity.

(9) "Processing fee" means a fee that may be imposed by a third-party purchaser for administering a payment plan, as provided in KRS 134.490(5)(c).

(10) "Property owner" means "taxpayer" as defined in KRS 134.010(14), or any other owners of real property on which an outstanding certificate of delinquency is held by a third-party purchaser.

(11) "Qualifying certificate" means a certificate of delinquency purchased after June 1, 2012 by a third-party purchaser required to register with the department under KRS 134.129.

(12) "Subject property" means the property against which the lien related to a certificate of delinquency is attached.

(13) "Third-party purchaser" is defined by KRS 134.010(16).

Section 2. Notice of Payment Plan Availability.

(1) For purposes of this administrative regulation, the term "third-party purchaser" shall also include any assignee of a certificate of delinquency.

(2) Any third-party purchaser who owns a qualifying certificate shall provide notice of the availability of a payment plan to the property owner as required by KRS 134.490(3)(d)5, unless the conditions established by Section 7 of this administrative regulation apply. The notice shall include, at a minimum, the following information:

(a) A statement that a payment plan is available upon written request from the property owner;

(b) The mailing address and the physical address where a request may be delivered. An electronic address may also be provided at the option of the third-party purchaser to accept requests in an electronic format;

(c) The date the certificate of delinquency was purchased by the third-party purchaser as provided in KRS 134.128, or paid and assigned as provided in KRS 134.126(8); and

(d) A statement that the option to request a payment plan shall expire unless a written request for a payment plan is received by the third-party purchaser within twelve (12) months of the date the certificate of delinquency was purchased by the third-party purchaser.

Section 3. Submission and Review of Payment Plan Requests.

(1) Any property owner with property subject to a qualifying certificate may submit a written request for a payment plan to the third-party purchaser holding the qualifying certificate within twelve (12) months of the date the certificate of delinquency was purchased by the third-party purchaser as provided in KRS 134.128; or paid and assigned as provided in KRS 134.126(8). The request shall be made in accordance with the process established by the third-party purchaser.

(2) Upon receipt of a payment plan request, the third-party purchaser shall review the request, and if the request is timely and none of the conditions listed under Section 7 of this administrative regulation apply, the third-party purchaser shall prepare and deliver payment plan documents to the property owner in accordance with the provisions of this administrative regulation.

(3) Beginning with receipt of a request for a payment plan, and during the term of any payment plan, the third-party purchaser shall not undertake any enforcement remedies available under the law for the collection of the amount due on a certificate of delinquency. However, this provision shall not preclude a third-party purchaser from engaging in legal proceedings to protect its interest in property subject to its lien and to charge reasonable legal and administrative fees in accordance with KRS 134.452(3). If the request for a payment plan is rejected because it is not timely or one of the conditions listed in Section 7 of this administrative regulation applies, or if the property owner defaults, the third-party purchaser may pursue any legal remedies available to the third-party purchaser under the law for collection of the amount due.

(4) A third-party purchaser may accept a request for a payment plan that is not timely filed. A payment plan entered into under this subsection shall be governed by the provisions of this administrative regulation.

Section 4. Payment Plan Requirements and Terms.

(1) The payment plan shall provide for equal monthly installments, except the amount due in the final month may be adjusted to reconcile the total amount paid with the total amount due. The payment plan shall be offered for a minimum of twelve (12) months, unless the property owner requests a shorter term.

(2) The terms and conditions of the payment plan shall be established by a payment plan document, which shall be signed by the property owner and the third-party purchaser. The third-party purchaser shall provide a copy of the executed document to the property owner. The payment plan document shall be effective upon receipt by the third-party purchaser.

(3) The payment plan document shall include the following:

(a) A description of the subject property and the tax bill covered by the certificate of delinquency;

(b) The base amount due when the payment plan document is executed;

(c) The total amount of pre-litigation attorney fees and administrative fees incurred and accrued as provided in KRS 134.452 and due when the payment plan document is executed;

(d) The amount of interest accrued when the payment plan document is executed, calculated as provided in KRS 134.452 and 134.125;

(e) The term of the payment plan and number of monthly payments;

(f) The amount of interest that will accrue over the term of the payment plan, assuming payments are made according to the payment plan schedule;

(g) The amount of the monthly processing fee imposed;

(h) The monthly payment amount due, as provided in Section 5 of this administrative regulation;

(i) The date the monthly payment amount is due;

(j) A statement that the taxpayer shall be in default for the failure to pay within fifteen (15) days of a payment due date, as provided in Section 1(3)(a) of this administrative regulation, which would allow the third party purchaser, at his discretion, to discontinue accepting payments in accordance with the plan and pursue any other legal remedy available to collect the debt;

(k) Acceptable methods of payment;

(l) The mailing address and delivery address where payments are to be made, if the payments are to be mailed;

(m) Any other terms and conditions mutually agreed upon by the property owner and third-party purchaser; and

(n) A statement that the third party purchaser shall notify the taxpayer within seven (7) business days by certified mail if the certificate of delinquency related to the payment plan is assigned. The notification shall include the name, address, and telephone number of the assignee.

(4) The third-party purchaser may limit the method of payment accepted to those methods reasonably determined to ensure payment, except that a third-party purchaser shall accept certified checks, cashier's checks, and cash in payment. A third-party purchaser may, at the discretion of the third-party purchaser, also accept ACH transfers, wire transfers, credit card, personal check, or other means of payment.

(5) The third-party purchaser shall not require more than one (1) payment per month.

(6) An assignee of a certificate of delinquency shall abide by the terms of a payment plan related to a certificate of delinquency.

Section 5. Calculation of the Monthly Amount Due and Crediting of Payments.

(1) Interest shall be calculated during the term of the payment plan on the outstanding balance of the base amount as required by KRS 134.125.

(2) To determine the monthly payment due, the third-party purchaser shall include the following to establish the total amount due, and shall then calculate a monthly payment, with any adjustment necessary for payments to equal the total amount due made in the last month of the payment plan:

(a) The base amount due;

(b) Interest:

Accrued prior to the effective date of the payment plan; and
Calculated on the declining balance of the base amount over the term of the payment plan as provided in subsection (1) of this section;

(c) Pre-litigation attorney fees and administrative fees imposed under KRS 134.452 accrued when the payment plan is agreed to; and

(d) The monthly processing fee amount multiplied by the number of months the payment plan will be in effect.

(3) Payments shall be credited by the third-party purchaser on the day the payment is received.

(4) Payment amounts received shall be credited as follows:

(a) First, to the monthly processing fee, which shall become due on the first day of each calendar month;

(b) Second, to the interest due;

(c) Third, to outstanding pre-litigation attorney fees and administrative fees imposed under KRS 134.452 and included as part of the payment plan document; and

(d) Fourth, to reduce the base amount due.

(5) If multiple certificates of delinquency are included under one payment plan document, the third-party purchaser shall apply payments based on the earliest date of attachment of the lien to the subject property.

Section 6. Default.

(1) The third-party purchaser may charge a processing fee for the month in which the default occurs, but shall not charge a processing fee for any subsequent month.

(2) In determining the outstanding amount due after a default, all payments received from the property owner and already credited as provided in Section 5 of this administrative regulation shall remain as credited under Section 5 of this administrative regulation. Any additional payments received after a default shall be applied as follows:

(a) First, to the payment of unpaid processing fees of the period prior to default, including the processing fee due in the month the default occurred;

(b) Second, to outstanding interest due;

(d) Fourth, to reduce the base amount due.

Section 7. Conditions Under Which A Payment Plan Is Not Required. A third-party purchaser shall not be required to offer a payment plan to a property owner under the following circumstances:

(1) The property owner has previously defaulted on a payment plan with that third-party purchaser; or

(2) An agreed judgment, agreed order, or other court order is in place that addresses the payment of the underlying tax claim or claims covered by a certificate of delinquency.

Section 8. Optional Payment Plans.

(1) A third-party purchaser who is not required to register with the department under KRS 134.129, or who holds optional certificates of delinquency may offer payment plans to property owners under the same terms, conditions, and requirements established by this administrative regulation.

(2) Any payment plan agreement between a third-party purchaser and a property owner in existence on the effective date of this administrative regulation shall remain in effect according to the terms of the existing agreement. A third-party purchaser shall not impose the processing fee authorized by KRS 134.490(5)(c) as part of an installment payment plan agreement relating to a certificate or certificates of delinquency purchased on or before June 1, 2012.

History

RELATES TO: KRS 134.125, 134.126, 134.128, 134.129, 134.452, 134.490(5)(h)
STATUTORY AUTHORITY: KRS 134.490(5)(h)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 134.490(5)(h) authorizes the Department of Revenue to promulgate Administrative Regulations to establish a process for an installment method of payment for the redemption of certificates of delinquency by a delinquent taxpayer. This administrative regulation establishes the process by which third party purchasers shall grant installment payments.
History: 39 Ky.R. 916; 1461; 1653; eff. 3-8-2013; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 5:230 Information to be provided by the sheriff when transferring delinquent property tax bills to the county clerk {#sec-103-kar-5-230 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:230}

Section 1. The sheriff and county clerk may mutually agree to a list of information that is needed to ensure a successful electronic transfer of delinquent property tax data from the sheriff's office to the county clerk's office by the date required by KRS 134.122.

Section 2. If the sheriff and county clerk do not mutually agree on the information to be provided electronically in the delinquent property tax data transfer, the following demographic information shall be included in any electronic form utilized to transfer delinquent tax bill data from the sheriff's office to the county clerk's office:

(1) Tax year;

(2) Tax bill number;

(3) Tax district:

(4) Taxpayer name;

(5) Street address;

(6) City, state, and zip code;

(7) Property location address;

(8) Class of property;

(9) Assessed value of property;

(10) Applicable tax districts;

(11) Tax rates imposed by each tax district;

(12) Tax amount due each tax district;

(13) Total tax amount due;

(14) Total penalty amount due;

(15) Total sheriff's fee due;

(16) Total sheriff's commission due; and

(17) Grand total due at the time of transfer.

Section 3. The demographic information described in Section 2 of this administrative regulation shall be transferred via an electronic data file that is usable by any software vendor utilized by the sheriff or county clerk.

History

RELATES TO: KRS 134.122
STATUTORY AUTHORITY: KRS 134.122(1)(b)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 134.122 requires the Department of Revenue to promulgate an administrative regulation providing the criteria for the information required to be provided by the sheriff when transferring delinquent property tax bills to the county clerk. This administrative regulation provides a listing of information to be included in those transfers.
History: 44 Ky.R. 1724; 1959; eff. 4-6-2018; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

Chapter 8 Ad Valorem Tax; State Assessment

103 KAR 8:090 Classification of property; public service corporations {#sec-103-kar-8-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:090}

Section 1. Classification of Public Service Company Property. The department prescribes the following classification of property to be used by public service corporations in reporting under KRS 136.120 et seq. This list is not intended to be complete and comprehends only those items of property whose proper classification has been subject to some confusion in the past.

History

RELATES TO: KRS 136.010, 136.120, 136.130
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. KRS 136.130 requires all public service corporations performing any public service in Kentucky to report certain facts prescribed by the department annually for purposes of the ad valorem tax on public service corporations imposed by KRS 136.120. KRS 136.120(2) states that the property of all taxpayers shall be classified as operating property, nonoperating tangible property, and nonoperating intangible property. This administrative regulation specifies the classification of certain operating property commonly held by public service corporations as real estate, personalty, and manufacturing machinery.
History: FN-2; 1 Ky.R. 1008; eff. 6-11-75; Am. 8 Ky.R. 68; eff. 9-2-81; 48 Ky.R. 465; 1584; eff. 3-1-2022.

103 KAR 8:110 Apportioned vehicles {#sec-103-kar-8-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:110}

Section 1. The publication titled "Marshall Valuation Service" from Marshall & Swift/Boeckh, LLC, shall be the designated authoritative source of vehicle depreciation values for the determination of the annual fee imposed on apportioned motor vehicles by KRS 136.188(1).

History

RELATES TO: KRS 132.487
STATUTORY AUTHORITY: KRS 131.130, 132.487, 136.188(2)(a)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration of all tax laws. KRS 136.188(2)(a) requires the Department of Revenue to promulgate an administrative regulation designating an authoritative source of depreciation values for the determination of the annual fee imposed on apportioned motor vehicles by KRS 136.188(1). This administrative regulation establishes the authoritative source of depreciation values for determining the annual fee on apportioned motor vehicles.
History: 33 Ky.R. 1005; 1283; eff. 12-1-2006; 46 Ky.R. 54, eff. 10-4-2019; Crt eff. 8-24-2026.

103 KAR 8:130 Ad valorem taxation of machinery actually engaged in the manufacturing of coal, crushed stone, sand, gravel and hot mix asphalt {#sec-103-kar-8-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:130}

Section 1. Definitions.

(1) "Manufacturing machinery" means machinery actually engaged in manufacturing that is subject to the state ad valorem tax of fifteen (15) cents upon each $100 of value provided in KRS 132.020(1) and exempt under KRS 132.200(4) from ad valorem taxation by any county, city, school or other taxing district in which it has a taxable situs.

(2) "Processing area" means the area of a coal preparation plant or coal load out facility where operational steps and methods are used to wash, size, blend, crush, load, or chemically treat coal to get a final marketable product.

Section 2. Machinery Actually Engaged in Manufacturing as it Pertains to Coal.

(1) Machinery actually used in mining or a similar operation that is engaged in manufacturing.

(a) Machinery actually used in the crushing, sizing, blending, chemical treating, and washing of coal shall be classified as manufacturing machinery.

(b) Coal manufacturing shall begin when machinery and equipment is used to convey the raw coal into the crushing, sizing, blending and washing facilities and shall include machinery and equipment moving the coal between the manufacturing processes within the processing area including in-process staging.

(c) Machinery and equipment used to blend different product grades, prior to the point of the coal being loaded on transport for removal from the processing area, shall be classified as manufacturing machinery.

(d) Manufacturing shall end with the loading of coal for final transport to the end user. The loading of coal for final transport to the end user shall only be classified as manufacturing if blending or chemical treatment occurs during the loading process.

(e) Machinery actually used in crushing, sizing, blending and washing shall include structures housing the crushing, sizing, blending or washing machinery.

(f) Machinery whose purpose shall be classified as to move, stage or load the coal when it is utilized subsequent to receiving or dumping of the coal into one (1) of these processes and prior to completion of the sizing, crushing, blending or washing process is manufacturing machinery.

(2) Equipment used in mining or a similar operation that is not engaged in manufacturing.

(a) The manufacturing process shall exclude coal hauled via a licensed truck outside the processing area.

(b) Other machinery actually used in extraction, severance, dredging, or mining operations shall not be classified as manufacturing machinery regardless of where in the operation it is located.

Section 3. Machinery Actually Engaged in Manufacturing of Crushed Stone, Sand, and Gravel.

(1) "Machinery actually engaged in manufacturing" includes the following:

(a) Machinery actually used in the conveying, crushing, screening, washing, drying, blending, and stockpiling of stone, sand, or gravel to a product of the appropriate gradation and specification required for sale or final use;

(b) Machinery and equipment actually used to size, crush, screen, blend, de-dust or wash the stone, sand, or gravel, including all necessary housing, electrical, and support systems;

(c) Machinery and equipment actually used to convey or maintain proper material flow of the stone, sand, or gravel to and between the crushing, sizing, screening, blending, dedusting, and washing facilities; or

(d) Machinery and equipment actually used to reassemble, remix, and blend the crushed stone, sand, or gravel into different product grades.

(2) Manufacturing of crushed stone, sand, or gravel.

(a) Manufacturing of crushed stone, sand, and gravel shall commence with the initial sizing of the stone (shot rock), sand, or gravel after it has been removed from its natural deposit, and shall continue with the loading, hauling, pumping, or conveying to the primary crusher or screen.

(b) Manufacturing shall continue with the further sizing, classifying, crushing, screening, blending, dedusting, and washing of the stone, sand, or gravel.

(c) Manufacturing of stone, sand, or gravel shall end when the product meets and maintains the appropriate gradation, specifications, or blends.

(d) The loading of stone, sand, or gravel for final transport to the end user shall only be classified as manufacturing if blending occurs during the loading process.

Section 4. Machinery Actually Engaged in Manufacturing of Hot Mix Asphalt.

(1) "Machinery actually engaged in manufacturing" shall include the following:

(a) Machinery and equipment actually used to load raw materials into an asphalt plant's cold feed bins, including the cold feed bins; the blending of aggregates; the movement of material across screen decks into dryers or drums, including the dryer and drums; and surge facilities, silos, and load control systems;

(b) Machinery and equipment actually used to transport or convey the material through or between the cold feed bins, the screen decks, the dryer or drum, the surge facilities, silos, and load control systems;

(c) Machinery and equipment actually used to heat, dry, mix, and blend the aggregates with the liquid asphalt, including all necessary housing, electrical, controls, liquid asphalt tanks, and energy supply systems; or

(d) Machinery and equipment actually used to load, adhere, remix, place, and compact the hot mix asphalt.

(2) Manufacturing of Hot Mix Asphalt.

(a) Manufacturing of hot mix asphalt shall commence with the loading of raw materials to the cold feed bins.

(b) Manufacturing shall continue with the blending of aggregates on the conveyor belts, through the flow of material across the screen decks, and into the dryer or drum for further blending or mixing.

(d) Manufacturing of hot mix asphalt shall end when:

Either:

a. The hot mix asphalt is loaded for delivery to a retail customer; or

b. When the hot mix asphalt is placed and compacted as directed by the customer; and

It meets the requirements set forth by the applicable customer or regulatory specifications.

(e) The loading of hot asphalt for final transport to the end user shall only be classified as manufacturing if blending occurs during the loading process.

History

RELATES TO: KRS 132.020, 132.200
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation explains the property tax classification found in KRS 132.020(1) and 132.200(4) for "machinery actually engaged in manufacturing" as it pertains to coal, crushed stone, sand, gravel and hot mix asphalt.
History: 34 Ky.R. 673; Am. 967; eff. 12-7-2007; 46 Ky.R. 55, 864; eff. 10-4-2019; Crt eff. 6-2-2026.

103 KAR 8:160 Valuation of municipal solid waste landfill facilities {#sec-103-kar-8-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:160}

Section 1. Definitions.

(1) "Compaction ratio" means the ratio that expresses the relationship of the number of tons (2,000 pounds) of waste that will fill one (1) cubic yard of landfill capacity. For example, a compaction ratio of 0.60 means that sixty (60) percent of one (1) ton (1,200 pounds) of waste can be compacted into one cubic yard of landfill capacity.

(2) "Cover materials" means soil or other suitable material that is spread and compacted on the top and side slopes of disposed waste in order to control disease vectors, gases, erosion, fires, and infiltration of precipitation or run-on; support vegetation; provide trafficability; or assure an aesthetic appearance.

(3) "Department" means Department of Revenue, Finance and Administration Cabinet, Commonwealth of Kentucky.

(4) "Discount rate" means a pre-tax percentage rate used to discount the annual royalty income over the projected remaining economic life of the landfill to a present value.

(5) "Effective tipping fee" means the average net dollar amount collected per ton for depositing waste into the landfill being assessed not including surcharges, host fees, and related taxes.

(6) "Landfill" means a municipal solid waste disposal facility as defined by KRS 224.1010(15) but does not include construction and demolition debris (CDD) landfills of less than one (1) acre.

(7) "Landfill valuation method" means a discounted cash flow, also known as yield capitalization, which is a valuation methodology used to determine the fair cash value of a landfill's real property.

(8) "Other landfill income" means the five (5) year average of income generated by a landfill from sources other than effective tipping fees, net of applicable expenses.

(9) "Present value" means the sum of the discounted projected annual royalty income over the remaining life of the landfill. The present value formula is:

(10) "Remaining permitted capacity" means the volume of permitted airspace remaining for the placement of waste materials.

(11) "Reversionary value" means the potential future market value of a landfill after all post-closure regulatory requirements, including a required minimum post-closure monitoring period of at least thirty (30) years, have been fulfilled by the owner or operator.

(12) "Royalty income" means that portion of effective tipping fees and other landfill income that would be paid pursuant to a presumed comparable market lease agreement by the landfill operator to the real property owner in consideration for the right to use the real property for landfill purposes.

(13) "Royalty rate" means a percentage rental rate to real property applied to the sum of the annual effective tipping fee revenue and other landfill income that results in the estimated royalty income for each year of the estimated remaining economic life of the landfill.

(14) "Tax year" means a calendar tax year.

(15) "Ton" means 2,000 pounds.

(16) "Tons of waste" means the five (5) year average of annual tons of waste received by the landfill, as determined utilizing information submitted to the Division of Waste Management for the Kentucky Department for Environmental Protection on Form DEP 7046, as incorporated by reference in 401 KAR 47:110, Section 5(1)(h).

(17) "Waste" means waste as defined by KRS 224.1-010(31)(a).

Section 2. Landfill valuation methodology formula.

(1) The department shall determine the fair cash value of a landfill's real property in compliance with the landfill valuation method established in this subsection.

(a) The department shall estimate the remaining permitted economic life of the landfill by dividing the estimated annual cubic yards of waste deposited into the landfill into the total remaining permitted capacity of the landfill.

The compaction ratio shall be calculated by taking the average of the five (5) most recent compaction ratios from the Solid Waste Landfill Annual Survey submitted to the Division of Waste Management for the Kentucky Department for Environmental Protection on Form DEP 8059, available at http://dep.ky.gov/formslibrary/Documents/DEP8059.doc. Form DEP 8059 is the form to be submitted by a municipal solid waste landfill permittee in conjunction with the annual survey report required by 401 KAR 47:190, Section 8. When calculating the average, consideration shall be given to factors that alter the five (5) year average as an appropriate estimate.
The remaining permitted capacity shall be as reported on the remaining airspace line item in the most recent Solid Waste Landfill Annual Survey submitted to the Division of Waste Management for the Kentucky Department for Environmental Protection on Form DEP 8059 for the landfill being assessed. The volume shall be adjusted for the capacity consumed from the date of the survey used to prepare the calculation, until the end of the tax year with no annual intake volume growth over the remaining forecasted permitted life of the landfill. Actual tons for the applicable dates shall be converted to permitted cubic yards using the compaction ratio and the result shall be subtracted from the remaining permitted capacity as presented in Form DEP 8059. If cover materials are used at the landfill, the total remaining permitted capacity shall be multiplied by .85 to account for a standard reduction of remaining permitted capacity for cover materials.
The estimated annual cubic yards of waste deposited into the landfill shall be equal to the average of the annual cubic yards of waste deposited into the landfill for the five (5) tax years prior to the current tax year. The landfill operator shall report to the department the annual cubic yards of waste deposited into the landfill for the five (5) tax years prior to the current tax year by April 30 of the current tax year. When calculating the average, consideration shall be given to factors that alter the five (5) year average as an appropriate estimate.
The remaining economic life of the landfill shall be calculated as follows: remaining permitted capacity (cubic yards) divided by the estimated annual cubic yards of waste deposited equals the remaining permitted economic life of the landfill.
The landfill operator shall provide the department with copies of the annual surveys and all quarterly reports filed by the landfill operator with the Division of Waste Management pursuant to 401 KAR 47:190 during the five (5) years on or before April 30 of the current tax year and a copy of its current operating permit.

(b) The effective tipping fee shall be calculated by dividing landfill historical tipping fee revenue (excluding surcharges, host fees, and related taxes) collected for the five (5) most recent tax years by landfill related historical tonnage for the five (5) most recent tax years as demonstrated by the records of the landfill operator.

The landfill operator shall provide the department with its calculation of the effective tipping fees for the five (5) tax years prior to the current tax year, together with its annual operating financial statements for each tax year, that shall include tipping fee revenue, expenses for surcharges, host fees and related taxes, and other landfill income.
The department shall review the effective tipping fees calculation submitted by the landfill operator and shall estimate the forecasted effective tipping fee for the current tax year. Increases in forecasted effective tipping fees shall be determined by an indexed factor not to exceed the annual Consumer Price Index (CPI), as defined by KRS 154.30-010(11), for the year prior to the current tax year.
In estimating the annual effective tipping fee, the department shall consider any facts or circumstances that exist that may have an impact on current or future effective tipping fees.

(c) The department shall estimate the other landfill income for the current tax year based upon the records of the landfill operator for the five (5) tax years prior to the current tax year.

The landfill operator shall provide the department with its calculation of other landfill income for the five (5) tax years prior to the current tax year, together with its annual operating financial statements provided pursuant to this section.
The department shall review the other landfill income submitted by the landfill operator and included in the operating financial statements submitted and shall estimate other landfill income for the current tax year and any annual increase in the other landfill income.
In estimating other landfill income, the department shall consider all relevant facts or circumstances that exist that may have an impact on current or future other landfill income.

(d) If the landfill does not have five (5) years of operating data, due to its date of first operation being less than five (5) years prior to the current tax year, the department shall determine the landfill's compaction ratio, consumed landfill capacity, estimated annual cubic yards of waste deposited, effective tipping fees, and other landfill income as a rolling average of the number of years for which operating data exists for the landfill.

(e) The department shall estimate an annual royalty income for each year of the landfill's remaining economic life by the following calculation: (((effective tipping fee × tons of waste) + other landfill income) × royalty rate) - general administrative expenses = royalty income.

(f) The department shall determine the present value of the royalty income of the landfill for all remaining years of its remaining permitted economic life by applying the discount rate to each year's royalty income as determined pursuant to paragraph (e) of this subsection.

(g) The discount rate shall be twenty (20) percent unless the landfill operator or the department establishes a higher or lower discount rate based upon applicable market factors and the applicable facts and circumstances attributable to the landfill.

(h) The present value of the royalty income for all remaining years of the landfill's remaining economic life shall be the landfill real property valuation to be used as a tax basis.

(i) The royalty rate shall be fifteen (15) percent unless the landfill operator or the department establishes a higher or lower royalty rate based upon applicable market factors and the applicable facts and circumstances attributable to the landfill.

(j) The department shall estimate a reversionary value, if any, as of the date that all post closure regulatory monitoring requirements of federal, state, or local governments are completed. The reversionary value shall be discounted to its present worth as of January 1 of the current tax year and the resulting value shall be added to the sum of all year's present values as calculated pursuant to paragraph (f) of this subsection.

(2) The fair cash value of any other real property, including improvements, not already included in the valuation of the landfill through the landfill valuation method shall be assessed by the department in the same manner as real property of all other taxpayers under KRS Chapter 132.

(a) State and local real property taxes shall be applied to the assessed value of the other real property and shall be added to the taxes assessed on the real property value determined by the landfill valuation method.

(b) The landfill operator shall provide the department with a summary statement of the total acreage of land owned by the landfill company, the total acreage of the permitted landfill area, and the total acreage of the active contained landfill.

(3) Any information required to be supplied by the landfill owner or operator in connection with this administrative regulation shall be held in strict confidence by the department unless otherwise required by law.

(4) The allocation of value of tangible personal property incorporated into a landfill and certified as pollution control pursuant to KRS 132.020(1)(k) shall be determined by taking the present value of landfill royalty income, as determined in subsection (1) of this section and subtracting out the value attributable to undeveloped land and the value attributable to real property structures (i.e., demonstrative and nonexclusive examples of which include maintenance buildings, perimeter fencing, etc.) not certified as pollution control. The remaining value shall constitute the value allocation attributable to certified pollution control tangible personal property incorporated into the landfill.

History

RELATES TO: KRS 132.020, 132.200, 224.1-010
STATUTORY AUTHORITY: KRS 131.130, 132.202
NECESSITY, FUNCTION, AND CONFORMITY: KRS 132.202 requires the department to promulgate an administrative regulation to implement a valuation methodology for the taxation of property used as a landfill, also known as a municipal solid waste disposal facility. This administrative regulation establishes a uniform system of ad valorem valuation for a municipal solid waste disposal facility as defined in KRS 224.1-010(15).
History: 43 Ky.R. 360, 563; eff. 12-2-2016; Cert. eff. 11-13-2023.

103 KAR 8:170 Pollution control facilities exemption {#sec-103-kar-8-170 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:170}

Section 1. Definitions.

(1) "Date of the making of the application" means the postmark date, electronic submission date, or date hand-stamped by the department for the "Application for Pollution Control Tax Exemption Certificate", Form 61A216.

(2) "Pollution control facility" is defined by KRS 224.1-300(1).

Section 2. Application Process for Certification.

(1) An applicant shall:

(a) File an "Application for Pollution Control Tax Exemption Certificate", Form 61A216;

(b) Submit a copy of the plans or blueprints and a materials and equipment listing with the application;

(c) Provide a detailed explanation of what types of pollution control (water, waste, noise, air, or substance removal) a project addresses and how the primary function of the property installed is to control pollution as required under KRS 224.1-300;

(d) Provide costs of the materials and equipment that the exemption is requested; and

(e) Provide any other information required or requested by the department based on the nature of the project to ensure compliance with KRS 132.020, 132.200, and 224.1-300.

(2) Each "Application for Pollution Control Certificate" shall be specific to a project and location and shall not be a blanket certification for all operations of the applicant.

Section 3. Certificate Issuance, Denial, and Revocation Procedures.

(1) Issuance, denial, or revocation of pollution control tax exemption.

(a) Before the department issues or denies, in whole or in part, the "Application for Pollution Control Tax Exemption Certificate," the department shall issue a written notice with an explanation of the issuance or denial to the applicant and the Secretary of the Energy and Environment Cabinet.

(b) If the department revokes a pollution control exemption tax certificate, the department shall issue a written notice with an explanation of the revocation to the holder of the certificate and the Secretary of the Energy and Environment Cabinet.

(c) If aggrieved by the issuance, denial, or revocation of pollution control tax exemption, the Energy and Environment Cabinet, the applicant for the pollution control exemption certificate, or the holder of the pollution exemption certificate may request a hearing before the department pursuant to Section 4.

(2) Certificate issuance.

(a) The department shall issue a qualifying applicant a "Pollution Control Tax Exemption Certificate", Form 61A217, upon final approval. The effective date of the certificate shall be the date of making the application to the department pursuant to KRS 224.1-310(1).

(b) "Pollution Control Tax Exemption Certificate", Form 61A217, shall replace "Pollution Control Tax Exemption Certificate", Form 51A226.

"Pollution Control Tax Exemption Certificate", Form 51A226 issued prior to January 1, 2019, shall be a valid pollution control tax exemption certificate for purposes of KRS 224.1-300, 132.020, and 132.200 unless either of the following applies:

a. The certificate is revoked by the department; or

b. The pollution control facility is no longer primarily used for pollution control.

Beginning January 1, 2019, a valid pollution control tax exemption certificate for purposes of KRS 224.1-300, 132.020, and 132.200 shall be issued on the "Pollution Control Tax Exemption Certificate", Form 61A217.

Section 4. Administrative Hearing Procedures.

(1) If aggrieved by the notice of acceptance; denial, in whole or in part; or revocation of a pollution control exemption tax certification, the Energy and Environment Cabinet, the applicant for the pollution control exemption certificate, or the holder of the pollution exemption certificate may file a written request for a hearing pursuant to KRS 224.1-310 with the commissioner of the department of Revenue within thirty (30) days from the date the notice was mailed.

(2) If a timely written request for a hearing is received by the Commissioner of the Department of Revenue, the commissioner shall assign a time and place for the hearing and shall appoint a hearing officer to conduct the hearing, receive evidence, and hear arguments pursuant to the requirements of KRS Chapter 13B.

(3) The hearing officer shall file a written recommended order pursuant to KRS 13B.110 with the Commissioner of the Department of Revenue no later than sixty (60) days after receiving a copy of the official record of the proceeding. The recommended order shall contain a recommendation for the issuance, revocation, or denial, in whole or in part, of the pollution control tax exemption certificate.

(4) The Commissioner of the Department of Revenue shall issue a final order pursuant to KRS 13B.120 within ninety (90) days after the submission of the hearing officer's recommended order, issuing, denying in whole or in part, or revoking the pollution control tax exemption certificate.

(5) Any party to the hearing aggrieved by the issuance of the department's final order may appeal the issuance, revocation, or denial, in whole or in part, of the pollution control tax exemption certificate within thirty (30) days from the date of the mailing of the department's final order to the Kentucky Claims Commission pursuant to KRS 49.220.

Section 5. Forms.

(1) The "Application for Pollution Control Tax Exemption Certificate", Form 61A216, listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(a) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(b) At a Kentucky Taxpayer Service Center during business hours; or

(2) The "Pollution Control Tax Exemption Certificate", Form 61A217, shall be issued by the department upon final approval of the application.

History

RELATES TO: KRS 13B, 132.020, 132.200, 224.01-300, 224.1-310
STATUTORY AUTHORITY: KRS 131.130, 224.1-310
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes the administrative process for obtaining and using the pollution control tax exemption certification pursuant to KRS 224.1-310.
History: 46 Ky.R. 1718, 2225; eff. 5-5-2020.

Chapter 15 Income Tax; General Administration

103 KAR 15:050 Filing dates and extensions {#sec-103-kar-15-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:050}

Section 1. Definitions.

(1) "Corporation" means a corporation as defined by KRS 141.010(4), a limited liability company taxed as a corporation, or other entity taxed as a corporation for Kentucky income tax purposes.

(2) "Date prescribed by KRS 141.160" means the 15th day of the fourth month following the close of the taxable year.

(3) "Fiduciary" is defined by KRS 141.010(10).

(4) "General partnership" is a partnership composed of only general partners, who are personally liable for the partnership debts.

(5) "Pass-through entity" has the same meaning as KRS 141.010(22).

Section 2. An extension of Time for Filing an Individual, General Partnership, or Fiduciary Tax Return.

(1) Pursuant to KRS 131.081(11) and 141.170, a taxpayer may obtain an extension of time for filing a Kentucky individual, fiduciary, or general partnership tax return by means of either a federal extension or a Kentucky extension.

(2) Federal extension.

(a) A taxpayer granted an extension of time for filing a federal income tax return shall be granted the same extension of the due date for filing a Kentucky tax return for the same taxable year. A copy of the federal extension approval or the request for an automatic extension shall be attached to the Kentucky tax return when it is filed if the taxpayer is relying upon the federal extension to extend the due date.

(b) An extension of time for filing a Kentucky tax return granted pursuant to this subsection shall be valid for the extension period granted by the Internal Revenue Service.

(3) Kentucky extension. A taxpayer may file an application for extension with the department, on or before the date prescribed by KRS 141.160 for filing the return. An individual, general partnership, or fiduciary shall file Form 740EXT "Application for Extension of Time to File", Revenue Form 40A102.

(a) An individual, general partnership, or fiduciary shall state the reason for the request on the application for extension. The inability to pay shall not be a valid reason.

(b) An individual, general partnership, or fiduciary shall be notified by mail if the application for extension is denied. A copy of an approved application for extension shall not be returned to the taxpayer.

(c) In accordance with KRS 141.170, an individual, general partnership, or fiduciary be granted an extension of time to file for six (6) months unless the application is denied.

(d) In accordance with KRS 141.170, an individual outside the United States shall be granted an extension of time to file for twelve (12) months unless the application is denied.

(e) A copy of the signed and dated application for extension shall be attached to the tax return when it is filed.

Section 3. An extension of Time for Filing a Corporation, S-corporation, or Pass-Through Entity Income or Limited Liability Entity Tax Return.

(1) Pursuant to KRS 131.081(11) and 141.170, a taxpayer may obtain an extension of time for filing a Kentucky corporation, S-corporation, or pass-through entity income or limited liability entity tax return by means of either a federal extension or a Kentucky extension.

(2) Federal extension.

(a) A taxpayer granted an extension of time for filing a federal income tax return shall be granted the same extension of the due date, except as otherwise provided in KRS 141.170(2), for filing a Kentucky income or limited liability entity tax return for the same taxable year. A copy of the federal extension approval or the request for an automatic extension shall be attached to the Kentucky income or limited liability entity tax return when it is filed if the taxpayer is relying upon the federal extension to extend the due date.

(b) An extension of time for filing a Kentucky income or limited liability entity tax return granted pursuant to this subsection shall be valid for the extension period granted by the Internal Revenue Service, except as otherwise provided in KRS 141.170(2).

(3) Kentucky extension. A taxpayer may file an application for extension with the department, on or before the date prescribed by KRS 141.160 for filing the return. A corporation, S-corporation, or pass-through entity shall file Form 720EXT "Extension of Time to File Kentucky Corporation/LLET Return", Revenue Form 41A720SL.

(a) A corporation shall be granted an extension of time to file for seven (7) months pursuant to KRS 141.170(2).

(b) A pass-through entity or S-corporation shall be granted an extension of time to file for six (6) months.

(c) A copy of an approved application for extension shall not be returned to the corporation, S-corporation, or pass-through entity.

(d) The extension shall become valid when mailed to the department on or before the date prescribed by KRS 141.160 for filing the return.

(e) The corporation, S-corporation or pass-through entity shall attach a copy of the signed and dated application for extension to its Kentucky income tax or limited liability entity tax return when it is filed.

(4) An extension of time for filing a unitary combined or elective consolidated income and limited liability entity tax return shall constitute an extension of time for filing each member of the group.

(5) An extension of time for filing a corporation income tax return shall constitute an extension of time for filing a limited liability entity tax return for the same taxable year.

Section 4. Payment of Tax.

(1) An extension of time to file an income or limited liability entity tax return shall not constitute an extension to pay the tax.

(2) A taxpayer shall determine if an amount of tax remains unpaid on or before the date prescribed by KRS 141.160 for filing the return.

(3) If tax remains unpaid, a payment for the amount of the unpaid tax shall be submitted to the department on or before the date prescribed by KRS 141.160 for filing the return along with the Kentucky extension.

(4) A group filing a unitary or elective consolidated income and limited liability entity tax return and making a payment of tax with the application for extension shall file a Kentucky extension to ensure proper processing of payments.

Section 5. Interest and Penalties.

(1) Statutory interest shall be paid from the date prescribed by KRS 141.160 for filing the return until the tax is paid.

(2) If the envelope bearing the return is postmarked on or before the filing date, the late filing penalty prescribe by 131.180 shall not apply.

Section 6. The forms and materials listed herein may be obtained or inspected, subject to applicable copyright law, from 8:00 a.m. until 4:30 p.m. at the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601, on the department Web site at http://revenue.ky.gov, or at a Kentucky Department of Revenue Taxpayer Service Center during their hours of operation.

History

RELATES TO: KRS 131.081(11), 131.170, 141.160, 141.170
STATUTORY AUTHORITY: KRS 131.130, 131.170, 141.050, 141.170
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.170 and 141.170 authorize the Department of Revenue to grant a taxpayer an extension of time to file a tax return. This administrative regulation establishes the procedures to be used by an individual, a corporation, a pass-through entity, or a fiduciary to obtain an extension of time to file an income or limited liability entity tax return.
History: IG-5-1; 1 Ky.R. 328; eff. 2-5-1975; 9 Ky.R. 1151; eff. 5-4-1983; 13 Ky.R. 26; eff. 8-12-1986; 24 Ky.R. 388; 853; eff. 9-25-1997; 44 Ky.R. 1089, 1493; eff. 2-2-2018; 45 Ky.R.1057, 1513; eff. 1-4-2019; 45 Ky.R. 3445, 46 Ky.R. 865, eff. 10-4-2019.

103 KAR 15:110 Ethanol tax credit {#sec-103-kar-15-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:110}

Section 1. Definitions.

(1) "Applicant" means an ethanol producer that files a tax credit claim as provided by KRS 141.4242.

(2) "Application" or "Schedule ETH" means the Schedule ETH, Application, and Credit Certificate of Income Tax/LLET Credit Ethanol (Revenue Form 41A720ETH) that is used to make an ethanol tax credit claim with the department for gallons of ethanol produced in this state as provided by KRS 141.4242(3).

(3) "ASTM" means the American Society for Testing and Materials.

(4) "Corporation" is defined by KRS 141.010(4).

(5) "Department" is defined by KRS 141.010(5).

(6) "Ethanol" is defined by KRS 141.422(9).

(7) "Ethanol producer" is defined by KRS 141.422(11).

(8) "Identification number" means:

(a) Social Security number for individuals;

(b) Federal Employer Identification Number for general partnerships, estates, and trusts; and

(c) Kentucky corporation income tax and limited liability entity tax account number for corporations and limited liability pass-through entities.

(9) "Individual" is defined by KRS 141.010(13).

(10) "Limited liability pass-through entity" is defined by KRS 141.010(15).

(11) "Pass-through entity" is defined by KRS 141.010(21).

(12) "Tax credit" means the ethanol tax credit authorized by KRS 141.4242 and 141.4246.

Section 2. Application for Tax Credit. An applicant shall mail to the department a completed application on or before January 15 for the preceding calendar year.

Section 3. Proof of ASTM standard specification.

(1) An ethanol producer shall provide proof that the ethanol gallons reported on the application meet ASTM standard specification D4806 for ethanol.

(2) Proof submitted by an ethanol producer shall be in the form of documentation of laboratory results that certify that the ethanol reported on the Schedule ETH meets the ASTM standard specification.

(3) An independent ASTM certified laboratory shall be used to generate the laboratory results that are required by this section.

(4) Failure to submit documented laboratory results that certify that the ethanol meets the ASTM standard specification with the Schedule ETH shall result in the department disallowing the credit.

(5)

(a) An ethanol producer shall have the ethanol tested as provided by subsection (2) of this section on July 1 and December 31 of each calendar year to determine if the ethanol meets the ASTM standard specification.

(b) A copy of the laboratory results for July 1 and December 31 of each calendar year shall be attached to the application, Schedule ETH, submitted to the department as provided by Section 2 of this administrative regulation.

(c) Failure to provide proof of meeting the ASTM standard specification on July 1 and December 31 of each calendar year with the application shall result in the denial of the credit for gallons of ethanol back to the previous testing date of July 1 or December 31.

(d) If proof is timely submitted and the proof certifies that the ethanol does not meet the ASTM standard specification, then all credit claimed for gallons of ethanol back to the previous testing date of July 1 or December 31 shall be disallowed.

Section 4. Filing Requirements.

(1) An applicant claiming the tax credit shall attach the credit certificate issued by the department to the tax return on which the tax credit is claimed.

(2) A partner, member, or shareholder claiming the tax credit shall attach a copy of Schedule K-1: Form 720S, Form number 41A720S(K-1); Form 765, Form number 41A765(K-1); or Form 765GP, Form number 42A765GP(K-1) to the partner's, member's, or shareholder's tax return on which the credit is claimed.

Section 5. Electronic Filings for Pass-through Entities.

(1) Each pass-through entity or agricultural cooperative association organized under KRS Chapter 272 claiming the ethanol tax credit shall file a report with the department by electronic mail at KRC.WEBResponseEconomicDevelopmentCredits@ky.gov.

(2) The electronic mail shall contain a separate attachment in plain format text or plain ASCII format that includes each partner's, member's, or shareholder's:

(a) Name;

(b) Address;

(d) Identification number; and

(e) Distributive share of the tax credit.

History

RELATES TO: KRS 141.010, 141.020, 141.030, 141.040, 141.0401, 141.422, 141.4242, 141.4246, 141.4248
STATUTORY AUTHORITY: KRS 131.130, 141.4246
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.4242 provides a nonrefundable tax credit to producers of ethanol. KRS 131.130(1) authorizes the department to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.4246(2) requires the department to promulgate an administrative regulation to establish the manner in which a pass-through entity shall electronically notify the department of who may claim the approved tax credit. This administrative regulation establishes guidelines and filing requirements for an ethanol producer filing a tax credit claim for gallons of ethanol produced in this state.
History: 103 KAR 015:110. 36 Ky.R. 1553; 2042-M; eff. 4-2-2010; 45 Ky.R. 77, 1180; eff. 12-7-2018; Crt to Am, filing deadline 5-14-2027.

103 KAR 15:120 Cellulosic ethanol tax credit {#sec-103-kar-15-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:120}

Section 1. Definitions.

(1) "Applicant" means a cellulosic ethanol producer that files a tax credit claim as provided by KRS 141.4244.

(2) "Application" or "Schedule CELL" means the Schedule CELL, Application, and Credit Certificate of Income Tax/LLET Credit Cellulosic Ethanol (Revenue Form 41A7220CELL) that is used to make a cellulosic ethanol tax credit claim with the department for gallons of cellulosic ethanol produced in this state as provided by KRS 141.4244(3).

(3) "ASTM" means the American Society for Testing and Materials.

(4) "Cellulosic ethanol" is defined by KRS 141.422(6).

(5) "Cellulosic ethanol producer" is defined by KRS 141.422(7).

(6) "Corporation" is defined by KRS 141.010(4).

(7) "Department" is defined by KRS 141.010(5)

(8) "Identification number" means:

(a) Social Security number for individuals;

(b) Federal Employer Identification Number for general partnerships, estates, and trusts; and

(c) Kentucky corporation income tax and limited liability entity tax account number for corporations and limited liability pass-through entities.

(9) "Individual" is defined by KRS 141.010(13).

(10) "Limited liability pass-through entity" is defined by KRS 141.010(15).

(11) "Pass-through entity" is defined by KRS 141.010(21).

(12) "Tax credit" means the cellulosic ethanol tax credit authorized by KRS 141.4244 and 141.4246.

Section 2. Application for Tax Credit. An applicant shall mail to the department a completed application on or before January 15 for the preceding calendar year.

Section 3. Proof of ASTM standard specification.

(1) A cellulosic ethanol producer shall pro-vide proof that the cellulosic ethanol gallons reported on the application meet ASTM standard specification D4806 for ethanol that is produced from cellulosic biomass materials.

(2) Proof submitted by a cellulosic ethanol producer shall be in the form of documentation of laboratory results that certify that the cellulosic ethanol reported on the Schedule CELL meets the ASTM standard specification.

(3) An independent ASTM certified laboratory shall be used to generate the laboratory results that are required by this section.

(4) Failure to submit documented laboratory results that certify that the cellulosic ethanol meets the ASTM standard specification with the Schedule CELL shall result in the department disallowing the credit.

(5)

(a) A cellulosic ethanol producer shall have the cellulosic ethanol tested as provided by subsection (2) of this section on July 1 and December 31 of each calendar year to determine if the cellulosic ethanol meets the ASTM standard specification.

(b) A copy of the laboratory results for July 1 and December 31 of each calendar year shall be attached to the application, Schedule CELL, submitted to the department as provided by Section 2 of this administrative regulation.

(c) Failure to provide proof of meeting the ASTM standard specification on July 1 and December 31 of each calendar year with the application shall result in the denial of the credit for gallons of cellulosic ethanol back to the previous testing date of July 1 or December 31.

(d) If proof is timely submitted and the proof certifies that the cellulosic ethanol does not meet the ASTM standard specification, then all credit claimed for gallons of cellulosic ethanol back to the previous testing date of July 1 or December 31 shall be disallowed.

Section 4. Filing Requirements.

(1) An applicant claiming the tax credit shall attach the cred-it certificate issued by the department to the tax return on which the tax credit is claimed.

Section 5. Electronic Filings for Pass-through Entities.

(1) Each pass-through entity or agricultural cooperative association organized under KRS Chapter 272 claiming the cellulosic ethanol tax credit shall file a report with the department by electronic mail at KRC.WEBResponseEconomicDevelopmentCredits@ky.gov.

(2) The electronic mail shall contain a separate attachment in plain format text or plain ASCII format that includes each partner's, member's, or shareholder's:

(a) Name;

(b) Address;

(d) Identification number; and

(e) Distributive share of the tax credit.

History

RELATES TO: KRS 141.010, 141.020, 141.030, 141.040, 141.0401, 141.422, 141.4244, 141.4246, 141.4248
STATUTORY AUTHORITY: KRS 131.130(1), 141.4246
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.4244 provides a nonrefundable tax credit to producers of cellulosic ethanol. KRS 131.130(1) authorizes the department to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.4246(2) requires the department to promulgate an administrative regulation to establish the manner in which a pass-through entity shall electronically notify the department of who may claim the approved tax credit. This administrative regulation establishes guidelines and filing requirements for a cellulosic ethanol producer filing a tax credit claim for gallons of cellulosic ethanol produced in this state.
History: 103 KAR 015:120. 36 Ky.R. 1554; 2043-M; eff. 4-2-2010; 45 Ky.R. 728, 1180; eff. 12-7-2018; Crt to Am, filing deadline 5-14-2027.

103 KAR 15:140 Biodiesel tax credit {#sec-103-kar-15-140 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:140}

Section 1. Definitions.

(1) "Applicant" means a biodiesel producer, biodiesel blender, or re-newable diesel producer that files a tax credit claim as provided by KRS 141.423.

(2) "Application" or "Schedule BIO" means the Schedule BIO, Application and Credit Certificate of Income Tax/LLET Credit Cellulosic Ethanol (Revenue Form 41A720BIO) that is used to make a tax credit claim with the department for gallons of biodiesel produced in this state, gallons of biodiesel used in blended biodiesel produced in this state, or gallons of renewable diesel produced in this state as provided by KRS 141.423(4).

(3) "ASTM" means the American Society for Testing and Materials.

(4) "Biodiesel" is defined by KRS 141.422(4).

(5) "Biodiesel blender" means an entity that blends biodiesel with petroleum diesel as pro-vided by KRS 141.422(8).

(6) "Biodiesel producer" is defined by KRS 141.422(5).

(7) "Blended biodiesel" is defined by KRS 141.422(8).

(8) "Corporation" is defined by KRS 141.010(4).

(9) "Department" is defined by KRS 141.010(5).

(10) "Identification number" means the:

(a) Social Security number for individuals;

(b) Federal Employer Identification Number for general partnerships, estates, and trusts; and

(c) Kentucky corporation income tax and limited liability entity tax account number for corporations and limited liability pass-through entities.

(11) "Individual" is defined by KRS 141.010(13).

(12) "Limited liability pass-through entity" is defined by KRS 141.010(15).

(13) "Pass-through entity" is defined by KRS 141.010(21).

(14) "Renewable diesel" is defined by KRS 141.422(12).

(15) "Renewable diesel producer" is defined by KRS 141.422(13).

Section 2. Application for Tax Credit. An applicant shall mail to the department a completed application on or before January 15 for the preceding calendar year.

Section 3. Proof of ASTM standard specification.

(1) A biodiesel producer or biodiesel blender shall provide proof the biodiesel gallons reported on the application meet ASTM standard specification D6751 for biodiesel fuel (B100) blend stock distillate fuels.

(2) A renewable diesel producer shall provide proof that the renewable diesel gallons reported on the application meet ASTM standard specification D396 for fuel oils intended for use in various types of fuel-oil-burning equipment, D975 for diesel fuel oils suitable for various types of diesel fuel engines, or D1655 for aviation fuels.

(3) Proof submitted by a biodiesel producer or a renewable diesel producer shall be in the form of documentation of laboratory results that certify that the biodiesel or renewable diesel reported on the Schedule BIO meets the ASTM standard specification.

(4) A biodiesel blender shall obtain from the biodiesel producer a copy of laboratory results that certify that the biodiesel reported on the Schedule BIO meets the ASTM standard speciation.

(5) An independent ASTM certified laboratory shall be used to generate the laboratory results that are required by this section.

(6) Failure to submit documented laboratory results that certify that the biodiesel, renewable diesel, or the biodiesel used in the blended biodiesel meets the ASTM standard specification with the Schedule BIO shall result in the department disallowing the credit.

(7)

(a) A biodiesel producer, biodiesel blender, or renewable diesel producer shall have the biodiesel, blended biodiesel, or renewable diesel tested as provided by subsections (1) or (2) of this section on July 1 and December 31 of each calendar year to determine if the biodiesel, blended biodiesel, or renewable diesel meets the ASTM standard specification, as required to be reported by subsection (4) of this section.

(b) A copy of the laboratory results for July 1 and December 31 of each calendar year shall be attached to the Schedule BIO submitted to the department as provided by Section 2 of this administrative regulation.

(c) Failure to provide proof of meeting the ASTM standard specification on July 1 and December 31 of each calendar year with the application shall result in the denial of the credit claimed for gallons of biodiesel or renewable diesel back to the previous testing date of July 1 or December 31.

(d) If proof is timely submitted and the proof certifies that the biodiesel or renewable diesel does not meet the ASTM standard specification, then all credit claimed for gallons of biodiesel, renewable diesel, or biodiesel used in the blended biodiesel back to the previous testing date of July 1 or December 31 shall be disallowed.

Section 4. Filing Requirements.

(1) An applicant claiming the tax credit shall attach the credit certificate issued by the department to its tax return on which the tax credit is claimed.

(2) A partner, member, or shareholder claiming the tax credit shall attach a copy of Schedule K-1, Form 720S, Form number 41A720S(K-1), Form 765, Form number 41A765(K-1), or Form 765GP, Form number 42A765GP(K-1) to the partner's, member's, or shareholder's tax return on which the credit is claimed.

Section 5. Electronic Filings for Pass-through Entities.

(1) Each pass-through entity claiming the biodiesel tax credit shall file a report with the department by electronic mail at KRC.WEBResponseEconomicDevelopmentCredits@ky.gov.

(2) The electronic mail shall contain a separate attachment in plain format text or plain ASCII format that includes each partner's, member's, or shareholder's:

(a) Name;

(b) Address;

(d) Identification number; and

(e) Distributive share of the tax credit.

History

RELATES TO: KRS 141.010, 141.020, 141.030, 141.040, 141.0401, 141.422, 141.423, 141.424
STATUTORY AUTHORITY: KRS 131.130, 141.424, 141.425
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.423 establishes a nonrefundable tax credit for biodiesel producers, biodiesel blenders, and renewable diesel producers. KRS 141.425 authorizes the department to promulgate administrative regulations necessary to administer the biodiesel tax credit. KRS 141.424 requires the department to promulgate an administrative regulation to establish the manner in which a pass-through entity shall electronically notify the department of who may claim the approved tax credit.
History: 103 KAR 015:140. 32 Ky.R. 1817; 33 Ky.R. 378; eff. 9-1-2006; 36 Ky.R. 1519; 2044-M; eff. 4-2-2010; 45 Ky.R. 730, 1181; eff. 12-7-2018; Crt to Am, filing deadline 5-14-2027.

103 KAR 15:180 Kentucky new markets development program tax credit {#sec-103-kar-15-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:180}

Section 1. Definitions.

(1) "Applicant" means a CDE that files an application with the department to have an equity investment or long-term debt security certified as a qualified equity investment eligible for the tax credit authorized by KRS 141.434.

(2) "Application" means Form 8874(K), Application for Certification of Qualified Equity Investments Eligible for Kentucky New Markets Development Program Tax Credit (Revenue Form 41A720-S80), that is published by the department and filed by a CDE with the department for certification as a qualified equity investment.

(3) "Application fee" means a $1,000 nonrefundable cashier's check attached to the application at the time of filing with the department.

(4) "CDE" means a qualified community development entity as defined by KRS 141.432(6).

(5) "CDFI Fund" means the U.S. Department of Treasury, Community Development Financial Institutions Fund.

(6) "Certification form" means Form 8874(K)-A, Notice of Kentucky New Markets Development Program Tax Credit and Certification, that is published by the department and filed by a CDE certifying to the department receipt of a cash investment.

(7) "Certified purchase price" means the purchase price of a qualified equity investment contained in the application approved by the department.

(8) "Department" means the Kentucky Department of Revenue.

(9) "Department's approval" means certified by the department as provided by KRS 141.433(3).

(10) "Identification number" means the:

(a) Social Security Number for an individual;

(b) Federal Employer Identification Number for a general partnership, estate, or trust; or

(11) "Long-term debt security" is defined by KRS 141.432(3).

(12) "Notice of recapture" means Form 8874(K)-B, Notice of Kentucky New Markets Development Program Tax Credit Recapture, that is published by the department and sent to the CDE and each taxpayer from whom a credit is to be recaptured as a final order of recapture.

(13) "Performance fee" is defined by KRS 141.433(8).

(14) "Qualified active low-income community business" is defined by KRS 141.432(5).

(15) "Qualified community development entity" is defined by KRS 141.432(6).

(16) "Qualified equity investment" is defined by KRS 141.432(7).

(17) "Qualified low-income community investment" is defined by KRS 141.432(8).

(18) "Tax credit" is defined by KRS 141.432(9).

(19) "Taxpayer" is defined by KRS 141.432(10).

Section 2. Application for Certification of Qualified Equity Investments.

(1) A CDE that seeks to have an equity investment or long-term debt security certified by the department as a qualified equity investment eligible for the tax credit permitted by KRS 141.434 shall file an application with the department.

(2) The department shall notify the CDE within thirty (30) days after receipt of the application whether the application is approved or denied.

(a) If the department intends to deny the application, the CDE shall be notified in writing by the department of the reason for the denial, and the CDE may correct the application as provided by KRS 141.433(2).

(b) If the department finds that the application is in compliance with KRS 141.432 to 141.434, a copy of the application shall be returned to the CDE with written notice of the department's approval.

(c)

The department shall:

a. Accept an application on or after July 15, 2019, if the application is received via hand-delivery, mail, express mail, or courier; and

b. Not accept an application received via facsimile, CD-Rom, CD, or electronic means.

The date that the application is stamped received by the Office of Income Taxation, Division of Corporation Tax, Tax Credits Section, shall be the date that the application is recorded as received pursuant to the provisions of KRS 141.433.
An application received prior to July 15, 2019, shall be recorded as received on July 15, 2019.

Section 3. Information Required on or Attached to the Application. The following information shall be required on or attached to the application:

(1) The CDE's name, mailing address, identification number, telephone number, and fax number;

(2) The name and identification number of the parent company, if the CDE is included in a consolidated corporation income tax return filed with the Commonwealth of Kentucky;

(3) The type of entity of the CDE for Kentucky income tax purposes included in the application;

(4) The signature of the person completing the application and the date signed;

(5) The total number of taxpayers making qualified equity investments;

(6) The total amount of qualified equity investments for all taxpayers;

(7) A statement that the entity has been certified as a CDE, as required by 26 U.S.C. 45D(c);

(8)

(a) A statement that:

The entity has received a new markets tax credit allocation from the CDFI Fund;
Includes the Commonwealth of Kentucky within the service area as set forth in the allocation; and
Includes the date of the allocation agreement.

(b) A copy of the new markets tax credit allocation agreement shall be attached to the application;

(9) Proof of current certification with the CDFI Fund that includes the original application to CDFI and all subsequent updates;

(10) A statement of whether the entity's service area is a county, state, multi-state, or national. A map of the service area, articles of organization that describe the service area, bylaws that describe the service area, or other documentation that describes the service area shall be attached to the application;

(11) Information regarding the proposed use of the proceeds from the qualified equity investments, including a description of the qualified active low-income community business as provided by KRS 141.432(5);

(12) The name, identification number, type of investment (whether debt or equity), and purchase price of the qualified equity investment for each taxpayer making a qualified equity investment;

(13) A signed certification indicating that the application has been executed by the executive officer of the CDE, declaring under the penalty of perjury:

(a) That the applicant's allocation agreement remains in effect and has not been revoked or canceled by the CDFI Fund; and

(b) That the application, including all accompanying documents and statements, is true, correct and complete;

(14) The application fee; and

(15) The refundable performance fee.

Section 4. Proof of Qualified Equity Investments.

(1) Within ninety (90) days after the approved application is received by the CDE, the CDE shall issue qualified equity investments in exchange for cash in the amount of the certified purchase prices contained in the application.

(2) The CDE shall provide the department with evidence of the receipt of the cash for each qualified equity investment by filing with the department a certification form.

(3) If the department is satisfied that the cash amount of the qualified equity investment was received by the CDE, a copy of the certification form shall be returned to the CDE and taxpayer with the department's written approval, including a statement of the tax credits available to the taxpayer for each of the next seven (7) years.

(4) If the department is not satisfied that the cash amount of the qualified equity investment was received by the CDE, the department shall notify the CDE in writing of the reason. If the CDE does not agree with the department's written determination, the CDE may file a protest as provided by KRS 131.110.

Section 5. New Markets Development Program Tax Credit Recapture.

(1) If there is an event as provided by KRS 141.433(6) that would result in the recapture of any portion of the tax credit previously approved:

(a) The CDE shall notify the department upon discovery of the event; or

(b) The department, upon discovery of the event or after receiving notice from the CDE of the event, shall provide written notice of the proposed recapture to the CDE as provided by KRS 141.433(6)(b).

(2) If the entity fails or is unable to cure the deficiency within ninety (90) days after receiving the department's notice of proposed recapture as provided by KRS 141.433(6)(b), the department shall notify the CDE and each taxpayer of the amount of recapture or the balance of the tax credit on a notice of recapture.

(3) If the taxpayer is a pass-through entity, a notice of recapture shall also be sent to each partner, member, or shareholder showing the amount of recapture or the balance of the tax credit.

History

RELATES TO: KRS 131.131, 136.320, 136.330, 136.340, 136.350, 136.370, 136.390, 141.020, 141.040, 141.0401, 141.050, 141.432, 141.433, 141.434, 304.3-270, 26 U.S.C. 45D
STATUTORY AUTHORITY: KRS 141.433(7)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.434 establishes a nonrefundable tax credit for a person or entity making a qualified equity investment in a qualified community development entity as provided by KRS 141.432(6). KRS 141.433(7) requires the department to promulgate administrative regulations to implement the provisions of KRS 141.432 to KRS 141.434, and to administer the allocation of tax credits issued for qualified equity investments. This administrative regulation establishes guidelines and the filing requirements of a qualified community development entity (CDE) in order for the department to certify qualified equity investments and to allocate tax credits to a person or entity making a qualified equity investment in a qualified community development entity.
History: 103 KAR 015:180. 37 Ky.R. 1107; 1490; 1625; eff. 2-4-2011; 41 Ky.R. 85; 439; eff. 10-3-2014; 43 Ky.R. 266; eff. 11-4-2016; 45 Ky.R. 1060, 1514; eff. 1-4-2019; TAm eff. 2-7-2019; Crt to Am, filing deadline 6-15-2027.

103 KAR 15:195 Endow Kentucky Tax Credit {#sec-103-kar-15-195 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:195}

Section 1. Definitions.

(1) "Affiliate community foundation" is defined by KRS 147A.310(1).

(2) "Applicant" means a taxpayer that files an application with the department to obtain preliminary authorization for the Endow Kentucky tax credit as required by KRS 141.438(7).

(3) "Application" means ENDOW Application, Application for Preliminary Authorization of the Endow Kentucky Tax Credit, Revenue Form 41A720-S85.

(4) "County-specific component fund" is defined by KRS 147A.310(3).

(5) "Department" means the Kentucky Department of Revenue.

(6) "Endowment gift" is defined by KRS 147A.310(4).

(7) "Final approval" means the applicant has received written notice from the department that proof of the endowment gift has been verified, as required by KRS 141.438(8)(c).

(8) "Identification number" means:

(a) A Social Security number for individuals;

(b) A Federal Employer Identification Number for general partnerships, estates, or trusts; or

(9) "Preliminary authorization" means the applicant has received written notice from the department that the application is in compliance with KRS 141.438.

(10) "Qualified community foundation" is defined by KRS 147A.310(6).

(11) "Received" means the application has been delivered in accordance with Section 2(2) of this administrative regulation and time stamped as received by the Office of Income Taxation, Division of Corporation Tax, Tax Credits Section.

(12) "Tax credit" means the credit established by KRS 141.438(3).

(13) "Tax credit cap" means the amount provided by KRS 141.438(6).

Section 2. Application for Preliminary Authorization of the Endow Kentucky Tax Credit.

(1) An applicant that seeks to obtain preliminary authorization of a tax credit shall file an application with the department.

(2) The application shall be delivered to the department by one (1) of the following methods:

(a) By fax to (502) 564-0058;

(b) By electronic mail sent to the department's mailbox at KRC.WEBResponseEconomicDevelopmentCredits@ky.gov; or

(c) Hand-delivered to the Department of Revenue, 1st floor security desk at 501 High Street, Frankfort, Kentucky 40601. Security personnel shall notify the Office of Income Taxation, Division of Corporation Tax, Tax Credits Section, who shall stamp the application at the security desk as received.

(3)

(a) For fiscal years beginning on or after July 1, 2011, applications received by the department beginning at midnight Eastern Time on July 1 through 11:59 p.m. Eastern Time on July 7 shall be treated as having been filed at the same time.

(b) If the tax credit cap is exceeded for applications received by the department within the time prescribed by paragraph (a) of this subsection, the tax credit amounts receiving preliminary authorization shall be prorated by the fraction prescribed by paragraph (c) of this subsection.

(c) Tax credit amounts receiving preliminary authorization that are required to be prorated under the provisions of paragraph (b) of this subsection shall be multiplied by a fraction, the numerator of which shall be the tax credit cap and the denominator of which shall be the total tax credit amounts receiving preliminary authorization for applications delivered during the time period prescribed in paragraph (a) of this subsection.

(d) If the tax credit cap is not fully allocated for a fiscal year that begins on or after July 1, 2011 for applications received during the period described in paragraph (a) of this subsection, a second period for accepting applications shall commence on July 8 of the fiscal year and end on July 14 of the fiscal year.

(e) All applications received during the time frame prescribed by paragraph (d) of this subsection shall be treated as having been filed at the same time.

(f) If the remaining tax credit cap is exceeded for applications received by the department within the time prescribed by paragraph (d) of this subsection, the tax credit amounts receiving preliminary authorization shall be prorated by the fraction prescribed by paragraph (g) of this subsection.

(g) Tax credit amounts receiving preliminary authorization that are required to be prorated under the provisions of paragraph (f) of this subsection shall be multiplied by a fraction, the numerator of which shall be the portion of the tax credit cap not allocated during the first time period under paragraph (a) of this subsection and the denominator of which shall be the total tax credit amounts receiving preliminary authorization for applications delivered during the time prescribed in paragraph (d) of this subsection.

(h) For fiscal years beginning on or after July 1, 2011, any tax credit cap not allocated under paragraphs (a) to (g) of this subsection shall be allocated on a first-come, first-serve basis beginning with applications received on or after July 15 of the fiscal year. If the tax credit cap is met under the provisions of this paragraph, subsequent applications shall be denied.

(4) An application shall not be submitted prior to July 1st for each fiscal year beginning on or after July 1, 2011.

(5) The department shall notify the applicant within thirty (30) calendar days after receipt of the application whether preliminary authorization of the tax credit is denied or approved.

(a) If the department denies preliminary authorization of the tax credit, the applicant shall be notified in writing by the department of the reason for the denial.

(b) If the department approves the tax credit application, a copy of the application shall be returned to the applicant with written notice of the department's preliminary authorization.

(6) Any restored tax credit cap described in KRS 141.438(8)(d) shall be re-allocated to the pool of applications received during the same time period in which the application was received from the applicant that had the preliminary approval voided. Any restored tax credit cap shall be re-allocated based on the applicable requirements prescribed by subsection (3) of this section. The other applicants from the same pool shall receive amended preliminary approvals reflecting the re-allocation.

(7)

(a) The percentage of proration for the pool of applicants described in subsection (3)(d) of this section shall not exceed the percentage of proration for the pool of applicants described in subsection (3)(a) of this section.

(b) The maximum tax credit amount for the pool of applicants described in subsection (3)(h) of this section shall not exceed the maximum tax credit amount received by the pool of applicants described in subsections (3)(a) and (3)(d) of this section.

Section 3. Information Required on or Attached to the Application. The following information shall be required on or attached to the application:

(1) The applicant's name, mailing address, identification number, telephone number, and fax number;

(2) The entity type of the applicant for Kentucky income tax purposes;

(3) The submission date of the application;

(4) The amount of the endowment gift;

(5) The amount of tax credit;

(6)

(a) The qualified community foundation's or affiliate community foundation's name, mailing address, identification number, telephone number, and fax number; or

(b) If a county–specific component fund, its name; and

(7) A statement that the application was executed by the applicant or authorized representative, declaring under the penalty of perjury that the application, including all accompanying documents and statements, is true, correct and complete.

Section 4. Proof of Endowment Gift.

(1) Within thirty (30) calendar days after receiving the notice of preliminary authorization of the tax credit from the department, the taxpayer shall make the endowment gift to the permanent endowment fund held by the approved qualified community foundation, county-specific component fund, or affiliate community foundation.

(2) The applicant shall provide the department with proof of the endowment gift within ten (10) calendar days of making the gift by filing with the department Schedule ENDOW, Notice of Endow Kentucky Tax Credit and Certification, Revenue Form 41A720-S86.

(3) If the department has verified that the endowment gift specified on the application was made to the approved qualified community foundation, county-specific component fund, or affiliate community foundation, Schedule ENDOW shall be returned to the applicant with the department's final approval of the tax credit.

(4) If the applicant fails to make an endowment gift or provide proof of the endowment gift to the department within the time frames established in KRS 141.438(7), the department shall revoke the preliminary authorization of the tax credit by written notification to the applicant. The department shall restore the denied amount to the tax credit cap and re-allocate the restored amount under the requirements established in Section 2(6) of this administrative regulation.

Section 5. Preliminarily Authorized Amounts Not Affected by Proration.

(1) If an applicant approved for preliminary authorization makes an endowment gift that is less than the amount indicated on the application and all the other applicable requirements of KRS 141.438 and this administrative regulation are met by the applicant, the department shall:

(a) Issue final approval based on the amount proven; and

(b) Restore to the tax credit cap the difference between the amount of tax credit that received preliminary authorization and the amount receiving final approval.

(2) The amount restored to the tax credit cap shall be re-allocated as provided in Section 2(6) of this administrative regulation.

Section 6. Preliminarily Authorized Amounts Affected by Proration. If an applicant receives preliminary authorization for an amount but due to the proration provisions in Section 2 of this administrative regulation will receive a tax credit for less than the amount for which the applicant is preliminarily approved, the applicant may donate the lesser prorated amount without penalty and receive the corresponding tax credit of the lesser prorated amount.

Section 7. Information Required on or Attached to the Schedule ENDOW. The following information shall be required on or attached to the Schedule ENDOW:

(1) The applicant's name, mailing address, identification number, telephone number, and fax number;

(2) The entity type of the applicant for Kentucky income tax purposes;

(3) The date the endowment gift was made to the approved qualified community foundation, county-specific component fund, or affiliate community foundation;

(4) The amount of the endowment gift;

(5) The date of the department's preliminary authorization of the tax credit;

(6)

(a) The qualified community foundation's or affiliate community foundation's name, mailing address, identification number, telephone number, and fax number; or

(b) If a county–specific component fund, its name; and

(7) A statement that the Schedule ENDOW was executed by a foundation officer or designee, declaring under the penalty of perjury that the:

(a)

Foundation is a qualified community foundation as provided by KRS 147A.310(6);
Foundation is a qualified affiliate community foundation as provided by KRS 147A.310(1); or
Fund is a county-specific component fund as provided by KRS 147A.310(3);

(b) Endowment gift is held in a permanent endowment fund as provided by KRS 147A.310(4); and

Section 8. Return Filing Requirement.

(1) An applicant claiming the tax credit shall attach each tax year a copy of the approved Schedule ENDOW to the tax return on which the credit is claimed.

(2) An applicant claiming the tax credit shall not claim more than $10,000 in credit on a single return.

(3) A partner, member, or shareholder of an applicant claiming the tax credit shall attach each taxable year a copy of Schedule K-1, Form 720S (Revenue Form 41A720S(K-1)); Schedule K-1, Form 765 (Revenue Form 41A765(K-1)); or Schedule K-1, Form 765-GP (Revenue Form 42A765-GP(K-1)), to the partner's, member's, or shareholder's tax return on which the credit is claimed.

(4) A beneficiary of an applicant that is an estate or trust shall attach each taxable year a copy of Schedule K-1, Form 741 (Revenue Form 42A741(K-1)), to the beneficiary's tax return on which the credit is claimed.

Section 9. The forms and materials listed herein may be inspected, copied, or obtained, subject to applicable copyright law, from 8:00 a.m. until 4:30 p.m. at the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601, at any Kentucky Department of Revenue Taxpayer Service Center during operating hours, and on the department's website at http:\revenue.ky.gov.

History

RELATES TO: KRS 141.438, 147A.310
STATUTORY AUTHORITY: KRS 131.130, 141.438
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.438 establishes a nonrefundable tax credit for a taxpayer making an endowment gift to a permanent endowment fund of a qualified community foundation, or county-specific component fund, or affiliate community foundation, which has been certified under KRS 147A.325. KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes the requirements for the department's allocation of the $1,000,000 tax credit that may be awarded each fiscal year under the provisions of KRS 141.438(6) and establishes the filing requirements for a taxpayer to obtain preliminary authorization and final approval of the tax credit from the department.
History: 103 KAR 015:195. 37 Ky.R. 2769; 38 Ky.R. 13; eff. 8-5-2011; 45 Ky.R. 1062; eff. 1-4-2019; Crt to Am, filing deadline 6-15-2027.

Chapter 16 Income Tax; Corporations

103 KAR 16:060 Income classification; apportionable and non-apportionable {#sec-103-kar-16-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:060}

Section 1. Definitions.

(1) "Acquisition" means the act of obtaining an interest in property.

(2) "Allocation" means non-apportionable income specifically assigned or allocated to one (1) or more specific jurisdictions.

(3) "Apportionable income" is defined by KRS 141.120(1)(a).

(4) "Apportionment" means apportionable income divided among jurisdictions by use of the apportionment factor provided in KRS 141.120.

(5) "Disposition" means the act or the power to relinquish or transfer an interest in or control over property to another, in whole or in part.

(6) "Management" means the oversight, direction, or control, directly or by delegation, of the property for the use or benefit of the trade or business.

(7) "Non-apportionable income" is defined in KRS 141.120(1)(d).

(8) "Trade or business" as used in the definition of apportionable income and in the application of that definition means the unitary business of the taxpayer, part of which is conducted within Kentucky.

Section 2. Determination of Apportionable Income. In determining whether income is apportionable income, the Department of Revenue shall apply both the transactional test and the functional test as established in Sections 3 and 4 of this administrative regulation. The classification of income by the labels occasionally used, such as manufacturing income, compensation for services, sales income, interest, dividends, rents, royalties, gains, income derived from accounts receivable, operating income, non-operating income, etc., is of no aid in determining whether income is apportionable or non-apportionable income.

Section 3. Transactional Test. Apportionable income includes income arising from transactions and activity in the regular course of the taxpayer's trade or business in accordance with this section.

(1) If the transaction or activity is in the regular course of the taxpayer's trade or business, part of which trade or business is conducted within Kentucky, the resulting income of the transaction or activity is apportionable income for Kentucky. Income may be apportionable income even though the actual transaction or activity that gives rise to the income does not occur in Kentucky.

(2) For a transaction or activity to be in the regular course of the taxpayer's trade or business, the transaction or activity is not required to frequently occur in the trade or business.

(a) Most, but not all, frequently occurring transactions or activities will be in the regular course of that trade or business and will, therefore, satisfy the transactional test.

(b) It is sufficient to classify a transaction or activity as being in the regular course of a trade or business, if it is reasonable to conclude transactions of that type are:

Customary in the kind of trade or business being conducted; or
Within the scope of what that kind of trade or business does.

(c) If a taxpayer frequently or customarily engages in investment activities, if those activities are for the taxpayer's financial betterment rather than for the operations of the trade or business, those activities shall not satisfy the transactional test.

(d) The transactional test includes:

Income from sales of inventory, property held for sale to customers, and services which are commonly sold by the trade or business; and
Income from the sale of property used in the production of apportionable income of a kind that is sold and replaced with some regularity, even if replaced less frequently than once a year.

(3) The corporation shall classify income as apportionable or non-apportionable income on a consistent basis. If the corporation is not consistent, it shall disclose in its Kentucky return the nature and extent of the inconsistency.

Section 4. Functional Test. Apportionable income also includes income from tangible and intangible property, including any direct or indirect interest in, control over, or use in the property held directly, beneficially, by contract, or otherwise, that contributes to the production of apportionable income, if the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer's trade or business.

(1) Under the functional test, apportionable income shall not be required to be derived from transactions or activities that are in the regular course of the taxpayer's own particular trade or business.

(a) Except as provided in paragraph (b) of this subsection, it shall be sufficient if the property from which the income is derived is, or was a functional, operative component, or related to or used in the taxpayer's trade or business operations, or otherwise materially contributed to the production of apportionable income of the trade or business, part of which trade or business is or was conducted within this state.

(b) Property that has been converted to an investment purpose through the passage of a sufficiently lengthy period of time (generally, five (5) years shall be sufficient) or that has been removed as an operational asset and is instead held by the taxpayer's trade or business exclusively for investment purposes, shall be deemed to have lost its character as a business asset.

(c) Property that was related to a part of the trade or business shall not be considered converted to investment purposes merely because it is placed for sale.

Example: Taxpayer purchases a chain of 100 retail stores for the purpose of merging those store operations with its existing business. Five (5) of the retail stores are redundant under the taxpayer's business plan and are sold six (6) months after acquisition. Even though the five (5) stores were never integrated into the taxpayer's trade or business, the income is apportionable because the property's acquisition was related to the taxpayer's trade or business.
Example: Taxpayer is in the business of developing adhesives for industrial and construction uses. In the course of its business, it accidentally creates a weak but non-toxic adhesive and patents the formula, awaiting future applications. Another manufacturer uses the formula to create temporary body tattoos. Taxpayer wins a patent infringement suit against the other manufacturer. The entire damages award, including interest and punitive damages, constitutes apportionable income.
Example: Taxpayer is engaged in the oil refining business and maintains a cash reserve for buying and selling oil on the spot market as conditions warrant. The reserve is held in overnight "repurchase agreement" accounts of U.S. treasuries with a local bank. The interest on those amounts is apportionable income because the reserves are necessary for the taxpayer's business operations. Over time, the cash in the reserve account grows to the point that it exceeds any reasonably expected requirement for acquisition of oil or other short-term capital needs and is held pending subsequent business investment opportunities. The interest received on the excess amount is non-apportionable income.
Example: A manufacturer decides to sell one (1) of its redundant factories to a real estate developer and transfers the ownership of the factory to a special purpose subsidiary, SaleCo as the taxpayer, and immediately prior to its sale to the real estate developer. The parties elect to treat the sale as a disposition of assets under IRC 338(h)(10), resulting in the taxpayer recognizing a capital gain on the sale. The capital gain is apportionable income. Although the gain is apportionable, application of the standard apportionment formula in KRS 141.120 may not fairly reflect the taxpayer's business presence in any state, necessitating a resort to equitable apportionment pursuant to KRS 141.120 (12)(a).

(2)

(a) Income that is derived from isolated sales, leases, assignments, licenses, and other infrequently occurring dispositions, transfers, or transactions involving property, including transactions made in the full or partial liquidation or the winding-up of any portion of the trade or business, is apportionable income, if the property is or was related to the taxpayer's trade or business operations, unless the property has been converted to investment purposes.

(b) Income from the licensing of an intangible asset, such as a patent, copyright, trademark, service mark, know-how, trade secrets, or the like, that was developed or acquired for use by the taxpayer in its trade or business, constitutes apportionable income whether or not the licensing itself constituted the operation of a trade or business, and whether or not the taxpayer remains in the same trade or business from or for which the intangible asset was developed or acquired.

(3) Under the functional test, income from intangible property is apportionable income when the intangible property serves an operational function as opposed to solely an investment function. The intangible property serves an operational function if it is or was held in furtherance of the taxpayer's trade or business as evidenced by the objective characteristics of the intangible property's use or acquisition and its relation to the taxpayer and the taxpayer's activities. The functional test shall not be satisfied if the holding of the property is limited to solely an investment function for a period of five (5) years or more.

(4)

(a) If the acquisition, management, employment, development, or disposition of the property is or was related to the operation of the taxpayer's trade or business, then income from that property is apportionable income, even though the actual transaction or activity involving that property that gives rise to the income does not occur in Kentucky.

Example: A manufacturer purchases raw materials to be incorporated into the product it offers for sale. The nature of the raw materials is such that the purchase price is subject to extreme price volatility. To protect itself from extreme price increases or decreases, the manufacturer enters into future contracts pursuant to which the manufacturer may either purchase a set amount of the raw materials for a fixed price, within a specified time period, or resell the future contracts. Any gain on the sale of the future contracts would be considered apportionable income, regardless of whether the contracts were either made or resold in Kentucky.
Example: A national retailer produces substantial revenue related to the operation of its trade or business. It invests a large portion of the revenue in fixed income securities which are divided into three (3) categories:

a. Short-term securities held pending use of the funds in the taxpayer's trade or business;

b. Short-term securities held pending acquisition of other companies or favorable developments in the long-term money market; and

c. Long- term securities held as an investment.

(b) Interest income on the short-term securities held pending use of the funds in the taxpayer's trade or business pursuant to clause a. of subsection 4(a) 2. of this section is apportionable because the funds represent working capital necessary to the operations of the taxpayer's trade or business.

(c) Interest income derived from the other investment securities pursuant to clause b. and c. of subsection 4(a) 2. of this section is not apportionable as those securities were not held in furtherance of the taxpayer's trade or business.

(5)

(a) An item of property shall be presumed to be related to the taxpayer's trade or business operations if the taxpayer:

Takes a deduction from income that is apportioned to Kentucky; or
Includes the original cost in the property factor, if applicable.

(b) No presumption arises from the absence of an action described in paragraph (a) of this subsection.

(6) Application of the functional test is generally unaffected by the form of the property (e.g., tangible or intangible property, real or personal property).

(a) Income arising from an intangible interest as, for example, corporate stock or other intangible interest in an entity or a group of assets, is apportionable income when the intangible itself or the property underlying or associated with the intangible is or was related to the operation of the taxpayer's trade or business.

(b) While apportionment of income derived from transactions involving intangible property may be supported by a finding that the issuer of the intangible property and the taxpayer are engaged in the same trade or business, establishment of a relationship is not the exclusive basis for concluding that the income is subject to apportionment. It is sufficient to support the finding of apportionable income if the holding of the intangible interest served an operational rather than an investment function.

Section 5. Examples of Apportionable and Non-apportionable Income.

(1) Rents from real and tangible personal property. Rental income from real and tangible property is apportionable income if the property with respect to which the rental income was received is or was used in the taxpayer's trade or business.

(a) Example: The taxpayer operates a multistate car rental business. The income from car rentals is apportionable income.

(b) Example: The taxpayer is engaged in the heavy construction business in which it uses equipment such as cranes, tractors, and earth-moving vehicles. The taxpayer makes short-term leases of the equipment when particular pieces of equipment are not needed on any particular project. The rental income is apportionable income.

(c) Example: The taxpayer operates a multistate chain of men's clothing stores. The taxpayer purchases a five (5)-story office building for use in connection with its trade or business. It uses the street floor as one of its retail stores and the second and third floors for its general corporate headquarters. The remaining two (2) floors are held for future use in the trade or business and are leased to tenants on a short-term basis in the meantime. The rental income is apportionable income.

(d) Example: The taxpayer operates a multistate chain of grocery stores. It purchases as an investment an office building in another state with surplus funds and leases the entire building to others. The net rental income is not apportionable income of the grocery store trade or business. Therefore, the net rental income is non-apportionable income.

(e) Example: The taxpayer operates a multistate chain of men's clothing stores. The taxpayer invests in a twenty (20)-story office building and uses the street floor as one of its retail stores and the second floor for its general corporate headquarters. The remaining eighteen (18) floors are leased to others. The rental of the eighteen (18) floors is not done in furtherance of, but rather is separate from, the operation of the taxpayer's trade or business. The net rental income is not apportionable income of the clothing store trade or business. Therefore, the net rental income is non-apportionable income.

(f) Example: The taxpayer constructed a plant for use in its multistate manufacturing business and twenty (20) years later the plant was closed and put up for sale. The plant was rented for a temporary period from the time it was closed by the taxpayer until it was sold eighteen (18) months later. The rental income is apportionable income and the gain on the sale of the plant is apportionable income.

(2) Gains or losses from sales of assets. Gain or loss from the sale, exchange or other disposition of real property or of tangible or intangible personal property constitutes apportionable income if the property while owned by the taxpayer was related to the operation of the taxpayer's trade or business.

(a) Example: In conducting its multistate manufacturing business, the taxpayer systematically replaces automobiles, machines, and other equipment used in the trade or business. The gains or losses resulting from those sales constitute apportionable income.

(b) Example: The taxpayer constructed a plant for use in its multistate manufacturing business and twenty (20) years later sold the property at a gain while it was in operation by the taxpayer. The gain is apportionable income.

(c) Example: Same as paragraph (b) of this subsection, except that the plant was closed and put up for sale but was not in fact sold until a buyer was found eighteen (18) months later. The gain is apportionable income.

(d) Example: Same as paragraph (b) of this subsection, except that the plant was rented while being held for sale. The rental income is apportionable income and the gain on the sale of the plant is apportionable income.

(3) Interest. Interest income is apportionable income where the intangible with respect to which the interest was received arose out of or was created in the regular course of the taxpayer's trade or business, or the purpose of acquiring and holding the intangible is related to the operation of the taxpayer's trade or business.

(a) Example: The taxpayer operates a multistate chain of department stores, selling for cash and on credit. Service charges, interest, or time-price differentials and the like are received with respect to installment sales and revolving charge accounts. These amounts are apportionable income.

(b) Example: The taxpayer conducts a multistate manufacturing business. During the year the taxpayer receives a federal income tax refund pertaining to the taxpayer's trade or business and collects a judgment against a debtor of the business. Both the tax refund and the judgment bear interest. The interest income is apportionable income.

(c) Example: The taxpayer is engaged in a multistate manufacturing and wholesaling business. In connection with that business, the taxpayer maintains special accounts to cover items such as workmen's compensation claims, rain and storm damage, machinery replacement, etc. The funds in those accounts earned interest. Similarly, the taxpayer temporarily invests funds intended for payment of federal, state, and local tax obligations pertaining to the taxpayer's trade or business. The interest income is apportionable income.

(d) Example: The taxpayer is engaged in a multistate money order and traveler's check business. In addition to the fees received in connection with the sale of the money orders and traveler's checks, the taxpayer earns interest income by the investment of the funds pending their redemption. The interest income is apportionable income.

(e) Example: The taxpayer is engaged in a multistate manufacturing and selling business. The taxpayer usually has working capital and extra cash totaling $200,000 which it regularly invests in short-term interest bearing securities. The interest income is apportionable income.

(f) Example: In January, the taxpayer sold all of the stock of a subsidiary for $20,000,000. The funds are placed in an interest-bearing account pending a decision by management as to how the funds are to be utilized. The funds are not pledged for use in the business. The interest income for the entire period between the receipt of the funds and their subsequent utilization or distribution to shareholders is non-apportionable income.

(4) Patent and copyright royalties. Patent and copyright royalties are apportionable income where the patent or copyright with respect to which the royalties were received arose out of or was created in the regular course of the taxpayer's trade or business, or where the acquiring and holding the patent or copyright is or was related to the operation of the taxpayer's trade or business, or contributes to the production of apportionable income of the trade or business.

(a) Example: The taxpayer is engaged in the multistate business of manufacturing and selling industrial chemicals. In connection with that business, the taxpayer obtained patents on certain kinds of its products. The taxpayer licensed the production of the chemicals in foreign countries, in return for which the taxpayer receives royalties. The royalties received by the taxpayer are apportionable income.

(b) Example: The taxpayer is engaged in the music publishing trade or business and holds copyrights on numerous songs. The taxpayer acquires the assets of a smaller publishing company, including music copyrights. These acquired copyrights are thereafter used by the taxpayer in its trade or business. Any royalties received on these copyrights are apportionable income.

Section 6. Relationship of Transactional and Functional Tests to the U.S. Constitution. The Due Process Clause and the Commerce Clause of the U.S. Constitution restrict states from apportioning income that has no rational relationship with the taxing state. Satisfaction of either the transactional test or the functional test complies with this constitutional requirement, because each test requires that the transaction or activity (in the case of the transactional test) or the property (in the case of the functional test) be tied to the same trade or business that is being conducted within this state.

Section 7. Expenses Related to Non-apportionable or Nontaxable Income.

(1) KRS 141.039(2)(c) requires that any deduction allowed under Chapter 1 of the Internal Revenue Code shall be reduced by expenses directly or indirectly related to nontaxable or non-apportionable income. If actual expenses, including interest, salaries, general and administrative, and other stewardship expenses, is not related directly to the income, one (1) of the following formulas shall be used:

(a) Ratio of non-apportionableandnontaxable assets to total assets times interest expense. Interest expense shall represent all expenses incurred in the stewardship or maintenance of non-apportionable or nontaxable assets. Other expenses may be used which more fairly reflect expenses attributable to the income or assets producing the non-apportionableandnontaxable income. Assets shall be valued at cost, and the investment account shall exclude equity;

(b) Ratio of non-apportionable andnontaxable income to total gross receipts times interest expense, officers' salaries, and general administrative expenses. The sum of these or any reasonable combination of these expenses; or

(c) A flat percentage, one (1) percent to 100 percent, of non-apportionable and nontaxable income. The percentage used shall be reasonable and reflect the expenses attributable to the stewardship or maintenance of the assets producing the income.

(2) KRS 141.039(2)(c) requires a corporation to relate expenses to non-apportionable and nontaxable income. The formulas listed in subsection (1)(a) to (c) of this section for determining related expenses shall be used by the corporation or assist the corporation in developing a method more suitable to its particular situation.

Section 8. Proration of Deductions. Any allowable deduction that applies to both apportionable and non-apportionable income or to more than one (1) trade or business shall be prorated to those classes of income or trades or businesses by the formulas listed in Section 7 of this administrative regulation.

Section 9. The amendments to this administrative regulation shall apply to tax periods beginning on or after January 1, 2018.

History

RELATES TO: KRS 141.010, 141.120
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.120 contains provisions for assigning to Kentucky the apportionable income and non-apportionable income of multistate corporations. This administrative regulation establishes criteria for classification of corporate income into its apportionable and non-apportionable components, allocates expenses for non-apportionable income, and clarifies that Kentucky follows both the transactional and functional tests. The examples used throughout this administrative regulation are illustrative only and are limited to the facts contained within.
History: 103 KAR 016:060. IC-6-1; 1 Ky.R. 138; eff. 12-11-1974; Am. 3 Ky.R. 382; eff. 12-1-1976; 32 Ky.R. 1716; 2284; 33 Ky.R. 59; eff. 8-7-2006; 45 Ky.R. 1301, 2055; eff. 2-1-2019; Crt eff. 1-7-2026.

103 KAR 16:090 Apportionment; payroll factor {#sec-103-kar-16-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:090}

Section 1. Compensation.

(1)

(a) Compensation shall not include payments to an independent contractor or any other person not properly classifiable as an employee.

(b) Only amounts paid directly to employees shall be included in the payroll factor. Amounts considered paid directly shall include the value of board, rent, housing, lodging, and other benefits or services furnished to employees by the corporation in return for personal services, if the amounts constitute income to the recipient under KRS 141.900(12) and (13).

(2)

(a) The total amount paid or payable for compensation during the taxable year shall be determined by the corporation's accounting method and shall be the same method used by the corporation for federal taxation purposes. If the corporation has adopted the accrual method of accounting, all compensation properly accrued shall be deemed to have been paid.

(b) The corporation shall be consistent in the treatment of compensation paid in filing returns or reports to all states. If the corporation is not consistent in its reporting, it shall disclose in its Kentucky return the nature and extent of the inconsistency.

(3) Compensation paid to employees whose services are performed entirely in a state where the corporation is exempt from taxation, for example, by Pub. L. 86-272, codified as 15 U.S.C. §§ 381 to 384, shall be included in the denominator of the payroll factor.

(4) An individual shall be considered an employee if the individual is included by the corporation as an employee for purposes of the payroll taxes imposed by 26 U.S.C. 3121(d). Independent contractors shall not be considered employees.

Section 2. Payroll Factor-Numerator.

(1) The total wages reported by the corporation to Kentucky for unemployment compensation purposes, except for compensation excluded by this administrative regulation, shall be considered as a factor in determining if an employee's compensation is properly reportable to Kentucky.

(2) In determining if a service performed without Kentucky is incidental to the employee's service in Kentucky, a service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction, shall be considered an incidental service.

(3) In determining where the employee's base of operations is located, the place of more or less permanent nature from which the employee starts work and to which the employee customarily returns in order to receive instructions from the corporation or communications from customers or other persons, or to replenish stock or other materials, repair equipment, or perform any other functions necessary to the exercise of the employee's trade or profession at some other point or points, shall be considered to be the base of operations.

(4) The place from which the power to direct or control is exercised by the corporation shall be the place from which the service is directed or controlled.

Section 3. This administrative regulation shall be effective for tax periods beginning on or after January 1, 2005.

History

RELATES TO: KRS 141.010, 141.120(12)(a)2., 141.121, 141.901
STATUTORY AUTHORITY: KRS 131.130, 141.018, 141.121, 141.901
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.121 and 141.901 require business or apportionable income of multi-state corporations to be apportioned to Kentucky by multiplying the income by a fraction. KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation provides a detailed explanation of the payroll apportionment factor.
History: 103 KAR 016:090. 32 Ky.R. 1819; 2287; 33 Ky.R. 62; eff. 8-7-2006; 45 Ky.R. 1305, 2059; eff. 2-1-2019; Crt eff. 1-7-2026.

103 KAR 16:200 Consolidated Kentucky corporation income tax return {#sec-103-kar-16-200 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:200}

Section 1. Definitions.

(1) "Affiliated group" is defined by KRS 141.201(2)(a).

(2) "Common parent corporation" means the member of an affiliated group:

(a) That directly owns stock meeting the requirements of Section 1504(a)(2) of the Internal Revenue Code, 26 U.S.C. 1504(a)(2), in at least one (1) other member of the affiliated group; and

(b) Whose stock is not owned directly by any other member of the affiliated group as required by Section 1504(a)(2) of the Internal Revenue Code, 26 U.S.C. 1504(a)(2).

(3) "Consolidated return" is defined by KRS 141.201(2)(b).

(4) "Election period" is defined by KRS 141.201(2)(e).

(5) "Exempt from taxation" means the corporations listed in KRS 141.040(1)(a) for taxable years beginning prior to January 1, 2021 and KRS 141.040 (1)(b) for taxable years beginning on or after January 1, 2021.

(6) "Provider" is defined by KRS 141.121(1)(e).

Section 2. Election to File a Consolidated Return.

(1) General rule.

(a) An election to file a consolidated return shall be made by the common parent corporation on behalf of all members of the affiliated group by filing "Election to File Consolidated Kentucky Corporation Income and Limited Liability Entity Tax Return", Form 722. The Form 722 shall be attached to the return beginning with the initial election year and for each year thereafter for which the election is effective. The initial election, and all subsequent elections shall be made on or before the date prescribed by KRS 141.160 for filing the return, or as extended pursuant to KRS 141.170, for the first taxable year for which each forty-eight (48) month election is made.

(b) If an "Election to File Consolidated Kentucky Corporation Income and Limited Liability Entity Tax Return", Form 722, is not filed within the period prescribed by paragraph (a) of this subsection, an affiliated group shall be deemed not to have made an election.

(2) Taxable years following an election period.

(a) The filing of a consolidated return on or before the date prescribed by KRS 141.160 for filing the return, or as extended pursuant to KRS 141.170 for the first taxable year that begins after the expiration of an election period, shall not:

Constitute a new election to file a consolidated return; or
Establish a new election period.

(b) The cessation of the existence of an affiliated group shall constitute the expiration of the election period.

(3) Effect of an election.

(a) An election to file a consolidated return shall be an irrevocable election binding on both the department and the affiliated group for the election period.

(b) The administrative provisions of 26 C.F.R. 1.1502-75(a) to (c) shall not apply for Kentucky purposes.

Section 3. Corporations Included in a Consolidated Return.

(1) If a consolidated federal return is filed. If a member of the affiliated group electing to file a consolidated Kentucky return pursuant to Section 2 of this administrative regulation is included in a consolidated federal return for the taxable year, the Kentucky return shall include the corporations that:

(a) Were included in the consolidated federal return for the taxable year; and

(b) Are not exempt from taxation.

(2) If a consolidated federal return is not filed. If no member of an affiliated group electing to file a consolidated Kentucky return pursuant to Section 2 of this administrative regulation is included in a consolidated federal return for the taxable year, the Kentucky return shall include the members of the affiliated group that are not exempt from taxation.

Section 4. Deferred Intercompany Transactions. If, during a year when a separate or combined return was filed, a gain or loss on a deferred intercompany transaction was deferred for federal purposes, and was not deferred for Kentucky purposes, the gain or loss, when recognized for federal purposes, shall be adjusted for Kentucky purposes to reflect the prior reporting of the transaction.

Section 5. Consolidated Return Filing. An affiliated group that includes one (1) or more members that are providers and other members that are not providers, shall utilize two (2) apportionment factor calculations.

(1) Income of members of an affiliated group that are providers shall be combined and apportioned using a three (3) factor formula in accordance with KRS 141.121(3) and KRS 141.901.

(2) Income of members of an affiliated group that are not providers shall be combined and apportioned using a single receipts factor formula in accordance with KRS 141.120 (9).

(3) The apportioned income of provider members and non-provider members of an affiliated group shall then be consolidated and reported on the Kentucky corporation income and limited liability entity tax return of the affiliated group.

Section 6. Limited Liability Entity Tax on a Consolidated Return. The receipts used to compute the limited liability entity tax are provided pursuant to KRS 141.0401(1).

History

RELATES TO: KRS 141.0401, 141.120(9), 141.121(3), 141.201, 141.901
STATUTORY AUTHORITY: KRS 131.130, 141.050
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.050(4) requires the Department of Revenue to promulgate administrative regulations and rules necessary for the proper administration of KRS Chapter 141. This administrative regulation establishes terms, forms, and procedures required for the implementation of KRS 141.201, with respect to elective consolidated returns.
History: 23 Ky.R. 3645; Am. 24 Ky.R. 59; eff. 7-16-97; 32 Ky.R. 1720; 33 Ky.R. 64; eff. 8-7-2006; 46 Ky.R 57, 866; eff. 10-4-2019.

103 KAR 16:230 Intangible expenses, intangible interest expense, and management fees {#sec-103-kar-16-230 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:230}

Section 1. Definitions.

(1) "Actual comparables" means transactions between the recipient and unrelated parties that are identical to the subject transaction.

(2) "Arm's length transaction" means a freely negotiated transaction between unrelated parties as provided in 26 C.F.R. 1.482-1.

(3) "Comprehensive income tax treaty" means a convention, or agreement, entered into by the United States, and approved by Congress, with a foreign government for the allocation of all categories of income subject to taxation or the withholding of tax on interest, dividends, and royalties, in order to prevent double taxation of the respective nations' residents, and to promote the sharing of information.

(4) "Measured by, in whole or in part, net income" means that the receipt of the payment by the recipient is reported and included in income for purposes of a tax on net income or in the franchise for purposes of the franchise tax.

(5) "Reported and included in income for purposes of a tax on net income or in the franchise," means:

(a) For a tax on net income, reported and included in the net income apportioned or allocated to the taxing jurisdiction; or

(b) For a franchise tax, reported and included in the franchise apportioned or allocated to the taxing jurisdiction.

(6) "Subject transaction" means the transaction giving rise to the intangible expense, intangible interest expense, or management fee.

Section 2. Disclosure; General. As part of the required disclosure, the entity shall provide a description of the nature of the payment made to the recipient. This description shall contain:

(1) For intangible expenses or intangible interest expenses:

(a) A narrative regarding the subject transaction;

(b) The extent of the rights being transferred, for example, if a patent is being licensed:

Whether that license is exclusive or non-exclusive; and
Whether the transferee has any rights to sublicense;

(d) If there is a document that sets forth the terms of the subject transaction, a copy of that document; and

(2) For management fees:

(a) A narrative of the services being performed for the entity by the recipient;

(b) How the amount of the payment is calculated; and

Section 3. Disclosure; Arm's Length Transaction. An entity may be required to establish that the subject transaction was made at a commercially reasonable rate and at terms comparable to an arm's length transaction.

(1) If there are actual comparables, the actual comparables shall be used.

(2) If there are no actual comparables, the two (2) primary factors to take into account if determining whether the subject transaction was made at a commercially reasonable rate and at terms comparable to an arm's length transaction shall be:

(a) The degree of comparability between the subject transaction and the proposed comparable transactions; and

(b) The quality of the data and assumptions used in the analysis.

Section 4. Disclosure; Intangible Expense, Intangible Interest Expense, or Management Fee. With respect to an intangible expense, intangible interest expense, or management fee, the entity shall make additional disclosures if it cannot utilize any of the other methods to establish that it is entitled to the deduction. The entity shall show that the payment made to the recipient was subject to, in its state or country of commercial domicile, a net income tax, or a franchise tax, measured by, in whole or in part, net income. If the recipient is a foreign corporation, the foreign nation shall have in force a comprehensive income tax treaty with the United States.

Section 5. Corporation or Pass-Through Entity. A corporation or pass-through entity that during the taxable year directly or indirectly paid, accrued, or incurred intangible expenses, intangible interest expenses, or management fees to a related member or foreign corporation shall attach to its tax return filed with the department:

(1) Schedule RPC, Revenue Form 41A720RPC; and

(2) Any additional disclosures required by Sections 2, 3, and 4 of this administrative regulation.

Section 6. The disclosures related to management fees and the provisions of Section 5 of this administrative regulation shall apply to taxable years beginning on or after January 1, 2014.

Section 7. The forms and materials prescribed herein may be inspected, copied, or obtained, subject to applicable copyright law, from 8:00 a.m. to 4:30 p.m. at the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601; at any Kentucky Department of Revenue Taxpayer Service Center during normal operating hours; and on the department's Web site at http:\revenue.ky.gov.

History

RELATES TO: KRS 131.130, 141.205
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.205 disallows intangible expenses, intangible interest expenses and management fees when those expenses and fees are directly or indirectly paid, accrued or incurred to, or in connection directly or indirectly with one (1) or more direct or indirect transactions with one (1) or more related members or with a foreign corporation, unless certain criteria are met. This administrative regulation establishes the requirements for when these expenses and fees are allowed or disallowed.
History: 103 KAR 016:230. 32 Ky.R. 1823; Am. 2289; 33 Ky.R. 66; eff. 8-7-2006; 39 Ky.R. 357, 784; eff. 11-1-2013; 45 Ky.R. 1307, 2059; eff. 2-1-2019; Crt eff. 1-7-2026.

103 KAR 16:240 Nexus standard for corporations and pass-through entities {#sec-103-kar-16-240 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:240}

Section 1. Definitions.

(1) "Business situs" means in relation to intangible personal property:

(a) The corporation's or pass-through entity's commercial domicile;

(b) The place where the intangible personal property is utilized by the corporation or pass- through entity; or

(c) The state where the intangible personal property is located if possession and control of the intangible personal property is localized in connection with a trade or business so that substantial use or value attaches to the property.

(2) "Commercial domicile" means the principal place from which the trade or business of the corporation or pass-through entity is managed.

(3) "Corporation" is defined by KRS 141.010(4).

(4) "Doing business in this state" is defined by KRS 141.010(7).

(5) "Foreign corporation" means a corporation incorporated or formed under the authority of another state or country.

(6) "Foreign pass-through entity" means a pass-through entity organized under the laws of another state or country.

(7) "Pass-through entity" is defined by KRS 141.010(21).

(8) "Owning or leasing property in this state" means owning or leasing real or tangible personal property in Kentucky, including:

(a) Maintaining an office or other place of business in Kentucky;

(b) Maintaining in Kentucky an inventory of merchandise or material for sale, distribution or manufacture, or consigned goods, regardless of whether kept on the taxpayer's premises, in a public or rented warehouse, or otherwise; or

(9) "Qualified real estate investment trust subsidiary" is defined by Section 856(i)(2) of the Internal Revenue Code, 26 U.S.C. 856(i)(2).

(10) "Qualified subchapter S subsidiary" is defined by Section 1361(b)(3)(B) of the Internal Revenue Code, 26 U.S.C. 1361(b)(3)(B).

(11) "Related corporation" means a corporation in which another corporation or pass-through entity maintains an ownership interest of fifty (50) percent or more during any portion of the taxable year.

(12) "Single member limited liability company" means a limited liability company with one (1) member.

Section 2. In General; Rules of Construction.

(1) For purposes of the corporation income tax imposed by KRS 141.040(1) and the filing requirement imposed on pass-through entities by KRS 141.206(1), the term "doing business in this state" or "doing business" shall be used in a comprehensive sense concerning the operation of any profit-seeking enterprise or activity in Kentucky.

(2) In determining if a corporation or pass-through entity is doing business in Kentucky, it shall be immaterial whether the activities actually result in a profit or loss.

(3) Whether a corporation or pass-through entity is doing business in Kentucky shall be determined by the facts in each case.

(4) Whether the activities of a foreign corporation or pass-through entity fall within the scope of "solicitation" within the meaning of Pub. L. 86-272, codified as 15 U.S.C. 381 to 384, shall be a factual determination. The examples in Sections 3 and 4 of this administrative regulation shall be used as guidelines. In applying the guidelines to the particular circumstances and activities of a foreign corporation or pass-through entity, the Department of Revenue shall employ the following rules of construction:

(a) The effect of the activities listed in Sections 3 and 4 of this administrative regulation shall be cumulative. In determining whether a taxpayer is doing business in Kentucky, all of these activities shall be considered as a whole.

(b) If the Department of Revenue determines that a taxpayer is doing business in Kentucky, the taxpayer shall carry the burden of substantiating any claim that these activities in Kentucky do not constitute doing business under either Pub. L. 86-272, codified as 15 U.S.C. 381 to 384, or the United States Constitution.

(c) Documentary evidence shall be given substantial weight in establishing the nature and extent of the taxpayer's activities. Affidavits or other evidence not contemporaneous with the events in question shall be given little weight.

(d) The term "solicitation" shall include only actual requests for purchases and activities that are entirely ancillary to requests for purchases. An activity shall be considered entirely ancillary to the requesting of purchases if it serves no independent business purpose apart from its connection to the soliciting of orders.

(e) Activities conducted by a foreign corporation or pass-through entity with respect to a particular order shall not constitute "solicitation" if the activity occurs after the order has been placed.

(5) Pub. L. 86-272, codified as 15 U.S.C. 381 to 384, does not afford immunity from the limited liability entity tax imposed by KRS 141.0401.

Section 3. Exception for Solicitation Activities Protected by Pub. L. 86-272, codified as 15 U.S.C. 381 to 384.

(1) General; preemption of state law. This administrative regulation adopts a narrow interpretation of the immunity afforded by Pub. L. 86-272, codified as 15 U.S.C. 381 to 384, which precludes the imposition of Kentucky income tax upon a foreign corporation, or the filing requirement imposed on foreign pass-through entity, if the corporation's or pass-through entity's sole activity in Kentucky is the corporation's or pass-through entity's representatives soliciting orders for the sale of tangible personal property in the name of the corporation or pass-through entity or in the name of a prospective customer if the orders are:

(a) Sent outside of Kentucky for approval or rejection; and

(b) Filled by shipment or delivery from a point outside of Kentucky regardless of the method of shipment or delivery.

(2) Scope of Pub. L. 86-272, codified as 15 U.S.C. 381 to 384.

(a) If a corporation or pass-through entity engages both in protected solicitation activities and in any other activity that is not a protected solicitation activity, it shall not claim the immunity granted by Pub. L. 86-272, codified as 15 U.S.C. 381 to 384.

(b) Solicitation of orders shall not be protected by Pub. L. 86-272, codified as 15 U.S.C. 381 to 384, if the solicitation is for the:

Sale or provision of services; or
Sale, lease, rental, license, or other disposition of real property or intangibles.

(3) Activities normally considered to be solicitation. The activities listed in this subsection shall serve as examples of activities that ordinarily fall within the scope of "solicitation" under Pub. L. 86-272, codified as 15 U.S.C. 381 to 384:

(a) Soliciting orders through advertising;

(b) Carrying samples and promotional materials only for display or distribution without charge or other consideration;

(c) Soliciting orders by an in-state resident employee or representative of the company, if that person does not maintain or use any office or other place of business in the state other than an "in-home" office as described in subsection (4) of this section;

(d) Furnishing and setting up display racks and advising customers on the display of the company's products without charge or other consideration;

(e) Checking customer inventories for reorder without a charge therefore, but not for other purposes such as quality control;

(f) Recruiting, training or evaluating sales personnel, including occasionally using homes, hotels, or similar places for meetings with sales personnel;

(g) Conducting solicitation activities from an employee's in-home work space, if the use of the space is not paid for by the company;

(h) Performing missionary sales activities, including the solicitation of indirect customers for the company's goods. For example, a manufacturer's solicitation of retailers to buy the manufacturer's goods from the manufacturer's wholesale customers would be protected if the solicitation activities were otherwise immune;

(i) Coordinating shipment or delivery without payment or other consideration and providing information relating thereto either prior or subsequent to the placement of an order;

(j) Maintaining a sample or display area for an aggregate of fourteen (14) calendar days or less at any one (1) location within Kentucky during the tax year, if no other activities inconsistent with solicitation take place;

(k) Mediating direct customer complaints if the purposes are solely to ingratiate sales personnel with the customer and facilitate requests for orders;

(l) Passing orders, inquiries, and complaints on to the home office;

(m) Providing automobiles to sales personnel for use solely in solicitation activities; and

(n) Owning, leasing, using, or maintaining personal property for use in the employee or representative's "in-home" office or automobile that is solely limited to the conducting of solicitation activities. The use of personal property, such as a cellular telephone, facsimile machine, duplicating equipment, personal computer, or computer software that is limited to the carrying on of protected solicitation and activity entirely ancillary to solicitation or permitted by this section shall not, by itself, remove the protection.

(4) Activities that are not solicitation. The activities listed in this subsection shall serve as examples of activities in this state that fall outside the scope of "solicitation" and are not protected by Pub. L. 86-272, codified as 15 U.S.C. 381 to 384 unless the activity is de minimis within the meaning of Wisconsin Dept. of Revenue v. William Wrigley, Jr., Co., 112 S.Ct. 2447 (1992):

(a) Making repairs or providing maintenance or service to the property sold or to be sold;

(b) Installing or supervising installation at or after shipment or delivery;

(d) Investigating credit;

(e) Repossessing property;

(f) Conducting training courses, seminars, or lectures for personnel other than personnel involved only in solicitation;

(g) Investigating, handling, or otherwise assisting in resolving customer complaints, other than mediating direct customer complaints if the sole purpose of the mediation is to ingratiate the sales personnel with the customer;

(h) Approving or accepting orders;

(i) Securing deposits on sales;

(j) Picking up or replacing damaged or returned property, including stale or unsaleable property;

(k) Maintaining a sample or display area for an aggregate of fifteen (15) days or more at any one (1) location within Kentucky during the tax year;

(l) Providing technical assistance or service, including engineering assistance or design service, if one (1) of the purposes of it is other than the facilitation of the solicitation of orders;

(m) Hiring, training, or supervising personnel for activities other than solicitation;

(n) Using agency stock checks or any other instrument or process by which sales are made within this state by sales personnel;

(o) Carrying samples for sale, exchange, or distribution in any manner for consideration or other value;

(p) Providing shipping information and coordinating deliveries;

(q) Supervising the operations of a franchisee or similar party;

(r) Monitoring, inspecting, or approving work performed by an independent contractor under a warranty or similar contractual arrangement;

(s) Consigning stock of goods or other tangible personal property for sale to any person, including an independent contractor;

(t) Fulfilling sales orders by shipment or delivery from a point within Kentucky;

(u) Owning, leasing, maintaining, or otherwise using as part of the business operations in Kentucky any of the following facilities or property:

Repair shop;
Parts department;
Warehouse;
Meeting place for directors, officers, or employees;
Stock of goods other than samples for sales personnel or that are used entirely ancillary to solicitation; or
Telephone answering service that is publicly attributed to the company or to an employee or agent of the company in their representative status;

(v) Maintaining, by any employee or other representative, an office or place of business of any kind other than an in-home office. For the purpose of this subsection, it shall not be relevant whether the company pays directly, indirectly, or not at all for the cost of maintaining the in-home office. An office shall be considered in-home if it is located within the residence of the employee or representative, and:

Is not publicly attributed to the company or to the employee or representative of the company in an employee or representative capacity. Factors considered in determining if an office is publicly attributed to the company or to the employee or representative of the company in an employee or representative capacity shall include:

a. A telephone listing or other public listing within the state for the company, or for an employee or representative of the company in that capacity, or other indications through advertising or business literature that the company or its employee or representative can be contacted at a specific address within the state;

b. The normal distribution and use of business cards and stationery identifying the employee's or representative's name, address, telephone and fax numbers, and affiliation with the company shall not, by itself, be considered as advertising or otherwise publicly attributing an office to the company or its employee or representative; or

c. The maintenance of any office or other place of business in this state that does not strictly qualify as an "in-home" office as described in this paragraph shall, by itself, cause the loss of protection under this subsection;

The use of the office is limited to:

a. Soliciting and receiving orders from customers;

b. Transmitting orders outside the state for acceptance or rejection by the company; or

c. Other activities that are protected under Pub. L. 86-272, codified as 15 U.S.C.A. 381 to 384 or under this administrative regulation;

(w) Entering into franchising or licensing agreements, selling or otherwise disposing of franchises and licenses, or selling or otherwise transferring tangible personal property pursuant to the franchise or license by the franchisor or licensor to its franchisee or licensee within the state; or

(x) Conducting any other activity, which is not entirely ancillary to the solicitation of orders, even if the activity helps to increase purchases.

Section 4. "Doing Business". An analysis to determine if a corporation or pass-through entity's activities fall within the provisions of KRS 141.010(7) shall include the factors established in this section.

(1) The activities listed in this subsection shall serve as examples of "doing business" under KRS 141.010(7)(f):

(a) Performing services in Kentucky, whether directly by the corporation or pass-through entity or indirectly by directing activity performed by a third party;

(b) Accepting orders in Kentucky;

(d) Owning an interest in mineral rights in Kentucky, including interests in coal, oil, or natural gas;

(e) Leasing motion picture films to movie theaters and television stations in Kentucky;

(f) Being the member of a single member limited liability company that is doing business in Kentucky and is disregarded for federal income tax purposes;

(g) Being a member, partner, or shareholder in a pass-through entity doing business in Kentucky; or

(h) Receiving income from intangible personal property if the intangible personal property has acquired a Kentucky business situs.

(2) The activities listed in this subsection shall serve as examples of "doing business" under KRS 141.010(7)(g):

(a) Performing or soliciting orders for services in Kentucky, including those services performed in Kentucky by a third party on behalf of a corporation or pass-through entity;

(b) Selling or soliciting orders for real property;

(d) Selling tangible personal property; or

(e) Delivering merchandise inventory on consignment to its Kentucky distributors or dealers.

(3) A corporation or pass-through entity may be considered doing business under KRS 141.010(7)(d) without having employees in Kentucky. If activities are performed in Kentucky by a third party on behalf of the corporation or pass-through entity, the corporation or pass-through entity shall be considered doing business in Kentucky.

(4)

(a) General.

The activities in this paragraph shall not, in themselves, subject a corporation to Kentucky corporation income tax or a pass-through entity to a Kentucky filing requirement.
These exempted activities shall not relieve a corporation from Kentucky corporation income tax if the corporation is otherwise subject to Kentucky corporation income tax and shall not relieve a pass-through entity from a Kentucky income tax filing requirement if the pass-through entity is otherwise required to file a Kentucky return.
Mere ownership of a corporation that is doing business in Kentucky shall not subject the owner to the requirements. However, based on additional facts and circumstances, sufficient contacts with Kentucky may exist to establish that the corporation or pass-through entity is doing business in Kentucky. The activities listed in this subparagraph shall serve as examples of facts and circumstances that establish that the corporation or pass-through entity is doing business in Kentucky:

a. Being the parent corporation of a qualified real estate investment trust subsidiary that is doing business in Kentucky;

b. Being the parent corporation of a qualified subchapter s subsidiary that is doing business in Kentucky;

c. Being the member of a single member limited liability company that is doing business in Kentucky and is disregarded for federal income tax purposes;

d. Being a related corporation doing business in Kentucky, which is performing activities as the corporation's or pass-through entity's agent in Kentucky;

e. Receiving income from a contract between a corporation or pass-through entity and a related corporation doing business in Kentucky if the income is derived from the related corporation's activities in Kentucky;

f. Being a corporation that is essentially a shell corporation, or other facts indicate that an independent corporate existence is essentially disregarded; or

g. Entering into franchising or licensing agreements and receiving income from franchising or licensing agreements that have acquired a Kentucky business situs.

(b) Employee or independent agent activity. A foreign corporation or pass-through entity that is not otherwise doing business in Kentucky may be considered to not be doing business in Kentucky, even if its employees or independent agents are performing certain de minimis activities in Kentucky. The following items shall serve as examples of de minimis activities:

A foreign corporation or pass-through entity sending various employees, e.g., legal staff and witnesses, to assist its independent legal counsel in defending a lawsuit in Kentucky. The law firm providing counsel shall be taxable in Kentucky;
A foreign corporation or pass-through entity sending its employees to Kentucky to purchase raw materials and inventory;
A foreign corporation or pass-through entity giving its highest performing sales person an expense paid vacation to Lake Barkley, Kentucky; or
A foreign corporation or pass-through entity sending its business records to Kentucky for use by its independent auditors.

Section 5. This administrative regulation shall apply to taxable years beginning on or after January 1, 2005.

History

RELATES TO: KRS 141.010, 141.040, 141.206
STATUTORY AUTHORITY: KRS 131.130, 141.018, 141.050
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.040(1) requires non-exempt corporations doing business in Kentucky to pay corporation income tax and file the required tax forms for that tax. KRS 141.206 requires pass-through entities doing business in Kentucky to file tax forms to compute the distribution of income to the partners, members or shareholders. KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky's tax laws. KRS 141.018 requires the Department of Revenue to promulgate administrative regulations necessary to implement 2005 Ky. Acts ch. 168 and 2006 Extra. Sess. Ky. Acts ch. 2. This administrative regulation establishes what constitutes nexus in Kentucky under a "doing business" standard and provides examples.
History: 32 Ky.R. 1824; 33 Ky.R. 67; eff. 8-7-2006; 44 Ky.R. 1091, 1810; eff. 3-9-2018; 45 Ky.R. 1309, 2060; eff. 2-1-2019; Crt eff. 1-29-2026.

103 KAR 16:250 Net operating loss computation and deduction for corporations {#sec-103-kar-16-250 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:250}

Section 1. Definitions.

(1) "Carryforward" has the same meaning as carryover as used in KRS 141.202.

(2) "Combined group" is defined by KRS 141.202(2)(a).

(3) "Combined group filer" means a group of corporations filing in accordance with KRS 141.202.

(4) "Combined group return" means a return filed under KRS 141.202(3).

(5) "Corporation" is defined by:

(a) KRS 141.202(2)(b) for a combined group return;

(b) KRS 141.010(4) for a separate return for periods beginning on or after January 1, 2018; or

(6) "Doing business in this state" is defined by KRS 141.010(7).

(7) "Elective consolidated filer" means a corporation as defined in Section 7701(a)(3) of the Internal Revenue Code, 26 U.S.C. 7701(a)(3), filing in accordance with KRS 141.201.

(8) "Elective consolidated return" means a return defined under KRS 141.201(2)(b).

(9) "Net operating loss" or "NOL" means net operating loss defined under Section 172 of the Internal Revenue Code as adjusted for differences between KRS Chapter 141 and the Internal Revenue Code.

(10) "Nexus consolidated filer" means a corporation as defined under KRS 141.010(4) or 141.900(24), filing in accordance with KRS 141.200(8), (9), (10) and (11).

(11) "Nexus consolidated return" means a return defined under KRS 141.200(9)(g).

(12) "Separate return" is defined by KRS 141.201(2)(c).

(13) "Separate return filer" means a corporation filing in accordance with KRS 141.201(3)(b).

Section 2. Computation and Application of Net Operating Loss.

(1) Combined group filers, elective consolidated filers, and separate return filers shall compute net operating loss for Kentucky purposes in the following manner:

(a) For elective consolidated filers, the net operating loss shall be multiplied by the group's apportionment factor provided by KRS 141.120 or 141.121;

(b) For combined group filers, the net operating loss of each taxpayer member shall be computed in accordance with KRS 141.202(5)(c);

(c) For separate returns filers, the net operating loss shall be multiplied by the apportionment factor provided by KRS 141.120 or KRS 141.121; and

(d) The apportioned net operating loss shall be available for carryforward.

(2) Elective consolidated filer net operating loss carryforward to a combined group return or separate returns. This subsection shall apply if an elective consolidated filer who has incurred net operating losses as a consolidated group will now be filing combined group returns or separate returns, and establishes how those elective consolidated net operating losses shall be treated for purposes of the combined group returns or separate returns.

(a) An elective consolidated filer having a net operating loss carryforward on the last elective consolidated return may carry that loss forward to combined group returns or separate returns. The following requirements shall apply to this situation:

Determine the post-apportioned elective consolidated group net operating loss carryforward. The elective consolidated group's apportionment factor provided by KRS 141.120, KRS 141.121, or KRS 141.901 shall be used to determine the post-apportioned net operating loss.
Determine the years that are in the post-apportioned elective consolidated group net operating loss carryforward. All post-apportioned net operating loss carryforwards shall be used on a first-in-first-out basis (i.e., most recent losses remain).
Determine each loss corporation's share of the net operating loss for each year in the following manner:

a. Allocate the post-apportioned elective consolidated group net operating loss carryforward by year to each loss corporation in each year. For a year in which the total loss generated exceeds the carryforward allocated to that year, the post-apportioned net operating loss shall be prorated for that year proportionally based on the loss generated by each member;

b. Add together each loss corporation's allocated share of the losses for each year it was a member of an elective consolidated group; and

c. Carry the separate entity net operating loss carryforward computed in clauses a. and b. of this subparagraph to the first combined group return or separate return due after the elective consolidated return.

(b) Prior year net operating loss carryforwards shall not be available to separate entities that were not doing business in this state prior to becoming part of an elective consolidated return.

(3) Nexus consolidated filer net operating loss carryforward to a combined group return, an elective consolidated return, or a separate return. This subsection shall apply if a nexus consolidated filer ceases to exist who had incurred net operating losses as a consolidated group and establishes how those nexus consolidated net operating losses shall be treated.

(a) If a nexus consolidated filer ceases to exist or a member leaves the group and a consolidated net operating loss carryforward exists, that net operating loss carryforward may be carried forward to the combined group return, the elective consolidated return, or the separate returns. The following requirements shall apply to this situation:

Determine the pre-apportioned nexus consolidated group net operating loss carryforward.
Determine the years that are in the pre-apportioned nexus consolidated group net operating loss carryforward. All pre-apportioned net operating loss carryforwards shall be used on a first-in-first-out basis (i.e., most recent losses remain).
Determine each loss corporation's share of the net operating loss for each year in the following manner:

a. Allocate the pre-apportioned nexus consolidated group net operating loss carryforward by year to each loss corporation in each year. For a year in which the total loss generated exceeds the carryforward allocated to that year, the pre-apportioned net operating loss shall be prorated for that year proportionally based on the loss generated by each member in that year;

b. Multiply the pre-apportioned net operating loss carryforward amounts as allocated to the members by the nexus consolidated group's apportionment factor for each year a net operating loss exists to determine the post-apportioned net operating loss carryforward that member may carry forward to the future. The apportionment factor calculation is provided by KRS 141.120, 141.121, or 141.901;

c. Add together the post-apportioned losses generated for each loss corporation during the time in which it was included in a nexus consolidated return; and

d. Carry the separate entity net operating loss carryforward computed in clauses a. to c. of this subparagraph to the first combined group return, elective consolidated return, or separate return due after the nexus consolidated group ceases to exist or after the member leaves the nexus consolidated group.

(b) Prior year net operating loss carryforwards shall not be available to separate entities that were not doing business in this state prior to becoming part of a nexus consolidated return. To generate a net operating loss in this state, a taxpayer shall be doing business in this state in the year in which the loss is generated.

Section 3. Net Operating Loss Limitation.

(1) Corporations that generated net operating losses may carryforward those losses to deduct against taxable net income. The deduction for losses generated for tax years beginning on or after January 1, 2018, shall be limited to eighty (80) percent of the taxable net income as allowed by Section 172 of the Internal Revenue Code.

(2) Nexus consolidated returns shall be subject to the fifty (50) percent limitation as required in KRS 141.200(11)(c).

(3) Taxpayer members of a combined group return that utilize the net operating loss of another taxpayer member that was not a member of the same combined group return in the year in which the net operating loss was originally incurred shall be subject to the fifty (50) percent limitation as required in KRS 141.202(5)(c)3. or 4.

Section 4. Net operating losses by corporations included in a combined group return shall be determined in accordance with KRS 141.202(5)(c).

Section 5. This administrative regulation shall apply to the computation of the net operating loss deduction of corporations for taxable years beginning on or after January 1, 2018, except where otherwise noted in this administrative regulation.

Section 6. Examples for the computation and application of net operating losses. The following examples relate to the net operating loss computations found in Sections 2 through 4 of this administrative regulation:

(1) Example 1 – Member Leaves Nexus Consolidated Group Parent Corporation and its three (3) subsidiaries, Sub A, Sub B, and Sub C, have nexus in Kentucky. Parent Corporation files nexus consolidated group returns for Year 1 through Year 4, but Sub A will not be included in the group in Year 4. The nexus consolidated group has a pre-apportioned nexus group NOL carryforward of $85,000 ($5,000 from year 1, $40,000 from year 2, and $40,000 from year 3) at the end of Year 3 (see Figure 1-1). Apportionment factors for each member are given below (see Figure 1-2).

(a) Determine the pre-apportioned group NOL carryforward: $85,000 (see Figure 1-1).

(b) Determine which years are in the pre-apportioned group NOL carryforward assuming all pre-apportioned NOL carryforward amounts are used on a first-in-first-out basis (i.e., most recent losses remain).

Year 3 Losses Remaining: $40,000
Year 2 Losses Remaining: $40,000
Year 1 Losses Remaining: $5,000

(c) Allocate the pre-apportioned group NOL carryforward by year to each loss corporation in each year. For a year in which the total loss generated exceeds the carryforward allocated to that year, prorate the pre-apportioned NOL carryforward for that year proportionally based on the loss generated by each member (see Figure 1-3).

(d) Multiply the pre-apportioned NOL carryforward amounts allocated to the member that is leaving the group by the nexus consolidated group's apportionment factors in each year an NOL carryforward exists to determine the post-apportioned NOL that member may carryforward to the future (see Figure 1-4).

(e) Add the pre-apportioned NOL carryforward amounts allocated to the remaining members in the group to calculate the nexus consolidated group's carryforward amount (see Figure 1-5).

(2) Example 2 – Remaining Nexus Consolidated Group Dissolves.

(a) This example is a continuation of Example 1. Parent Corporation and its two (2) remaining subsidiaries, Sub B and Sub C, have nexus in Kentucky. Parent Corporation files nexus consolidated group returns for Year 1 through Year 4, but each group member will file separately in Year 5. The group has a preapportioned NOL carryforward of $42,223 at the end of Year 3 (see Figure 1-3). Group apportionment factors for each year are given below (see Figure 2-2).

(b) The following steps determine the post-apportioned NOL that will be carried forward separately by each group member to Year 5 when the nexus consolidated group dissolves.

Determine the pre-apportioned group NOL carryforward: $52,223 (see Figure 2-1).
Determine which years are in the pre-apportioned group NOL carryforward assuming all NOL carryforward amounts are used on a first-in-first-out basis (i.e., most recent losses remain).

a. Year 4 Losses Remaining: $40,000

b. Year 3 Losses Remaining: $12,223

Allocate the pre-apportioned group NOL carryforward by year to each loss corporation in each year. For a year in which the total loss generated exceeds the carryforward allocated to that year, prorate the pre-apportioned NOL carryforward for that year proportionally based on the loss generated by each member (see Figure 2-3).
Multiply the pre-apportioned NOL carryforward amounts allocated to each member that is leaving the group by the nexus consolidated group's apportionment factor in each year an NOL exists to determine the post-apportioned NOL that member may carry forward to the future (see Figure 2-4).

(3) Example 3 – Member Leaves Elective Consolidated Group.

(a) Parent Corporation and its three (3) subsidiaries, Sub A, Sub B, and Sub C, file elective consolidated group returns for Year 1 through Year 4, but Sub A will not be included in the group in Year 4. The group has a post-apportioned NOL carryforward of $23,500 at the end of Year 3 (see Figure 3-1).

(b) The following steps determine the post-apportioned NOL allocated to Sub A when it departs the group as well as the post-apportioned NOL that will be carried forward by the group to Year 4.

Determine the post-apportioned group NOL carryforward: $23,500 (see Figure 3-1).
Determine which years are in the post-apportioned group NOL carryforward assuming all post-apportioned NOL carryforward amounts are used on a first-in-first-out basis (i.e., most recent losses remain).

a. Year 3 No NOL Generated

b. Year 2 Losses Remaining: $4,000

c. Year 1 Losses Remaining: $19,500

Prorate the post-apportioned group NOL carryforward by year to each loss corporation in each year proportionally based on the loss generated by each member (see Figure 3-2).

(4) Example 4 – Remaining Elective Consolidated Group Dissolves.

(a) This example is a continuation of Example 3. Parent Corporation and its two (2) remaining subsidiaries, Sub B, and Sub C, file elective consolidated group returns for Year 1 through Year 4, but each group member will either file separately or as part of a combined group in Year 5. The elective consolidated group has a post-apportioned NOL carryforward of $13,167 at the end of Year 4.(see Figure 4-1).

(b) The following steps determine the post-apportioned NOL that will be carried forward separately by each group member to Year 5 when the elective consolidated group dissolves.

Determine the post-apportioned group NOL carryforward: $13,167 (see Figure 4-1).
Determine which years are in the post-apportioned group NOL carryforward assuming all post-apportioned NOL carryforward amounts are used on a first-in-first-out basis (i.e., most recent losses remain).

a. Year 4 Losses Remaining: $3,000

b. Year 3 No NOL Generated

c. Year 2 Losses Remaining: $1,500

d. Year 1 Losses Remaining: $8,667

Prorate the post-apportioned group NOL carryforward by year to each loss corporation in each year proportionally based on the loss generated by each member (see Figure 4-2).

(5) Example 5- Sharing of Kentucky Net Operating Losses within a Combined Group.

(a) Parent Corporation and its three (3) subsidiaries, Sub A, Sub B, and Sub C, file a combined return in 2019, the first year in which a combined return is required. All entities have nexus in Kentucky and are taxpayer members of the combined group. The combined group has apportionable group net income of $50,000 in 2019. The 2019 apportionment factors for the members of the group are shown in Figure 5-1 below. The members also report the following apportioned NOL carryforwards from 2017 and 2018 (Figure 5-1).

(b) The following calculation determines the maximum allowable NOL deduction available to each entity (See Figure 5-2). This amount may exceed (or be less than) the actual amount of prior year NOL available within the group. The maximum allowable NOL deduction available to each entity is the sum of:

NOLs generated by the entity in 2017 and previous years; plus
NOLs generated by the entity in 2018, up to a maximum of eighty (80) percent of the entity's 2019 taxable income; plus
NOLs generated by other taxpayer members of the group in years before a combined return was required, up to a maximum of fifty (50) percent of the 2019 taxable income of the entity that is utilizing the NOL. (Note that losses from years in which a combined report was required may be shared between taxpayer members of the combined group without reference to the fifty (50) percent limitation, if the entities sharing the losses were members of the combined group in the year the loss was generated).

(c) The following steps determine the utilization of the available NOL by each entity and each entity's resulting taxable income and NOL carryforward to 2020 (See Figure 5-3).

Subtract the entity's available 2017 (and earlier) NOL amount from the entity's 2019 taxable income on a first-in-first-out basis (i.e. most recent losses remain), up to 100 percent of 2019 taxable income;
Subtract the entity's 2018 NOL up to the maximum allowable 2018 NOL (eighty (80) percent of 2019 taxable income) from the amount remaining after Step 1; and
Subtract the NOL amounts available to be shared from other taxpayer members of the combined group up to the maximum allowable shared amount (fifty (50) percent of 2019 taxable income) from the amount remaining after Step 2.

(d) The utilization of NOLs to reduce taxable income shall not be reduced below zero under any circumstances. If group NOLs exceed available income, the remaining NOL may be carried forward.

(6) Example 6- Sharing of Kentucky Net Operating Losses within a Combined Group that includes a Non-Taxpayer Member.

(a) Parent Corporation and its three (3) subsidiaries, Sub A, Sub B, and Sub C, file a combined return in 2020. Sub A does not have nexus in Kentucky and is included in the group under the unitary principle. The combined group has apportionable group net income of $50,000 in 2020. The 2020 apportionment factors for the members of the group are shown below. The members also report the following post-apportioned NOL carryforwards from 2018, a year in which each entity filed separately, and 2019, a year in which the group filed a combined return (Figure 6-1).

(b) The maximum allowable NOL deduction available to each entity is equal to eighty (80) percent of its taxable income (See Figure 6-2).

(c) Figure 6-3 shows the utilization of the available NOL deduction by each entity and each entity's resulting taxable income and NOL carryforward to 2021. As the 2019 NOLs were generated in a year in which a combined report was required, they can be shared among taxpayer members of the group, subject to the eighty (80) percent limitation. Since Sub A does not have Kentucky nexus in 2020, it is not a taxpayer member and therefore its 2018 NOLs cannot be utilized by other group members. Sub A cannot utilize its 2018 losses until it has Kentucky source income.

(d) Figure 6-4 shows how Sub B's NOLs were shared among the group.

History

RELATES TO: KRS 141.011, 141.120, 141.121, 141.200, 141.201, 141.202, 141.901
STATUTORY AUTHORITY: KRS 131.130, 141.018, 141.050
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.150(4) requires the department to promulgate administrative regulations and rules necessary for the proper administration of KRS Chapter 141. This administrative regulation establishes methods of computing a corporation's net operating loss deduction and application of the deduction to subsequent taxable years on taxable net income as authorized by KRS 141.011, 141.200(11)(c), and 141.202(5).
History: 32 Ky.R. 1827; 33 Ky.R. 70; eff. 8-7-2006; 45 Ky.R. 2153, 2571; eff. 4-5-2019; 46 Ky.R. 60, 868; eff. 10-4-2019.

103 KAR 16:270 Apportionment; receipts factor {#sec-103-kar-16-270 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:270}

Section 1. Definitions.

(1) "Advertising services" means an agreement to include the broadcast customer's advertising content in the broadcaster's film programming.

(2) "Affiliated airline" is defined by KRS 141.121(1)(a).

(3) "Apportionable income" is defined by KRS 141.120(1)(a).

(4) "Barrel mile" means the transportation of one (1) barrel of liquid or gas one (1) mile.

(5) "Billing address" means the location indicated in the books and records of the taxpayer as the primary mailing address relating to a customer's account that at the time of the transaction is kept in good faith in the normal course of business, and not for tax avoidance purposes.

(6) "Borrower or credit card holder located in this state" means:

(a) A borrower, other than a credit card holder, that is engaged in a trade or business which maintains its commercial domicile in this state; or

(b) A borrower that is not engaged in a trade or business or a credit card holder whose billing address is in this state.

(7) "Broadcast customer" means a person, corporation, partnership, limited liability company, or other entity, such as an advertiser or a platform distribution company, that has a direct connection or contractual relationship with the broadcaster under which revenue is derived by a broadcaster.

(8) "Broadcaster" means a taxpayer that is a television broadcast network, a cable program network, or a television distribution company. The term "broadcaster" does not include a platform distribution company.

(9) "Business customer" means a customer that is a business operating in any form, including a sole proprietorship. Sales to a non-profit organization, to a trust, to the U.S. Government, to a foreign, state, or local government, or to an agency or instrumentality of that government are treated as sales to a business customer and are assigned consistent with the rules for those sales.

(10) "Card issuer's reimbursement fee" means the fee a taxpayer receives from a merchant's bank because one (1) of the persons to whom the taxpayer has issued a credit, debit, or similar type of card has charged merchandise or services to the card.

(11) "Code" means the Internal Revenue Code as defined by KRS 141.010(21).

(12) "Commercial domicile" is defined by KRS 141.120(1)(b).

(13) "Credit card" means a card, or other means of providing information, that entitles the holder to charge the cost of purchases, or a cash advance, against a line of credit.

(14) "Debit card" means a card, or other means of providing information, that enables the holder to charge the cost of purchases, or a cash withdrawal, against the holder's bank account or a remaining balance on the card.

(15) "Delivered to a location" means to the location of the taxpayer's market for the service, which may not be the location of the taxpayer's employees or property.

(16) "Film programming" means one (1) or more performances, events, or productions (or segments of performances, events, or productions) intended to be distributed for visual and auditory perception, including items such as news, entertainment, sporting events, plays, stories, or other literary, commercial, educational, or artistic works.

(17) "Financial institution" is defined by KRS 141.010(17).

(18) "Financial organization" is defined by KRS 141.120(1)(c), and includes:

(a) Any corporation or other business entity registered under state law as a bank holding company or registered under the 12 U.S.C. 1841, et. seq., Federal Bank Holding Company Act of 1956, as amended; or

(b) Registered as a savings and loan holding company under the 12 U.S.C. 1701 to 1750, Federal National Housing Act, as amended; and

(19) "Individual customer" means a customer that is not a business customer.

(20) "In-person services" means services that are physically provided in person by the taxpayer, if the customer or customer's real or tangible property upon which the services are performed is in the same location as the service provider when the services are performed. In-person services includes situations when a third-party contractor provides the services on behalf of the taxpayer.

(21) "Intangible property" means property that is not physical or whose representation by physical means is merely incidental. Examples of intangible property include:

(a) Agreements not to compete;

(b) Brand names;

(d) Contract rights, including broadcasting rights;

(e) Copyrights;

(f) Designs;

(g) Formulae;

(h) Goodwill and going concern value;

(i) Ideas;

(j) Information;

(k) Know-how;

(l) Licenses;

(m) Literary, musical, or artistic composition;

(n) Methods;

(o) Patents;

(p) Procedures;

(q) Processes;

(r) Programs;

(s) Securities;

(t) Systems;

(u) Technical data;

(v) Trade dress;

(w) Trademarks;

(x) Trade names; and

(y) Trade secrets.

(22) "Internal Revenue Code" is defined by KRS 141.010(21).

(23) "Kentucky revenue passenger miles" is defined by KRS 141.121(1)(c).

(24) "Loan" means any extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of this extension of credit from another. Loans include participations, syndications, and leases treated as loans for federal income tax purposes. Loans do not include:

(a) Assets held in a trading account;

(b) Cash items in the process of collection;

(d) Federal funds sold;

(e) Futures or forwards contracts;

(f) Non-interest bearing balances due from depository institutions;

(g) Notional principal contracts such as swaps;

(h) Options;

(i) Securities, interests in a REMIC, or other mortgage-backed or asset-backed security;

(j) Securities purchased under agreements to resell; and

(k) Other similar items.

(25) "Loan secured by real property" means that fifty (50) percent or more of the aggregate value of the collateral used to secure a loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.

(26) "Merchant discount" means the fee (or negotiated discount) charged to a merchant by the taxpayer for the privilege of participating in a program when a credit, debit, or similar type of card is accepted in payment for merchandise or services sold to the card holder, net of any cardholder charge-back and unreduced by any interchange transaction or issuer reimbursement fee paid to another for charges or purchases made its cardholder.

(27) "Miles operated" means the movement of a barge, tug, or other watercraft one (1) mile.

(28) "Non-apportionable income" is defined by KRS 141.120(1)(d).

(29) "Participation" means an extension of credit in which an undivided ownership interest is held on a pro rata basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

(30) "Passenger airline" is defined by KRS 141.121(1)(d).

(31) "Place of order" means the physical location from which a customer places an order for a sale other than a sale of tangible personal property from a taxpayer, resulting in a contract with the taxpayer.

(32) "Platform distribution company" means a cable service provider, a direct broadcast satellite system, an Internet content distributor, or any distributor that directly charges viewers for access to any film programming.

(33) "Population" means the most recent population data maintained by the U.S. Census Bureau for the year in question as of the close of the taxable period.

(34) "Provider" is defined by KRS 141.121(1)(e).

(35) "Public service company" is defined by KRS 141.0401(6)(a)9.

(36) "Qualified air freight forwarder" is defined by KRS 141.121(1)(f).

(37) "Receipts" is defined by KRS 141.120(1)(e).

(38) "Regular place of business" means an office at which the taxpayer carries on its business in a regular and systematic manner and which is continuously maintained, occupied, and used by employees of the taxpayer.

(39) "Related member" is defined by KRS 141.205(1)(g).

(40) "Revenue car mile" means the movement of a loaded railroad car one (1) mile.

(41) "Revenue passenger miles" is defined by KRS 141.121(1)(g).

(42) "State" is defined by KRS 141.010(34).

(43) "State where a contract of sale is principally managed by the customer" means the primary location at which an employee or other representative of a customer serves as the primary contact person for the taxpayer with respect to the day-to-day execution and performance of a contract entered into by the taxpayer with the customer.

(44) "Syndication" means an extension of credit in which two (2) or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

Section 2. Additional Principles.

(1) Year to year consistency. If the taxpayer departs from or modifies the basis for excluding or including gross receipts in the receipts factor used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(2) State to state consistency. If the returns or reports filed by the taxpayer with all states to which the taxpayer reports are not uniform in the inclusion or exclusion of gross receipts, the taxpayer shall disclose in its Kentucky return the nature and extent of the variance.

(3) Denominator. The denominator of the receipts factor shall include the gross receipts that are received from transactions and activity in the regular course of the taxpayer's trade or business, except gross receipts excluded under this administrative regulation.

(4) Numerator. The numerator of the receipts factor shall include gross receipts attributable to this state that are received by the taxpayer from transactions and activity in the regular course of the taxpayer's trade or business, except gross receipts excluded under this administrative regulation.

Section 3. Sales of Tangible Personal Property in This State.

(1) Gross receipts from sales of tangible personal property (except sales to the United States Government) are in this state if the property is delivered or shipped to a purchaser within this state regardless of the f.o.b. point or other conditions of sale.

(2) Property shall be determined as delivered or shipped to a purchaser within this state if the recipient is located in this state, even though the property is ordered from outside this state. Example. The taxpayer, with inventory in State A, sold $100,000 of its products to a purchaser having branch stores in several states, including Kentucky. The order for the purchase was placed by the purchaser's central purchasing department located in State B. $25,000 of the purchase order was shipped directly to purchaser's branch store in Kentucky. The branch store in Kentucky is the purchaser with respect to $25,000 of the taxpayer's sales.

(3) Property is delivered or shipped to a purchaser within this state if the shipment terminates in this state, even though the property is subsequently transferred by the purchaser to another state. Example. The taxpayer makes a sale to a purchaser who maintains a central warehouse in Kentucky at which all merchandise purchases are received. The purchaser reships the goods to its branch stores in other states for sale. All of the taxpayer's products shipped to the purchaser's warehouse in Kentucky constitute property delivered or shipped to a purchaser within Kentucky.

(4) A purchaser within this state shall include the ultimate recipient of the property if the taxpayer in this state, at the designation of the purchaser, delivers to or has the property shipped to the ultimate recipient within this state. Example. A taxpayer in Kentucky sold merchandise to a purchaser in State A. Taxpayer directed the manufacturer or supplier of the merchandise in State B to ship the merchandise to the purchaser's customer in Kentucky pursuant to purchaser's instructions. The sale by the taxpayer is in Kentucky.

(5) If property shipped by a seller from the state of origin to a consignee in another state is diverted while en route to a purchaser in this state, the sales are in this state. Example. The taxpayer, a produce grower in State A, begins shipment of perishable produce to the purchaser's place of business in State B. While en route, the produce is diverted to the purchaser's place of business in Kentucky where the taxpayer is subject to tax. The sale by the taxpayer is attributed to Kentucky.

Section 4. Sales of Tangible Personal Property to the United States Government. Gross receipts from sales of tangible personal property to the United States Government are in this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state. For the purposes of this administrative regulation, only sales for which the United States Government makes direct payment to the seller pursuant to the terms of a contract constitute sales to the United States Government. Sales by a subcontractor to the prime contractor, the party to the contract with the United States Government, do not constitute sales to the United States Government.

(1) Example. A taxpayer contracts with General Services Administration to deliver X number of trucks which were paid for by the United States Government. The sale is a sale to the United States Government.

(2) Example. The taxpayer, as a subcontractor to a prime contractor with the National Aeronautics and Space Administration, contracts to build a component of a rocket for $1,000,000. The sale by the subcontractor to the prime contractor is not a sale to the United States Government.

Section 5. Sales Other Than Sales of Tangible Personal Property: General Rules.

(1) Market-Based Sourcing. Receipts from sales other than sales of tangible personal property shall be in this state ifthe taxpayer's market for the sales is in this state. The provisions in this section establish rules for:

(a) Determining whether and to what extent the market for a sale other than the sale of tangible personal property is in this state;

(b) Reasonably approximating the state or states of assignment if the state or states cannot be determined; and

(c)

Excluding receipts from the sale of intangible property from the numerator and denominator of the receipts factor pursuant to KRS 141.120(11)(a)4.b.iii.;
Excluding receipts from the denominator of the receipts factor, pursuant to KRS 141.120(11)(c) if the state or states of assignment cannot be determined or reasonably approximated; or
Excluding receipts from the denominator of the receipts factor, pursuant to KRS 141.120(11)(c) if the taxpayer is not taxable in the state to which the receipts are assigned as determined under KRS 141.120(3).

(2) General Principles of Application; Contemporaneous Records. A taxpayer's assignment of receipts from sales other than sales of tangible personal property shall be consistent with the following principles:

(a)

A taxpayer shall apply the rules set forth in this administrative regulation based on objective criteria and shall consider all sources of information reasonably available to the taxpayer upon its tax filing, including items such as the taxpayer's books and records kept in the normal course of business;
A taxpayer shall determine its method of assigning receipts in good faith, and apply it consistently with respect to similar transactions year to year; and
A taxpayer shall retain contemporaneous records that explain the determination and application of its method of assigning its receipts, including its underlying assumptions, and shall provide those records to the department upon request.

(b) This administrative regulation provides various assignment rules that apply sequentially in a hierarchy. For each sale to which a hierarchical rule applies, a taxpayer shall make an effort to apply the primary rule applicable to the sale before seeking to apply the next rule in the hierarchy (and shall continue to do so with each succeeding rule in the hierarchy, if applicable). For example, in some cases, the applicable rule first requires a taxpayer to determine the state or states of assignment, and if the taxpayer cannot do so, the rule requires the taxpayer to reasonably approximate the state or states. In these cases, the taxpayer shall attempt to determine the state or states of assignment (i.e., apply the primary rule in the hierarchy) in good faith and with reasonable effort before it may reasonably approximate the state or states.

(c) A taxpayer's method of assigning its receipts, including the use of a method of approximation, if applicable, shall reflect an attempt to obtain the most accurate assignment of receipts consistent with this administrative regulation, rather than an attempt to lower the taxpayer's tax liability. A method of assignment that is reasonable for one (1) taxpayer may not necessarily be reasonable for another taxpayer, depending upon the applicable facts.

(3) Rules of Reasonable Approximation.

(a) This administrative regulation establishes rules for determining whether and to what extent the market for a sale other than the sale of tangible personal property is in this state. The administrative regulation sets forth rules of reasonable approximation, which shall apply if the state or states of assignment cannot be determined. In some instances, the reasonable approximation shall be made in accordance with specific rules of approximation prescribed in this administrative regulation. In other cases, the applicable rule in this administrative regulation permits a taxpayer to reasonably approximate the state or states of assignment, using a method that reflects an effort to approximate the results that may be obtained under the applicable rules or standards set forth in this administrative regulation.

(b) Approximation Based Upon Known Sales.

If applying the applicable rules set forth in subsections (7), (8), (9), and (10) of this section, a taxpayer may ascertain the state or states of assignment of a substantial portion of its receipts from sales of substantially similar services ("assigned receipts"), but not all of those sales; and
If the taxpayer reasonably believes, based on all available information, that the geographic distribution of some or all of the remainder of those sales generally tracks that of the assigned receipts, it shall include receipts from those sales which it believes tracks the geographic distribution of the assigned receipts in its receipts factor in the same proportion as its assigned receipts. This rule applies in the context of licenses and sales of intangible property if the substance of the transaction resembles a sale of goods or services.

(c) Related Member Transactions – Information Imputed from Customer to Taxpayer. If a taxpayer has receipts subject to this administrative regulation from transactions with a related member customer, information that the customer has that is relevant to the sourcing of receipts from these transactions is imputed to the taxpayer.

(4) Rules with Respect to Exclusion of Receipts from the Receipts Factor.

(a) The receipts factor only includes those amounts defined as receipts.

(b) Certain receipts arising from the sale of intangibles are excluded from the numerator and denominator of the sales factor pursuant to KRS 141.120(11)(a)4.b.iii..

(c) If a taxpayer cannot ascertain the state or states to which receipts of a sale are to be assigned pursuant to the applicable rules set forth in this administrative regulation, including through the use of a method of reasonable approximation, if relevant, using a reasonable amount of effort undertaken in good faith, the receipts shall be excluded from the denominator of the taxpayer's receipts factor pursuant to KRS 141.120(11)(c).

(d) If a taxpayer assigns receipts to a state or states in which they are not taxable, those receipts shall be excluded from the denominator of the taxpayer's receipts factor pursuant to KRS 141.120(11)(c).

(e) Receipts of a taxpayer from hedging transactions, or from the maturity, redemption, sale, exchange, loan, or other disposition of cash or securities, shall be excluded pursuant to KRS 141.120(1)(e).

(f) Nothing in the provisions adopted here pursuant to KRS 141.120 is intended to limit the application of KRS 141.120(12) or the authority granted to the department under KRS 141.120(12).

(5) Sale, Rental, Lease, or License of Real Property. In the case of a sale, rental, lease, or license of real property, the receipts from the sale shall be in this state if and to the extent that the property is in this state.

(6) Rental, Lease, or License of Tangible Personal Property. In the case of a rental, lease, or license of tangible personal property, the receipts from the sale shall be in this state if and to the extent that the property is in this state. If property is mobile property that is located both within and without this state during the period of the lease or other contract, the receipts assigned to this state are the receipts from the contract period multiplied by the fraction computed under 103 KAR 16:290 (as adjusted, if necessary, to reflect differences between usage during the contract period and usage during the taxable year).

(7) Sale of a Service.

(a) General Rule. The receipts from a sale of a service shall be in this state if and to the extent that the service is delivered to a location in this state. The rules to determine the location of the delivery of a service in the context of several specific types of service transactions shall be set forth in this subsection and in subsections (8), (9), and (10) of this section.

(b) In-Person Services.

Examples of in-person services include services such as:

a. Warranty and repair services;

b. Cleaning services;

c. Plumbing services;

d. Carpentry;

e. Construction contractor services;

f. Pest control;

g. Landscape services;

h. Medical and dental services, including medical testing, x-rays and mental health care and treatment;

i. Child care;

j. Hair cutting and salon services;

k. Live entertainment and athletic performances; and

l. In-person training or lessons.

In-person services shall include services as described in subparagraph 1., clauses a. through l. of this paragraph that are performed:

a. At a location that is owned or operated by the service provider; or

b. A location of the customer, including the location of the customer's real or tangible personal property.

Various professional services, including services such as accounting, financial and consulting services, and other similar services are not treated as in-person services within the meaning of this paragraph, although they may involve some amount of in-person contact.
Assignment of Receipts. Rule of Determination. Except as provided in this subparagraph, if the service provided by the taxpayer is an in-person service, the service is delivered to the location where the service is received. Therefore, the receipts from a sale shall be in this state if and to the extent the customer receives the in-person service in this state. In assigning its receipts from sales of in-person services, a taxpayer shall first attempt to determine the location where a service is received, as follows:

a. If the service is performed with respect to the body of an individual customer in this state (e.g., hair cutting or x-ray services) or in the physical presence of the customer in this state (e.g., live entertainment or athletic performances), the service is received in this state.

b. If the service is performed with respect to the customer's real estate in this state or if the service is performed with respect to the customer's tangible personal property at the customer's residence or in the customer's possession in this state, the service is received in this state.

c. If the service is performed with respect to the customer's tangible personal property and the tangible personal property is to be shipped or delivered to the customer, whether the service is performed within or outside this state, the service is received in this state if the property is shipped or delivered to the customer in this state.

Rule of Reasonable Approximation. If the state or states where a service is actually received cannot be determined, but the taxpayer has sufficient information regarding the place of receipt from which it may reasonably approximate the state or states where the service is received, the taxpayer shall reasonably approximate the state or states. If the state to which the receipts are to be assigned may be determined or reasonably approximated, but the taxpayer is not taxable in that state, the receipts that may be assigned to the state shall be excluded from the denominator of the taxpayer's receipts factor pursuant to KRS 141.120(11)(c).
Examples. In these examples assume, unless otherwise stated, that the taxpayer is taxable in each state to which its receipts may be assigned, so that there is no requirement that the receipts from the sale or sales be eliminated from the denominator of the taxpayer's receipts factor. For purposes of the examples, it is irrelevant whether the services are performed by an employee of the taxpayer, or by an independent contractor acting on the taxpayer's behalf.

a. Example. Salon Corp has retail locations in Kentucky and in other states where it provides hair cutting services to individual and business customers, the latter of whom are paid for through the means of a company account. The receipts from sales of services provided at Salon Corp's in-state locations shall be in Kentucky. The receipts from sales of services provided at Salon Corp's locations outside Kentucky, even if provided to residents of Kentucky, are not receipts from in-state sales.

b. Example. Landscape Corp provides landscaping and gardening services in Kentucky and in neighboring states. Landscape Corp provides landscaping services at the in-state vacation home of an individual who is a resident of another state and who is located outside Kentucky when the services are performed. The receipts from sale of services provided at the in-state location shall be in Kentucky.

c. Example. Same facts as in Example b., except that Landscape Corp provides the landscaping services to Retail Corp, a corporation with retail locations in several states, and the services are with respect to those locations of Retail Corp that are in Kentucky and in other states. The receipts from the sale of services provided to Retail Corp shall be in Kentucky to the extent the services are provided in Kentucky.

d. Example. Camera Corp provides camera repair services at a Kentucky retail location to walk-in individual and business customers. In some cases, Camera Corp actually repairs a camera that is brought to its in-state location at a facility that is in another state. In these cases, the repaired camera is then returned to the customer at Camera Corp's Kentucky location. The receipts from sale of these services shall be in Kentucky.

e. Example. Same facts as in Example d., except that a customer located in Kentucky mails the camera directly to the out-of-state facility owned by Camera Corp to be fixed, and receives the repaired camera back in Kentucky by mail. The receipts from sale of the service shall be in Kentucky.

f. Example. Teaching Corp provides seminars in Kentucky to individual and business customers. The seminars and the materials used in connection with the seminars are prepared outside the state. The teachers who teach the seminars include teachers that are residents outside the state, and the students who attend the seminars include students that are residents outside the state. Because the seminars are taught in Kentucky, the receipts from sales of the services shall be in Kentucky.

(8) Services Delivered to the Customer, or on Behalf of the Customer, or Delivered Electronically Through the Customer.

(a) If the service provided by the taxpayer is not an in-person service within the meaning of subsection (7)(b) of this section, or a professional service within the meaning of subsection (10) of this section, and the service is delivered to or on behalf of the customer, or delivered electronically through the customer, the receipts from a sale are in this state if and to the extent that the service is delivered in this state. For the purposes of this subsection and subsection (9) of this section, a service that is delivered "to" a customer is a service in which the customer and not a third party is the recipient of the service. A service that is delivered "on behalf of" a customer is one in which a customer contracts for a service, but one (1) or more third parties, rather than the customer, is the recipient of the service, such as fulfillment services, or the direct or indirect delivery of advertising to the customer's intended audience. A service may be delivered to or on behalf of a customer by physical means or through electronic transmission. A service that is delivered electronically "through" a customer is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to an end user or other third-party recipient.

(b) Assignment of Receipts. The assignment of receipts to a state or states in the instance of a sale of a service that is delivered to the customer or on behalf of the customer, or delivered electronically through the customer, depends upon the method of delivery of the service and the nature of the customer. Separate rules of assignment apply to services delivered by physical means and services delivered by electronic transmission. For purposes of this subsection, a service delivered by an electronic transmission is not a delivery by a physical means. If a rule of assignment set forth in this administrative regulation depends on whether the customer is an individual or a business customer and the taxpayer acting in good faith cannot reasonably determine whether the customer is an individual or business customer, the taxpayer shall treat the customer as a business customer. If the state to which the receipts from a sale are to be assigned may be determined or reasonably approximated, but the taxpayer is not taxable in that state, the receipts that may be assigned to that state shall be excluded from the denominator of the taxpayer's receipts factor.

Delivery to or on Behalf of a Customer by Physical Means Whether to an Individual or Business Customer. Examples of services delivered to a customer or on behalf of a customer through a physical means include services such as:

a. Product delivery services if property is delivered to the customer or to a third party on behalf of the customer;

b. The delivery of brochures, fliers, or other direct mail services;

c. The delivery of advertising or advertising-related services to the customer's intended audience in the form of a physical medium; and

d. The sale of custom software if the taxpayer installs the custom software at the customer's site (e.g., if software is developed for a specific customer in a case when the transaction is properly treated as a service transaction for purposes of corporate taxation). The rules in this administrative regulation apply whether the taxpayer's customer is an individual customer or a business customer.

Rule of Determination. In assigning the receipts from a sale of a service delivered to a customer or on behalf of a customer through a physical means, a taxpayer shall first attempt to determine the state or states where the service is delivered. If the taxpayer is able to determine the state or states where the service is delivered, it shall assign the receipts to that state or states.
Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the service is actually delivered, but has sufficient information regarding the place of delivery from which it may reasonably approximate the state or states where the service is delivered, it shall reasonably approximate the state or states.
Examples. In these examples assume, unless otherwise stated, that the taxpayer is taxable in each state to which its receipts may be assigned, so that there is no requirement in these examples that the receipts shall be eliminated from the denominator of the taxpayer's receipts factor.

a. Example. Direct Mail Corp, a corporation based outside Kentucky, provides direct mail services to its customer, Business Corp. Business Corp contracts with Direct Mail Corp to deliver printed fliers to a list of customers that is provided to it by Business Corp. Some of Business Corp's customers are in Kentucky and some of those customers are in other states. Direct Mail Corp will use the postal service to deliver the printed fliers to Business Corp's customers. The receipts from the sale of Direct Mail Corp's services to Business Corp shall be assigned to Kentucky to the extent that the services are delivered on behalf of Business Corp to Kentucky customers (i.e., to the extent that the fliers are delivered on behalf of Business Corp to Business Corp's intended audience in Kentucky).

b. Example. Ad Corp is a corporation based outside Kentucky that provides advertising and advertising-related services in Kentucky and in neighboring states. Ad Corp enters into a contract at a location outside Kentucky with an individual customer who is not a Kentucky resident to design advertisements for billboards to be displayed in Kentucky, and to design fliers to be mailed to Kentucky residents. All of the design work is performed outside Kentucky. The receipts from the sale of the design services shall be in Kentucky because the service is physically delivered on behalf of the customer to the customer's intended audience in Kentucky.

c. Example. Same facts as Example b., except that the contract is with a business customer that is based outside Kentucky. The receipts from the sale of the design services shall be in Kentucky because the services are physically delivered on behalf of the customer to the customer's intended audience in Kentucky.

d. Example. Fulfillment Corp, a corporation based outside Kentucky, provides product delivery fulfillment services in Kentucky and in neighboring states to Sales Corp, a corporation located outside Kentucky that sells tangible personal property through a mail order catalog and over the Internet to customers. In some cases if a customer purchases tangible personal property from Sales Corp to be delivered in Kentucky, Fulfillment Corp will, pursuant to its contract with Sales Corp, deliver that property from its fulfillment warehouse located outside Kentucky. The receipts from the sale of the fulfillment services of Fulfillment Corp to Sales Corp shall be assigned to Kentucky to the extent that Fulfillment Corp's deliveries on behalf of Sales Corp are to recipients in Kentucky.

e. Example. Software Corp, a software development corporation, enters into a contract with a business customer, Buyer Corp, which is physically located in Kentucky, to develop custom software to be used in Buyer Corp's business. Software Corp develops the custom software outside Kentucky, and then physically installs the software on Buyer Corp's computer hardware located in Kentucky. The development and sale of the custom software is properly characterized as a service transaction, and the receipts from the sale shall be assigned to Kentucky because the software is physically delivered to the customer in Kentucky.

f. Example. Same facts as Example e., except that Buyer Corp has offices in Kentucky and several other states, but is commercially domiciled outside Kentucky and orders the software from a location outside Kentucky. The receipts from the development and sale of the custom software service shall be assigned to Kentucky because the software is physically delivered to the customer in Kentucky.

(9) Delivery to a Customer by Electronic Transmission. Services delivered by electronic transmission shall include services such as those that are transmitted through the means of wire, lines, cable, fiber optics, electronic signals, satellite transmission, audio or radio waves, or other similar means, whether or not the service provider owns, leases or controls the transmission equipment. In the case of the delivery of a service by electronic transmission to a customer, the following rules shall apply:

(a) Services Delivered By Electronic Transmission to an Individual Customer or Business Customer:

Services Delivered By Electronic Transmission to an Individual Customer.

a. Rule of Determination. In the case of the delivery of a service to an individual customer by electronic transmission, the service shall be delivered in this state if and to the extent the taxpayer's customer receives the service in this state. If the taxpayer may determine the state or states where the service is received, it shall assign the receipts from that sale to that state or states.

b. Rules of Reasonable Approximation. If the taxpayer cannot determine the state or states where the customer actually receives the service, but has sufficient information regarding the place of receipt from which it may reasonably approximate the state or states where the service is received, it shall reasonably approximate the state or states. If a taxpayer does not have sufficient information from which it may determine or reasonably approximate the state or states in which the service is received, it shall reasonably approximate the state or states using the customer's billing address.

Services Delivered By Electronic Transmission to a Business Customer.

a. Rule of Determination. In the case of the delivery of a service to a business customer by electronic transmission, the service shall be delivered in this state if and to the extent that the taxpayer's customer receives the service in this state. If the taxpayer may determine the state or states where the service is received, it shall assign the receipts from that sale to the state or states. For purposes of paragraph (b)2. of this subsection, the state or states where the service is received shall reflect the location at which the service is directly used by the employees or designees of the customer.

b. Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the customer actually receives the service, but has sufficient information regarding the place of receipt from which it may reasonably approximate the state or states where the service is received, it shall reasonably approximate the state or states.

c. Secondary Rule of Reasonable Approximation. In the case of the delivery of a service to a business customer by electronic transmission, if a taxpayer does not have sufficient information from which it may determine or reasonably approximate the state or states in which the service is received, the taxpayer shall reasonably approximate the state or states as set forth in this administrative regulation. In these cases, unless the taxpayer may apply the safe harbor set forth in this subsection the taxpayer shall reasonably approximate the state or states in which the service is received as follows:

(i) By assigning the receipts from the sale to the state where the contract of sale is principally managed by the customer;

(ii) If the state where the customer principally manages the contract is not reasonably determinable, by assigning the receipts from the sale to the customer's place of order; and

(iii) If the customer's place of order is not reasonably determinable, by assigning the receipts from the sale using the customer's billing address except if the taxpayer derives more than five (5) percent of its receipts from sales of services from any single customer, then the taxpayer shall identify the state in which the contract of sale is principally managed by that customer.

d. Safe Harbor. In the case of the delivery of a service to a business customer by electronic transmission, a taxpayer may not be able to determine or reasonably approximate the state or states in which the service is received. In these cases, the taxpayer may, in lieu of the rule stated in paragraph (a)2.c. of this subsection, apply the safe harbor stated in this clause. Under this safe harbor, a taxpayer may assign its receipts from sales to a particular customer based upon the customer's billing address in a taxable year in which the taxpayer:

(i) Engages in substantially similar service transactions with more than 250 customers, whether business or individual; and

(ii) Does not derive more than five (5) percent of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of services delivered by electronic transmission to a business customer.

e. Related Member Transactions. In the case of a sale of a service by electronic transmission to a business customer that is a related member, the taxpayer may not use the secondary rule of reasonable approximation in subclause (iii) of clause c. within this subparagraph. The taxpayer may use the rule of reasonable approximation and the safe harbor provided by this administrative regulation only if the department may aggregate sales to related members in determining whether the sales exceed five (5) percent of receipts from sales of all services under that safe harbor provision if necessary or appropriate to prevent distortion.

f. Examples. In these examples, unless otherwise stated, assume that the taxpayer is not related to the customer to which the service is delivered. Assume that the taxpayer is taxable in each state to which its receipts may be assigned, so that there is no requirement in these examples that the receipts shall be eliminated from the denominator of the taxpayer's receipts factor. Further, assume if relevant, unless otherwise stated, that the safe harbor set forth in clause d. of this subparagraph does not apply.

(i) Example. Support Corp, a corporation that is based outside Kentucky, provides software support and diagnostic services to individual and business customers that have previously purchased certain software from third-party vendors. These individual and business customers are located in Kentucky and other states. Support Corp supplies its services on a case-by-case basis if directly contacted by its customer. Support Corp generally provides these services through the Internet, but sometimes provides these services by phone. In all cases, Support Corp verifies the customer's account information before providing any service. Using the information that Support Corp verifies before performing a service, Support Corp may determine where its services are received, and therefore shall assign its receipts to these locations. The receipts from sales made to Support Corp's individual and business customers shall be in Kentucky to the extent that Support Corp's services are received in Kentucky.

(ii) Example. Online Corp, a corporation based outside Kentucky, provides Web-based services through the means of the Internet to individual customers who are residents in Kentucky and in other states. These customers access Online Corp's Web services primarily in their states of residence, and sometimes, while traveling, in other states. For a substantial portion of its receipts from the sale of services, Online Corp may either determine the state or states where the services are received, or, if it cannot determine the state or states, it has sufficient information regarding the place of receipt to reasonably approximate the state or states. However, Online Corp cannot determine or reasonably approximate the state or states of receipt for all of the sales of its services. Assuming that Online Corp reasonably believes, based on all available information, that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its services generally tracks those for which it does have this information, Online Corp shall assign to Kentucky the receipts from sales for which it does not know the customers' locations in the same proportion as those receipts for which it has this information.

(iii) Example. Same facts as in Example (ii), except that Online Corp reasonably believes that the geographic distribution of the receipts from sales for which it cannot determine or reasonably approximate the location of the receipt of its Web-based services do not generally track the sales for which it does have this information. Online Corp shall assign the receipts from sales of its services for which it lacks information as provided to its individual customers using the customers' billing addresses.

(iv) Example. Same facts as in Example (iii), except that Online Corp is not taxable in one (1) state to which some of its receipts from sales may be assigned. The receipts that may be assigned to that state shall be excluded from the denominator of Online Corp's receipts factor.

(v) Example. Net Corp, a corporation based outside Kentucky, provides Web-based services to a business customer, Business Corp, a company with offices in Kentucky and two (2) neighboring states. Particular employees of Business Corp access the services from computers in each Business Corp office. Assume that Net Corp determines that Business Corp employees in Kentucky were responsible for seventy-five (75) percent of Business Corp's use of Net Corp's services, and Business Corp employees in other states were responsible for twenty-five (25) percent of Business Corp's use of Net Corp's services. Seventy-five (75) percent of the receipts from the sale are received in Kentucky. Assume alternatively that Net Corp lacks sufficient information regarding the location or locations where Business Corp's employees used the services to determine or reasonably approximate the location or locations. Under these circumstances, if Net Corp derives five (5) percent or less of its receipts from sales to Business Corp, Net Corp shall assign the receipts under the secondary rule of approximation to the state where Business Corp principally managed the contract, or if that state is not determinable, to the state where Business Corp placed the order for the services, or if that state is not reasonably determinable, to the state of Business Corp's billing address. If Net Corp derives more than five (5) percent of its receipts from sales of services to Business Corp, Net Corp shall identify the state in which its contract of sale is principally managed by Business Corp and shall assign the receipts to that state.

(vi) Example. Net Corp, a corporation based outside Kentucky, provides Web-based services through the means of the Internet to more than 250 individual and business customers in Kentucky and in other states. Assume that for each customer Net Corp cannot determine the state or states where its Web services are actually received, and lacks sufficient information regarding the place of receipt to reasonably approximate the state or states. Assume that Net Corp does not derive more than five (5) percent of its receipts from sales of services to a single customer. Net Corp may apply the safe harbor, and may assign its receipts using each customer's billing address. If Net Corp is not taxable in one (1) or more states to which some of its receipts may be assigned, it shall exclude those receipts from the denominator of its receipts factor.

(b) Services Delivered Electronically Through or "on Behalf of" an Individual or Business Customer. A service delivered electronically "on behalf of" the customer is one in which a customer contracts for a service to be delivered electronically, but one (1) or more third parties, rather than the customer, is the recipient of the service, such as the direct or indirect delivery of advertising on behalf of a customer to the customer's intended audience. A service delivered electronically "through" a customer to third-party recipients is a service that is delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to end users or other third-party recipients.

Rule of Determination. In the case of the delivery of a service by electronic transmission, if the service is delivered electronically to end users or other third-party recipients through or on behalf of the customer, the service is delivered in this state if and to the extent that the end users or other third-party recipients are in this state. For example, in the case of the direct or indirect delivery of advertising on behalf of a customer to the customer's intended audience by electronic means, the service shall be delivered in this state to the extent that the audience for the advertising is in this state. In the case of the delivery of a service to a customer that acts as an intermediary in reselling the service in substantially identical form to third-party recipients, the service shall be delivered in this state to the extent that the end users or other third-party recipients receive the services in this state. These rules apply if the taxpayer's customer is an individual customer or a business customer and if the end users or other third-party recipients to which the services are delivered through or on behalf of the customer are individuals or businesses.
Rule of Reasonable Approximation. If the taxpayer cannot determine the state or states where the services are actually delivered to the end users or other third-party recipients either through or on behalf of the customer, but has sufficient information regarding the place of delivery from which it may reasonably approximate the state or states where the services are delivered, it shall reasonably approximate the state or states.
Select Secondary Rules of Reasonable Approximation.

a. If a taxpayer's service is the direct or indirect electronic delivery of advertising on behalf of its customer to the customer's intended audience, and if the taxpayer lacks sufficient information regarding the location of the audience from which it may determine or approximate that location, the taxpayer shall approximate the audience in a state for the advertising using the following secondary rules of reasonable approximation. If a taxpayer is delivering advertising directly or indirectly to a known list of subscribers, the taxpayer shall approximate the audience for advertising in a state using a percentage that reflects the ratio of the state's subscribers in the specific geographic area in which the advertising is delivered relative to the total subscribers in that area. For a taxpayer with less information about its audience, the taxpayer shall approximate the audience in a state using the percentage that reflects the ratio of the state's population in the specific geographic area in which the advertising is delivered relative to the total population in that area.

b. The taxpayer shall approximate the extent to which the service is received in a state by using the percentage that reflects the ratio of the state's population in the specific geographic area in which the taxpayer's intermediary resells the services, relative to the total population in that area:

(i) If a taxpayer's service is the delivery of a service to a customer that then acts as the taxpayer's intermediary in reselling that service to end users or other third party recipients; or

(ii) If the taxpayer lacks sufficient information regarding the location of the end users or other third party recipients from which it may determine or reasonably approximate that location.

c. Examples. Assume in each of these examples that the taxpayer that provides the service is taxable in this state and shall apportion its income pursuant to KRS 141.120.

(i) Example: Web Corp, a corporation that is based outside Kentucky, provides Internet content to viewers in Kentucky and other states. Web Corp sells advertising space to business customers pursuant to which the customers' advertisements shall appear in connection with Web Corp's Internet content. Web Corp receives a fee for running the advertisements that is determined by reference to the number of times the advertisement is viewed or clicked upon by the viewers of its Web site. Web Corp's sale of advertising space to its business customers shall be assigned to Kentucky to the extent that the viewers of the Internet content are in Kentucky, as measured by viewings or clicks. If Web Corp is unable to determine the actual location of its viewers, and lacks sufficient information regarding the location of its viewers to reasonably approximate the location, Web Corp shall approximate the amount of its Kentucky sales by multiplying the amount of the sales by a percentage that reflects the Kentucky population in the specific geographic area in which the content containing the advertising is delivered relative to the total population in the area.

(ii) Example. Retail Corp, a corporation that is based outside of Kentucky, sells tangible property through its retail stores located in Kentucky and other states, and through a mail order catalog. Answer Co, a corporation that operates call centers in multiple states, contracts with Retail Corp to answer telephone calls from individuals placing orders for products found in Retail Corp's catalogs. The phone answering services of Answer Co are being delivered to Retail Corp's customers and prospective customers. Therefore, Answer Co is delivering a service electronically to Retail Corp's customers or prospective customers on behalf of Retail Corp, and shall assign the proceeds from this service to the state or states from which the phone calls are placed by the customers or prospective customers. If Answer Co cannot determine the actual locations from which phone calls are placed, and lacks sufficient information regarding the locations to reasonably approximate the locations, Answer Co shall approximate the amount of its Kentucky sales by multiplying the amount of its fee from Retail Corp by a percentage that reflects the Kentucky population in the specific geographic area from which the calls are placed relative to the total population in the area.

(iii) Example. Web Corp, a corporation that is based outside of Kentucky, sells tangible property to customers via its Internet website. Design Co designed and maintains Web Corp's website, including making changes to the site based on customer feedback received through the site. Design Co's services are delivered to Web Corp, the proceeds from which shall be assigned pursuant to this subsection. The fact that Web Corp's customers and prospective customers incidentally benefit from Design Co's services, and may even interact with Design Co in the course of providing feedback, does not transform the service into one delivered "on behalf of" Web Corp to Web Corp's customers and prospective customers.

(iv) Example. Wholesale Corp, a corporation that is based outside Kentucky, develops an Internet-based information database outside Kentucky and enters into a contract with Retail Corp under which Retail Corp will market and sell access to this database to end users. Depending on the facts, the provision of database access may be either the sale of a service or the license of intangible property, or may have elements of both. Assume that on the particular facts applicable in this example, Wholesale Corp is selling database access in transactions properly characterized as involving the performance of a service. If an end user purchases access to Wholesale Corp's database from Retail Corp, Retail Corp in turn compensates Wholesale Corp in connection with that transaction. Wholesale Corp's services are being delivered through Retail Corp to the end user. Wholesale Corp shall assign its sales to Retail Corp to the state or states in which the end users receive access to Wholesale Corp's database. If Wholesale Corp cannot determine the state or states where the end users actually receive access to Wholesale Corp's database, and lacks sufficient information regarding the location from which the end users access the database to reasonably approximate the location, Wholesale Corp shall approximate the extent to which its services are received by end users in Kentucky. Wholesale Corp shall approximate by using a percentage that reflects the ratio of the Kentucky population in the specific geographic area in which Retail Corp regularly markets and sells Wholesale Corp's database relative to the total population in the area. It does not matter for purposes of the analysis whether Wholesale Corp's sale of database access constitutes a service or a license of intangible property, or some combination of both.

(10) Professional Services.

(a) Except as provided in this subsection, professional services are services that require specialized knowledge, and in some cases, require a professional certification, license, or degree. These services include the performance of technical services that require the application of specialized knowledge. Professional services shall include services such as:

Management services;
Bank and financial services;
Financial custodial services;
Investment and brokerage services;
Fiduciary services;
Tax preparation;
Payroll and accounting services;
Lending services;
Credit card services (including credit card processing services);
Data processing services;
Legal services;
Consulting services;
Video production services;
Graphic and other design services;
Engineering services; and
Architectural services.

(b) Overlap with Other Categories of Services.

Certain services that are under "professional services" as set forth in paragraph (a)1. through 16. of this subsection are nevertheless treated as "in-person services", and shall be assigned under the rules of subsection (7)(b) of this section. Professional services that are physically provided in person by the taxpayer such as carpentry, certain medical and dental services, or child care services, if the customer or the customer's real or tangible property upon which the services are provided is in the same location as the service provider when the services are performed, are "in-person services". In-person services are assigned as these, but may be considered to be "professional services." However, professional services, if the service is of an intellectual or intangible nature, such as legal, accounting, financial, and consulting services shall be assigned as professional services under the rules of this subsection, notwithstanding the fact that these services may involve some amount of in-person contact.
Professional services may include the transmission of one (1) or more documents or other communications by mail or by electronic means. In some cases, all or most communications between the service provider and the service recipient may be by mail or by electronic means. However, despite this transmission, the assignment rules that apply shall be those set forth in this subsection and not those set forth in subsection (8) of this section pertaining to services delivered to a customer or through or on behalf of a customer.

(c) Assignment of Receipts. In the case of a professional service, it is generally possible to characterize the location of delivery in multiple ways by emphasizing different elements of the service provided, no one (1) of which shall consistently represent the market for the services. Therefore, the location of delivery in the case of professional services is not susceptible to a general rule of determination, and shall be reasonably approximated. The assignment of receipts from a sale of a professional service depends in many cases upon whether the customer is an individual or business customer. In any instance in which the taxpayer, acting in good faith, cannot reasonably determine whether the customer is an individual or business customer, the taxpayer shall treat the customer as a business customer. For purposes of assigning the receipts from a sale of a professional service, a taxpayer's customer shall be the person that contracts for the service, irrespective of whether another person pays for or benefits from the taxpayer's services. If the taxpayer is not taxable in the state to which receipts from a sale is assigned, the receipts are excluded from the denominator of the taxpayer's receipts factor pursuant to KRS 141.120(11)(c).

General Rule. Receipts from sales of professional services shall be assigned in accordance with this section, other than those services described in:

a. Subparagraph 2. of this paragraph on architectural and engineering services;

b. Subparagraph 3. of this paragraph on transactions with related members.

c. Professional Services Delivered to Individual Customers. Except as provided in this subsection, in any instance in which the service provided is a professional service and the taxpayer's customer is an individual customer, the state or states in which the service is delivered shall be reasonably approximated as set forth in this subsection. The taxpayer shall assign the receipts from a sale to the customer's state of primary residence, or, if the taxpayer cannot reasonably identify the customer's state of primary residence, to the state of the customer's billing address. Except in any instance in which the taxpayer derives more than five (5) percent of its receipts from sales of all services from an individual customer, the taxpayer shall identify the customer's state of primary residence and shall assign the receipts from the service or services provided to that customer to that state.

d. Professional Services Delivered to Business Customers. Except as provided in this subsection, in any instance in which the service provided is a professional service and the taxpayer's customer is a business customer, the state or states in which the service is delivered shall be reasonably approximated as set forth in this section. Unless the taxpayer may use the safe harbor set forth in clause e. of this subparagraph, the taxpayer shall assign the receipts from the sale as follows:

(i) By assigning the receipts to the state where the contract of sale is principally managed by the customer;

(ii) If the place of customer management is not reasonably determinable, to the customer's place of order; and

(iii) If the customer's place of order is not reasonably determinable, to the customer's billing address. Except in any instance in which the taxpayer derives more than five (5) percent of its receipts from sales of all services from a customer, the taxpayer shall identify the state in which the contract of sale is principally managed by the customer.

e. Safe Harbor; Large Volume of Transactions. Except as provided in the rules set forth in clauses c. and d. of this subparagraph, a taxpayer may assign its receipts from sales to a particular customer based on the customer's billing address in any taxable year in which the taxpayer engages in substantially similar service transactions with more than 250 customers, whether individual or business, and does not derive more than five (5) percent of its receipts from sales of all services from that customer. This safe harbor applies only for purposes of clause c. of this subparagraph.

Architectural and Engineering Services with respect to Real or Tangible Personal Property. Architectural and engineering services with respect to real or tangible personal property are professional services within the meaning of this subsection. However, unlike in the case of the general rule that applies to professional services:

a. The receipts from a sale of an architectural service shall be assigned to a state or states if the services are with respect to real estate improvements located, or expected to be located, in the state or states; and

b. The receipts from a sale of an engineering service shall be assigned to a state or states if the services are with respect to tangible or real property located in the state or states, including real estate improvements located in, or expected to be located in, the state or states. These rules shall apply if the customer is an individual or business customer. In any instance in which architectural or engineering services are not described in this subparagraph, the receipts from a sale of these services shall be assigned under the general rule for professional services.

Related Member Transactions. In any instance in which the professional service is sold to a related member, rather than applying the rule for professional services delivered to business customers in paragraph (c)1.d. of this subsection, the state or states to which the service shall be assigned is the place of receipt by the related member as reasonably approximated using the following hierarchy:

a. If the service primarily relates to specific operations or activities of a related member conducted in one (1) or more locations, then to the state or states in which those operations or activities are conducted in proportion to the related member's payroll at the locations to which the service relates in the state or states; or

b. If the service does not relate primarily to operations or activities of a related member conducted in particular locations, but instead relates to the operations of the related member generally, then to the state or states in which the related member has employees, in proportion to the related member's payroll in those states. The taxpayer may use the safe harbor provided by this administrative regulation only if the department may aggregate the receipts from sales to related members in applying the five (5) percent rule if necessary or appropriate to avoid distortion.

Broadcast Advertising Services. Notwithstanding anything contained in this administrative regulation to the contrary, receipts from a broadcaster's sale of advertising services to a broadcast customer shall be assigned to this state if the commercial domicile of the broadcast customer is in this state.
Examples. Unless otherwise stated, assume in each of these examples, if relevant, that the taxpayer is taxable in each state to which its receipts may be assigned, so that there is no requirement in the examples that the receipts shall be excluded from the denominator of the taxpayer's receipts factor. Assume that the customer is not a related member and that the safe harbor does not apply.

a. Example. Broker Corp provides securities brokerage services to individual customers who are resident in Kentucky and in other states. Assume that Broker Corp knows the state of primary residence for many of its customers, and if it does not know this state of primary residence, it knows the customer's billing address. Assume that Broker Corp does not derive more than five (5) percent of its receipts from sales of all services from any one (1) individual customer. If Broker Corp knows its customer's state of primary residence, it shall assign the receipts to that state. If Broker Corp does not know its customer's state of primary residence, but rather knows the customer's billing address, it shall assign the receipts to that state.

b. Example. Same facts as in Example a., except that Broker Corp has several individual customers from whom it derives, in each instance, more than five (5) percent of its receipts from sales of all services. Receipts from sales to customers from whom Broker Corp derives five (5) percent or less of its receipts from sales of all services shall be assigned as described in Example a.. For each customer from whom it derives more than five (5) percent of its receipts from sales of all services, Broker Corp shall determine the customer's state of primary residence and shall assign the receipts from the services provided to that customer to that state. In any case in which a five (5) percent customer's state of primary residence is Kentucky, receipts from a sale made to that customer shall be assigned to Kentucky. In any case in which a five (5) percent customer's state of primary residence is not Kentucky, receipts from a sale made to that customer shall not be assigned to Kentucky. If receipts from a sale are assigned to a state other than Kentucky, if the state of assignment (i.e., the state of primary residence of the individual customer) is a state in which Broker Corp is not taxable, receipts from the sales shall be excluded from the denominator of Broker Corp's receipts factor.

c. Example. Architecture Corp provides building design services as to buildings located, or expected to be located, in Kentucky to individual customers who are resident in Kentucky and other states, and to business customers that are based in Kentucky and other states. The receipts from Architecture Corp's sales shall be assigned to Kentucky because the locations of the buildings to which its design services relate are in Kentucky, or are expected to be in Kentucky. For purposes of assigning these receipts, it is not relevant where, in the case of an individual customer, the customer primarily resides or is billed for the services, and it is not relevant where, in the case of a business customer, the customer principally manages the contract, placed the order for the services, or is billed for the services. Further, these receipts shall be assigned to Kentucky even if Architecture Corp's designs are either physically delivered to its customer in paper form in a state other than Kentucky or are electronically delivered to its customer in a state other than Kentucky.

d. Example. Law Corp provides legal services to individual clients who are residents in Kentucky and in other states. In some cases, Law Corp may prepare one (1) or more legal documents for its client as a result of these services or the legal work may be related to litigation or a legal matter that is ongoing in a state other than where the client is resident. Assume that Law Corp knows the state of primary residence for many of its clients, and if it does not know the state of primary residence, it knows the client's billing address. Assume that Law Corp does not derive more than five (5) percent of its receipts from sales of all services from any one (1) individual client. If Law Corp knows its client's state of primary residence, it shall assign the receipts to that state. If Law Corp does not know its client's state of primary residence, but rather knows the client's billing address, it shall assign the receipts to that state. For purposes of the analysis, it is irrelevant whether the legal documents relating to the service are mailed or otherwise delivered to a location in another state, or the litigation or other legal matter that is the underlying predicate for the services is in another state.

e. Example. Same facts as in Example d., except that Law Corp provides legal services to several individual clients who it knows have a primary residence in a state where Law Corp is not taxable. Receipts from these services shall be excluded from the denominator of Law Corp's receipts factor even if the billing address of one (1) or more of these clients is in a state in which Law Corp is taxable, including Kentucky.

f. Example. Law Corp provides legal services to several multistate business clients. In each case, Law Corp knows the state in which the agreement for legal services that governs the client relationship is principally managed by the client. In one (1) case, the agreement is principally managed in Kentucky; in the other cases, the agreement is principally managed in a state other than Kentucky. If the agreement for legal services is principally managed by the client in Kentucky the receipts from sale of the services shall be assigned to Kentucky; in the other cases, the receipts shall not be assigned to Kentucky. In the case of receipts that shall be assigned to Kentucky, the receipts shall be assigned even if:

(i) The legal documents relating to the service are mailed or otherwise delivered to a location in another state; or

(ii) The litigation or other legal matter that is the underlying predicate for the services is in another state.

g. Example. Same facts as in Example f., except that Law Corp is not taxable in one (1) of the states other than Kentucky in which Law Corp's agreement for legal services that governs the client relationship is principally managed by the business client. Receipts from these latter services shall be excluded from the denominator of Law Corp's receipts factor.

h. Example. Consulting Corp, a company that provides consulting services to law firms and other customers, is hired by Law Corp in connection with legal representation that Law Corp provides to Client Co. Specifically, Consulting Corp is hired to provide expert testimony at a trial being conducted by Law Corp on behalf of Client Co. Client Co pays for Consulting Corp's services directly. Assuming that Consulting Corp knows that its agreement with Law Corp is principally managed by Law Corp in Kentucky, the receipts from the sale of Consulting Corp's services shall be assigned to Kentucky. It is not relevant for purposes of the analysis that Client Co is the ultimate beneficiary of Consulting Corp's services, or that Client Co pays for Consulting Corp's services directly.

i. Example. Advisor Corp, a corporation that provides investment advisory services, provides these advisory services to Investment Co. Investment Co is a multistate business client of Advisor Corp that uses Advisor Corp's services in connection with investment accounts that it manages for individual clients, who are the ultimate beneficiaries of Advisor Corp's services. Assume that Investment Co's individual clients are persons that are residents in numerous states, which may or may not include Kentucky. Assuming that Advisor Corp knows that its agreement with Investment Co is principally managed by Investment Co in Kentucky, receipts from the sale of Advisor Corp's services shall be assigned to Kentucky. It is not relevant for purposes of the analysis that the ultimate beneficiaries of Advisor Corp's services may be Investment Co's clients, who are residents of numerous states.

j. Example. Advisor Corp provides investment advisory services to Investment Fund LP, a partnership that invests in securities and other assets. Assuming that Advisor Corp knows that its agreement with Investment Fund LP is principally managed by Investment Fund LP in Kentucky, receipts from the sale of Advisor Corp's services shall be assigned to Kentucky. It is not relevant for purposes of the analysis that the partners in Investment Fund LP are residents of numerous states.

k. Example. Design Corp is a corporation based outside Kentucky that provides graphic design and similar services in Kentucky and in neighboring states. Design Corp enters into a contract at a location outside Kentucky with an individual customer to design fliers for the customer. Assume that Design Corp does not know the individual customer's state of primary residence and does not derive more than five (5) percent of its receipts from sales of services from the individual customer. All of the design work is performed outside Kentucky. Receipts from the sales shall be in Kentucky if the customer's billing address is in Kentucky.

(11) License, Lease or Rental of Intangible Property.

(a)

The receipts from the license of intangible property are in this state if the intangible is used in this state. "Use" is construed to refer to the location of the taxpayer's market for the use of the intangible property that is being licensed and is not to be construed to refer to the location of the property or payroll of the taxpayer. The rules that shall apply to determine the location of the use of intangible property in the context of several specific types of licensing transactions shall be set forth in paragraphs (b) through (f) of this subsection. For purposes of the rules set forth in this subsection, a lease or rental of intangible property shall be treated the same as a license of intangible property.
A license of intangible property that conveys all substantial rights in that property shall be treated as a sale of intangible property for purposes of this administrative regulation. For purposes of this subsection and subsection (12) of this section, a sale or exchange of intangible property shall be treated as a license of that property if the receipts from the sale or exchange are derived from payments that are contingent on the productivity, use, or disposition of the property.
Intangible property licensed as part of the sale or lease of tangible property shall be treated under this section as the sale or lease of tangible property.
In any instance in which the taxpayer is not taxable in the state to which the receipts from the license of intangible property shall be assigned, the receipts shall be excluded from the denominator of the taxpayer's receipts factor pursuant to KRS 141.120(11)(c).
Nothing in this administrative regulation shall be construed to allow or require inclusion of receipts in the receipts factor that are not included in the definition of "receipts" pursuant to KRS 141.120(1)(e), or that are excluded from the numerator and the denominator of the receipts factor pursuant to KRS 141.120(11)(a)4.b.(iii). To the extent that the transfer of either a security or business "goodwill" or similar intangible value, including, "going concern value" or "workforce in place," may be characterized as a license or lease of intangible property, receipts from the transaction shall be excluded from the numerator and the denominator of the taxpayer's receipts factor.

(b) License of a Marketing Intangible.

If a license is granted for the right to use intangible property in connection with the sale, lease, license, or other marketing of goods, services, or other items (i.e., a marketing intangible) to a consumer, the royalties or other licensing fees paid by the licensee for that marketing intangible shall be assigned to this state to the extent thatthose fees are attributable to the sale or other provision of goods, services, or other items purchased or otherwise acquired by consumers or other ultimate customers in this state.

a. Examples of a license of a marketing intangible shall include:

(i) The license of a service mark, trademark, or trade name;

(ii) Certain copyrights;

(iii) The license of a film, television or multimedia production or event for commercial distribution; and

(iv) A franchise agreement.

b. In each of these instances, the license of the marketing intangible is intended to promote consumer sales.

In the case of the license of a marketing intangible, if a taxpayer has actual evidence of the amount or proportion of its receipts that is attributable to this state, it shall assign that amount or proportion to this state. In the absence of actual evidence of the amount or proportion of the licensee's receipts that are derived from consumers in this state, the portion of the licensing fee to be assigned to this state shall be reasonably approximated by multiplying the total fee by a percentage that reflects the ratio of the population of this state in the specific geographic area in which the licensee makes material use of the intangible property to regularly market its goods, services, or other items relative to the total population in that area.
If the license of a marketing intangible is for the right to use the intangible property in connection with sales or other transfers at wholesale rather than directly to retail customers, the portion of the licensing fee to be assigned to this state shall be reasonably approximated by multiplying the total fee by a percentage that reflects the ratio of the population of this state in the specific geographic area in which the licensee's goods, services, or other items are ultimately and materially marketed using the intangible property relative to the total population of that area.
Unless the taxpayer demonstrates that the marketing intangible is materially used in the marketing of items outside the United States, the fees from licensing those marketing intangible shall be presumed to be derived from within the United States.

If a license is granted for the right to use intangible property other than in connection with the sale, lease, license, or other marketing of goods, services, or other items, and the license is to be used in a production capacity (a "production intangible"), the licensing fees paid by the licensee for that right shall be assigned to this state to the extent that the use for which the fees are paid takes place in this state.
Examples of a license of a production intangible shall include items such as the license of a patent, a copyright, or trade secrets to be used in a manufacturing process, if the value of the intangible lies predominately in its use in that process.
In the case of a license of a production intangible to a member other than a related member, if the location of actual use is unknown, it shall be presumed that the use of the intangible property takes place in the state of the licensee's commercial domicile if the licensee is a business or the licensee's state of primary residence if licensee is an individual. If the department may reasonably establish that the actual use of intangible property pursuant to a license of a production intangible takes place in part in this state, it shall be presumed that the entire use is in this state, except to the extent that the taxpayer may demonstrate that the actual location of a portion of the use takes place outside this state. In the case of a license of a production intangible to a related member, the taxpayer shall assign the receipts to where the intangible property is actually used.

(d) License of a Broadcasting Intangible.

If a broadcaster grants a license to a broadcast customer for the right to use film programming, the licensing fees paid by the licensee for the right shall be assigned to this state to the extent that the broadcast customer is located in this state.
In the case of business customers, the broadcast customer's location shall be determined using the broadcast customer's commercial domicile.
In the case of individual customers, the broadcast customer's location shall be determined using the address of the broadcast customer listed in the broadcaster's records.

(e) License of a Mixed Intangible. If a license of intangible property includes both a license of a marketing intangible and a license of a production intangible (a "mixed intangible") and the fees to be paid in each instance are separately and reasonably stated in the licensing contract, the department shall accept that separate statement for purposes of this administrative regulation. If a license of intangible property includes both a license of a marketing intangible and a license of a production intangible and the fees to be paid in each instance are not separately and reasonably stated in the contract, it shall be presumed that the licensing fees are paid entirely for the license of the marketing intangible, except to the extent that the taxpayer or the department may reasonably establish otherwise.

(f) License of Intangible Property if Substance of Transaction Resembles a Sale of Goods or Services.

In some cases, the license of intangible property will resemble the sale of an electronically delivered good or service rather than the license of a marketing intangible or a production intangible. In these cases, the receipts from the licensing transaction shall be assigned by applying the rules set forth in subsection (9)(a) and (b) of this section, as if the transaction were a service delivered to an individual or business customer or delivered electronically through an individual or business customer, as applicable. Examples of transactions to be assigned under this subsection shall include transactions such as:

a. The license of database access;

b. The license of access to information;

c. The license of digital goods; and

d. The license of certain software (e.g., if the transaction is not the license of pre-written software that is treated as the sale of tangible personal property.)

Sublicenses. Pursuant to this paragraph, the rules of subsection (9)(b) of this section may apply if a taxpayer licenses intangible property to a customer that in turn sublicenses the intangible property to end users as if the transaction were a service delivered electronically through a customer to end users. The rules set forth in subsection (9)(b) of this section that apply to services delivered electronically to a customer for purposes of resale and subsequent electronic delivery in substantially identical form to end users or other recipients may apply with respect to licenses of intangible property for purposes of sublicense to end users. For this purpose, the intangible property sublicensed to an end user shall not fail to be substantially identical to the property that was licensed to the sublicensor merely because the sublicense transfers a reduced bundle of rights with respect to that property (e.g., because the sublicensee's rights are limited to its own use of the property and do not include the ability to grant a further sublicense), or because that property is bundled with additional services or items of property.
Examples. In these examples, unless otherwise stated, assume that the taxpayer is taxable in each state to which its receipts may be assigned so that there is no requirement in these examples that the receipts shall be eliminated from the denominator of the taxpayer's receipts factor. Assume that the customer is not a related member.

a. Example. Crayon Corp and Dealer Co enter into a license contract under which Dealer Co as licensee may use trademarks that are owned by Crayon Corp in connection with Dealer Co's sale of certain products to retail customers. Under the contract, Dealer Co shall pay Crayon Corp a licensing fee that is a fixed percentage of the total volume of monthly sales made by Dealer Co of products using the Crayon Corp trademarks. Under the contract, Dealer Co may sell the products at multiple store locations, including store locations that are both within and without Kentucky. Further, the licensing fees that are paid by Dealer Co are broken out on a per-store basis. The licensing fees paid to Crayon Corp by Dealer Co shall represent fees from the license of a marketing intangible. The portion of the fees assigned to Kentucky shall be determined by multiplying the fees by a percentage that reflects the ratio of Dealer Co's receipts that are derived from its Kentucky stores relative to Dealer Co's total receipts.

b. Example. Network Corp is a broadcaster that licenses rights to its film programming to both platform distribution companies and individual customers. Platform distribution companies pay licensing fees to Network Corp for the rights to distribute Network Corp's film programming to the platform distribution companies' customers. Network Corp's individual customers pay access fees to Network Corp for the right to directly access and view Network Corp's film programming. Network Corp's receipts from each platform distribution company shall be assigned to Kentucky if the broadcast customer's commercial domicile is in Kentucky. Network Corp's receipts from each individual broadcast customer shall be assigned to Kentucky if the address of the broadcast customer listed in the broadcaster's records is in Kentucky.

c. Example. Moniker Corp enters into a license contract with Wholesale Co. Pursuant to the contract, Wholesale Co may use trademarks owned by Moniker Corp to brand sports equipment that is to be manufactured by Wholesale Co or an unrelated entity, and to sell the manufactured equipment to unrelated companies that will ultimately market the equipment to consumers in a specific geographic region, including a foreign country. The license agreement confers a license of a marketing intangible, even though the trademarks in question shall be affixed to property to be manufactured. In addition, the license of the marketing intangible is for the right to use the intangible property in connection with sales to be made at wholesale rather than directly to retail customers. The component of the licensing fee that constitutes the Kentucky receipts of Moniker Corp shall be determined by multiplying the amount of the fee by a percentage that reflects the ratio of the Kentucky population in the specific geographic region relative to the total population in that region. If Moniker Corp is able to reasonably establish that the marketing intangible was materially used throughout a foreign country, then the population of that country shall be included in the population ratio calculation. However, if Moniker Corp is unable to reasonably establish that the marketing intangible was materially used in the foreign country in areas outside a particular major city; then none of the foreign country's population beyond the population of the major city is included in the population ratio calculation. If Moniker Corp is not taxable in any state or foreign country in which Wholesale Co's ultimate consumers are located, the receipts that may be assigned to that state shall be excluded from the denominator of Moniker Corp's receipts factor.

d. Example. Formula, Inc and Appliance Co enter into a license contract under which Appliance Co may use a patent owned by Formula, Inc to manufacture appliances. The license contract specifies that Appliance Co is to pay Formula, Inc a royalty that is a fixed percentage of the gross receipts from the products that are later sold. The contract does not specify other fees. The appliances are both manufactured and sold in Kentucky and several other states. Assume the licensing fees are paid for the license of a production intangible, even though the royalty is to be paid based upon the sales of a manufactured product (i.e., the license is not one that includes a marketing intangible). Because the department may reasonably establish that the actual use of the intangible property takes place in part in Kentucky, the royalty shall be assigned based to the location of that use rather than to location of the licensee's commercial domicile. It shall be presumed that the entire use is in Kentucky, except to the extent that the taxpayer may demonstrate that the actual location of some or all of the use takes place outside Kentucky. Assuming that Formula, Inc may demonstrate the percentage of manufacturing that takes place in Kentucky using the patent relative to the manufacturing in other states, that percentage of the total licensing fee paid to Formula, Inc under the contract shall constitute Formula, Inc's Kentucky receipts.

e. Example. Axel Corp enters into a license agreement with Biker Co in which Biker Co may produce motor scooters using patented technology owned by Axel Corp and sell the scooters by marketing the fact that the scooters were manufactured using the special technology. The contract is a license of both a marketing and production intangible, i.e., a mixed intangible. The scooters are manufactured outside Kentucky. Assume that Axel Corp lacks actual information regarding the proportion of Biker Co's receipts that are derived from Kentucky customers. Assume that Biker Co is granted the right to sell the scooters in a U.S. geographic region in which the Kentucky population constitutes twenty-five (25) percent of the total population during the period in question. The licensing contract requires an upfront licensing fee to be paid by Biker Co to Axel Corp and does not specify what percentage of the fee derives from Biker Co's right to use Axel Corp's patented technology. Because the fees for the license of the marketing and production intangible are not separately and reasonably stated in the contract, it shall be presumed that the licensing fees are paid entirely for the license of a marketing intangible, unless either the taxpayer or the department reasonably establishes otherwise. Assuming that neither member establishes otherwise, twenty-five (25) percent of the licensing fee shall constitute Kentucky receipts.

f. Example. Same facts as Example e., except that the license contract specifies separate fees to be paid for the right to produce the motor scooters and for the right to sell the scooters by marketing the fact that the scooters were manufactured using the special technology. The licensing contract shall constitute both the license of a marketing intangible and the license of a production intangible. Assuming that the separately stated fees are reasonable, the department shall:

(i) Assign no part of the licensing fee paid for the production intangible to Kentucky; and

(ii) Assign twenty-five (25) percent of the licensing fee paid for the marketing intangible to Kentucky.

g. Example. Better Burger Corp, which is based outside Kentucky, enters into franchise contracts with franchisees that agree to operate Better Burger restaurants as franchisees in various states. Several of the Better Burger Corp franchises are in Kentucky. In each case, the franchise contract between the individual and Better Burger provides that the franchisee is to pay Better Burger Corp an upfront fee for the receipt of the franchise and monthly franchise fees, which cover, the right to use the Better Burger name and service marks, food processes and cooking know-how, and fees for management services. The upfront fees for the receipt of the Kentucky franchises shall constitute fees paid for the licensing of a marketing intangible. These fees shall constitute Kentucky receipts because the franchises are for the right to make Kentucky sales. The monthly franchise fees paid by Kentucky franchisees shall constitute fees paid for:

(i) The license of marketing intangibles (the Better Burger name and service marks);

(ii) The license of production intangibles (food processes and know-how); and

(iii) Personal services (management fees).

(iv) The fees paid for the license of the marketing intangibles and the production intangibles constitute Kentucky receipts because in each case the use of the intangibles occurs in Kentucky. The fees paid for the personal services shall be assigned pursuant to this section.

h. Example. Online Corp, a corporation based outside Kentucky, licenses an information database through the means of the Internet to individual customers that are resident in Kentucky and in other states. These customers access Online Corp's information database primarily in their states of residence, and sometimes, while traveling, in other states. The license is a license of intangible property that resembles a sale of goods or services and shall be assigned in accordance with this paragraph. If Online Corp may determine or reasonably approximate the state or states where its database is accessed, it shall do so. Assuming that Online Corp cannot determine or reasonably approximate the location where its database is accessed, Online Corp shall assign the receipts made to the individual customers using the customers' billing addresses to the extent known. Assume for purposes of this example that Online Corp knows the billing address for each of its customers. Online Corp's receipts from sales made to its individual customers shall be in Kentucky if the customer's billing address is in Kentucky.

i. Example. Net Corp, a corporation based outside Kentucky, licenses an information database through the means of the Internet to a business customer, Business Corp, a company with offices in Kentucky and two (2) neighboring states. The license is a license of intangible property that resembles a sale of goods or services and shall be assigned in accordance with this paragraph. Assume that Net Corp cannot determine where its database is accessed, but reasonably approximates that seventy-five (75) percent of Business Corp's database access took place in Kentucky, and twenty-five (25) percent of Business Corp's database access took place in other states. In that case, seventy-five (75) percent of the receipts from database access shall be in Kentucky. Assume alternatively that Net Corp lacks sufficient information regarding the location where its database is accessed to reasonably approximate the location. Under these circumstances, if Net Corp derives five (5) percent or less of its receipts from database access from Business Corp, Net Corp shall assign the receipts under subsection (9)(a)2. of this section to the state where Business Corp principally managed the contract, or if that state is not reasonably determinable to the state where Business Corp placed the order for the services, or if that state is not reasonably determinable to the state of Business Corp's billing address. If Net Corp derives more than five (5) percent of its receipts from database access from Business Corp, Net Corp shall identify the state in which its contract of sale is principally managed by Business Corp and shall assign the receipts to that state.

j. Example. Net Corp, a corporation based outside Kentucky, licenses an information database through the means of the Internet to more than 250 individual and business customers in Kentucky and in other states. The license is a license of intangible property that resembles a sale of goods or services and receipts from that license shall be assigned in accordance with this paragraph. Assume that Net Corp cannot determine or reasonably approximate the location where its information database is accessed. Assume that Net Corp does not derive more than five (5) percent of its receipts from sales of database access from any single customer. Net Corp may apply the safe harbor stated in subsection (9)(a)2.d. of this section, and may assign its receipts to a state or states using each customer's billing address. If Net Corp is not taxable in one (1) or more states to which some of its receipts may be otherwise assigned, it shall exclude those receipts from the denominator of its receipts factor.

k. Example. Web Corp, a corporation based outside of Kentucky, licenses an Internet-based information database to business customers who then sublicense the database to individual end users that are resident in Kentucky and in other states. These end users access Web Corp's information database primarily in their states of residence, and sometimes, while traveling, in other states. Web Corp's license of the database to its customers includes the right to sublicense the database to end users, while the sublicenses provide that the rights to access and use the database are limited to the end users' own use and prohibit the individual end users from further sublicensing the database. Web Corp receives a fee from each customer based upon the number of sublicenses issued to end users. The license is a license of intangible property that resembles a sale of goods or services and shall be assigned by applying the rules set forth in subsection (9)(b) of this section. If Web Corp may determine or reasonably approximate the state or states where its database is accessed by end users, it shall do so. Assuming that Web Corp lacks sufficient information from which it may determine or reasonably approximate the location where its database is accessed by end users, Web Corp shall approximate the extent to which its database is accessed in Kentucky using a percentage that represents the ratio of the Kentucky population in the specific geographic area in which Web Corp's customer sublicenses the database access relative to the total population in that area.

(12) Sale of Intangible Property.Assignment of Receipts. The assignment of receipts to a state or states in the instance of a sale or exchange of intangible property depends upon the nature of the intangible property sold. For purposes of this subsection, a sale or exchange of intangible property includes a license of that property if the transaction is treated for tax purposes as a sale of all substantial rights in the property and the receipts from transaction are not contingent on the productivity, use, or disposition of the property. For the rules that apply if the consideration for the transfer of rights is contingent on the productivity, use, or disposition of the property, see KRS 141.120(11)(a)4.b.(ii).

(a) Contract Right or Government License that Authorizes Business Activity in Specific Geographic Area. In the case of a sale or exchange of intangible property if the property sold or exchanged is a contract right, government license or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area, the receipts from the sale shall be assigned to a state if and to the extent that the intangible property is used or may be used within the state. If the intangible property is used or may be used only in Kentucky, the taxpayer shall assign the receipts from the sale to this state. If the intangible property is used or may be used in this state and one (1) or more other states, the taxpayer shall assign the receipts from the sale to this state to the extent that the intangible property is used in or authorized for use in this state, through the means of a reasonable approximation.

(b) Sale that Resembles a License (Receipts are Contingent on Productivity, Use, or Disposition of the Intangible Property. In the case of a sale or exchange of intangible property, if the receipts from the sale or exchange are contingent on the productivity, use, or disposition of the property, the receipts from the sale shall be assigned by applying the rules set forth in subsection (11) of this section that establishes rules pertaining to the license, lease, or rental of intangible property.

(c) Sale that Resembles a Sale of Goods and Services. In the case of a sale or exchange of intangible property, if the substance of the transaction resembles a sale of goods or services and if the receipts from the sale or exchange are not derived from payments contingent on the productivity, use, or disposition of the property, the receipts from the sale shall be assigned by applying the rules set forth in subsection (11)(f) of this section (relating to licenses of intangible property that resemble sales of goods and services). Examples of these transactions include those that are analogous to the license transactions cited as examples in subsection (11)(f)3. of this section.

(d) Excluded Receipts.

Receipts from the sale of intangible property shall not be included in the receipts factor in any case in which the sale does not give rise to receipts within the meaning of KRS 141.120(1)(e). In addition, pursuant to KRS 141.120(11)(a)4.b.(iii),receipts from the sale of intangible property shall be excluded from the numerator and the denominator of the taxpayer's receipts factor if the receipts are not referenced in KRS 141.120(11)(a)4.b.(i) or KRS 141.120(11)(a)4.b.(ii). Examples of salesof intangible property that are excluded from the numerator and denominator of the taxpayer's receipts factor under KRS 141.120(11)(a)4.b.(iii) shall include:

a. The sale of a partnership interest;

b. The sale of business "goodwill";

c. The sale of an agreement not to compete; or

d. The sale of any similar intangible value.

If the state to which the receipts from a sale is to be assigned may be determined or reasonably approximated, but if the taxpayer is not taxable in the state, the receipts that may be assigned to the state shall be excluded from the denominator of the taxpayer's receipts factor.

(e) Examples. In these examples, unless otherwise stated, assume that the taxpayer is taxable in each state to which some of its receipts may be assigned, so that there is no requirement in these examples that the receipts to other states shall be excluded from the taxpayer's denominator pursuant to paragraph (a)4.b. of this subsection and KRS 141.120(11)(c).

Example. Airline Corp, a corporation based outside Kentucky, sells its rights to use several gates at an airport located in Kentucky to Buyer Corp, a corporation that is based outside Kentucky. The contract of sale is negotiated and signed outside of Kentucky. The receipts from the sale shall be in Kentucky because the intangible property sold is a contract right that authorizes the holder to conduct a business activity solely in Kentucky.
b. Example. Wireless Corp, a corporation based outside Kentucky, sells a license issued by the Federal Communications Commission (FCC) to operate wireless telecommunications services in a designated area in Kentucky to Buyer Corp, a corporation that is based outside Kentucky. The contract of sale is negotiated and signed outside of Kentucky. The receipts from the sale shall be in Kentucky because the intangible property sold is a government license that authorizes the holder to conduct business activity solely in Kentucky.
Example. Same facts as in Example b., except that Wireless Corp sells to Buyer Corp an FCC license to operate wireless telecommunications services in a designated area in Kentucky and an adjacent state. Wireless Corp shall attempt to reasonably approximate the extent to which the intangible property is used in or may be used in Kentucky. For purposes of making this reasonable approximation, Wireless Corp may rely upon credible data that identifies the percentage of persons that use wireless telecommunications in the two (2) states covered by the license.
Example. Same facts as in Example c., except that Wireless Corp is not taxable in the adjacent state in which the FCC license authorizes it to operate wireless telecommunications services. The receipts paid to Wireless Corp that may be assigned to the adjacent state shall be excluded from the denominator of Wireless Corp's receipts factor.
Example. Sports League Corp, a corporation that is based outside Kentucky, sells the rights to broadcast the sporting events played by the teams in its league in all fifty (50) U.S. states to Network Corp. Although the games played by Sports League Corp will be broadcast in all fifty (50) states, the games are of greater interest in the southeast region of the country, including Kentucky. Because the intangible property sold is a contract right that authorizes the holder to conduct a business activity in a specified geographic area, Sports League Corp shall attempt to reasonably approximate the extent to which the intangible property is used in or may be used in Kentucky. For purposes of making this reasonable approximation, Sports League Corp may rely upon audience measurement information that identifies the percentage of the audience for its sporting events in Kentucky and the other states.
Example. Same facts as in Example e., except that Sports League Corp is not taxable in one (1) state. The receipts paid to Sports League Corp that may be assigned to that state shall be excluded from the denominator of Sports League Corp's receipts factor.
Example. Inventor Corp, a corporation that is based outside Kentucky, sells patented technology that it has developed to Buyer Corp, a business customer that is based in Kentucky. Assume that the sale is not one in which the receipts derive from payments that are contingent on the productivity, use, or disposition of the property. Inventor Corp understands that Buyer Corp is likely to use the patented technology in Kentucky, but the patented technology may be used anywhere (i.e., the rights sold are not rights that authorize the holder to conduct a business activity in a specific geographic area). The receipts from the sale of the patented technology shall be excluded from the numerator and denominator of Inventor Corp's receipts factor.

(13) Special Rules.

(a) Software Transactions. A license or sale of pre-written software for purposes other than commercial reproduction or other exploitation of the intellectual property rights that is transferred on a tangible medium shall be treated as the sale of tangible personal property, rather than as either the license or sale of intangible property or the performance of a service. In these cases, the receipts shall be in this state as determined under the rules for the sale of tangible personal property set forth under KRS 141.120(10) and this administrative regulation. In all other cases, the receipts from a license or sale of software shall be assigned to this state as determined otherwise under this administrative regulation. (e.g., depending on the facts, as the development and sale of custom software, see subsection (8) of this section, as a license of a marketing intangible, see subsection (11)(b) of this section, as a license of a production intangible, see subsection (11)(c) of this section, as a license of intangible property if the substance of the transaction resembles a sale of goods or services, see subsection (11)(f) of this section, or as a sale of intangible property, see subsection (12) of this section.)

(b) Sales or Licenses of Digital Goods or Services.

In the case of a sale or license of digital goods or services, the receipts from the sale or license shall be assigned by applying the same rules as are set forth in subsection (9)(a) and (b) or subsection 10(c)5. of this section, as if the transaction were a service delivered to an individual or business customer or delivered through or on behalf of an individual or business customer. Examples of sales or licenses of digital goods or services include sales of various video, audio, and software products or other similar transactions. For purposes of the analysis, it shall not be relevant what the terms of the contractual relationship are or whether the sale or license might be characterized, depending upon the particular facts, as, for example, the sale or license of intangible property or the performance of a service.
Providers of communication services, cable service, and Internet access. Providers shall apportion income to this state using a three (3) factor formula as provided in KRS 141.901 pursuant to KRS 141.121(3).

Section 6. Special Rules: Receipts Factor. The special sourcing rules established in this section shall apply to the particular industries, transactions or activities described in this section for use in computing the fraction for apportioning apportionable income.

(1) Bargeline. Bargelines shall determine transportation receipts in this state by multiplying total transportation revenues by a fraction, the numerator of which shall be miles operated in this state and the denominator of which shall be total miles operated for the taxable year. Miles operated in this state shall be fifty (50) percent of the miles operated on the Ohio River, the Big Sandy River, and the Mississippi River adjacent to this state's shoreline plus all miles operated on other inland waterways within this state.

(2) Busline. Buslines shall determine transportation receipts in this state by multiplying total transportation revenues by a fraction, the numerator of which shall be miles operated in this state and the denominator of which shall be total miles operated for the taxable year.

(3) Financial institutions and financial organizations.

(a) Except as otherwise provided, a financial institution or financial organization whose business activity is taxable both within and without this state shall allocate and apportion its net income as provided in this section, including, a financial institution or financial organization organized under the laws of a foreign country whose effectively connected income as defined under the Internal Revenue Code is taxable both within this state and within another state.

(b) Non-apportionable income. All items of nonapportionable income (income which is not includable in the apportionable income tax base) shall be allocated pursuant to KRS 141.120, 141.121, and 103 KAR 16:060.

(c) Apportionable income. All apportionable income shall be apportioned to this state in accordance with KRS 141.121 and this administrative regulation.

(d) Sourcing of receipts, generally. The receipts factor is a fraction, the numerator of which is the receipts of the taxpayer in this state during the taxable year and the denominator of which is the receipts of the taxpayer within and without this state during the taxable year. The method for calculating receipts for purposes of the denominator is the same as the method for determining receipts for purposes of the numerator. The receipts factor shall include only those receipts described in this administrative regulation which constitute apportionable income and are included in the computation of the apportionable income base for the taxable year.

(e) Receipts from the lease of real property. The numerator of the receipts factor shall include receipts from the lease or rental of real property owned by the taxpayer if the property is located within this state or receipts from the sublease of real property if the property is located within this state.

For this purpose, "real property owned" means real property:

a. On which the taxpayer may claim depreciation for federal income tax purposes; or

b. Property to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes or may claim depreciation if subject to federal income tax.

"Real property owned"does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.

(f) Receipts from the lease of tangible personal property. The numerator of the receipts factor shall include receipts from the lease or rental of tangible personal property owned by the taxpayer if the property is located within this state or receipts from the sublease of property if the property is located within this state.

For this purpose, "tangible personal property owned" means tangible personal property:

a. On which the taxpayer may claim depreciation for federal income tax purposes; or

b. Property to which the taxpayer holds legal title, and on which no other person may claim depreciation for federal income tax purposes or may claim depreciation if subject to federal income tax.

"Tangible personal property owned" does not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.

(g) Interest, fees, and penalties imposed in connection with loans secured by real property.

The numerator of the receipts factor shall include interest, fees, and penalties imposed in connection with loans secured by real property if the property is located within this state. If the property is located both within this state and one (1) or more other states, the receipts described in this paragraph shall be included in the numerator of the receipts factor if more than fifty (50) percent of the fair market value of the real property is located within this state. If more than fifty (50) percent of the fair market value of the real property is not located within any one (1) state, then the receipts described in this paragraph shall be included in the numerator of the receipts factor if the borrower is located in this state.
The determination of whether the real property securing a loan is located within this state shall be made as of the time the original agreement was made and all subsequent substitutions of collateral shall be disregarded.

(h) Interest, fees, and penalties imposed in connection with loans not secured by real property. The numerator of the receipts factor shall include interest, fees, and penalties imposed in connection with loans not secured by real property if the borrower is located in this state.

(i) Net gains from the sale of loans. The numerator of the receipts factor shall include net gains from the sale of loans. Net gains from the sale of loans shall include income recorded under the coupon stripping rules of Section 1286 of the Internal Revenue Code.

The amount of net gains, but not less than zero, from the sale of loans secured by real property included in the numerator shall be determined by multiplying these net gains by a fraction. The numerator of the fraction shall be the amount included in the numerator of the receipts factor pursuant to paragraph (g) of this subsection and the denominator shall be the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.
The amount of net gains, but not less than zero, from the sale of loans not secured by real property included in the numerator shall be determined by multiplying these net gains by a fraction. The numerator of the fraction shall be the amount included in the numerator of the receipts factor pursuant to paragraph (h) of this subsection and the denominator shall be the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(j) Receipts from fees, interest, and penalties charged to card holders. The numerator of the receipts factor shall include fees, interest, and penalties charged to credit, debit, or similar card holders, including annual fees and overdraft fees, if the billing address of the card holder is in this state.

(k) Net gains from the sale of credit card receivables. The numerator of the receipts factor shall include net gains, but not less than zero, from the sale of credit card receivables multiplied by a fraction. The numerator of the fraction shall be the amount included in the numerator of the receipts factor pursuant to paragraph (j) of this subsection and the denominator shall be the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(l) Card issuer's reimbursement fees. The numerator of the receipts factor shall include:

All credit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount of fees, interest, and penalties charged to credit card holders included in the numerator of the receipts factor pursuant to paragraph (j) of this subsection and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to credit card holders;
All debit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount of fees, interest, and penalties charged to debit card holders included in the numerator of the receipts factor pursuant to paragraph (j) of this subsection and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to debit card holders; and
All other card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount of fees, interest, and penalties charged to all other card holders included in the numerator of the receipts factor pursuant to paragraph (j) of this subsection and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to all other card holders.

(m) Receipts from merchant discount.

If the taxpayer can readily determine the location of the merchant and if the merchant is in this state, the numerator of the receipts factor shall include receipts from merchant discount.
If the taxpayer cannot readily determine the location of the merchant, the numerator of the receipts factor shall include the receipts from the merchant discount multiplied by a fraction:

a. In the case of a merchant discount related to the use of a credit card, the numerator of which is the amount of fees, interest, and penalties charged to credit card holders included in the numerator of the receipts factor pursuant to paragraph (j) of this subsection and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to credit card holders;

b. In the case of a merchant discount related to the use of a debit card, the numerator of which is the amount of fees, interest, and penalties charged to debit card holders included in the numerator of the receipts factor pursuant to paragraph (j) of this subsection, and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to debit card holders; or

c. In the case of a merchant discount related to the use of all other types of cards, the numerator of which is the amount of fees, interest, and penalties charged to all other card holders included in the numerator of the receipts factor pursuant to paragraph (j) of this subsection, and the denominator of which is the taxpayer's total amount of fees, interest, and penalties charged to all other card holders.

The taxpayer's method for sourcing each receipt from a merchant discount shall be consistently applied to the receipt in all states that have adopted sourcing methods substantially similar to subparagraphs 1. and 2. of this paragraph and shall be used on all subsequent returns for sourcing receipts from the merchant unless the department permits or requires application of an alternative method.

(n) Receipts from ATM fees. The receipts factor shall include all ATM fees that are not forwarded directly to another bank.

The numerator of the receipts factor shall include fees charged to a cardholder for the use at an ATM of a card issued by the taxpayer if the cardholder's billing address is in this state.
The numerator of the receipts factor shall include fees charged to a cardholder, other than the taxpayer's cardholder, for the use of the card at an ATM owned or rented by the taxpayer, if the ATM is in this state.

(o) Loan servicing fees.

a. The numerator of the receipts factor shall include loan servicing fees derived from loans secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (g) of this subsection and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

b. The numerator of the receipts factor shall include loan servicing fees derived from loans not secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (h) of this subsection and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

If the taxpayer receives loan servicing fees for servicing either the secured or the unsecured loans of another, the numerator of the receipts factor shall include these fees if the borrower is located in this state.

(p) Receipts from services. The numerator of the receipts factor shall include receipts from services not otherwise apportioned under this section, sourced in accordance with Section 5(7), (8), (9), and (10) of this administrative regulation.

(q) Receipts from investment assets and activity and trading assets and activity.

Interest, dividends, net gains not less than zero, and other income from investment assets and activities and from trading assets and activities that are reported on the taxpayer's financial statements, call reports, or similar reports shall be included in the receipts factor. Investment assets and activities and trading assets and activities shall include:

a. Equities;

b. Federal funds;

c. Foreign currency transactions;

d. Forward contracts;

e. Future contracts;

f. Investment securities;

g. Notional principal contracts such as swaps;

h. Options;

i. Securities purchased and sold under agreements to resell or repurchase; or

j. Trading account assets.

With respect to the investment and trading assets and activities described in this subparagraph, the receipts factor shall include:

a. the amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements; and

b. the amount by which interest, dividends, gains, and other income from trading assets and activities, including assets and activities in the matched book, in the arbitrage book, and foreign currency transactions, exceed amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses from the assets and activities.

The numerator of the receipts factor shall include interest, dividends, net gains not less than zero, and other income from investment assets and activities and from trading assets and activities described in subparagraph 1. of this paragraph that are attributable to this state as follows:

a. The amount of interest, dividends, net gains not less than zero, and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator shall be determined by multiplying all income from these assets and activities by a fraction, the numerator of which is the average value of these assets which are properly assigned to a regular place of business of the taxpayer within this state, and the denominator of which is the average value of all these assets.

b. The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator shall be determined by multiplying the amount described in subparagraph 2.a. of this paragraph from these funds and securities by a fraction, the numerator of which is the average value of federal funds sold and securities purchased under agreements to resell which are properly assigned to a regular place of business of the taxpayer within this state, and the denominator of which is the average value of all these funds and securities.

c. The amount of interest, dividends, gains, and other income from trading assets and activities, including assets and activities in the matched book, in the arbitrage book and foreign currency transactions, (but excluding amounts described in clauses a. and b. of this subparagraph ), attributable to this state and included in the numerator shall be determined by multiplying the amount described in subparagraph 2.b. of this paragraph by a fraction, the numerator of which is the average value of these trading assets which are properly assigned to a regular place of business of the taxpayer within this state, and the denominator of which is the average value of all these assets.

d. For purposes of this subparagraph , average value shall be determined as follows:

(i) Value of property owned by the taxpayer. The value of real property and tangible personal property owned by the taxpayer shall be the original cost or other basis of the property for federal income tax purposes without regard to depletion, depreciation, or amortization.

(ii) Average value of property owned by the taxpayer. The average value of property owned by the taxpayer shall be computed on an annual basis by adding the value of the property on the first day of the taxable year and the value on the last day of the taxable year and dividing the sum by two (2). If averaging on this basis does not properly reflect average value, the department may require averaging on a more frequent basis. The taxpayer may elect to average on a more frequent basis. If averaging on a more frequent basis is required by the department or is elected by the taxpayer, the same method of valuation shall be used consistently by the taxpayer with respect to property within and without this state and on all subsequent returns unless the taxpayer receives prior permission to use an alternative method for determining average value from the department, or the department requires a different method for determining average value.

In lieu of using the method set forth in subparagraph 3. of this paragraph, the taxpayer may elect or the department may require, the use of the method set forth in this subparagraph in order to allocate and apportion income to fairly represent the extent of a taxpayer's business activity in this state.

a. The amount of interest, dividends, net gains not less than zero, and other income from investment assets and activities in the investment account to be attributed to this state and included in the numerator shall be determined by multiplying all income from these assets and activities by a fraction, the numerator of which is the gross income from these assets and activities which are properly assigned to a regular place of business of the taxpayer within this state, and the denominator of which is the gross income from all these assets and activities.

b. The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to this state and included in the numerator shall be determined by multiplying the amount described in subparagraph 2.a. of this paragraph from the funds and securities by a fraction, the numerator of which is the gross income from these funds and the securities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all these funds and securities.

c. The amount of interest, dividends, gains, and other income from trading assets and activities, including assets and activities in the matched book, in the arbitrage book and foreign currency transactions, but excluding amounts described in clauses a. and b. of this subparagraph , attributable to this state and included in the numerator shall be determined by multiplying the amount described in subparagraph 2.b. of this paragraph by a fraction, the numerator of which is the gross income from these trading assets and activities which are properly assigned to a regular place of business of the taxpayer within this state and the denominator of which is the gross income from all these assets and activities.

If the taxpayer elects or is required by the department to use the method set forth in subparagraph 4. of this paragraph, the taxpayer shall use this method on all subsequent returns unless the taxpayer petitions the department in accordance with KRS 141.120(12)(b)2. and receives permission to use a different method on subsequent returns.
The taxpayer shall have the burden of proving that an investment asset or activity or trading asset or activity was properly assigned to a regular place of business outside of this state by demonstrating that the day-to-day decisions regarding the asset or activity occurred at a regular place of business outside this state. If the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than one (1) regular place of business and one (1) regular place of business is in this state and one (1) regular place of business is outside this state, the asset or activity shall be considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, these policies and guidelines shall be presumed to be established at the commercial domicile of the taxpayer.

(r) All other receipts. The numerator of the receipts factor shall include all other receipts pursuant to the rules set forth in KRS 141.120, 141.121, and this administrative regulation.

(4) Passenger airline. Pursuant to KRS 141.121(2)(b)1., passenger airlines shall determine transportation receipts in this state by multiplying total transportation revenues by a fraction, the numerator of which is Kentucky revenue passenger miles in this state and the denominator of which is total revenue passenger miles for the taxable year.

(5) Pipeline. Pipeline companies shall determine operating receipts in this state by multiplying total operating revenues by a fraction, the numerator of which is barrel miles transported in this state and the denominator of which is total barrel miles transported for the taxable year.

(6) Public service company. Public service companies shall allocate and apportion net income in accordance with KRS 141.121(5) and this administrative regulation.

(7) Qualified air freight forwarder. Pursuant to KRS 141.121(2)(b)2., qualified air freight forwarders shall determine freight forwarding receipts in this state by multiplying total freight forwarding revenues by a fraction, the numerator of which shall be miles operated in this state and the denominator of which shall be total miles operated by the affiliated airline for the taxable year.

(8) Railroad. Railroads shall determine transportation receipts in this state by multiplying total transportation revenues by a fraction, the numerator of which shall be revenue car miles in this state and the denominator of which shall be total revenue car miles for the taxable year.

(9) Regulated investment company. Regulated investment companies shall apportion income pursuant to KRS 141.120 and this administrative regulation, except that a regulated investment company may elect an alternative method for determining receipts pursuant to KRS 141.121(4)(b).

(10) Securities brokerage services. Securities brokers operating within certain Kentucky Enterprises Zones defined by KRS 141.121(4)(c), shall apportion income pursuant to KRS 141.120 and this administrative regulation, except that a securities broker so defined may elect an alternative method for determining receipts pursuant to KRS 141.121(4)(c).

(11) Truckline. Trucklines shall determine transportation receipts in this state by multiplying total transportation revenues by a fraction, the numerator of which shall be miles operated in this state and the denominator of which shall be total miles operated for the taxable year.

Section 7. This administrative regulation shall apply to tax periods beginning on or after January 1, 2018.

History

RELATES TO: KRS 141.010, 141.040, 141.0401, 141.120, 141.121, 141.205, 141.206, 141.901
STATUTORY AUTHORITY: KRS 131.130, 141.018, 141.120, 141.121
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.120(9) requires that all apportionable income of multi-state corporations be apportioned to Kentucky by multiplying the income by a fraction. KRS 141.120(11)(d) authorizes the department to promulgate administrative regulations providing how to determine the receipts factor used in the multi-state apportionable income apportionment formula. KRS 141.120(12)(b) authorizes the department to promulgate administrative regulations for determining alternative allocation and apportionment methods for taxpayers engaged in particular industries. KRS 141.121 requires the department to promulgate administrative regulations for sourcing receipts of public service corporations and financial organizations, and to detail the sourcing of receipts related to financial institutions. This administrative regulation provides guidance for determining the receipts factor of a multi-state corporation.
History: 32 Ky.R. 1830; 2290; 33 Ky.R. 71; eff. 8-7-2006; 45 Ky.R. 1708, 2688, 2845; eff. 5-3-2019; TAm eff. 4-5-2021; 48 Ky.R. 466, 1585; eff. 3-1-2022.

103 KAR 16:290 Apportionment; property factor {#sec-103-kar-16-290 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:290}

Section 1. Definitions.

(1) "Annual rent" means the actual sum of money or other consideration payable, directly or indirectly, by the corporation for its benefit for the use of the property;

(a) Including:

Any amount payable for the use of real or tangible personal property whether designated as a fixed sum of money or as a percentage of sales, profits or otherwise; and
Any amount payable as additional rent or in lieu of rents, such as interest, taxes, insurance, repairs or any other items which are required to be paid by the terms of the lease or other arrangement; and

(b) Not including:

Amounts paid as service charges, such as utilities or janitorial services; and
Incidental day-to-day expenses such as hotel or motel accommodations, or daily rental of automobiles.

(2) "Net annual rental rate" means the total annual rental paid, less total annual rental received from subrentals, which shall:

(a) Be subtracted if they constitute nonbusiness or non-apportionable income; and

(b) Not be subtracted if they constitute business or apportionable income because the property which produces the subrentals is used in the regular course of a trade or business of the taxpayer when it is producing business or apportionable income.

(3) "Original cost" means the basis of the property for federal income tax purposes, prior to any federal adjustments, at the time of acquisition by the corporation and adjusted by subsequent capital additions or improvements thereto and partial disposition thereof, by reason of sale, exchange, or abandonment.

Section 2. General. The property factor shall include all real and tangible personal property owned or rented and used during the taxable year, except coin, and currency.

Section 3. Property Used.

(1) Property shall be included in the property factor if it is actually used or is available for or capable of being used during the taxable year. Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor. For example, a plant temporarily idle or raw material reserves not currently being processed shall be included in the factor.

(2) Inventory in process shall be included in the factor. Property or equipment under construction during the taxable year shall be excluded from the factor until it is actually used or is available for or capable of being used during the taxable year.

(3) Property used shall remain in the property factor until its permanent withdrawal is established by an identifiable event such as its sale.

Section 4. Consistency in Reporting.

(1) Year-to-year consistency. In filing returns with this state, if the taxpayer departs from or modifies the manner of valuing property or of excluding property from or including property in the property factor used in returns for prior years, the taxpayer shall disclose in the return for the current year the nature and extent of the modification.

(2) State-to-state consistency. If the returns or reports filed by the taxpayer with all states to which the taxpayer reports are not uniform in the valuation of property and in the exclusion of property from or the inclusion of property in the property factor, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

Section 5. Property Factor: Numerator.

(1) Property in transit between a buyer and seller shall be included in the numerator according to the state of destination. Property in transit between locations of the same corporation shall be considered at the destination location for purposes of the property factor.

(2) The value of mobile or movable property such as construction equipment, trucks or leased electronic equipment which is located within and without Kentucky during the taxable year shall be determined, for purposes of the numerator of the factor, on the basis of total time within the state during the taxable year. An automobile assigned to a traveling employee shall be included in the numerator of the factor of the state to which the employee's compensation is assigned under the payroll factor or in the numerator of the state in which the automobile is licensed.

Section 6. Valuation of Owned Property.

(1) Property owned by the corporation shall be valued at original cost.

(2) Capitalized intangible drilling and development costs shall be included in the property factor whether or not they have been expensed for either federal or state purposes.

(3) If the original cost of property is not ascertainable, is nominal, or is zero, the property shall be included in the factor at its fair market value at the date of acquisition by the corporation.

(4) Inventory shall be included in the factor by the valuation method used for federal income tax purposes.

(5) Property acquired by gift or inheritance shall be included in the factor at its basis for depreciation for federal income tax purposes.

Section 7. Rented Property.

(1) Annual rental rate shall be determined as follows:

(a) If the property is rented for a twelve (12) month period, the annual rental payment;

(b) If the property is rented for less than a twelve (12) month period, the net rent paid for the actual period of rental; or

(c) If the property is rented for a period of twelve (12) or more months, and the current tax period covers a period of less than twelve (12) months due, for example, to a reorganization or change of accounting period, the net rent paid for the short tax period shall be annualized.

(2)

(a) Property rented by a corporation shall be valued at eight (8) times the net annual rental rate.

(b) If this calculation results in a negative value or a clearly inaccurate valuation, any other method which will properly reflect the value may be required by the department or may be requested by the corporation, except the net annual rental rate shall not be less than the total annual rental rate multiplied by a fraction, the numerator of which is the fair market value of rent applicable to rental property used by the corporation divided by the fair market value of rent applicable to all of the corporation's rental property.

(c) If a payment includes rent and other charges unsegregated, the amount of rent shall be determined by consideration of the relative values of the rent and the other items.

(3) If property is used at no charge or rented for a nominal rate, the property shall be included in the property factor on the basis of the fair market value of rent for comparable property in the area.

(4) Leasehold improvements shall, for the purposes of the property factor, be treated as property owned by the corporation regardless of whether the corporation is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. The original cost of a leasehold improvement shall be included in the factor.

Section 8. Monthly Averaging of Property. Averaging by monthly values shall apply if:

(1) Fluctuations in the values of the property exist during the tax period;

(2) Property is acquired after the beginning of the tax period or disposed of before the end of the tax period; or

(3) Fluctuations in the percentage of property used in Kentucky exist during the tax period.

Section 9. This administrative regulation shall be effective for tax periods beginning on or after January 1, 2005.

History

RELATES TO: KRS 141.120(12)(a)2., 141.121, 141.901
STATUTORY AUTHORITY: KRS 131.130, 141.120(12)(a)2., 141.121, 141.901
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.121 and 141.901 require business or apportionable income of multistate corporations to be apportioned to Kentucky by multiplying the income by a fractionKRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes the requirements for determining the property factor of a multistate corporation.
History: 103 KAR 016:290. 32 Ky.R. 1831; Am. 33 Ky.R. 72; eff. 8-7-2006; 1108; 1519; eff. 1-5-2007; 45 Ky.R. 1312, 2063; eff. 2-1-2019; Crt eff. 1-7-2026.

103 KAR 16:320 Claim of right doctrine {#sec-103-kar-16-320 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:320}

Section 1. Definition. "Internal Revenue Code" is defined by KRS 141.010(21).

Section 2. General. If a corporation has made a claim of right adjustment in its federal tax return, a claim of right adjustment may be made to the Kentucky corporation income tax return in accordance with this section.

(1) If the year the income or deduction was originally reported or deducted remains open under the statutory period authorizing a refund of money paid into the State Treasury under KRS 134.580, the claim of right shall be made by amending the corporation's tax return for the year the income or deduction was reported.

(2) If the year the income or deduction was originally reported or deducted is closed due to the expiration of the statutory period authorizing a refund of money paid into the State Treasury under KRS 134.580, the claim of right shall be made in the same taxable year as the credit or deduction was claimed for federal purposes.

(a) The amount of the federal adjustment shall be adjusted for differences between the Internal Revenue Code and KRS Chapter 141.

(b) Example. A corporation reported claim of right income in the amount of $1,000,000 in a prior year closed under the statutory period authorizing a refund of money paid into the State Treasury under KRS 134.580, and apportioned twenty (20) percent of its apportionable income to Kentucky, which resulted in additional Kentucky income tax liability of $12,000. The adjustment to the corporation's tax liability attributable to the claim of right shall not exceed $12,000 in the taxable year in which the claim is allowed, regardless of whether the corporation's apportionable income to Kentucky in the year in which the claim is allowed exceeds twenty (20) percent of the corporation's total apportionable income. This principle shall also apply if the tax rate in the year the adjustment attributable to the claim of right differs from the year the income was originally reported, or if no tax was paid as a result of prior reporting of the income or deduction subject to a claim of right.

Section 3. Documentation. The burden of proof shall be on the corporation to establish that the income or deduction subject to a claim of right was taxed or subject to tax in Kentucky, and the amount of tax actually paid on the income underlying the claim. Separate computations shall be attached to the return, when filed, showing the claim of right for federal tax purposes and the amount claimed to be attributable for Kentucky income tax purposes.

History

RELATES TO: KRS 134.580, 141.010, 141.039, 141.050, 26 U.S.C. 1341
STATUTORY AUTHORITY: KRS 131.130(1), 141.050(4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.050(4) requires the department to promulgate administrative regulations to effectively carry out the provisions of KRS Chapter 141. Internal Revenue Code Section 1341, 26 U.S.C. 1341, provides for an adjustment to income tax where a taxpayer restores a substantial amount held under claim of right. This administrative regulation interprets the application of the claim of right doctrine for Kentucky corporation income tax purposes.
History: 32 Ky.R. 2202; 33 Ky.R. 75; eff. 8-7-2006; TAm eff. 7-16-2018; Crt eff. 2-19-2020; 48 Ky.R. 484, 1506; eff. 2-1-2022.

103 KAR 16:330 Apportionment and allocation; alternative apportionment; separate accounting {#sec-103-kar-16-330 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:330}

Section 1. Petition for Alternative Apportionment.

(1) Before a taxpayer may file a return with an alternative method of allocation or apportionment pursuant to KRS 141.120(12), a taxpayer shall file a petition for the use of alternative apportionment with the department, and the petition shall have been approved or denied by the department. If the taxpayer chooses to be represented by a person or firm outside of its business entity, Form 20A100, Kentucky Declaration of Representative, shall be submitted to the department naming the taxpayer's representative(s). Form 20A100, as prescribed by the department, may be found online at https://revenue.ky.gov.

(2) All petitions shall be in written form and submitted to the attention of the Commissioner of the Department of Revenue. A petition submitted as an attachment to a return shall not be considered a valid petition. If the department processes a return which uses an unapproved alternative apportionment method, the action shall not be construed as the department's acceptance of the taxpayer's proposed alternative method.

(3) The department shall notify the taxpayer, in writing, if the requested alternative method has been approved. If approved, the taxpayer may then file an amended or original return utilizing the approved alternative apportionment method.

Section 2. Denial of Petition for Alternative Apportionment. If a taxpayer disagrees with the department's denial of a petition for alternative apportionment:

(1) The taxpayer can pay the tax that is due pursuant to the department's interpretation and seek a refund which, if denied, can be protested; or

(2) The taxpayer may file a return with the denied alternative apportionment method, which will result in an assessment being issued that can then be protested pursuant to KRS 131.110 and 103 KAR 1:010.

Section 3. Separate Accounting. If a taxpayer is permitted or required to use the separate accounting method of apportionment, the authorization or requirement shall be applied prospectively from the date or taxable year it was directed in writing by the department or requested by the taxpayer. Income tax returns filed under these conditions shall be subject to audit and review on a separate accounting basis to determine the correctness of income and expenses, but the method of apportioning net income shall not be changed retroactively. The fact that taxable income is greater or lesser, or that the taxpayer's accounting records reflect income by contracts or by states shall not be sufficient to support a request for separate accounting.

Section 4. This administrative regulation shall apply to taxable years beginning on or after January 1, 2018.

History

RELATES TO: KRS 141.120, 141.901
STATUTORY AUTHORITY: KRS 131.130, 141.120
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.120 provides for the division of income of interstate business for tax purposes. KRS 141.120(12)(a)(1) states that if the allocation and apportionment provisions do not fairly represent the extent of the taxpayer's business activity in Kentucky, a taxpayer may petition for, or the department may require, in respect to all or any part of the taxpayer's business activity, if reasonable, an alternative method of apportionment. KRS 131.130(1) authorizes the Kentucky Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes alternative apportionment request procedures and when the separate accounting method shall apply.
History: 103 KAR 016:330. 32 Ky.R. 2203; 33 Ky.R. 75; eff. 8-7-2006; 45 Ky.R. 1314, 2064; eff. 2-1-2019; Crt to Am; filing deadline 7-7-2027.

103 KAR 16:340 Completed contract method {#sec-103-kar-16-340 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:340}

Section 1. Definitions.

(1) "Completed contract method of accounting" means a method of accounting whereby apportionable income from long-term contracts is reported for the taxable year in which the contract is finally completed and accepted.

(2) "Gross contract price" means the percentage of the entire contract that has been completed, from the commencement of the contract to the date of withdrawal, dissolution, or cessation of business.

(3) "Long-term contracts" means contracts covering a period in excess of one (1) year from the date of execution of the contract to the date on which the contract is finally completed and accepted.

Section 2. General. If a corporation uses the completed contract method of accounting, the apportionable income earned within Kentucky shall be determined by the use of the apportionment factor determined pursuant to KRS 141.120, as modified by the special rules for apportionable income derived from long term contracts established in Sections 3 to 5of this administrative regulation.

Section 3. Sales Factor. The numerator and denominator of the sales factor shall be determined pursuant to KRS 141.120(9) and the following special rules:

(1) Gross receipts derived from the performance of a contract shall be attributable to Kentucky if the construction project is located in Kentucky. If the construction project is located partly within and partly without Kentucky, the gross receipts attributable to Kentucky shall be based upon the ratio which construction costs for the project in Kentucky incurred during the taxable year bear to the total of construction costs for the entire project during the taxable year.

(2) The sales factor shall include the portion of the gross receipts (progress billings) received or accrued, whichever is applicable, during the taxable year attributable to each contract.

Section 4.

(1) The completed contract method of accounting shall require that the reporting of income (or loss) be deferred until the year in which the construction project is completed or accepted.

(2) Accordingly, a separate computation shall be made for each contract completed during the taxable year, regardless of whether the project is located within or without Kentucky, to determine the amount of income, which is attributable to sources within Kentucky.

(3) The amount of income from each contract completed during the taxable year apportioned to this state, plus other apportionable income apportioned to this state such as interest income, rents, royalties, income from short-term contracts, etc., plus all non-apportionable income allocated to Kentucky, shall be the measure of tax for the taxable year.

(4) The amount of income (or loss) from each contract which is derived from sources within Kentucky using the completed contract method of accounting shall be computed as follows:

(a) The amount of income (or loss) shall be determined in the taxable year in which the contract is completed.

(b) The income (or loss) determined by paragraph (a) of this subsection shall be apportioned to Kentucky by the following method:

A fraction shall be determined for each year during which the contract was in progress. The numerator shall be the amount of construction costs paid or accrued in each year during which the contract was in progress and the denominator shall be the total of all construction costs for the project.
The amount of total income (or loss) from the contract determined under paragraph (a) of this subsection shall be multiplied by the total percentage determined by subparagraph 1 of this paragraph. The resulting income (or loss) shall be the amount of apportionable income from the contract derived from sources within Kentucky.

Section 5. Computation for Year of Withdrawal, Dissolution or Cessation of Business.

(1) Use of the completed contract method of accounting shall require that income derived from sources within Kentucky from incomplete contracts in progress outside Kentucky on the date of withdrawal, dissolution, or cessation of business in Kentucky be included in the measure of tax for the taxable year during which the corporation withdraws, dissolves, or ceases doing business in this state.

(2) The amount of income (or loss) from each contract to be apportioned to Kentucky by the apportionment method established in Section 4(4)(b) of this administrative regulation shall be determined as follows:

(a) The amount of apportionable income (or loss) for each contract shall be the amount by which the gross contract price from each contract exceeds all expenditures made during the period in connection with each contract.

(b) In so doing, account shall be taken of the material and supplies on hand at the beginning and end of the taxable year for use in each contract.

History

RELATES TO: KRS 141.120
STATUTORY AUTHORITY: KRS 131.130, 141.120
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.120 provides for the division of income of interstate business for tax purposes. KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and interpret Kentucky's tax laws. This administrative regulation explains how the apportionable income allocation and apportionment factors shall be calculated when net income is reported on a completed contract basis.
History: 103 KAR 016:340. 32 Ky.R. 2204; 33 Ky.R. 76; eff. 8-7-2006; 45 Ky.R. 1316, 2065; eff. 2-1-2019; Crt eff. 1-7-2026.

103 KAR 16:352 Corporation income taxes policies and circulars {#sec-103-kar-16-352 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:352}

Section 1. The following corporation income and license tax policies of the department are rescinded and shall be void:

(1) Revenue Policy 41P010 - Cooperatives. This policy shall be rescinded because it conflicts with KRS 141.160 and 141.170.

(2) Revenue Policy 41P020 - Short period return or change in tax period resulting from change in ownership. This policy shall be rescinded because it restates KRS 141.140(1).

(3) Revenue Policy 41P030 - Six-year statute of limitations. This policy shall be rescinded because it restates KRS 141.210(2).

(4) Revenue Policy 41P040 - Declaration of estimated tax penalty. This policy shall be rescinded because it is made obsolete by KRS 141.044(2)(c).

(5) Revenue Policy 41P070 - Income and deductions. This policy shall be rescinded because it is obsolete and restates KRS 141.010, 141.039, and 141.050.

(6) Revenue Policy 41P071 - Claim of right. This policy shall be rescinded because it was incorporated into 103 KAR 16:320.

(7) Revenue Policy 41P080 - Coal royalty income. This policy shall be rescinded because it restates KRS 141.039(1)(d).

(8) Revenue Policy 41P090 – Jobs Tax Credit. This policy shall be rescinded because it conflicts with KRS Chapter 13A.

(9) Revenue Policy 41P100 - Deductibility of state taxes. This policy shall be rescinded because it is obsolete due to the repeal of the New York Subsidiary Capital tax. The department issued guidance pursuant to KRS 131.130(8) on the deductibility of state taxes.

(10) Revenue Policy 41P110 - Deductibility of state taxes. This policy shall be rescinded because it restates KRS 141.039(2)(c)1. and guidance has been issued by the department pursuant to KRS 131.130(8).

(11) Revenue Policy 41P120 - Deductibility of state taxes. This policy shall be rescinded because the Indiana gross receipts tax was repealed effective January 1, 2003, making this policy obsolete.

(12) Revenue Policy 41P121 - Deductibility of state taxes. This policy shall be rescinded because it restates KRS 141.039(2)(c)1. and guidance has been issued by the department pursuant to KRS 131.130(8).

(13) Revenue Policy 41P125 - Windfall profit tax. This policy shall be rescinded because it restates KRS 141.039(2)(c) and the provision of the Internal Revenue Code referred to in the policy has been repealed.

(14) Revenue Policy 41P130 - Taxation of income from activities on the outer continental shelf. This policy shall be rescinded because it restates provisions in KRS 141.010, 141.039, and 141.120 and the holding of a court decision.

(15) Revenue Policy 41P140 - Subpart F Income. This policy shall be rescinded because it conflicts with KRS 141.039(1)(b).

(16) Revenue Policy 41P150 - Expenses Related to Nonbusiness or Nontaxable Income. This policy shall be rescinded because it was incorporated into 103 KAR 16:060.

(17) Revenue Policy 41P160 - First-Year Net Operating Loss. This policy shall be rescinded because it restates KRS 141.012, which was repealed effective for taxable years beginning on or after January 1, 2006.

(18) Revenue Policy 41P170 - Sales Factor. This policy shall be rescinded because it is obsolete. Guidance on the receipts factor is provided by 103 KAR 16:270.

(19) Revenue Policy 41P180 - Property Factor. This policy shall be rescinded because it is obsolete. Guidance on the property factor is provided by 103 KAR 16:290.

(20) Revenue Policy 41P190 - Net Rental Income. This policy shall be rescinded because guidance on the treatment of net rental income in the property factor is provided by 103 KAR 16:290, Apportionment; Property Factor.

(21) Revenue Policy 41P200 - Partnership and Joint Venture Income Classified Business Income. This policy shall be rescinded because it conflicts with KRS 141.206.

(22) Revenue Policy 41P210 - Business Apportionment Factor for Corporations Reporting Income on Completed Contract Method. This policy shall be rescinded because it was incorporated into 103 KAR 16:340.

(23) Revenue Policy 41P220 - Separate Accounting. This policy shall be rescinded because it restates KRS 141.120(12) and was incorporated into 103 KAR 16:330.

(24) Revenue Policy 41P230 - Financial Organizations. This policy shall be rescinded because it is obsolete.

(25) Revenue Policy 41P240 - Homeowners Associations. This policy shall be rescinded because it restates KRS 141.010, 141.039, and 141.040.

(26) Revenue Policy 41P250 - Taxation of Foreign Sales Corporations and Domestic International Sales Corporations. This policy shall be rescinded because it is obsolete. Updated guidance is provided in 103 KAR 16:370, Corporation Income Tax Treatment of Foreign Sales Corporations and Domestic International Sales Corporations.

(27) Revenue Policy 41P260 - Corporate Distributions, Liquidations and Reorganizations. This policy shall be rescinded because it restates KRS 141.0101(10).

(28) Revenue Policy 41P500 – Agreement to extend statute of limitations. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(29) Revenue Policy 41P520 – Capital. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(30) Revenue Policy 41P530 – Borrowed moneys. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(31) Revenue Policy 41P540 – Unearned leasehold income. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(32) Revenue Policy 41P550 – Borrowed moneys. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(33) Revenue Policy 41P560 – Outer continental shelf. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(34) Revenue Policy 41P570 – Corporation license tax apportionment factor. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(35) Revenue Policy 41P580 – Sales factor. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(36) Revenue Policy 41P590 – Homeowners associations. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

(37) Revenue Policy 41P600 – Real estate investment trust. This policy shall be rescinded because it is obsolete. Corporation license tax was repealed in 2005.

Section 2. The following corporation income tax circulars of the department are rescinded and shall be void:

(1) Revenue Circular 40C005 – Kentucky depreciation system. This circular shall be rescinded because it restates provisions in KRS 141.0101.

(2) Revenue Circular 40C010 – Reporting requirements for nonresident partners' of S-corporation shareholders' combined Kentucky income tax return. This circular shall be rescinded because it was superseded by KRS 141.206.

(3) Revenue Circular 40C030 – Corporation and individual income tax-special reporting procedures. This circular shall be rescinded because it is obsolete.

(4) Revenue Circular 41C020 - Safe harbor or finance leases. This circular shall be rescinded because it is obsolete.

History

RELATES TO: KRS 131.130(1), (8), 141.010, 141.0101, 141.012, 141.039, 141.040, 141.044, 141.050, 141.120, 141.140, 141.160, 141.170, 141.210, 141.206, 141.990
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. Prior to the enactment of KRS Chapter 13A, the department issued policies and circulars as guidance for the administration of Kentucky's tax laws. Since that time, changes to corporation income tax law have created conflict with these policies and circulars. This administrative regulation rescinds corporation income tax policies and circulars.
History: 33 Ky.R. 1192; Am. 1603; 1791; eff. 2-2-2007; 48 Ky.R. 486, 1507; eff. 2-1-2022.

103 KAR 16:370 Corporation income tax treatment of foreign sales corporations and domestic international sales corporations {#sec-103-kar-16-370 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:370}

Section 1. Definitions.

(1) "Domestic international sales corporation" means a DISC as defined in Section 992 of the Internal Revenue Code, 26 U.S.C. 992.

(2) "Foreign sales corporation" means a foreign sales corporation as defined in Section 922 of the Internal Revenue Code, 26 U.S.C. 922 in effect prior to its repeal by Pub.L. 106-519.

Section 2. Kentucky Corporation Income Tax Treatment of Foreign Sales Corporations. A foreign sales corporation that has transactions that arise from contracts that were binding on September 30, 2000 shall be subject to Kentucky's corporation income tax if the foreign sales corporation is doing business in Kentucky as defined by KRS 141.010(7) and 141.900(25).

Section 3. Kentucky Corporation Income Tax Treatment of Domestic International Sales Corporations. A corporation recognized as a domestic international sales corporation for federal income tax purposes shall be recognized as a domestic international sales corporation for Kentucky income tax purposes if the corporation is doing business in Kentucky as defined by KRS 141.010(7) and 141.900(25).

History

RELATES TO: KRS 141.010, 141.040, 141.050, 141.900
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.040(1) imposes the corporation income tax on corporations that are doing business in this state. Foreign sales corporations and domestic international sales corporations are special corporate entity designations for federal income tax purposes under the Internal Revenue Code. This administrative regulation establishes the requirements for the Kentucky corporation income tax treatment of foreign sales corporations and domestic international sales corporations.
History: 33 Ky.R. 1195; 1518; eff. 1-5-2007; TAm eff. 7-16-2018; TAm 2-19-2020; Crt eff. 2-28-2020.

103 KAR 16:400 Combined Unitary Kentucky corporation income tax return {#sec-103-kar-16-400 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:400}

Section 1. Definitions.

(1) "Combined group" is defined by KRS 141.202(2)(a).

(2) "Corporation" is defined by KRS 141.202(2)(b).

(3) "Designated Filer" means the taxpayer member of the combined group annually designated per KRS 141.202(9) to file the return.

(4) "Person" is defined by KRS 141.010(24).

(5) "Taxpayer" is defined by KRS 141.202(2)(e).

(6) "Unitary Business" is defined by KRS 141.202(2)(f).

Section 2. Fifty (50) Percent Ownership Test. Separate corporations may be part of a combined group only if they meet the fifty (50) percent ownership test in KRS 141.202(2)(a).

(1) The fifty (50) percent test shall be satisfied in the following circumstances:

(a) A parent corporation and one (1) or more corporations or chains of corporations which are connected through voting stock ownership with the parent, whether the ownership is direct or indirect, but only if:

The parent owns more than fifty (50) percent of the outstanding voting stock of at least one (1) corporation; and
If applicable, more than fifty (50) percent of the outstanding voting stock of each of the corporations, other than the parent, is owned by the parent, one (1) or more corporations owned by the parent as described in subsection (1) of this section, or one (1) or more corporations that satisfy the conditions of this subparagraph;

(b) Any two (2) or more corporations, if over fifty (50) percent of the outstanding voting stock of each of the corporations is owned, or indirectly owned, by the same person; or

(c) Any two (2) or more corporations, over fifty (50) percent of whose voting stock is cumulatively owned (without regard to the indirect ownership rules described in subsection (2) of this section) by, or for the benefit of, members of the same family. Members of the same family shall be limited to an individual, his or her spouse, parents, brothers or sisters, grandparents, children and grandchildren, and their respective spouses.

(2) Except as otherwise provided in this section, voting stock is "owned" if title to the stock is directly held or if the voting stock is indirectly owned. The stock attribution rules of Section 318(a) of the Internal Revenue Code, 26 U.S.C. 318(a), shall be used to determine if the voting stock is indirectly owned except if a person has an option to acquire stock or other ownership interests in an entity, the stock or ownership interests are not considered owned by the person unless the department determines it to be necessary to prevent tax avoidance.

(3) In determining ownership, effective control over election of the board of directors shall be considered. For example, a group of shareholders acting in concert who collectively own over fifty (50) percent of the voting stock of each of two (2) or more corporations shall be considered to be common owners of more than fifty (50) percent of the voting stock of each of those corporations. "Voting stock" refers only to those shares of voting stock having the power to elect the corporation's board of directors. If the power otherwise held in corporate stock to vote the membership of the board is transferred to another, other than a transfer of proxy only, the holder of that power shall be considered to be the owner of that stock to the exclusion of the transferor of that power.

(4) In addition to the tests in subsection (1) of this section, the department may consider any other circumstance that tends to demonstrate that the fifty (50) percent direct or indirect common ownership test was met, or was not met.

(5) Membership in a combined group shall be treated as terminated in any year, or fraction thereof, in which the conditions of subsection (1) of this section are not met, except as follows:

(a) If stock of a corporation is sold, exchanged, or otherwise disposed of, the membership of a corporation in a combined group shall not be terminated if the requirements of subsection (1) of this section are again met immediately after the sale, exchange, or disposition.

(b) The department may treat the combined group as remaining in place if the conditions of subsection (1) of this section are again met within a period not to exceed two (2) years.

Section 3. Unitary Business Principle.

(1) The concept of a Unitary Business.

(a) The flow of value to an entity located in this state that comes from being part of a unitary business conducted both within and without this state is what provides the constitutional due process "definite link and minimum connection" necessary for this state to apportion apportionable income of the unitary business, even if that income arises in part from activities conducted outside the state.

(b) This sharing or exchange of value may also be described as:

Requiring that the operation of one (1) part of the business be dependent upon, or contribute to, the operation of another part of the business: or
If the activities of one (1) business either contribute to the activities of another business or are dependent upon the activities of another business, those businesses are part of a unitary business.

(2) Constitutional requirement for a Unitary Business.

(a) The sharing or exchange of value described in KRS 141.202(2)(f) and subsection (1) of this section that defines the scope of a unitary business shall require more than the mere flow of funds arising out of a passive investment or from the financial strength contributed by a distinct business undertaking that has no operational relationship to the unitary business.

(b) In this state, the unitary business principle shall be applied to the full extent allowed by the U.S. Constitution. The unitary business principle shall not be applied to result in the combination of business activities or entities under circumstances where, if it were adverse to the taxpayer, the combination of the activities or entities would not be allowed by the U.S. Constitution.

(3) Separate trades or businesses conducted within a single entity. A single entity may have more than one (1) unitary business. In these cases, the apportionable income attributable to each separate unitary business as well as its non-apportionable income, which is specifically allocated, shall be determined. The apportionable income of each unitary business shall then be apportioned by a formula that takes into consideration the in-state and the out-of-state factors that relate to the respective unitary business whose income is being apportioned.

(4) Unitary Business unaffected by formal business organization. A unitary business may exist within a single entity or among a group of entities meeting the fifty (50) percent ownership test in KRS 141.202(2)(a) and in Section 2 of this administrative regulation.

Section 4. Determination of a Unitary Business.

(1) A unitary business shall be characterized by significant flows of value evidenced by factors such as functional integration, centralization of management, and economies of scale. These factors provide evidence of whether the business activities operate as an integrated whole or exhibit substantial mutual interdependence. Facts suggesting the presence of these factors shall be analyzed in combination for their cumulative effect and not in isolation. A particular business operation may be suggestive of one (1) or more of the factors mentioned above.

(2) Description and illustration of functional integration, centralization of management, and economies of scale.

(a) Functional integration. Functional integration shall refer to transfers between, or pooling among, business activities that significantly affect the operation of the business activities. Functional integration shall include transfers or pooling with respect to the unitary business's products or services, technical information, marketing information, distribution systems, purchasing, and intangibles such as patents, trademarks, service marks, copyrights, trade secrets, know-how, formulas, and processes. A specific type of functional integration shall not be required. The following is a list of examples of business operations that may support the finding of functional integration. The order of the list does not establish a hierarchy of importance.

Sales, exchanges, or transfers (collectively "sales") of products, services, or intangibles between business activities may provide evidence of functional integration. The significance of the intercompany sales to the finding of functional integration shall be affected by the character of what is sold or the percentage of total sales or purchases represented by the intercompany sales. For example, sales among entities that are part of a vertically integrated unitary business are indicative of functional integration. Functional integration shall not be negated by the use of a readily determinable market price to effect the intercompany sales, because those sales may represent an assured market for the seller or an assured source of supply for the purchaser.
Common Marketing. The sharing of common marketing features among entities shall indicate functional integration if the marketing results in significant mutual advantage. Common marketing exists if a substantial portion of the entities' products, services, or intangibles are distributed or sold to a common customer, if the entities use a common trade name or other common identification, or if the entities seek to identify themselves to their customers as a member of the same enterprise. The use of a common advertising agency or a commonly owned or controlled in-house advertising office shall not by itself establish common marketing that is suggestive of functional integration. That activity, however, shall be relevant to determining the existence of economies of scale or centralization of management.
Transfer or Pooling of Technical Information or Intellectual Property. Transfers or pooling of technical information or intellectual property, such as patents, copyrights, trademarks and service marks, trade secrets, processes or formulas, know-how, research, or development, shall provide evidence of functional integration if the matter transferred is significant to the businesses' operations.
Common Distribution System. Use of a common distribution system by the entities, under which inventory control and accounting, storage, trafficking, or transportation are controlled through a common network shall provide evidence of functional integration.
Common Purchasing. Common purchasing of substantial quantities of products, services, or intangibles from the same source by the entities, particularly if the purchasing results in significant cost savings or if the products, services or intangibles are not readily available from other sources and are significant to each entity's operations or sales, shall provide evidence of functional integration.
Common or Intercompany Financing. Significant common or intercompany financing, including the guarantee by, or the pledging of the credit of, one (1) or more entities for the benefit of another entity or entities shall provide evidence of functional integration, if the financing activity serves an operational purpose of both borrower and lender. Lending which serves an investment purpose of the lender shall not necessarily provide evidence of functional integration.

(b) Centralization of Management. Centralization of management shall exist if directors, officers, or other management employees jointly participate in the management decisions that affect the respective business activities and that may also operate to the benefit of the entire economic enterprise. Centralization of management may exist whether the centralization is effected from a parent entity to a subsidiary entity, from a subsidiary entity to a parent entity, from one (1) subsidiary entity to another, from one (1) division within a single entity to another division within an entity, or from any combination of the foregoing. Centralization of management may exist even if day-to-day management responsibility and accountability has been decentralized, if the management has an ongoing operational role with respect to the business activities. An operational role may be effected through mandates, consensus building, or an overall operational strategy of the business, or any other mechanism that establishes joint management.

Facts Providing Evidence of Centralization of Management. Evidence of centralization of management shall be provided if common officers participate in the decisions relating to the business operations of the different segments. Centralization of management may exist if management shares or applies knowledge and expertise among the parts of the business. Existence of common officers and directors, while relevant to a showing of centralization of management, shall not alone provide evidence of centralization of management. Common officers may be more likely to provide evidence of centralization of management than are common directors.
Stewardship Distinguished. Centralized efforts to fulfill stewardship oversight shall not provide evidence of centralization of management. Stewardship oversight shall consist of those activities that any owner would take to review the performance of or safeguard an investment. Stewardship oversight shall be distinguished from those activities that an owner may take to enhance value by integrating one (1) or more significant operating aspects of one (1) business activity with the other business activities of the owner. For example, implementing reporting requirements or mere approval of capital expenditures may evidence only stewardship oversight.

(c) Economies of Scale. Economies of scale shall refer to a relation among and between business activities resulting in a significant decrease in the average per unit cost of operational or administrative functions due to the increase in operational size. Economies of scale may exist from the inherent cost savings that arise from the presence of functional integration or centralization of management. The following are examples of business operations that may support the finding of economies of scale. The order of the list does not establish a hierarchy of importance.

Centralized Purchasing. Centralized purchasing designed to achieve savings due to the volume of purchases, the timing of purchases, or the interchangeability of purchased items among the parts of the business engaging in the purchasing shall provide evidence of economies of scale.
Centralized Administrative Functions. The performance of traditional corporate administrative functions in common, such as legal services, payroll services, pension and other employee benefit administration, among the parts of the business may result in some degree of economies of scale. An entity that secures savings in the performance of corporate administrative services due to its affiliation with other entities that it would not otherwise reasonably be able to secure on its own because of its size, financial resources, or available market, shall provide evidence of economies of scale.

Section 5. Indicators of a Unitary Business.

(1) same type of business. Business activities that are in the same general line of business shall generally constitute a single unitary business, as, for example, a multistate grocery chain.

(2) Steps in a vertical process. Business activities that are part of different steps in a vertically structured business almost always constitute a single unitary business. For example, a business engaged in the exploration, development, extraction, and processing of a natural resource and the subsequent sale of a product based upon the extracted natural resource, is engaged in a single unitary business, regardless of the fact that the various steps in the process are operated substantially independently of each other with only general supervision from the business's executive offices.

(3) Strong centralized management. Business activities tha might otherwise be considered as part of more than one (1) unitary business may constitute one (1) unitary business if there is a strong central management, coupled with the existence of centralized departments for functions such as financing, advertising, research, or purchasing. Strong centralized management shall exist if a central manager or group of managers makes substantially all of the operational decisions of the business. For example, some businesses conducting diverse lines of business may properly be considered as engaged in only one (1) unitary business if the central executive officers are actively involved in the operations of the various business activities and there are centralized offices which perform for the business activities the normal matters which a truly independent business would perform for itself, such as personnel, purchasing, advertising, or financing.

Section 6. Taxable Year of the Combined Group. The combined group's taxable year shall be determined as follows:

(1) If two (2) or more members of a group file a federal consolidated return, the combined group's taxable year shall be the taxable year of the federal consolidated group; or

(2) In all other cases, the taxable year shall be the taxable year of the designated filer.

Section 7. Members with Different Accounting Periods.

(1) If the taxable year of a member differs from the taxable year of the combined group, the designated filer shall elect to determine the portion of that member's income to be included in one (1) of the following ways:

(a) A separate income statement prepared from the books and records for the months included in the combined group's taxable year; or

(b) Including all of the income for the year that ends during the combined group's taxable year.

(2) Except as provided by subsection (3) of this section, the same method shall be used for each member with a different accounting period. Once an election is made under this section by attaching a statement to the return, it shall be the only method that may be used with respect to members of the combined group.

(3) A designated filer may request to change the method in subsection (1) that is used to determine the portion of a member's income to be included in a combined group by utilizing the method to petition for alternative apportionment as established in 103 KAR 16:330.

Section 8. Designated Filer. Responsibilities of designated filer.

(1) Access to records. In addition to the information required to be included in the combined group return, upon request of the department, the designated filer shall provide access to:

(a) The tax and financial records of members of the combined group that are part of the combined group but do not have Kentucky nexus; and

(b) Non-financial records of the combined group.

(2) Filing. The designated filer shall file a combined group return on behalf of the combined group together with all returns and schedules required by the Department.

(3) Payment. The designated filer shall timely remit to the department the Kentucky corporate income and limited liability entity tax imposed on the combined Kentucky net income and receipts of the combined group.

(4) Notices. Notices mailed to the designated filer shall be deemed to have been mailed to each of the members in the combined group.

History

RELATES TO: KRS 141.120, 141.121, 141.202
STATUTORY AUTHORITY: KRS 131.130(1), 141.050(4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.202 establishes the general rules for combined unitary reporting in Kentucky. KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 141.050(4) requires the Department of Revenue to promulgate administrative regulations and rules necessary for the proper administration of KRS Chapter 141. This administrative regulation establishes terms and procedures required for the implementation of combined unitary reporting in KRS 141.202.
History: 46 Ky.R. 286, 875, eff. 10-4-2019.

Chapter 17 Income Tax; Individual

103 KAR 17:010 Residence {#sec-103-kar-17-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:010}

Section 1. Definitions.

(1) "Domicile" means the place where an individual has established permanent residency.

(2) "Nonresident" is defined by KRS 141.010(25).

(3) "Nonresident citizen" means an individual residing in a foreign country who may file federal income tax returns as a nonresident citizen.

(4) "Part-year resident" is defined by KRS 141.010(27).

(5) "Resident" is defined by KRS 141.010(32).

Section 2. Nonresident Requirements. If any individual who has moved out of Kentucky returns to Kentucky within six (6) months from the time he had moved, it shall be construed that the removal from Kentucky was not intended to be permanent and the individual shall be considered a resident, or part-year resident during the time in which his abode may have been elsewhere. Any individual changing his domicile during a taxable year may also be required to furnish evidence of compliance with requirements of the other state with respect to taxation and qualifications as a resident citizen.

Section 3. Domicile. A domicile once obtained continues until a new domicile is acquired. Domicile is not changed by removal for a definite period or for incidental purposes. To constitute a change, there shall be intent to change, actual removal, and a new abode.

Section 4. Nonresident Citizens. An individual residing in a foreign country who may file federal income tax returns as a nonresident citizen, and who immediately prior to residing in a foreign country was domiciled in Kentucky, is presumed to be a Kentucky resident. An individual may, however, overcome this presumption by presenting sufficient evidence that the Kentucky domicile has been abandoned.

Section 5. Federal Employees. Federal employees working outside of Kentucky, but having a domicile in Kentucky are taxable as residents. Individuals, once domiciled in Kentucky, are considered Kentucky residents if a domicile has not been established outside of Kentucky. If the individual's domicile is claimed to be outside Kentucky, the requirements of Section 3 of this administrative regulation shall be met.

Section 6. Military Personnel. Under the provisions of the Soldiers' and Sailors' Civil Relief Act of 1940 as amended, a member of the Armed Forces retains the domicile which he had when he entered military service. Individuals domiciled in Kentucky at the time of induction will continue to be liable for the payment of Kentucky income taxes on all income regardless of where their military services are performed. However, military personnel (usually career personnel) may change their domicile from Kentucky to another state as any other individual. Conclusive evidence shall be submitted showing that their Kentucky domicile has been abandoned and a new domicile established outside of Kentucky.

Section 7. Reciprocity States.

(1) Kentucky has reciprocal tax agreements with the states of Indiana, Illinois, Michigan, Ohio, Virginia, West Virginia, and Wisconsin. These agreements provide that salaries and wages earned in Kentucky by residents of those states are exempt from Kentucky income tax. Kentucky residents are exempt from income tax, imposed by these states, on salaries and wages earned there. The Virginia Agreement, however, applies only to taxpayers who commute daily to their employment in the nonresident state.

(2) A Kentucky resident, working in one (1) of the states listed in subsection (1) of this section shall file the required certificate of nonresidence with his employer if they wish for tax to not be withheld by that employer. That certificate is the employer's authority to exempt the employee's income from withholding. A resident of a state listed in subsection (1) of this section shall file Form K-4, Kentucky Withholding Certificate, Revenue Form 42A804, with his Kentucky employer to exempt his income from Kentucky withholding. All Kentucky residents are subject to Kentucky income tax requirements as set forth in KRS 141.020.

History

RELATES TO: KRS 141.010, 141.020
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Kentucky Department of Revenue to promulgate administrative regulations to prescribe tax return filing requirements for residents, part-year residents, and nonresidents. This administrative regulation provides guidelines for determining whether an individual qualifies as a resident, part-year resident, or nonresident for Kentucky income tax purposes.
History: 103 KAR 017:010. II-1-1; 1 Ky.R. 328; eff. 2-5-1975; 10 Ky.R. 43; eff. 8-3-1983; 45 Ky.R. 1066, 1516; eff. 1-4-2019; Crt eff. 12-15-2025; TAm eff. 1-29-2026.

103 KAR 17:020 Combined individual returns {#sec-103-kar-17-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:020}

Section 1. Separate Return. Any individual, whether married or single, may elect to file a separate return. If both spouses have income, separate returns are required for married taxpayers that do not have the same residency status as a resident, nonresident, or part year resident.

Section 2. Joint Return. A taxpayer and spouse may elect, for any year, to file a joint return if they are married at the close of the taxable year; or a surviving spouse may elect to file a joint return if the deceased spouse died during the taxable year even though one (1) spouse had no gross income. If a joint return is filed, the gross income and adjusted gross income of the taxpayer and spouse are computed in an aggregate amount and the deductions and the net income are also computed on an aggregate basis. If separate returns have been filed by both spouses for the taxable year, the taxpayers may elect to file an amended joint return if the Department of Revenue is notified in writing that the separate return election is rescinded. Likewise, if two (2) married taxpayers have filed a joint return for the taxable year, they may elect to file an amended combined or amended separate returns. Taxpayers filing joint returns are jointly and severally liable for all taxes, penalties, and interest accruing under the return.

Section 3. Combined Return. Taxpayers may elect, for any year, to file a combined return if they are married at the close of the taxable year and have the same residency status as a resident, nonresident, or part year resident. If a combined return is filed, the gross income, adjusted gross income, deductions, net income, tax credits, and tax liabilities of the taxpayer and spouse are computed separately, but the tax shall be assessed on an aggregate basis. If married taxpayers elect to file a combined return, refunds shall be made payable to the taxpayers jointly and the taxpayers shall be jointly and severally liable for all taxes, penalties, and interest. Married couples electing to file a combined return shall not be permitted to rescind such election and file separate returns for that taxable year.

History

RELATES TO: KRS 131.010, 141.010, 141.019, 141.050, 141.180, 141.900
STATUTORY AUTHORITY: KRS 131.130, 141.050
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation provides a basis for the combined individual income tax return which permits married taxpayers to gain the benefits of separate filing on one return.
History: 103 KAR 017:020. II-2; 1 Ky.R. 225; eff. 1-8-1975; 3 Ky.R. 147; eff. 9-1-1976; 45 Ky.R. 1068, 1516; eff. 1-4-2019; Crt eff. 12-15-2025.

103 KAR 17:060 Income subject to taxation; portions {#sec-103-kar-17-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:060}

Section 1. Definitions.

(1) "Nonresident" is defined by KRS 141.010(25).

(2) "Part-year resident" is defined by KRS 141.010(27).

(3) "Resident" is defined by KRS 141.010(32).

Section 2. Taxation of Residents. The entire net income of a resident shall be subject to Kentucky income tax regardless of its source. Income from out of state sources shall not be exempt. The adjustments to gross income and itemized deductions allowed under KRS 141.019 of a resident shall not be limited to those paid in Kentucky.

Section 3. Taxation of Part-Year Residents.

(1) Part-year residents shall be subject to Kentucky individual income tax upon their entire net incomes from all sources while they are Kentucky residents, and upon their incomes from Kentucky sources during the period of non-residency.

(2) Except as provided in Section 6 of this administrative regulation for net operating loss deductions, part-year residents shall be limited to either.

(a) Adjustments to gross income and itemized deductions allowed pursuant to KRS 141.019 paid while a Kentucky resident; or

(b) That portion of total adjustments to gross income and total itemized deductions allowed pursuant to KRS 141.019 that Kentucky income bears to total income.

Section 4. Taxation of Nonresidents.

(1) Any net income of a nonresident shall be subject to Kentucky income tax if it is derived from services performed in Kentucky, from property located in Kentucky, or from income received from a pass-through entity doing business in Kentucky. Income from sources outside Kentucky shall not be subject to Kentucky income tax. Losses incurred outside Kentucky shall not be deductible in computing Kentucky adjusted gross income.

(2) Except as provided in Section 6 of this administrative regulation for net operating loss deductions, the adjustments to gross income and itemized deductions allowed pursuant to KRS 141.019 shall be limited to that portion of adjustments to gross income and total itemized deductions that Kentucky income bears to total income.

Section 5. Allocation Based Upon Kentucky Income. If a deduction or an adjustment to gross income is allowable based upon the receipt of certain types of income and is limited to a maximum amount deductible for federal income tax purposes, the Kentucky income used to make the allocation shall be the same type of income used to allow the deduction on the federal return per KRS 141.017.

Section 6. Net Operating Loss Deduction. A resident, part-year resident, or nonresident shall compute the net operating loss deduction using Kentucky income and expenses allowed or allowable on the Kentucky return.

History

RELATES TO: KRS 141.010, 141.017, 141.019, 141.020, 141.900
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.020 establishes the income tax requirements for residents, part-year residents, and nonresidents. This administrative regulation prescribes methods of determining the Kentucky portion of certain income tax deductions of nonresidents and part-year residents.
History: 103 KAR 017:060. II-6-1; 1 Ky.R. 329; eff. 2-5-1975; 20 Ky.R. 2879; eff. 5-18-1994; 32 Ky.R. 2060; 33 Ky.R. 77; eff. 8-7-2006; 45 Ky.R. 1069, 1517; eff. 1-4-2019; Crt eff. 12-15-2025; TAm eff. 1-29-2026.

103 KAR 17:100 Division of income between married individuals filing separate tax returns {#sec-103-kar-17-100 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:100}

Section 1. Definition. "Internal Revenue Code" is defined by KRS 141.010.

Section 2. Income derived from the joint ownership of real property, tangible personal property, or intangible property shall be divided in accordance with the actual ownership of the property by married individuals filing separate tax returns. If actual ownership is not known or specified, income shall be divided equally. Income derived from property not held jointly shall be attributable to its individual owner.

Section 3. Income derived from self-employment by a husband and wife filing separate tax returns shall be divided according to Section 6017 of the Internal Revenue Code, 26 U.S.C. 6017 and other guidance issued by the U.S. Department of the Treasury and the Internal Revenue Service.

History

RELATES TO: KRS 141.010, 141.020, 141.050, 141.300, 141.305
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes the requirements for determining how income derived from joint ownership of property and self-employment is divided among married individuals filing separate tax returns.
History: 103 KAR 017:100. 32 Ky.R. 2205; 33 Ky.R. 77; eff. 8-7-2006; 45 Ky.R. 734, 1182; eff. 12-7-2018; Crt eff. 11-14-2025.

103 KAR 17:130 Individual income tax - military personnel - nonresidents {#sec-103-kar-17-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:130}

Section 1. Definition. "Servicemember" means servicemember as defined by 50 U.S.C. 3911(1).

Section 2. A Kentucky resident servicemember shall file and report all income earned or received under the provisions of 103 KAR 17:060.

Section 3. A nonresident servicemember who is temporarily located in Kentucky because of military assignment shall not be required to report income or compensation from service in the military. Income from nonmilitary Kentucky sources shall be subject to Kentucky income tax and shall be reported under the provisions of 103 KAR 17:060.

Section 4. A civilian spouse of a nonresident servicemember shall be taxed in Kentucky in accordance with the provisions of 50 U.S.C. 4001.

Section 5. A nonresident civilian who marries a Kentucky resident servicemember who is living outside of Kentucky shall not be considered a resident of Kentucky merely because the servicemember is considered a resident for tax purposes.

Section 6. A resident servicemember may change his or her state of domicile from Kentucky to another state in which he or she resides. Notice of intent to change shall be filed with the personnel department of the appropriate military service.

History

RELATES TO: KRS 141.020 and 50 U.S.C. 4001
STATUTORY AUTHORITY: KRS 131.130, 141.020, 141.050
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. 50 U.S.C. 4001 prohibits a state from imposing a tax on income or compensation from military service on servicemembers who are temporarily located in the state because of military assignments and prohibits a state from using the military income to increase any tax due on income from nonmilitary sources. A servicemember shall file state income tax returns with his or her state of legal domicile, which usually is the state of residence prior to entering military service. This administrative regulation establishes the income tax filing requirements for servicemembers of the U.S. government, including residents of other states that are serving in the military and stationed in Kentucky.
History: 103 KAR 017:130. 33 Ky.R. 1201; 1519; eff. 1-5-2007; 45 Ky.R. 735, 11863; eff. 12-7-2018; Crt to Am, filing deadline 5-14-2027.

103 KAR 17:140 Individual income tax - reciprocity - nonresidents {#sec-103-kar-17-140 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:140}

Section 1. In accordance with KRS 141.070, reciprocal agreements with other states exempting specific income from tax shall apply only to the specific types of income listed. Income from other sources may require the filing of a nonresident income tax return.

Section 2. The agreements shall provide the same exemption for the listed income from withholding tax.

Section 3. A list of states that Kentucky has negotiated reciprocal agreements and the type of income exemption available are listed in this section:

(1) Illinois.

(a) Reciprocity with Illinois shall be in accordance with the reciprocity agreement titled "Agreement between Director of Revenue for the State of Illinois and the Commissioner of Revenue of the Commonwealth of Kentucky".

(b) Residents of Illinois shall be exempt from Kentucky income tax on wages and salaries.

(2) Indiana.

(a) Reciprocity with Indiana shall be in accordance with the reciprocity agreement titled "Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Indiana".

(b) Residents of Indiana shall be exempt from Kentucky income tax on wages, salaries, and commissions.

(3) Michigan.

(a) Reciprocity with Michigan shall be in accordance with the reciprocity agreement titled "Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Michigan".

(b) Residents of Michigan shall be exempt from tax on income earned from personal services in Kentucky. Personal services shall include salaries and wages.

(4) Ohio.

(a) Except as provided in paragraphs (b) and (c) of this subsection, reciprocity with Ohio shall be in accordance with the reciprocity agreement titled "Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Ohio".

(b) Except as provided in paragraph (c) of this subsection, residents of Ohio shall be exempt from Kentucky income tax on salaries and wages.

(c) Effective for calendar years beginning on or after January 1, 2007, the reciprocity agreement with Ohio shall not apply with respect to wages which an S corporation pays to a shareholder-employee if the shareholder-employee is a "twenty (20) percent or greater" direct or indirect equity investor in the S corporation.

(5) Virginia.

(a) Reciprocity with Virginia shall be in accordance with the reciprocity agreement titled "Reciprocal Income Tax Agreement between Commonwealth of Kentucky and Commonwealth of Virginia".

(b) Virginia residents commuting daily to work in Kentucky shall be exempt from income tax on salaries and wages.

(6) West Virginia.

(a) Reciprocity with West Virginia shall be in accordance with the reciprocity agreement titled "Reciprocal Income Tax Agreement between State of West Virginia and Commonwealth of Kentucky".

(b) Residents of West Virginia shall be exempt from Kentucky income tax on salaries and wages.

(7) Wisconsin.

(a) Reciprocity with Wisconsin shall be in accordance with the reciprocity agreement titled "Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Wisconsin".

(b) Residents of Wisconsin shall be exempt from tax on income earned from personal services in Kentucky. Personal services shall include salaries and wages.

Section 4. For a person domiciled in one (1) of the states listed in Section 3 of this administrative regulation, but who maintains a place of abode and spends more than 183 days in Kentucky during the year, reciprocity shall not apply and that person shall be considered a Kentucky resident for tax purposes.

Section 5. Incorporation by Reference.

(1) The following material is incorporated by reference:

(a) Agreement between Director of Revenue for the State of Illinois and the Commissioner of Revenue of the Commonwealth of Kentucky, January 28, 1971;

(b) Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Indiana, January 1, 1965.

(d) Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Ohio, January 7, 1972;

(e) Reciprocal Income Tax Agreement between Commonwealth of Kentucky and Commonwealth of Virginia, September 2, 1964;

(f) Reciprocal Income Tax Agreement between State of West Virginia and Commonwealth of Kentucky, April 9, 1965; and

(g) Reciprocal Income Tax Agreement between Commonwealth of Kentucky and State of Wisconsin, June 21, 1965.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 5 p.m.

History

RELATES TO: KRS 141.070
STATUTORY AUTHORITY: KRS 131.130(1), 141.050(4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes reciprocity requirements for Kentucky residents, and residents of states with which Kentucky has negotiated reciprocal agreements under the provisions of KRS 141.070.
History: 103 KAR 017:140. 33 Ky.R. 1202; 1606; 1792; eff. 2-2-2007; TAm eff. 5-16-2017; 45 Ky.R. 736, 1183; eff. 12-7-2018; Crt eff. 11-14-2025.

Chapter 18 Income Tax; Withholding

103 KAR 18:010 Employers required to withhold {#sec-103-kar-18-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:010}

Section 1. Employers. Every employer incorporated in Kentucky, qualified to do business in Kentucky, doing business in Kentucky, or subject to the jurisdiction of Kentucky in any manner, and making payment of wages subject to withholding shall deduct, withhold, and pay to the department the tax required to be withheld.

Section 2. Wages. All wages paid to a Kentucky resident whether working in or out of Kentucky, as a regular employee in the conduct of business of an employer required to withhold taxes, are subject to withholding. The wages paid to nonresidents of Kentucky are subject to withholding to the extent that they are wages for personal services rendered in Kentucky as a regular employee in the conduct of the business of an employer in Kentucky. However, the nonresident is not subject to withholding where a reciprocal exemption agreement is in effect between Kentucky and the state of residence of the nonresident employee.

History

RELATES TO: KRS 141.070, 141.310, 141.320
STATUTORY AUTHORITY: KRS Chapter 13A
NECESSITY, FUNCTION, AND CONFORMITY: This administrative regulation defines the terms "employer" and "wages" from the standpoint of Kentucky income tax withholding requirements.
History: 103 KAR 018:010. IW-1; 1 Ky.R. 329; eff. 2-5-1975; TAm eff. 5-16-2017; Crt eff. 11-6-2018; Crt eff. 10-1-2025.

103 KAR 18:020 Withholding return adjustment {#sec-103-kar-18-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:020}

Section 1. General. If the amount of tax withheld by the employer exceeds or is less than the tax required to be withheld and paid to the department for any period, proper adjustment may be made on the return for a subsequent period of the same calendar year. Every return on which an adjustment for a preceding period is reported shall include a statement explaining the adjustment and designating the period in which the error occurred. A claim for refund may be filed for any overpayment.

Section 2. Under-withholding. If less than the correct amount of the tax required to be withheld is deducted from any wage payment, the employer may deduct the under-collection from the remuneration of the employee under his or her control. If there is no remuneration under the control of the employer, the matter is one for settlement between the employer and the employee, but the amount under-collected shall be the liability of the employer.

Section 3. Over-withholding. If more than the correct amount of tax required to be withheld is deducted from any wage payment, the over-collection may be repaid to the employee. The employer shall obtain and keep, as part of his or her records, the written acknowledgement of receipt of the repayment by the employee showing the date and amount of the repayment. Any over-collection not repaid and receipted for by the employee shall be reported and paid to the department for the period in which the over-collection was made.

Section 4. Other Errors. Employers shall consult the department for correction of errors in withholding which cannot be adjusted in a return for a subsequent period of the same calendar year.

History

RELATES TO: KRS 141.330, 141.355
STATUTORY AUTHORITY: KRS 131.130(1), 141.050(4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.050(4) requires the department to promulgate administrative regulations to effectively carry out the provisions of KRS Chapter 141. This administrative regulation establishes the procedure the employer is required to use in correcting errors in the withholding and payment of Kentucky income tax.
History: IW-2; 1 Ky.R. 227; eff. 1-8-1975; TAm eff. 5-16-2017; TAm eff. 7-16-2018; 48 Ky.R. 488, 1508; eff. 2-1-2022.

103 KAR 18:050 Withholding statements {#sec-103-kar-18-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:050}

Section 1. Acceptable Forms and Information.

(1) Employers shall provide to their employees the following forms as withholding statements to report Kentucky withholding:

(a) Federal Form W-2, "Wage and Tax Statement";

(b) Federal Form W-2G, Certain Gambling Winnings;

(d) Facsimiles of the forms listed in this subsection that are acceptable to the Internal Revenue Service.

(2) The statements provided by employers to their employees shall contain:

(a) The state name;

(b) The employer's Kentucky withholding account number;

(d) The Kentucky tax withheld.

Section 2. Termination of Business.

(1) If the employer terminates its business, the withholding statement shall be provided to its employees for the calendar year of termination within thirty (30) days of termination.

(2) The employer shall submit its final return and withholding statements to the department within the same thirty (30) day period.

Section 3. Incorrect and Duplicate Withholding Statements.

(1) If it is necessary to correct a withholding statement after it has been issued to an employee, the Federal Form W-2C or a new withholding statement shall be clearly marked "Corrected", and a copy submitted to the department within thirty (30) days of issuance.

(2) If the withholding statement is lost or destroyed, the employer shall prepare and issue a duplicate copy to the employee that is clearly marked "Duplicate" within thirty (30) days of the request by the employee.

Section 4. Department Copy.

(1) Employers shall provide withholding statement information to the department in an acceptable format by January 31 following the close of the calendar year.

(2) An employer who issues twenty-six (26) or more withholding statements annually shall utilize an acceptable form of electronic filing.

(3) An employer who issues less than twenty-six (26) withholding statements annually shall file either Form K-5, "Kentucky Employer's Report of Withholding Tax Statements," Revenue Form 42A805 with the department or utilize another acceptable form of electronic filing.

(4)

(a) The department shall provide to employers by October 31 of each year information about the types of electronic filing methods acceptable to the department.

(b) Acceptable electronic filing methods shall include all of the acceptable methods utilized by the Social Security Administration and the Internal Revenue Service that can be supported by the department's processes.

(c) Withholding statement information submitted electronically to the department via a physical media device (e.g., CD, USB, external hard drive, etc.) shall be accompanied by Form 42A806 "Transmitter Report" upon submission.

(5) If an employer is required to utilize an electronic method of filing, it shall file the withholding statements in an acceptable electronic format unless the department grants a written waiver of the requirement.

Section 5. Penalties.

(1) Failure to comply with the provisions of this administrative regulation may result in the issuance of penalties in accordance with KRS 131.180 unless reasonable cause is provided.

(2) Examples. One (1) or more of the penalties may apply if the employer:

(a) Fails to file timely;

(b) Fails to include all information required to be shown on the withholding statement;

(d) Files on paper if required to file electronically; or

(e) Fails to provide timely or correct payee statement to employees.

Section 6. The forms and materials prescribed herein may be inspected, copied, or obtained, subject to applicable copyright law, from 8:00 a.m. until 4:30 p.m. at the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601, at any Kentucky Department of Revenue Taxpayer Service Center during operating hours, and on the department's website at http:\revenue.ky.gov. .

History

RELATES TO: KRS 131.250, 141.330, 141.335
STATUTORY AUTHORITY: KRS 131.130, 131.250, 141.335
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Kentucky Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. KRS 141.335(2) authorizes the department to establish the form and required contents of the withholding statement to be filed pursuant to KRS 141.335(1). KRS 131.250 authorizes the department to establish requirements for electronic filing. This administrative regulation establishes those requirements.
History: 103 KAR 018:050. IW-5; 1 Ky.R. 329; 585; eff. 2-5-1975; 3 Ky.R. 150; eff. 9-1-1976; 23 Ky.R. 461; 1578; eff. 10-14-1996; 30 Ky.R. 664; 1455; eff. 11-25-2003; 45 Ky.R. 1070, 1518; eff. 1-4-2019; Crt eff. 12-15-2025.

103 KAR 18:060 Miscellaneous payroll period {#sec-103-kar-18-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:060}

Section 1. Miscellaneous Payroll Period. If wages are paid to an employee for a payroll period of more than one (1) year, the amount of tax required to be deducted and withheld in respect to such wages shall be determined as if such payroll period constituted a miscellaneous payroll period of 365 days.

History

RELATES TO: KRS 141.315
STATUTORY AUTHORITY: KRS 131.130, 141.315
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.315 requires the department to promulgate administrative regulations governing certain specified types of wage payments. This administrative regulation provides an income tax withholding method for payroll periods of more than one (1) year.
History: 103 KAR 018:060. IW-6; 1 Ky.R. 330; eff. 2-5-1975; TAm eff. 6-22-2017; Crt eff. 11-6-2018; Crt eff. 10-1-2025.

103 KAR 18:070 Supplemental wages and other payments subject to withholding {#sec-103-kar-18-070 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:070}

Section 1. Definitions.

(1) "Benefit year" is defined by KRS 341.090(3).

(2) "Benefits" is defined by KRS 341.020(4).

(3) "Cabinet" means the Education and Workforce Development Cabinet as defined by KRS 341.005.

(4) "Department" means the Department of Revenue as defined by KRS 141.010(5).

(5) "Fund" is defined by KRS 341.020(1).

(6) "Gambling winnings" means winnings that are subject to withholding as defined by 26 U.S.C. 3402(q) of the Internal Revenue Code. (7) "Supplemental wages" means payments made to an employee by the individual's employer in addition to regular wages.

Section 2. Gambling Winnings. Every person making a payment of gambling winnings shall deduct and withhold from the payment Kentucky income tax at the maximum tax rate provided in KRS 141.020.

Section 3. Supplemental Wages.

(1) If supplemental wages are paid at the same time as regular wages, the tax to be withheld shall be determined as if the aggregate of the supplemental and regular wages were a single wage payment for the regular payroll period.

(2) If supplemental wages are paid at a different time, the employer shall determine the tax to be withheld by aggregating the supplemental wages either with the regular wages for the current payroll period or with the regular wages for the last preceding payroll period within the same calendar year.

Section 4. Vacation Pay.

(1) If an employee receives vacation pay for the time of a vacation absence, the vacation pay shall be subject to withholding as though it were a regular wage payment made for the payroll period or periods which occur during the vacation.

(2) If vacation pay is paid in addition to regular wages to an employee who forgoes his vacation, the payments shall be treated as supplemental wages.

Section 5. Unemployment Benefits.

(1) An individual filing a new claim for benefits shall:

(a) Be notified of the requirements established in KRS 341.395(1) by the Education and Workforce Development Cabinet; and

(b) Indicate on the initial or reopened claim for benefits if the individual elects to have the state income tax imposed by KRS 141.020 deducted and withheld from the individual's benefits at the rate of four (4) percent. An individual may make the indication:

On paper by completing an "Initial Claim Application" as incorporated by reference in 787 KAR 1:090;
Electronically by submitting an Initial Claim Application online at https://uiclaims.des.ky.gov/ebenefit; or
By any other means of filing an initial claim application as established by the cabinet and 787 KAR 1:090(2).

(2) The amounts deducted and withheld from benefits pursuant to subsection (1) of this section shall remain in the unemployment insurance fund until transferred to the department as a payment of income tax in accordance with the priority order established in 787 KAR 1:320.

(3) The cabinet shall follow all procedures pertaining to the deducting and withholding of income tax specified in KRS 341.395(3) or by the department.

History

RELATES TO: KRS 141.010(29), 141.020, 141.310, 141.315, 141.900(22), 341.020, 341.090, 341.395, 26 U.S.C. 3402(q)
STATUTORY AUTHORITY: KRS 141.050(4), 141.310(8), 141.315
NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.050(4) requires the Department of Revenue to promulgate administrative regulations and prescribe the forms and reports necessary for the proper administration of any and all provisions of KRS Chapter 141. KRS 141.310(8) authorizes the department to promulgate an administrative regulation for withholding in addition to those provided in KRS 141.310 and 141.315 if the employer and employee agree to additional withholding. KRS 141.315 requires the department to promulgate administrative regulations governing certain specified types of payments. This administrative regulation prescribes procedures for withholding income tax on gambling winnings, supplemental wages, vacation pay, and unemployment benefits.
History: IW-7; 1 Ky.R. 330; eff. 2-5-1975; 30 Ky.R. 952; 1456; eff. 11-25-2003; 32 Ky.R. 1723; 33 Ky.R. 78; eff. 8-7-2006; 37 Ky.R. Am. 409; Am 1177; eff. 12-3-2010; 44 Ky.R. 1096; eff. 2-2-2018; TAm eff. 7-16-2018; Cert to Am, filing deadline 7-27-2026.

103 KAR 18:090 Payroll records {#sec-103-kar-18-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:090}

Section 1. Maintain Records.

(1)

(a) Every employer required to deduct and withhold income tax upon wages shall keep employee withholding exemption certificates and records showing the following:

The number of persons employed during the year whose wages are subject to withholding;
The periods of employment; and
The amounts and dates of payment to each person.

(b) No specific form for records has been prescribed by the department.

(2) Records required by this administrative regulation shall be maintained for a period of at least four (4) years after the date the withholding return is filed or the date tax withheld by the employer is paid, whichever is later.

History

RELATES TO: KRS 131.130, 141.050, 141.310, 141.315, 141.325
STATUTORY AUTHORITY: KRS 131.130(1), 141.050(4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.050(4) requires the department to promulgate administrative regulations to effectively carry out the provisions of KRS Chapter 141. This administrative regulation provides guidelines for the maintenance and retention of records relative to income tax withholding by employers.
History: IW-9; 1 Ky.R. 330; eff. 2-5-1975; TAm eff. 6-22-2017; TAm eff. 7-16-2018; 48 Ky.R. 490, 1509; eff. 2-1-2022.

103 KAR 18:110 Voluntary withholding {#sec-103-kar-18-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:110}

Section 1. Additional withholding. In addition to tax required to be withheld by the tables required by KRS 141.370 or by any withholding computer formula published by the department, an employee may authorize his employer to withhold additional Kentucky income tax using Form K-4, Kentucky Withholding Certificate, Revenue Form 42A804.

History

RELATES TO: KRS 141.310, 141.370
STATUTORY AUTHORITY: KRS 131.130, 141.310, 141.370
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. This administrative regulation authorizes employers and employees to voluntarily agree to additional withholding as set forth in KRS 141.310(8).
History: 103 KAR 018:110. IW-11; 1 Ky.R. 331; eff. 2-5-1975; 2 Ky.R. 588; 3 Ky.R. 287; eff. 8-4-1976; 9 Ky.R. 10; eff. 8-11-1982; 16 Ky.R. 2698; eff. 8-2-1990; 17 Ky.R. 1524; eff. 11-21-1990; 36 Ky.R. 1522; 2046-M; eff. 4-2-2010; 45 Ky.R. 1073; eff. 1-4-2019; Crt eff. 12-15-2025.

103 KAR 18:120 Security for compliance; bonds {#sec-103-kar-18-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:120}

Section 1. Enforcement of Trusteeship. Additional means of enabling the Department of Revenue to collect withholding taxes has been provided in KRS 141.310(14) which authorizes the department to fix the amount of and demand the posting of a corporate surety bond or cash not to exceed $50,000 by any employer required under KRS Chapter 141, or the administrative regulations promulgated thereunder, to withhold Kentucky income taxes from wages of employees.

Section 2. Bond Requirements. For purposes of KRS 141.310(14), a person from whom the department may require a withholding tax security bond and those persons from whom a security bond may be required includes the following:

(1) An employer who is delinquent in either filing withholding tax returns required by law or is delinquent in submitting to the department any tax withheld from an employee, or both; or

(2) An employer, who for any reason, the department determines is or may become an insecure risk for which there is a need to ensure compliance with the law.

Section 3. Bond Procedures. The department, after determining that a bond is necessary to ensure compliance of reporting and paying withholding taxes, shall demand the posting of a security bond by written notice transmitted by certified mail and shall include therein instructions and forms for the convenience of the employer.

Section 4. Enforcement of Bond Requirement. Failure to post the bond in the amount the department demanded from the employer within twenty (20) days from the date of the written notification by certified mail will, by such failure, authorize the department to invoke immediately its statutory authority to seek a court order requiring cessation of all business or activities of the employer failing to post the bonds.

Section 5. Change in Amount of Bond. The department may at any time increase or decrease the amount of any bond that has been posted.

Section 6. Monthly Returns and Payment. Any out-of-state or delinquent employer may be required to file monthly withholding tax returns and to accompany the monthly returns with a complete payment of all taxes withheld during the month covered by the return.

Section 7. Court Jurisdiction. The department may initiate action seeking a court order, requiring cessation of all business operation or activity of any employer failing to comply with this administrative regulation, in the Franklin Circuit Court or in any other circuit court which may have jurisdiction over the area in which the employer resides, or in which some or all of the employer's business is conducted, or having jurisdiction of the area in which property of the employer is located. The department may institute legal action in accordance with any provision of this administrative regulation.

History

RELATES TO: KRS 141.310
STATUTORY AUTHORITY: KRS 131.130, 141.310
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to enforce Kentucky's tax laws. This administrative regulation implements KRS 141.310(14) which authorizes the Department of Revenue to require certain employers to post withholding performance bonds.
History: 103 KAR 018:120. IW-12; 1 Ky.R. 331; eff. 2-5-1975; 20 Ky.R. 2879; 21 Ky.R. 16; eff. 6-17-1994; TAm eff. 6-22-2017; 45 Ky.R. 1074, 1518; eff. 1-4-2019; Crt eff. 12-15-2025.

103 KAR 18:150 Employer's withholding reporting requirements {#sec-103-kar-18-150 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:150}

Section 1. Definitions. "Lookback period" means the twelve (12) month period ending on December 31 of the year immediately preceding the current calendar year. For example, the lookback period for calendar year 2020 is the period beginning on January 1, 2019 and ending on December 31, 2019.

Section 2. Reporting and Payment Requirements. Unless otherwise required or allowed by Section 3 of this administrative regulation:

(1)

(a) Any employer who withheld income tax of less than $400 during the lookback period shall report and pay the tax annually using Revenue Form K-3, "Employer's Annual Reconciliation Return."

(b) Revenue Form K-3 and the income tax withheld shall be filed and paid on or before the last day of the month following the close of the calendar year in which the tax was withheld (January 31).

(2)

(a) Any employer who withheld income tax of $400 or more, but less than $2,000 during the lookback period shall report and pay the tax quarterly using Revenue Form K-1, "Employer's Return of Income Tax Withheld."

(b) Revenue Form K-1 and the income tax withheld each quarter shall be filed and paid on or before the last day of the month following the close of each of the first three (3) quarters of the calendar year (April 30, July 31, and October 31).

(c) Revenue Form K-3, "Employer's Annual Reconciliation Return," and the income tax withheld for the fourth quarter shall be filed and paid on or before the last day of the month following the close of the calendar year in which the tax was withheld (January 31).

(3)

(a) Any employer who withheld income tax of $2,000 or more, but less than $50,000 during the lookback period shall report and pay the tax monthly using Revenue Form K-1, "Employer's Return of Income Tax Withheld."

(b) Revenue Form K-1 and the income tax withheld each month shall be filed and paid on or before the 15th day of the following month for each of the first eleven (11) months of the calendar year.

(c) Revenue Form K-3, "Employer's Annual Reconciliation Return," and the income tax withheld for the last month shall be filed and paid on or before the last day of the month following the close of the calendar year in which the tax was withheld (January 31).

(4)

(a)

Except as provided in paragraph (b) of this subsection, any employer who withheld income tax of $50,000 or more during the lookback period shall report and pay the tax twice monthly using Revenue Form K-1, "Employer's Return of Income Tax Withheld."
Revenue Form K-1 and the income tax withheld during the first through the 15th day of each month of the calendar year shall be reported and paid on or before the 25th day of that month.
Revenue Form K-1 and the income tax withheld during the 16th through the last day of each month of the calendar year shall be reported and paid on or before the tenth day of the following month.
However, Revenue Form K-1 and the income tax withheld during the first calendar month shall be filed and paid on or before the tenth of the following month (February 10), and the income tax withheld for the period beginning December 16 and ending on December 31 shall be paid with Revenue Form K-3, "Employer's Annual Reconciliation Return," which shall be filed on or before the last day of the month following the close of the calendar year in which the tax was withheld (January 31).

(b) Any employer who withheld income tax during the lookback period of $50,000 or more and whose average monthly income tax withheld during the lookback period is more than $25,000 shall pay the tax withheld by electronic funds transfer.

(5) The department shall provide written notification of the reporting and payment requirements to any employer who does not have a lookback period.

(6) For periods beginning on or after January 1, 2021, twice monthly and monthly filers shall electronically file and pay the income tax withheld.

(7) For periods beginning on or after January 1, 2022, all filers shall electronically file and pay the income tax withheld.

Section 3. Electronic Fund Transfers.

(1) If, on any day during a reporting period, an employer accumulates $100,000 or more of total income tax withheld before a current electronic transaction is otherwise due, the employer shall pay the tax withheld by electronic funds transfer. The employer shall electronically transfer the tax withheld as provided by 103 KAR 1:060 by the close of the first banking day after the first day the employer accumulates $100,000 or more of income tax withheld.

(2)

(a) Any employer not required to pay the tax by electronic funds transfer may make a written request to the department and, if approved by the department, shall be subject to the same requirements as those employers required to electronically transfer the tax.

(b) Any employer who may pay by electronic funds transfer shall continue to pay the tax withheld by electronic funds transfer until the department authorizes the employer in writing to change his reporting and payment method.

Section 4. Authority to Change Reporting and Payment Requirements. Pursuant to the provisions of Section 2 of this administrative regulation:

(1) The department may change annually the reporting or payment requirements of any employer upon written notice to the employer.

(2) Upon written request by any employer and approval by the department, the department may change the reporting or payment frequency prescribed by this administrative regulation.

Section 5. Penalties and Interest. Any employer who fails to comply with the provisions of this administrative regulation shall be subject to penalties as provided in KRS 131.180 and interest as provided in KRS 131.183.

History

RELATES TO: KRS 131.155, 141.330
STATUTORY AUTHORITY: KRS 131.130, 131.155, 141.330
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.155(3)(c) requires the department to promulgate administrative regulations establishing electronic fund transfer payment requirements for the payment of taxes and fees administered by the department. KRS 141.330(1) authorizes the department to promulgate administrative regulations to require employers to remit the tax withheld under KRS 141.310 and 141.315 within a reasonable time after the payroll period or other period. This administrative regulation prescribes the reporting and payment requirements for employers withholding Kentucky income tax.
History: 21 Ky.R. 144; 912; eff. 9-12-1994; 45 Ky.R. 1075, 1520; eff. 1-4-2019; 46 Ky.R. 1593; eff. 5-5-2020.

103 KAR 18:172 Withholding tax circulars {#sec-103-kar-18-172 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:172}

Section 1. The following withholding tax circulars of the Department of Revenue are rescinded and shall be null, void, and unenforceable:

(1) Revenue Circular 42C010 - Withholding tax reporting procedures under the Ky. Revitalization Authority. This circular is being rescinded because it is obsolete. Guidance on withholding tax reporting procedures under the Kentucky Revitalization Authority is available in 103 KAR 18:180 - Withholding Tax Reporting Procedures Under the Kentucky Revitalization Authority.

(2) Revenue Circular 42C011 - Kentucky. Withholding tax reporting procedures under the Kentucky Jobs Development Authority. This circular is being rescinded because it is obsolete. Guidance on withholding tax reporting procedures under the Kentucky Jobs Development Authority is available in 103 KAR 18:210, Kentucky Jobs Development Act Service and Technology Job Creation Assessment Fee.

(3) Revenue Circular 42C012 - Kentucky. Withholding tax reporting procedures under the Ky. Rural Economic Development Authority. This circular is being rescinded because it is obsolete. Guidance on withholding tax reporting procedures under the Kentucky Rural Economic Development Authority is available in 103 KAR 18:190, Kentucky Rural Economic Development Act Job Development Assessment Fee.

(4) Revenue Circular 42C013 - Kentucky. Withholding tax reporting procedures under the Ky. Industrial Development Act. This circular is being rescinded because it is obsolete. Guidance on withholding tax reporting procedures under the Kentucky Industrial Development Act is available in 103 KAR 18:200, Kentucky Industrial Development Act Job Development Assessment Fee.

History

RELATES TO: KRS 131.130(1)
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations to administer and enforce Kentucky's tax laws. The Department of Revenue has many policies and circulars, a number of which predate the enactment of KRS Chapter 13A, that conflict with current tax laws. This administrative regulation formally rescinds obsolete withholding tax circulars.
History: 103 KAR 018:172. 33 Ky.R. 1203; 1520; eff. 1-5-2007; Crt eff. 11-6-2018; Crt eff. 10-1-2025.

103 KAR 18:180 Kentucky economic development acts wage assessment {#sec-103-kar-18-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:180}

Section 1. Definitions.

(1) "Annual Report" means Form 42A900, Wage Assessment Annual Report for Economic Development Credits, as prescribed by the department at https://revenue.ky.gov.

(2) "Department" means the Kentucky Department of Revenue.

(3) "Gross wages" means any payment an employer gives an employee for services performed before any deductions permitted by federal or Kentucky law to yield "Taxable wages."

(4) "KBI" means the Kentucky Business Investment Program Act, which is codified as KRS 154.32-010 to 154.32-100 and referenced in KRS 141.415.

(5) "KEOZ" means the Kentucky Economic Opportunity Zone Act, which is codified as KRS 154.23-005 to 154.23-080 and referenced in KRS 141.401.

(6) "KIDA" means the Kentucky Industrial Development Act, which is codified as KRS 154.28-010 to 154.28-140 and referenced in KRS 141.400.

(7) "KIRA" means the Kentucky Industrial Revitalization Act, which is codified as KRS 154.26-010 to 154.26-125 and referenced in KRS 141.403.

(8) "KJDA" means the Kentucky Jobs Development Act, which is codified as KRS 154.24-010 to 154.24-160 and referenced in KRS 141.407.

(9) "KJRA" means the Kentucky Jobs Retention Act, which is codified as KRS 154.25-010 to 154.25-050 and referenced in KRS 141.402.

(10) "KREDA" means the Kentucky Rural Economic Development Act, which is codified as KRS 154.22-010 to 154.22-102 and referenced in KRS 141.347.

(11) "Taxable wages" means any payment an employer gives an employee for services performed as reported in box 1 of Internal Revenue Service Form W-2, Wage and Tax Statement.

Section 2. Annual Report for Assessment.

(1) An approved company with a Kentucky economic development act project authorized under the statutes listed in Section 1 of this administrative regulation shall file an annual wage assessment report with the department.

(2) The annual report shall be faxed or mailed on or before March 15 of each calendar year to the department, to report wage assessment credits claimed for the preceding calendar year.

(3) Information required on the annual report shall include:

(a) Company name;

(b) Project number assigned by the Cabinet for Economic Development;

(d) Activation date of project;

(e) Total annual gross or taxable wages for all employees as described below:

Gross wages shall be used for the KEOZ, KIDA, KIRA, KJRA and KREDA credits; and
Taxable wages shall be used for the KBI and KJDA credits;

(f) Total annual wage assessment credit claimed;

(g) Total annual local wage assessment credit claimed; and

(h) Total annual Kentucky tax withheld and reported for all employees.

(4) Information required to be submitted as an attachment to the annual report in a spreadsheet format if not included on Form 42A900 shall include:

(a) Each eligible employee's name;

(b) Each eligible employee's Social Security number or requested part thereof;

(d) Each eligible employee's hire date;

(e) Annual gross or taxable wages per eligible employee as described below:

Gross wages shall be used for the KEOZ, KIDA, KIRA, KJRA and KREDA credits; and
Taxable wages shall be used for the KBI and KJDA credits;

(f) Annual Kentucky income tax withheld per eligible employee; and

(g) Annual Kentucky wage assessment credit claimed per eligible employee.

History

RELATES TO: KRS 141.347, 141.400, 141.401, 141.402, 141.403, 141.407, 141.415, 154.22-010, 154.22-070, 154.23-010, 154.23-055, 154.24-010, 154.24-110, 154.25-010, 154.25-040, 154.26-010, 154.26-100, 154.28-010, 154.28-110, 154.32-010, 154.32-090
STATUTORY AUTHORITY: KRS 131.130(1), 141.347(9), 141.400(9), 141.401(9), 141.402(8), 141.403(9), 141.407(9), 141.415(9)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. KRS 141.347(9), 141.400(9), 141.401(9), 141.402(8), 141.403(9), 141.407(9), and 141.415(9) authorize the department to promulgate administrative regulations to require the filing of forms necessary to comply with the Kentucky economic development acts contained in KRS 154.22, 154.23, 154.24, 154.25, 154.26, 154.28, and 154.32,and the allowable income tax credit that a company may retain under those statutes. This administrative regulation establishes the filing requirements for the wage assessments authorized by the subchapters of KRS Chapter 154 referenced above.
History: 103 KAR 018:180. 33 Ky.R. 1201; 1519; eff. 1-5-2007; 45 Ky.R. 738; eff. 12-7-2018; Crt to Am, filing deadline 5-14-2027.

Chapter 19 Income Tax; Miscellaneous

103 KAR 19:010 Computation of income; estates and trusts {#sec-103-kar-19-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 19:010}

Section 1. Computation of Income. Taxable income of an estate or trust is net income as defined by KRS 141.019 except:

(1) The standard deduction permitted individuals in KRS 141.081 is not allowed;

(2) Federal estate tax paid on income accrued at the date of death of a decedent is deductible;

(3) Deductions that have been allowed on the Kentucky inheritance tax return or the Kentucky individual income tax return may not be claimed on the fiduciary income tax return; and

(4) Any deductions (or federal tax) related to nontaxable income are not allowed.

Section 2. Resident Estate or Trust. A resident estate or trust shall report and pay tax on all taxable income except that portion of net income distributable or distributed during the taxable year, and that portion of the net income from intangible personal property attributable to a nonresident beneficiary.

Section 3. Resident Beneficiary. A resident beneficiary shall report and pay tax on his share of the distributed or distributable income from a resident or nonresident estate or trust.

Section 4. Income from Kentucky Sources. Income from Kentucky sources shall include income arising from all:

(1) Activities carried on in this state, including labor performed or business done in this state;

(2) Services performed in this state;

(3) Real or tangible property located in this state; or

(4) Intangible property that has acquired a business situs in this state.

Section 5. Nonresident Estate or Trust. A nonresident estate with gross income for the taxable year from Kentucky sources of $1,200 or more and a nonresident trust with gross income for the taxable year from Kentucky sources of $100 or more shall pay tax on all taxable income from Kentucky sources, except that portion of net income distributable or distributed during the taxable year and that portion of the net income from intangible personal property attributable to a nonresident beneficiary.

Section 6. Nonresident Beneficiaries. Nonresident beneficiaries shall pay tax on income derived from Kentucky sources.

History

RELATES TO: KRS 141.010, 141.019, 141.020, 141.030, 141.081, 141.190, 141.900
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Kentucky Department of Revenue to promulgate administrative regulations to prescribe tax return filing requirements for fiduciaries including estates and trusts. This administrative regulation outlines procedure for computing estate and trust income for Kentucky income tax purposes including instructions covering both resident and nonresident situations.
History: 103 KAR 019:010. IF-1; 1 Ky.R. 332; eff. 2-5-1975; 45 Ky.R. 1077, 2066; eff. 2-1-2019; 52 Ky.R. 1372; eff. 8-4-2026.

Chapter 25 Sales and Use Tax; Registration and Collection

103 KAR 25:050 Factors and agents {#sec-103-kar-25-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 25:050}

Section 1. Definitions.

(1) "Factors" and "agents" means persons, excluding marketplace providers, to whom products are consigned, entrusted, or delivered by a principal owner for the purpose of selling.

(2) "Marketplace providers" is defined by KRS 139.010.

(3) "Principal owner" means a person who has the primary and ultimate ownership of the products for sale.

(4) "Products" means tangible personal property, digital property, and services subject to sales tax according to the provisions of KRS 139.200.

Section 2. Factors and Agents are Retailers.

(1) Factors and agents shall:

(a) Be considered the retailers of products sold;

(b) Include the retail-selling price of the products in their gross receipts; and

Holds a retail permit under KRS Chapter 139;
Reports the retail-selling price of the products in its gross receipts; and
Remits the sales and use tax thereon.

(2) The delivery in this state of products by a factor or agent of a principal owner that is a retailer not doing business in this state as provided in KRS 139.340 shall be considered a retail sale by the factor or agent. The factor or agent shall include the retail-selling price of the products in their gross receipts and shall be liable for the sales and use tax thereon except under the principal owner stipulations provided in subsection (1) of this section.

History

RELATES TO: KRS 139.010, 139.200, 139.310, 139.340
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to transactions involving factors and agents.
History: SU-36; 1 Ky.R. 144; eff. 12-11-1974; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1277; 2023; eff. 4-1-2020.

103 KAR 25:060 Temporary vendors and transient merchants {#sec-103-kar-25-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 25:060}

Section 1. Definitions.

(1) "Temporary vendor" means a person engaged in selling as described in KRS 139.550(4).

(2) "Transient merchant" is defined by KRS 365.650(1).

Section 2. Temporary vendors and transient merchants who are not registered with an active Sales and Use Tax Account shall report and remit the sales and use tax on a nonpermit basis on the Temporary Vendor Sales and Use Tax Return (Form 30A006) prescribed by the department.

Section 3. Transient merchants having no fixed place of business and not selling from a vehicle shall register for, and procure, a permit in the county in which they make sales of tangible personal property by completing the Application for Transient Merchant Permit (Form 51A250). The application shall be submitted to the county clerk or other applicable local representative as required by KRS 365.665.

Section 4. Transient merchants having no fixed place of business and selling from vehicles shall submit an Application for Transient Merchant Permit (Form 51A250) for each vehicle. The application for registration shall be submitted to the county clerk or other applicable local representative as required by KRS 365.665. The registration shall cover all sales made from the vehicle in any county in the state.

Section 5. Bonding Requirements.

(1) Temporary vendors may be required to post a bond pursuant to the provisions of KRS 139.660. The amount and type of the bond shall be determined by the department. The tax may be prepaid in lieu of filing the bond. The bond shall be filed with the department prior to the issuance of the registration and engaging in business within this state.

(2) Transient merchants may be required to post a bond with the Office of the Attorney General pursuant to the provisions of KRS 365.680.

Section 6. The due date for filing the sales tax return and remitting payment required by this administrative regulation is the due date shown on Form 30A006 as prescribed by the department, or the date when selling at the designated location is completed.

Section 7.

(1) Form 30A006 may be inspected, copied, or obtained, subject to applicable copyright law,:

(a) At the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(b) On the department Web site at http:\revenue.ky.gov; or

(2) Form 51A250 may be obtained from the county clerk or other applicable local representative.

History

RELATES TO: KRS 139.010, 139.200, 139.550, 139.660, 365.650, 365.665, 365.680
STATUTORY AUTHORITY: KRS 131.130, 139.550
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to temporary vendors and transient merchants.
History: SU-87; 1 Ky.R. 228; eff. 1-8-1975; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1278; 2023; eff. 4-1-2020.

103 KAR 25:131 Current month accelerated payment of sales and use taxes by larger taxpayers {#sec-103-kar-25-131 omnilex-key=us-ky-regs-official--title-103--103 KAR 25:131}

Section 1. Any taxpayer whose average monthly sales and use tax liability exceeds $50,000 shall report and remit by the 25th of each month, sales and use taxes applicable to the period beginning on the 16th of the previous month and extending through the 15th of the current month.

Section 2. The department shall review all taxpayer payments annually on a calendar year basis and identify those taxpayers who meet the $50,000 test based on the average monthly tax liability for that period. In determining the amount of tax due from a taxpayer for a reporting period, the department shall consider the total amount due based on current tax reporting procedure. Changes in reporting procedure for the purpose of circumventing the requirements of this administrative regulation shall not be permitted. The department shall notify taxpayers in writing of their obligation to begin remitting tax as set forth in this administrative regulation at least forty (40) days in advance of the date that the first payment is to be forwarded to the department.

Section 3.

(1) This accelerated filing requirementshall be effective for the July tax return following the department's calendar year review and notification referenced in Section 2 of this administrative regulation.

(2) Those taxpayers identified in Section 1 of this administrative regulation shall file the July return no later than August 25th and remit tax for both the full month of July and for the first fifteen (15) calendar days of August.

(3) The tax due for the first fifteen (15) days of August may be computed either on an actual basis or an estimated basis. If the taxpayer elects to use the estimated basis, the tax paid for the first fifteen (15) days of August cannot be less than one-half (1/2) of the total tax liability for the month of July.

(4) After the initial return is filed under this procedure, subsequent returns shall be due on or before the 25th of each month and shall include payment of tax covering the period from the 16th of the previous month through the 15th of the current month, with the fifteen (15) days of the current month reported on either an actual or estimated basis. The estimated amount cannot be less than one-half (1/2) the total tax computed for the previous calendar month before applying any credit for prepayment.

Section 4. Taxpayers shall make the election to file on an estimated or actual basis referred to in Section 3(3) of this administrative regulation at the time of filing the initial return under this administrative regulation, and shall continue to file on that basis unless a change is authorized in writing by the department.

Section 5. The department shall develop procedures for implementing and administering the payment program set forth in this administrative regulation. Taxpayers electing to "estimate" tax due may continue to report gross receipts, deductions, and purchases subject to use tax, on a calendar month basis with appropriate credit given for the tax already remitted for the first fifteen (15) days.

Section 6. Taxpayers required to remit tax as described in this administrative regulation shall continue this practice until notified otherwise in writing by the department. Taxpayers shall be relieved of the responsibility only if their average monthly tax liability is less than $40,000 for two (2) consecutive calendar years.

Section 7. Taxpayers failing to comply with the provisions of this administrative regulation shall be subject to penalties as provided in KRS 139.980 and interest as provided in KRS 131.183.

History

RELATES TO: KRS 131.183, 139.590, 139.980, 139.990
STATUTORY AUTHORITY: KRS 131.130, 139.590
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations for the administration and enforcement of tax laws in this state. To facilitate payment of the sales and use taxes levied in KRS Chapter 139, KRS 139.590 authorizes the Department of Revenue, within its discretion, to permit or require returns or tax payments for periods other than monthly periods. This administrative regulation establishes a procedure whereby any taxpayer whose average monthly sales and use tax liability exceeds $50,000 is required to remit by the 25th of each month, taxes applicable to the period commencing on the 16th of the previous month and extending through the 15th of the current month.
History: 14 Ky.R. 2127; eff. 7-1-1988; TAm eff. 5-20-2009; TAm eff. 6-22-2016; 46 Ky.R. 570, 1084; eff. 11-1-2019.

Chapter 26 Sales and Use Tax; Service and Professional Occupations

103 KAR 26:010 Nontaxable service enterprises {#sec-103-kar-26-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:010}

Section 1.

(1) Persons engaged in the business of rendering nontaxable services shall be classified as consumers, not retailers, of the tangible personal property, digital property, and taxable services specifically enumerated in KRS 139.200, which they use incidentally in rendering the service. Tax shall apply to the sale of tangible personal property, digital property, and taxable services specifically enumerated in KRS 139.200 to consumers.

(2) The list in this subsection shall serve as general examples of nontaxable service enterprises:

(a) Advertising agencies;

(b) Automobile detailers;

(d) Barbers;

(e) Beauty shop operators;

(f) Shoe shiners;

(g) Taxidermists;

(h) Tire repairers; and

(i) Similar enterprises.

Section 2.

(1) Persons rendering nontaxable professional services shall be classified as consumers, not retailers, of the tangible personal property, digital property, and taxable services specifically enumerated in KRS 139.200, which they use incidentally in rendering their services.

(2) The list in this subsection shall serve as general examples of persons rendering nontaxable professional services:

(a) Accountants;

(b) Architects;

(d) Cable television service providers;

(e) Construction information service providers;

(f) Doctors;

(g) Engineers; and

(h) Lawyers.

Section 3. If a person engaged in the business of rendering nontaxable services also regularly engages in the business of selling tangible personal property, digital property or taxable services to consumers, that person shall be classified as a retailer with respect to these sales, and shall obtain permits, file returns, and remit tax on those sales.

Section 4. Persons rendering services specifically enumerated in KRS 139.200 are retailers subject to sales tax.

Section 5.

(1) This administrative regulation shall replace Revenue Policies 51P440, 51P441, and 51P442.

(2) Revenue Policies 51P440, 51P441, and 51P442 are hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.200
STATUTORY AUTHORITY: KRS 131.130, 139.010
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes sales and use tax requirements for nontaxable service enterprises.
History: SU-21-2; 1 Ky.R. 144; eff. 12-11-74; 33 Ky.R. 2343; 3150; eff. 5-4-2007; TAm eff. 5-20-2009; TAm eff. 8-3-2017; 46 Ky.R. 67; eff. 10-4-2019.

103 KAR 26:030 Optometrists, oculists, and opticians {#sec-103-kar-26-030 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:030}

Section 1. Oculists and optometrists shall be the consumers of the ophthalmic materials including eyeglasses, frames, and lenses used or furnished to their patients in the performance of their professional services. The tax accordingly shall apply to the sale of the tangible personal property to them.

Section 2. If optometrists fill prescriptions written by others, the optometrist is the retailer and the tax shall apply to the entire charge made for the glasses furnished in filling the prescription.

Section 3. Opticians are engaged in the business of selling tangible personal property and the tax shall apply to the entire charge made by a dispensing optician for glasses and kindred products furnished in filling a prescription of an oculist, optometrist, or ophthalmologist.

Section 4. Repairers of eyeglass frames shall be the consumers of the parts and materials used in their repair. Repairers of eyeglass frames shall pay sales and use tax on the purchase of all parts and materials used in their repair. Sales and use tax shall not be due on the charge by the repairer to their customer for the eyeglass frame repair.

History

RELATES TO: KRS 139.010, 139.200, 139.310
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to transactions involving optometrists, oculists, and opticians.
History: SU-19; 1 Ky.R. 144; eff. 12-11-1974; TAm eff. 5-20-2009; Crt eff. 1-28-2020; 46 Ky.R. 1280; 2024; eff. 4-1-2020.

103 KAR 26:050 Common carriers {#sec-103-kar-26-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:050}

Section 1. Definition. "Rolling stock" means only that equipment designed to move on rails and used for the transportation of goods or passengers for hire.

Section 2. All tangible personal property, digital property, admissions, accommodations, and taxable services sold to or used by common carriers in this state shall be subject to application of the sales or use tax with the exceptions noted in Section 3 of this administrative regulation. Tax shall be applicable to leasing arrangements, or use pursuant to leasing arrangements, whereby items of equipment (including things such as tires or batteries) are acquired by common carriers for utilization over extended periods of time in connection with operations. The purchases, uses, leases, and uses pursuant to leases shall be subject to the exceptions and qualifications in Section 3 of this administrative regulation.

Section 3. The following shall be excepted from application of the sales or use tax:

(1) Over the road equipment which enters this state in actual use in interstate commerce at the time of entering, and is used exclusively in interstate commerce thereafter. This exception shall not be void due to nominal use in intrastate commerce.

(2) Ships, vessels, and related equipment which enter this state in actual use in interstate commerce at the time of entering and are used exclusively in interstate commerce thereafter. This exception shall not be void due to nominal use in intrastate commerce.

(3) Locomotives or rolling stock, including materials for the construction, repair, or modification thereof, or fuel or supplies for the direct operation of locomotives or trains, used or to be used in interstate commerce. Supplies shall not include items used for construction, maintenance, or support of the railway system.

(4) Aircraft, repair and replacement parts therefor, and supplies, except fuel, for the direct operation of aircraft in interstate commerce and used exclusively for the conveyance of property or passengers for hire. This exception shall not be void due to nominal use in intrastate commerce.

History

RELATES TO: KRS 139.470, 139.480
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to transactions involving common carriers.
History: SU-43-1; 1 Ky.R. 229; eff. 1-8-1975; 9 Ky.R. 1152; eff. 5-4-1983; 13 Ky.R. 1084; eff. 1-13-1987; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1281; 2024; eff. 4-1-2020.

103 KAR 26:070 Contractors {#sec-103-kar-26-070 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:070}

Section 1. Definitions.

(1) "Construction contract" means a contract:

(a)

For erecting, remodeling, or repairing a building or other structure on land; or
Replacing, furnishing, or installing materials or fixtures permanently to real property; and

(b)

Includes lump sum, cost plus, and time-and- materials contracts; and
Includes a contract for the sale and installation of machinery, appliances, or equipment which the contractor has sold and permanently affixed to real property.

(2)

(a) "Contractor" and "subcontractor" means the common and ordinary acceptance of the terms and includes both general contractors and subcontractors engaged in such building trades as:

Carpentry;
Bricklaying;
Wall to wall carpeting;
Cement work;
Steel work;
Plastering;
Sheet metal work (including aluminum siding);
Roofing;
Tile and terrazzo work;
Cabinet work;
Electrical work;
Plumbing;
Central heating and air conditioning;
Painting;
Interior decorating;
Storm window work; or
Permanent awning work.

(b) "Contractor" and "subcontractor" does not include any person who repairs tangible personal property.

(3) "Contractor-retailer" means contractors and subcontractors that operate in a dual business, which includes selling machinery, appliances, or equipment, or reselling to the general public on an "over-the-counter" basis the same type of building materials and supplies as is used by them in their own construction work, along with their sales of construction contracts. Examples of machinery, appliances, or equipment sold by contractor-retailers include:

(a) Refrigerators;

(b) Oven-ranges and dishwashers which are not built-in;

(d) Window unit air conditioners; or

(e) Space heaters.

(4) "Fixtures" means things which are accessory to a building and do not lose their identity as accessories, but which do become a permanent part of the realty. Examples of fixtures are:

(a) Lighting fixtures;

(b) Plumbing fixtures;

(d) Furnaces;

(e) Boilers;

(f) Central heating units;

(g) Elevators;

(h) Hoists;

(i) Security and fire alarm fixtures;

(j) Central air conditioning;

(k) Built-in refrigeration units;

(l) Built-in oven-ranges and dishwashers;

(m) Storm doors and windows; or

(n) Cabinets.

(5) "Improvements to real estate" means improvements such as those made to:

(a) Buildings;

(b) Roads;

(d) Dams;

(e) Railroads; or

(f) Fences.

(6) "Materials" means all of the tangible personal property, other than fixtures, which enters into and becomes a permanent part of a structure. Examples of materials are:

(a) Bricks;

(b) Builders hardware;

(d) Gravel;

(e) Sand;

(f) Macadam;

(g) Asphalt;

(h) Lumber;

(i) Electrical wiring;

(j) Wall board and coping;

(k) Roofing;

(l) Guttering; or

(m) Aluminum siding.

Section 2. Sales to Contractors.

(1) All sales to contractors, subcontractors, builders, or owners of building materials, fixtures, and supplies which are to be incorporated or fabricated into any structure or improvement to real estate by the process of erecting, remodeling, replacing, or repairing the structure or improvement are subject to the sales or use tax at the time of sale to the contractor, subcontractor, builder, or owner. This applies irrespective of the type of contract (lump sum and materials, cost plus fixed fee, or other) for which the purchase is made.

(2) A contractor, subcontractor, or builder shall not claim that the purchase of materials or fixtures is exempt from the tax because the property is to be used in fulfilling a construction contract with the federal government, state government or political subdivision thereof, or any department, agency, or instrumentality of the federal government, state government or political subdivision thereof, or with a religious, educational, or charitable institution.

Section 3. Contractors Not Issued a Sales Tax Permit. A person, firm, association, partnership, or corporation engaged exclusively in construction work as a contractor or subcontractor is not required to hold a retail sales tax permit and a permit will not be issued to these persons.

Section 4. Contractor-retailers. A contractor-retailer constitutes the sole exception under which a contractor will be issued a sales tax permit. Because of the retail business operated, a contractor-retailer shall make an application for a Retail Sales and Use Tax Permit. Upon issuance of the permit, a contractor-retailer may then execute resale certificates for the machinery, appliances, or equipment purchased for resale and for all items of inventory purchased for resale in their retail business. The contractor-retailer may also issue a resale certificate for any items that they regularly hold in stock if they do not know at the time of purchase whether the items will be resold or used in their own construction business.

Section 5. Suppliers.

(1) A Kentucky supplier and any out-of-state supplier who is the holder of a permit for collection of the use tax shall bill and collect Kentucky tax from the contractor. A contractor, unless it falls within the exception described in Section 4 of this administrative regulation, will not be the holder of a retail sales and use tax permit and shall not execute a resale certificate.

(2) The supplier shall not accept any number of the 900000-series as evidence that the purchaser is the holder of a permit. These numbers are issued to contractors for the purpose of reporting on a Consumer's Use Tax Return. The supplier shall not accept any resale certificate from a contractor-retailer who holds a permit under the exception to this rule for any materials or supplies which the supplier, in fact, knows are to be used by the purchaser in his or her own construction business.

(3) Any contractor, subcontractor, builder, or owner who purchases tangible personal property or digital property from an out-of-state supplier who is not licensed to collect the Kentucky use tax shall report and pay the use tax directly to the department on a Consumer's Use Tax Return based upon the purchase price of the property.

Section 6. Contractors Manufacturing Their Own Materials or Supplies. If any contractor, subcontractor, builder, or contractor-retailer is the manufacturer of the building material or supplies they used in their construction business, the tax shall apply to the purchase price of all tangible personal property which enters into the manufacture of the materials or supplies.

Section 7. Contractors With No Fixed Place of Business. Any contractor-retailer without a fixed place of business from which they regularly operate may be required to post a security as provided in KRS 139.660.

Section 8. Contractor Examples and Scenarios. The list in this section shall provide general examples and the taxable treatment for certain common scenarios encountered by contractors.

(1) An entity that contracts for the provision and installation of wall-to-wall carpeting into real property is a contractor. The contractor shall pay sales or use tax on the purchase of the carpet, materials, fixtures, and any other tangible personal property that goes into the charge to the customer on the cost of the construction contract.

(2) An entity which installs a sidewalk into real property is a contractor. The contractor shall pay sales or use tax on their purchase of the concrete, supplies, materials, fixtures, and any other tangible personal property that goes into the provision of the construction contract. The contractor shall not bill sales tax as a separate charge to the customer on the cost of the construction contract.

(3) An entity that repairs a hot water heater that has been installed into real property is a contractor. The contractor shall pay sales or use tax on their purchase of the supplies, materials, fixtures, and any other tangible personal property that goes into the repair of the hot water heater. The contractor shall not bill sales tax as a separate charge to the customer on the cost of the repair.

(4) A contractor that sells and delivers a freestanding refrigerator is operating as a contractor-retailer. The contractor-retailer may issue a resale certificate for the purchase of the refrigerator to be resold. The contractor-retailer shall charge sales tax on the retail sale of the refrigerator to the end customer along with any delivery or installation charges associated with the sale of the refrigerator.

History

RELATES TO: KRS 139.210, 139.240, 139.260, 139.270, 139.310, 139.340, 139.660, 139.710, 139.730
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130 authorizes the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to transactions involving contractors, subcontractors, and contractor-retailers making improvements to real property.
History: SU-54-2; 1 Ky.R. 703; eff. 5-14-1975; 17 Ky.R. 1128; eff. 11-21-1990; TAm eff. 5-20-2009; TAm eff. 6-22-2016; 46 Ky.R. 571, 1085; eff. 11-1-2019.

103 KAR 26:080 Dentists and dental laboratories {#sec-103-kar-26-080 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:080}

Section 1. Dentists are consumers of the materials, supplies, dental laboratory products, and other tangible personal property which they use in performing their services. The tax, accordingly, shall apply to the sale of the tangible personal property to the dentist.

Section 2. Dental laboratories are the retailers of the plates, inlays, and any other products which they manufacture for dentists or other consumers. Tax shall apply to their entire charges for such products sold at retail regardless of whether the materials and services are separately stated.

Section 3. Repairers of a dental prosthesis shall be the consumers of the parts and materials used in its repair. Repairers of a dental prosthesis shall pay sales and use tax on the purchase of all parts and materials used in its repair. Sales and use tax shall not be due on the charge by the repairer to its customer for the dental prosthesis repair.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to transactions involving dentists and dental laboratories.
History: SU-77; 1 Ky.R. 229; eff. 1-8-1975; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff 1-28-2020; 46 Ky.R. 1919; eff. 6-2-2020.

103 KAR 26:090 Veterinarians and pet care service providers {#sec-103-kar-26-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:090}

Section 1. Definitions.

(1) "Pet care services" means non-medical services performed for the benefit of pets and other companion animals such as the services listed in KRS 139.200.

(2) "Small animal veterinary services" means:

(a) All activities related to the wellness, diagnosis, or treatment of pets and other companion animals performed by veterinarians or other persons in support of the veterinary services provided; and

(b) Does not include veterinary services that are excluded under KRS 139.200.

Section 2. Small Animal Veterinary Services.

(1) Small animal veterinary services are subject to sales tax pursuant to KRS 139.200.

(2) The list in this subsection shall serve as general examples of small animal veterinary services:

(a) Bloodwork;

(b) Dentistry and teeth cleaning;

(d) Euthanasia services (excluding cremation);

(e) Health and wellness examinations;

(f) Laboratory testing and examination of lab work;

(g) Surgical procedures;

(h) Prescriptions for medicines and treatments;

(i) Preventive care;

(j) Spaying/neutering;

(k) Vaccinations; or

(l) X-rays and ultrasounds.

Section 3. Animals Treated by Small Animal Veterinary Service Providers. The list in this section shall serve as general examples of the types of animals treated by small animal veterinary service providers:

(1) Birds, except poultry and ratite birds;

(2) Cats;

(3) Dogs;

(4) Ferrets;

(5) Gerbils;

(6) Guinea pigs;

(7) Hamsters;

(8) Rabbits;

(9) Reptiles; or

(10) Turtles.

Section 4. Tangible Personal Property, Digital Property, or Services Purchased by Small Animal Veterinary Service Providers for Resale.

(1) Effective July 1, 2018, a small animal veterinary service provider may purchase tangible personal property or digital property, which is for resale to an end customer, exempt from the sales and use tax according to the provisions of KRS 139.260. Examples include items such as:

(a) Items sold at retail, such as prescription and non-prescription dog food, animal shampoos, collars and toys;

(b) Medicines, vaccines, surgical sutures, flea treatments, and anesthetics injected into or remaining with the animal; and

(2) Effective July 1, 2019, a small animal veterinary service provider may purchase small animal veterinary services exempt for resale to the end customer according to the provisions of KRS 139.260. An example of a service for resale is a lab-testing service which is requested by a small animal veterinary service provider for a specific customer. The bill from the laboratory to the small animal veterinary service provider shall indicate the service performed for the specific customer. The resale exemption only applies to services that are specifically resold by the provider to the customer.

(3) The small animal veterinary service provider shall issue the Resale Certificate (Form 51A105) or the Streamlined Sales and Use Tax Certificate (Form 51A26) for the purchases made for resale.

(4) Small animal veterinary service providers are the consumers of the materials, supplies, and general services used or consumed while providing veterinary services. Providers of small animal veterinary services may not claim a resale exemption on purchases of products used or consumed while providing veterinary services. Examples of these items include items such as surgical tools, tables, paper towels, syringes, needles, lab testing kits, general supplies, and janitorial services.

Section 5. Veterinary Services Provided for Animals Excluded from Small Animal Veterinary Services.

(1) Veterinary services for animals excluded from small animal veterinary services are not subject to sales tax and the providers are the consumers of the tangible personal property, digital property, or services that they use in performing their services.

(2) As the consumer, providers of veterinary services for animals excluded from small animal veterinary services are responsible for paying the applicable sales and use tax on all products used in performing their services including any medicines, vaccines, surgical sutures, flea treatments, anesthetics, surgical tools, tables, paper towels, syringes, needles, general supplies, and taxable services that are used or consumed in the provision of their veterinary services.

Section 6. Mixed Veterinary Practices.

(1) Persons providing both small animal veterinary services and veterinary services for animals excluded from small animal veterinary services shall maintain records in a manner that documents and distinguishes the specific products and supplies used while rendering both types of veterinary services.

(2) Persons providing both types of veterinary services may issue a resale certificate for tangible personal property held in inventory if it is unknown at the time of purchase whether the property will be resold or used in the provision of veterinary services not subject to sales tax. If any portion of the tangible personal property is used or consumed in the provision of veterinary services not subject to sales tax, then the purchaser shall report and pay the sales and use tax on that portion directly to the department according to the provisions of KRS 139.290.

Section 7. Pet Care Services.

(1) Pet care services are subject to sales tax pursuant to KRS 139.200. Any person, including a veterinarian that provides pet care services is subject to the sales tax on the gross receipts derived from the provision of these services.

(2) Pet care services include services such as the services listed under the provisions of KRS 139.200.

(3) Persons providing pet care services are the consumers of the tangible personal property, digital property, or services they use in performing their services.

(a) Pet care service providers may not claim a resale exemption on purchases of products used or consumed while providing their taxable services. Examples of these items include items such as grooming equipment, shampoo, toothpaste, toys, bedding, and general supplies.

(b) Pet care service providers may claim a resale exemption on purchases of products provided to and remaining with the animals. Examples of these items include items such as flea treatments, food, and treats.

Section 8. Treatment of other transactions.

(1) Pet adoption fees are taxable receipts subject to sales and use tax. Payment of these fees is consideration made for the transfer of tangible personal property in a retail sale.

(2) Services provided to service animals covered under the Americans with Disabilities Act (ADA), 42 U.S.C. 12101 et. seq. and any amendments to the act, are not small animal veterinary services or pet care services subject to sales tax.

(3) Services provided to farm work stock animals that are exempt under the provisions of KRS 139.480 are not small animal veterinary services or pet care services subject to sales tax.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.290, 139.480, 42 U.S.C. 12101
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to transactions involving veterinarians and pet care service providers.
History: SU-78; 1 Ky.R. 229; eff. 1-8-1975; TAm eff. 5-20-2009; TAm eff 6-22-2016; 46 Ky.R. 574, 1087; eff. 11-1-2019.

103 KAR 26:100 Industrial laundry and linen supply services {#sec-103-kar-26-100 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:100}

Section 1.

(1) Industrial laundry services are subject to sales tax pursuant to KRS 139.200(2)(k).

(2) The list in this subsection shall serve as general examples of industrial laundry services:

(a) Industrial uniform supply services;

(b) Protective apparel supply services;

(d) Any other substantially similar industrial services.

Section 2.

(1) Linen supply services are subject to the sales tax pursuant to KRS 139.200(2)(m).

(2) The list in this subsection shall serve as general examples of linen supply services:

(a) Table and bed linen supply services;

(b) Nonindustrial uniform supply services; and

Section 3.

(1) Industrial laundry and linen supply service providers of aprons, caps, coats, diapers, dresses, linens, mats, protective apparel, rugs, towels, uniforms, or other articles of a similar nature under an agreement for periodic cleaning or laundering are consumers of the supplies and other property used in performing their services and the tax shall apply at the time these items are purchased.

(2) Industrial laundry and linen supply service providers shall not claim a sale for resale exemption by issuing the "Resale Certificate" (Revenue Form 51A105), "Streamlined Sales and Use Tax Agreement – Certificate of Exemption", (Form 51A206), or "Multistate Tax Commission's Uniform Sales and Use Tax Exemption/Resale Certificate – Multijurisdictional" for the purchase of the aprons, caps, coats, diapers, dresses, linens, mats, protective apparel, rugs, towels, uniforms, or other articles of a similar nature if retaining title to property they provide under an agreement for continuous cleaning service.

Section 4. Forms. The form(s) referenced in this administrative regulation may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; or

(3) The Department or Revenue Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.200
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to transactions involving industrial laundry and linen supply services.
History: SU-86-2; 1 Ky.R. 229; eff. 1-8-1975; Tam eff. 5-20-2009; TAm eff. 6-22-2016; 47 Ky.R. 1610, 2357; eff. 8-3-2021.

103 KAR 26:110 Motor carrier repair and replacement parts {#sec-103-kar-26-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:110}

Section 1. Definitions.

(1) "Exclusively in interstate commerce" means the conveyance of property or passengers by a motor vehicle in more than one (1) state. A motor vehicle used in the conveyance of property or passengers only within the borders of this state is not used in interstate commerce.

(2) "For hire" means a motor carrier receiving compensation for transportation of property owned by others or passengers under the requirements of the Federal Motor Carrier Safety Administration (FMCSA) 49 C.F.R. 325 to 399.

(3) "Truck Part Direct Pay Authorization" or "TP DPA" means an authorization issued by the Department of Revenue that permits a taxpayer to report Kentucky sales and use tax directly to the department on applicable repair, replacement parts, and labor or services rendered in installing or applying applicable repair and replacement parts.

Section 2. Application Process.

(1) The applicant shall complete the Application for Truck Part Direct Pay Authorization, Revenue Form 51A160.

(2) To qualify for the TP DPA, the applicant shall be:

(a) Designated as an interstate motor carrier with the Federal Motor Carrier Safety Administration and the Kentucky Transportation Cabinet;

(b) Registered with a Kentucky sales and use tax account number or a Kentucky consumer use tax account number; and

(3) The department shall issue qualifying applicants a TP DPA (Revenue Form 51A161).

Section 3. Exemption Procedures. The TP DPA holder shall:

(1) Issue a copy of the authorization to all its truck part vendors;

(2) Report and remit the sales or use tax to the Department of Revenue on purchases of repair, replacement parts, and labor or services rendered in installing or applying applicable repair and replacement parts used on nonqualifying motor vehicles that the purchaser's vendor would have remitted if the authorization had not been issued;

(3) Report and pay all taxable purchases in accordance with KRS 139.540, 139.550, and 139.590;

(4) Maintain records pursuant to KRS 139.720(2); and

(5) File by February 15 of each year the "Truck Part Direct Pay Authorization Purchase Report," Revenue Form 51A162, to report the total tax savings from purchases of repair, replacement parts, and labor or services rendered in installing or applying applicable repair and replacement parts that are exempt from sales and use tax pursuant to KRS 139.480(31).

Section 4. Vendor Requirements.

(1) Vendors shall be relieved of the duty to collect and pay the sales or use tax on sales of repair, replacement parts, and labor or services rendered in installing or applying applicable repair and replacement parts if they:

(a) Accept a copy of the purchaser's TP DPA pursuant to KRS 139.270; and

(b) Retain the copy in the company records pursuant to KRS 139.720(2).

(2) Vendors shall:

(a) Report sales to a TP DPA holder on Line 1, Gross Receipts, of Revenue Form 51A102, "Sales and Use Tax Return"; and

(b) Take a corresponding deduction Code 190 on the return and identify the deduction as "TP DPA Sales".

Section 5. Transfer of Authorization.

(1) A TP DPA shall not be transferable upon the sale, lease, or other transfer of the business.

(2) A TP DPA holder shall notify the department within ten (10) days of the effective date of the sale, lease, or other transfer of the business.

Section 6. Termination.

(1) The department shall terminate a TP DPA if the holder:

(a) Fails or ceases to be an eligible taxpayer;

(b) Fails to timely file its sales and use tax returns and timely pay any tax due; or

(2) The department shall notify a TP DPA holder of the termination by certified mail at the last known business address.

(3) Upon receipt of the notification of termination, a TP DPA holder shall notify all truck repair and replacement part vendors within thirty (30) days of the date of termination.

(4) The effective date of the termination shall be the date of the mailing of the termination notice.

Section 7. Forms. The forms listed in this administrative regulation may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center; or

(3) The department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 131.110, 139.010, 139.200, 139.260, 139.270, 139.310, 139.330,
STATUTORY AUTHORITY: KRS 131.130, 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130 and 139.710 authorize the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of the Kentucky tax laws. This administrative regulation establishes requirements and guidelines for the application of the sales and use tax exemption for repair and replacement parts for the direct operation or maintenance of a motor vehicle, including any towed unit, used exclusively in interstate commerce for the conveyance of property or passengers for hire as provided in KRS 139.480(31).
History: 30 Ky.R. 1382; 1763; eff. 1-13-2004; 44 Ky.R. 770; eff. 1-5-2018; Crt eff 1-28-2020; 46 Ky.R.1282; eff. 4-1-2020.

103 KAR 26:120 Advertising agencies {#sec-103-kar-26-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:120}

Section 1. Definitions.

(1) "Advertising agency" means a business engaged primarily in the professional service of developing strategy, concept, and design for the placement of advertising on radio or television stations, or in newspapers, magazines, or other media.

(2) "Advertising services" means all advertising agency activities involved in the conceptualization, development, production, and refinement of a master advertisement prior to its reproduction by the advertising agency or a third party including creative concept development, design, layout, consultation services, research, script and copy writing, art preparation, public relations, and account management services.

(3) "Master advertisement" means the original advertising material created by the advertising agency for reproduction as tangible personal property or digital property for the purpose of display or other advertising uses, such as master commercials, camera ready art, proofs, and corporate logos.

Section 2. Advertising Agencies as Consumers in Creation of Master Advertisement.

(1) An advertising agency shall be the consumer of all tangible personal property and digital property used in the performance of its advertising services to produce a master advertisement regardless of whether the property the agency purchases is acquired in the name or account of the advertising agency or its client. The tax shall apply to the advertising agency's purchase of:

(a) All tangible personal property or digital property for use in the performance of its advertising services, including the purchase or rental of stock photos and movie footage delivered as tangible personal property or digital property;

(b) Any materials that become a component of the master advertisement; and

(c) Any tangible personal property or digital property that is incidentally provided to the client as part of the advertising services.

(2) An advertising agency shall not claim that its purchase of tangible personal property or digital property is exempt from sales and use tax because the property is to be used in fulfilling a contract with:

(a) The federal government, state government, or political subdivision thereof;

(b) Any department, agency, or instrumentality of the federal government, state government, or political subdivision thereof; or

(3) The performance of advertising services shall not constitute manufacturing or processing production of tangible personal property or digital property for sale. Therefore, an advertising agency shall not claim that its purchase of tangible personal property or digital property used in the performance of its advertising services is exempt from sales and use tax under the:

(a) Raw material, industrial tool, and industrial supply exemption as provided in KRS 139.470(9); or

(b) The machinery for new and expanded industry exemption as provided in KRS 139.480(10).

(4) If acting in the capacity of a consumer, an advertising agency shall not bill its client for tax on charges made for advertising services.

Section 3. Advertising Agencies as Retailers After Creation of Master Advertisement.

(1) An advertising agency shall be a retailer of tangible personal property and digital property the advertising agency sells to its clients or to others on behalf of its clients regardless of whether the sale is at a marked-up price. This provision shall include property reproduced from a master advertisement whether the advertising agency or a third party actually reproduces the materials. This provision shall not include property described in Section 2(1) of this administrative regulation that the advertising agency uses in creating a master advertisement.

(2) An advertising agency engaged in business as a retailer shall:

(a) Complete a "Kentucky Tax Registration Application", Revenue Form 10A100, to register with the Department of Revenue for a retail sales and use tax permit; and

(b) Report and pay the applicable sales or use tax utilizing Revenue Form 51A102, "Sales and Use Tax Return".

(3) Taxable receipts from an advertising agency's retail sale of tangible personal property or digital property shall include all charges for services that are a part of the sale of tangible personal property and digital property including charges for:

(a) Inbound freight;

(b) Production supervision; or

(4) Gross receipts subject to sales tax shall not include periodic print management fees or other retainer fees not related to the sale of particular tangible personal property or digital property and paid whether or not there is a transfer of tangible personal property or digital property in a given fee period.

(5) An advertising agency may purchase tangible personal property and digital property it sells to or for its clients as a sale for resale without payment of the tax if the advertising agency:

(a) Provides to its suppliers a properly completed:

Kentucky "Resale Certificate", (Revenue Form 51A105);
Multistate Tax Commission (Uniform Sales and Use Tax Certificate Multijurisdiction);
Streamlined Sales and Use Tax Agreement – Certificate of Exemption (Revenue Form 51A260); or
Other documentation containing the information required by KRS 139.280; and

(b) Reports and pays the applicable sales or use tax on their sales of the tangible personal property, digital property, and services included in KRS 139.200 utilizing Revenue Form 51A102, "Sales and Use Tax Return".

Section 4. Joint Activities by Advertising Agencies.

(1) If an advertising agency contracts with a client to provide both advertising services and the sale of tangible personal property or digital property, receipts subject to tax shall be determined by the following guidelines if the charges for the advertising services are clearly delineated from the charges for the tangible personal property or digital property on the customer's invoice.

(a) Any transfer of tangible personal property or digital property for a consideration, other than the master advertisement and the items described in Section 2(1) of this administrative regulation used in the creation of the master advertisement, to a client or a third party on behalf of a client shall be considered a retail sale of tangible personal property or digital property subject to sales tax.

(b) Receipts from agency fees, service charges, or commissions exclusively for advertising services shall not be subject to sales tax, including charges for placing advertisements in print, broadcast, or other media.

(c) The amount separately stated for the tangible personal property or digital property shall not be less than the fair market value of similar property sold in a similar transaction not involving the provision of advertising services.

(2) If an advertising agency contracts with a client to provide both advertising services and the sale of tangible personal property or digital property and does not clearly delineate the charges on the customer's invoice, the total billing amount shall be subject to tax.

Section 5. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) At a Kentucky Taxpayer Service Center during business hours; or

(3) On the department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.280, 139.310, 139.330, 139.470, 139.480, 139.495
STATUTORY AUTHORITY: KRS 131.130, 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) and 139.710 authorize the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of the Kentucky tax laws. This administrative regulation establishes requirements and guidelines for the application of sales and use tax to purchases and sales of tangible personal property and digital property by advertising agencies.
History: 30 Ky.R. 1702; 1904; eff. 2-16-2004; 44 Ky.R. 1097, 1494; eff. 2-2-2018; Crt eff 1-28-2020; 46 Ky.R. 1920, 2389; eff. 6-2-2020.

103 KAR 26:131 Landscaping services {#sec-103-kar-26-131 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:131}

Section 1. Definitions.

(1) "Construction contract" is defined by 103 KAR 26:070, Section 1(1).

(2) "Contractor" is defined by 103 KAR 26:070, Section 1(2)(a).

(3) "Department" means the Department of Revenue.

(4) "De minimis threshold exemption" is defined by KRS 139.470(23).

(5) "Farm machinery" is defined by KRS 139.480(11).

(6) "Landscaping services" means those services listed in KRS 139.200(2)(g).

(7) "Person" is defined by KRS 139.010(26).

(8) "Practice of landscape architecture" is defined by KRS 323A.010(3).

(9) "Professional services" is defined by KRS 323A.010(4).

(10) "Resale certificate" means Resale Certificate Form 51A105, Streamlined Sales and Use Tax Agreement – Certificate of Exemption, Form 51A260, or Multistate Tax Commission's Uniform Sales and Use Tax Exemption/Resale Certificate – Multi-jurisdiction.

(11) "Retailer" is defined by KRS 139.010(35).

(12) "Seller" is defined by KRS 139.010(39).

(13) "Subcontractor" is defined by 103 KAR 26:070, Section 1(2)(a).

Section 2. Landscaping Services.

(1) The furnishing of landscaping services is subject to sales tax pursuant to KRS 139.200(2)(g). Sales tax shall apply to the sales price received from the furnishing of landscaping services.

(2) Persons engaged in the business of providing landscaping services are retailers of the landscaping services furnished. Landscaping service providers shall register for, collect, and remit sales tax.

(3) The list provided in this subsection shall serve as examples of the furnishing of landscaping services:

(a) Aerating;

(b) Applying chemicals to lakes or ponds to control the growth of algae or plant life;

(d) Dethatching;

(e) Diagnosing lawn conditions for the purpose of providing landscaping services;

(f) Fertilizing;

(g) Hydro seeding;

(h) Installation of decorative bricks, blocks, and timbers such as those installed for a flower bed;

(i) Installation of lawn edging, decorative rock, and weed control fabric;

(j) Installation of free-standing planter boxes;

(k) Landscape design and installation services;

(l) Lawn care and maintenance services;

(m) Lawn fungus treatments;

(n) Leaf removal;

(o) Mowing and trimming;

(p) Mulching;

(q) Planting, pruning, bracing, removal, surgery, and trimming of plants, trees, and shrubs;

(r) Raking, including power raking;

(s) Seeding or reseeding;

(t) Services for the removal of gophers, moles, voles, and other lawn pests;

(u) Snow plowing or removal services;

(v) Sod laying;

(w) Soil moving, grading, removal, or installation as part of a landscaping service (such as removing a top layer of soil to install sod);

(x) Spraying or other applications of chemicals and fertilizer within the landscape. Examples include:

Granular and liquid lawn fertilizers;
Lime applications;
Seed and fertilizer combination applications;
Herbicides; or
Insecticides, including those to eliminate grubs, ants, fleas, and ticks.

(y) Stump removal;

(z) Tilling and soil preparation;

(aa) Turf installation; or

(bb) Watering, including the installation of soak hoses.

Section 3. Non-landscaping Services. The list provided in this section shall serve as examples of activities not considered the furnishing of landscaping services:

(1) Vegetative management of highway rights-of-way including mowing, line trimming, and tree trimming;

(2) Vegetative management of utility rights-of-way including mowing, line trimming, and tree trimming;

(3) Perpetual care of gravesites at a cemetery;

(4) Government-mandated land reclamation at a mining site;

(5) Mosquito spraying services;

(6) Professional services authorized as part of the licensed practice of professional landscape architecture provided under separate contract from landscape design and installation services;

(7) Mowing, spraying, tree trimming, and fence clearing, provided to a person regularly engaged in the business of farming and provided on land that is:

(a) Being cultivated for the production of crops as a business;

(b) Being directly used in the occupation of raising and feeding livestock or poultry for sale;

(d) Being directly used in the occupation of egg production;

(e) Being directly used in the occupation of breeding or producing:

Aquatic organisms;
Buffalos;
Cervids;
Llamas or alpacas; or
Ratites; and

(8) Mowing, spraying, tree trimming, and fence clearing, provided to a person engaged in the raising of equine as a business; provided however, that the landscaping services are performed on the portion of land directly used in the raising of equine.

Section 4. Property Purchased for Resale by Persons Furnishing Landscaping Services.

(1) Persons furnishing landscaping services may issue a fully completed resale certificate for the purchase of property to be resold to a customer when furnishing the landscaping services where the property remains with the customer after the furnishing of landscaping services. The purchaser of the property to be resold to a customer when furnishing the landscaping services shall collect sales tax from the customer on the sales price of the property.

(2) The list provided in this subsection shall serve as examples of property purchased for resale that demonstrate the types of property that generally are received by, or remain with, the customer after landscaping services are performed:

(a) Bulbs;

(b) Bushes;

(d) Dirt;

(e) Fertilizer;

(f) Insecticides;

(g) Landscaping materials;

(h) Lawn care chemicals;

(i) Mulch;

(j) Rock;

(k) Shrubs;

(l) Sod;

(m) Trees; or

(n) Weed barriers.

Section 5. Property Used or Consumed by Persons Furnishing Landscaping Services.

(1) Persons furnishing landscaping services shall not issue a resale certificate for property used or consumed in the performance of the landscaping services. Property sold to landscaping service providers and used or consumed by the landscaping service providers when furnishing landscaping services shall be subject to sales tax at the time of purchase by the landscaping service provider.

(2) The list provided in this subsection shall serve as examples of property consumed in the performance of landscaping services:

(a) Chemical applicators;

(b) Equipment rentals;

(d) Gloves;

(e) Lawnmowers;

(f) Oil;

(g) String trimmers, string trimmer lines and spools;

(h) Tools; or

(i) Wheelbarrows.

Section 6. Resale of Landscaping Services.

(1) A person furnishing landscaping services may issue a fully completed resale certificate to another person furnishing landscaping services for the purchase of the landscaping services that will be resold to the end consumer. The purchaser of the landscaping services to be resold shall collect sales tax from the end consumer on the sales price for the furnished landscaping services.

(2) Example. Landscaping services provider A may issue a fully completed resale certificate to landscaping services provider B for the purchase of lawn mowing services to fulfill his obligations to the end consumer. Landscaping services provider A shall collect the sales tax from the end consumer on the sales price of the landscaping services.

(3) A contractor or subcontractor shall not issue a resale certificate for the purchase of landscaping services.

Section 7. De Minimis Threshold Exemption.

(1) Transactions are exempt from tax for the furnishing of landscaping services or the furnishing of landscaping services combined with other services listed in KRS 139.200(h) through (q) if a service provider's receipts have never exceeded the de minimis threshold exemption in a calendar year. Gross receipts from the furnishing of landscaping services that exceed the de minimis threshold exemption amount in a calendar year shall be subject to sales tax. All subsequent receipts in the calendar year and all gross receipts for each calendar year thereafter shall be subject to sales tax.

(2) The de minimis threshold exemption described in subsection 1 of this section shall not apply if the landscaping services provider is also engaged in the business of selling tangible personal property or digital property, or furnishing other services listed under KRS 139.200(2)(a) to (f). For example, if a landscaping services provider also sells grass seed, weed and feed, lawn equipment, or other similar products at retail, then all of the sales (both landscaping services and sales of tangible personal property) shall be subject to sales tax.

Section 8. Non-taxable Services and Exemptions for Purchases Applicable to Landscaping Services Providers Engaged in Dual Businesses.

(1) This section applies to persons engaged in furnishing landscaping services that are also engaged in a dual business.

(2) Contractors and subcontractors shall be subject to 103 KAR 26:070.

(3) If a person furnishing landscaping services also operates as a contractor or subcontractor, the following list shall serve as examples of services not considered to be landscaping services when performed by a contractor or subcontractor to fulfill the terms on a construction contract.

(a) Installation, repair, or removal of the following:

Berm walls;
Driveways, sidewalks, parking areas, and patios, including those constructed of asphalt, brick, concrete, crushed stone, or gravel;
Decks;
Fences;
Fountains or other water works installed as plumbing fixtures;
Gazebos;
In-ground sprinkler and irrigation systems;
Masonry, stone setting, terrazzo, tile marble, or mosaic work;
Ponds, excluding decorative or ornamental ponds; or
Retaining walls, including those constructed of block, stone, or brick;

(b) Land clearing, excavation, erosion control, and finish grading for the construction of a permanent structure.

(4) Purchases of tangible personal property such as building materials, fixtures, and supplies that are to be incorporated or fabricated into any structure or any improvement to real estate shall be subject to sales and use tax at the time of the sale to the contractor or subcontractor furnishing landscaping services in conjunction with his business as a contractor or subcontractor.

(5) If a person furnishing landscaping services is also acting as a retailer of tangible personal property, and sells tangible personal property to a person who is claiming an exemption, the retailer shall not be relieved of the burden of collecting the tax until the purchaser provides the retailer with a fully completed certificate of exemption or a direct pay authorization.

Section 9. Forms. The forms referenced in this administrative regulation may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; or

(3) The Department or Revenue Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.470, 139.480
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to landscaping services.
History: 47 Ky.R. 1857; 48 Ky.R. 20; eff. 10-5-2021.

Chapter 27 Sales and Use Tax; Miscellaneous Retailer Occupations

103 KAR 27:020 Blueprints and copies {#sec-103-kar-27-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:020}

Section 1. The sale of copies, stock blueprints, and products of a similar nature constitute a retail sale of tangible personal property or digital property, and the tax shall apply to the total charge for these products. This treatment shall apply regardless of whether the product is produced to the special order of the customer, the product is made from materials furnished by the customer, or the product is made from materials furnished by the retailer.

History

RELATES TO: KRS 139.010, 139.200
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it relates to the production of blueprints and other copied documents.
History: SU-89; 1 Ky.R. 230; eff. 1-8-1975; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1922, 2390; eff. 6-2-2020.

103 KAR 27:030 Brokers, lienors and fiduciaries {#sec-103-kar-27-030 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:030}

Section 1. Brokers such as food or produce brokers, grain brokers, lumber brokers and other brokers not having possession of tangible personal property for sale are not retailers.

Section 2. Pawnbrokers selling tangible personal property are retailers and shall report and pay the tax on the gross receipts from the sale of such property. The sale of property forfeited to them by reason of the pawner's failure to redeem shall be included in the gross receipts.

Section 3. Lienors such as storage operators, mechanics, artisans and others selling tangible personal property to enforce a lien thereon are retailers with respect to sales of the property to consumers and the tax applies to the gross receipts from such sales.

Section 4. Fiduciaries having possession of tangible personal property for the purpose of sale are retailers with respect to sales of the property to consumers and the tax applies to the gross receipts from such sales.

History

RELATES TO: KRS 139.010, 139.200
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: This administrative regulation interprets the sales and use tax law as it applies to sales by brokers, lienors, and fiduciaries.
History: SU-34; 1 Ky.R. 144; eff. 12-11-1974; TAm eff. 5-20-2009; TAm eff. 6-2-2016; Crt eff. 6-7-2019; Crt to Am., due 12-2-2027; Am filed 6-2-2026.

103 KAR 27:040 Finance companies {#sec-103-kar-27-040 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:040}

Section 1. Sales of tangible personal property by a finance company as a result of a default of payments by a customer are subject to the sales or use tax when such property is sold to a consumer.

History

RELATES TO: KRS 139.010, 139.200
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: To interpret the sales and use tax law as it applies to sales of tangible personal property by finance companies.
History: SU-58; 1 Ky.R. 230; eff. 1-8-1975; TAm eff. 5-20-2009; TAm eff 6-22-2016; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 27:050 Sourcing of retail sales by florists {#sec-103-kar-27-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:050}

Section 1. Sales of the following are examples of items that shall be subject to the sales and use tax:

(1) Balloons;

(2) Bouquets;

(3) Candy;

(4) Flowers;

(5) Potted plants;

(6) Shrubbery;

(7) Vases;

(8) Wreaths; and

(9) Other similar items of tangible personal property.

Section 2. Florist Transactions through a Florists' Wire Delivery Association. If a florist conducts transactions through a florists' wire delivery association, the following rules shall apply in the computation of tax liability:

(1) On all orders taken by a Kentucky florist and sent to a second florist in Kentucky for delivery in Kentucky, the sending florist shall be liable for the tax based upon gross receipts from the customer who places the order;

(2) If a Kentucky florist receives an order and subsequently sends instructions to a second florist located outside Kentucky for delivery of tangible personal property to a point outside Kentucky, the Kentucky tax owed shall be based upon gross receipts of the sending florist from the customer who places the order; and

(3) If a Kentucky florist receives instructions from another florist within or outside of Kentucky for the delivery of tangible personal property, the receiving florist shall not be held liable for tax with respect to any receipts realized from the transaction. In this instance, if the order originated in Kentucky, the tax shall be due and payable by the Kentucky florist who first received the order and then sent instructions to the second florist.

Section 3. Florist Transactions not through a Florists' Wire Delivery Association. If a florist conducts transactions through any other means other than a florists' wire delivery association, all orders shall be sourced to the destination where the tangible personal property is delivered, pursuant to KRS 139.105. The florist shall collect and remit the sales and use tax accordingly on the retail sale of the tangible personal property.

History

RELATES TO: KRS 139.010, 139.105, 139.200, 139.310, 139.330
STATUTORY AUTHORITY: KRS 131.130(1), 139.105
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. KRS 139.105 requires florist wire sales to be sourced in accordance with an administrative regulation promulgated by the department. This administrative regulation interprets the sales and use tax law as it applies to sales by florists.
History: SU-25; 1 Ky.R. 145; eff. 12-11-1974; TAm eff. 5-20-2009; TAm eff. 6-22-2016; 48 Ky.R. 491, 1509; eff. 2-1-2022.

103 KAR 27:080 Meals served by railroads, airlines, and other transportation companies {#sec-103-kar-27-080 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:080}

Section 1. Gross receipts or sales price includes sales of meals, prepared food, candy, soft drinks, and alcoholic beverages by railroads, pullman car, airlines or other transportation companies, while within the state.

Section 2. In cases where meals, prepared food, candy, soft drinks, and alcoholic beverages are served without a separately stated charge to the passengers of the foregoing companies, the company will be considered the consumer of the meals, prepared food, candy, soft drinks, and alcoholic beverages and the tax applies at the time of the sale to the company.

History

RELATES TO: KRS 139.010, 139.200
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to meals, prepared food, candy, soft drinks, and alcoholic beveragesserved by railroads, airlines or other transportation companies.
History: SU-52; 1 Ky.R. 466; eff. 3-12-1975; 12 Ky.R. 1156; eff. 2-4-1986; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1284; eff. 4-2-2020.

103 KAR 27:100 Motor vehicles, manufactured homes, mobile homes, and trailers {#sec-103-kar-27-100 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:100}

Section 1. Definitions.

(1) "All-terrain vehicle" is defined by KRS 189.010(24).

(2) "Electric low-speed scooter" is defined by KRS 189.010.

(3) "Manufactured home" is defined by KRS 227.550(6).

(4) "Mobile home" is defined by KRS 227.550(9).

(5) "Moped" is defined by KRS 138.450(6).

(6) "Motor vehicle" is defined by KRS 138.450(5).

(7) "Semitrailer" is defined by KRS 189.010(12).

(8) "Trailer" is defined by KRS 189.010(17).

Section 2. Gross receipts from sales of motor vehicles, including motorcycles, which are registered for use on the public highways and upon which any applicable motor vehicle usage tax levied by KRS 138.460(1) has been paid, shall not be subject to sales or use tax.

Section 3. Manufactured homes, mobile homes, camper trailers, boat trailers, utility trailers, and other trailers not defined by KRS 189.010 are not motor vehicles and gross receipts from their sale shall be subject to the sales or use tax.

Section 4. Gross receipts from sales of vehicles such as all-terrain vehicles, mopeds, and electric low-speed scooters shall be subject to the sales or use tax.

Section 5. Trailers and semitrailers shall not be subject to sales or use tax pursuant to KRS 139.470(20).

History

RELATES TO: KRS 138.450, 138.460, 139.010, 139.200, 139.470, 189.010, 227.550
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to sales of motor vehicles, manufactured homes, mobile homes, and trailers.
History: SU-32-1; 1 Ky.R. 466; eff. 3-12-1975; Am. 2 Ky.R. 8; eff. 9-10-1975; 4 Ky.R. 555; 5 Ky.R. 100; eff. 8-2-1978; 17 Ky.R. 1130; eff. 11-21-1990; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1285; eff. 4-1-2020.

103 KAR 27:120 Photographers, photo finishers, and x-ray labs {#sec-103-kar-27-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:120}

Section 1. Photographers.

(1) Photographers are primarily engaged in the business of rendering a nontaxable professional service in the taking, development, printing, and provision of an original photograph. The photographer is the consumer of all tangible personal property and digital property used in the performance of his or her professional service, and the tax shall apply at the time of the sale of the property to the photographer. This treatment shall apply to digital photography and print-based photography.

(2) In making additional prints, however, the photographer is producing and selling tangible personal property, and the tax shall apply to the selling price of the prints. The tax shall not apply to sales of property to the photographer which become an ingredient or component part of the prints to be sold pursuant to KRS 139.260.

Section 2. Photo Finishers.

(1) The tax shall apply to charges for printing pictures or making enlargements from negatives furnished by the customer but not to charges for developing the negatives if the charges are separately stated. Tax shall not apply to charges for tinting or coloring pictures furnished to the finisher by the customer.

(2) Tax shall apply to sales to photo finishers of all tangible personal property and digital property consumed by them in developing negatives, finishing pictures, and coloring or tinting pictures furnished by customers. Property resold to the customer, such as sensitized paper upon which prints are made and frames and mounts sold along with finished pictures, may be purchased by the photo finisher exempt from the tax pursuant to KRS 139.260.

Section 3. X-Ray Laboratories.

(1) Developers of x-ray film for the purpose of diagnosis are the consumers of materials and supplies used in the production thereof. The tax shall apply to the sale of these materials and supplies to the laboratories developing x-ray film for the purpose of diagnosis.

(2) The tax treatment described in subsection (1) of this section shall apply if the laboratory is a "lay laboratory" or is operated by a physician, surgeon, dentist, or hospital.

History

RELATES TO: KRS 139.010, 139.260
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to photographers, photo finishers, and x-ray laboratories.
History: SU-75-1; 1 Ky.R, 230; eff. 1-8-1975; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1923, 2391; eff. 6-2-2020.

Section 1. The tax shall apply to retail sale charges for printing, lithography, photolithography, rotogravure, gravure, silk screen printing, imprinting, multilithing, multigraphing, photostats, steel die engraving, screen imaging, digital imaging, and similar operations now in existence or later devised for consumers regardless of whether or not the paper and other materials are furnished by the consumer.

Section 2. The tax shall apply to retail sales charges for services in connection with the sale of printed matter, including die cutting, embossing, folding, and other binding and finishing operations regardless of whether or not the said printed matter is furnished by the customer. Other taxable charges included with the sale of printed material shall include costs of postage, addressing, enclosing, sealing, preparing for mailing, or mailing. The tax shall apply to charges for envelopes.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130, 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1)
History: SU-29-1; 1 Ky.R. 704; eff. 5-14-1975; 35 Ky.R. 1849; 2004; eff. 4-3-2009; Crt eff. 9-4-2019; Crt eff. 8-24-2026.

103 KAR 27:140 Publishers of newspapers, magazines and periodicals {#sec-103-kar-27-140 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:140}

Section 1. Newspapers.

(1) Sales of newspapers by the publisher are sales of tangible personal property or digital property. The tax applies to the gross receipts of the publisher from such sales in all cases, unless the sale is for delivery or access outside of this state.

(2) Newstands, drug stores, street vendors, and other businesses selling to consumers are the retailers of newspapers sold by them. Proceeds from the sale thereof shall be included in the gross receipts of the retailer subject to the tax.

Section 2. Magazines and Periodicals.

(1) Sales of magazines, periodicals and all publications other than newspapers, whether made "over the counter," or by subscription, are subject to the sales or use tax. Subscription includes both hard copies and digital editions.

(2) Receipts from subscriptions for magazines, periodicals, and trade journals, taken within the state of Kentucky, sent to a publication house outside of the state of Kentucky, and thereafter mailed directly or transferred electronically to the subscriber within the state of Kentucky, are subject to the sales tax. Where such publications are printed within the state of Kentucky and sold subject to delivery, or transferred electronically for access outside the state of Kentucky, such sales would not be subject to the sales tax.

(3) Persons who distribute trade publications, journals and the like free of charge to the reader thereof are regarded as consumers of publications which they distribute.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to sales of newspapers, magazines and periodicals.
History: SU-8; 1 Ky.R. 145; eff. 12-11-1974; TAm eff. 6-22-2016; 46 Ky.R. 69; eff. 10-4-2019.

103 KAR 27:150 Repairers and reconditioners of tangible personal property {#sec-103-kar-27-150 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:150}

Section 1. Definitions.

(1) "De minimis" is defined by KRS 139.215.

(2) "Extended warranty services" is defined by KRS 139.010(13).

Section 2.

(1) A repairer or reconditioner of tangible personal property shall be classified as a retailer of taxable tangible personal property sold (including repair parts, replacement parts, and materials) along with all service, installation, and repair charges associated with installing or applying the taxable tangible personal property sold.

(2) Examples of repairers or reconditioners shall include repairers or reconditioners of:

(a) Airplanes;

(b) Bicycles;

(d) Cellular phones;

(e) Computers;

(f) Furniture;

(g) Machinery;

(h) Motor vehicles;

(i) Musical instruments;

(j) Radios; or

(k) Television sets.

Section 3. Taxable and Nontaxable Service and Installation Labor for Repairers or Reconditioners of Tangible Personal Property.

(1) Charges for labor or services provided in installing or applying taxable tangible personal property, digital property, and services sold shall be subject to sales and use tax. For example, an appliance repair shop that sells and installs a new drain pump on a washing machine shall collect and remit sales tax on the sale of the drain pump and any service, installation, or labor charge associated with the installation of the drain pump. Since the drain pump sold is subject to sales and use tax, the service, installation, or labor charges associated with the installation of the drain pump also shall be subject to sales and use tax.

(2) Service, installation, or labor charges made to tangible personal property where there is no sale of taxable tangible personal property, digital property, or service shall not be subject to sales and use tax. For example, the charge for an appliance repair shop to merely reconnect a loose drain hose shall not be subject to sales and use tax. If the appliance repair shop only reconnects a loose drain hose with no sale of taxable property or services, then the service, installation, or labor charge associated with the repair shall not be subject to sales and use tax.

(3) If tangible personal property, digital property, or services sold are not subject to sales and use tax, the charges for labor or services provided in installing or applying the property or services sold also shall not be subject to sales and use tax. For example, an appliance repair shop that sells and installs a washing machine electronic control panel receives a fully completed Resale Certificate, Form 51A105, Streamlined Sales and Use Tax Agreement—Certificate of Exemption, Form 51A260 , or Multistate Tax Commission's Uniform Sales and Use Tax Exemption/Resale Certificate—Multijurisdictional, for the purchase of the electronic control panel. Since the electronic control panel is exempt from sales and use tax, the service, installation, or labor charge associated with the sale and installation of the electronic control panel also shall not be subject to sales and use tax.

Section 4. De Minimis Parts and Materials.

(1) According to the provisions of KRS 139.215, if the value of the parts and materials used in the repair or reconditioning of tangible personal property is less than ten (10) percent of the total value of the parts and materials, labor, and other services performed and if no separate charge is made for the property, the repairer or reconditioner shall be classified as the consumer of the property, and the suppliers of parts and materials shall be classified as retailers subject to the tax with respect to the property which they sell to the repairer or reconditioner.

(2) The list in this subsection shall serve as examples of repairs or alterations in which the parts and materials used are less than ten (10) percent in relation to the charges for labor or other services performed:

(a) Repairs of:

Clothing;
Dental prosthesis;
Eyeglass frames;
Fishing rods;
Jewelry;
Tires;
Tubes; or
Watches; or

(b) Alterations performed by the retailer to refit clothes and other garments for the use for which they were originally produced.

Section 5. Extended Warranty Services.

(1)

(a) Effective July 1, 2018, receipts from the sale of extended warranty services, including the sale of optional service, maintenance, or extended warranty contracts related to taxable tangible personal property, shall be subject to sales and use tax.

(b) The person performing repair work under the provisions of an extended warranty service agreement or contract subject to tax sold on or after July 1, 2018, may purchase the repair parts used in fulfilling the contract exempt from sales and use tax using the Resale Certificate, Form 51A105, the Streamlined Sales and Use Tax Agreement- Certificate of Exemption, Form 51A260, or the Multistate Tax Commission's Uniform Sales and Use Tax Exemption/Resale Certificate-Multijurisdictional pursuant to KRS 139.270.

(c) Charges by an entity to perform repair labor under the provisions of an extended warranty service agreement or contract sold on or after July 1, 2018, where the provided repair parts are covered as part of the contract, shall not be subject to sales and use tax.

(d) Charges by a third party to perform repair work for an extended warranty service agreement provided under the provision of an extended warranty service agreement or contract sold on or after July 1, 2018, where the provided repair parts are covered as part of the contract, shall not be subject to sales and use tax.

(e) Charges for repair work made outside the provisions of an existing extended warranty service agreement or contract that include taxable service, installation, or repair labor are included in gross receipts pursuant to KRS 139.010(15)(a)(6) and shall be subject to sales tax.

(f) Deductibles charged as part of the provision of a taxable extended warranty service contract shall be subject to sales and use tax.

(2)

(a) Receipts from the sale of optional service, maintenance, or extended warranty contracts sold prior to July 1, 2018, not required as part of the sale of taxable tangible personal property, shall not be subject to sales and use tax if the retailer separately itemized the charge for the sale of the service, maintenance, or extended warranty contract on the customer's invoice and in the retailer's books and records.

(b) The person performing the repair work under a contract described in subsection (2)(a) of this section sold prior to July 1, 2018, shall report and pay the tax on the purchase price of all tangible personal property used in the fulfillment of the contract.

Section 6. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; or

(3) The Department or Revenue Web site at http://revenue.ky.gov.

Section 7.

(1) This administrative regulation shall replace Revenue Circular 51C020 and Revenue Policy 51P190.

(2) Revenue Circular 51C020 and Revenue Policy 51P190 are hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.200, 139.215, 139.260, 139.270, 139.280, 139.290, 139.310, 139.330
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes the sales and use tax requirements for parts and materials used by repairers and reconditioners of tangible personal property.
History: SU-31; 1 Ky.R, 466; eff. 3-12-1975; 33 Ky.R. 2344; 3151; eff. 5-4-2007; TAm eff. 5-20-2009; TAm eff. 6-22-2016; 48 Ky.R. 492, 1510; eff. 2-1-2022.

103 KAR 27:180 Vending machines {#sec-103-kar-27-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:180}

Section 1. Definition. "Bulk vending machine" is defined by KRS 139.470(5).

Section 2. Persons who own vending machines that dispense tangible personal property, or operators of the machines under lease or rental agreements, shall complete a "Kentucky Tax Registration Application", Revenue form 10A100, to obtain a Kentucky Retail Sales and Use Tax permit to engage in the business of selling tangible personal property and shall report and pay to the department the tax upon the gross receipts from sales made through the machines by utilizing Revenue Form 51A102, "Sales and Use Tax Return". One (1) permit shall be sufficient for all machines of one (1) owner or operator.

Section 3. The owners or operators of vending machines shall be responsible for reporting and paying the tax on the total gross receipts even though the owner or operator of the place in which the machines are located receives a share of the gross receipts under a commission or concession contract. In reporting and paying the tax, the owner or operator shall be deemed the agent of the operator or owner of the place of business in which the machine is located to the extent of commissions due the latter. Gross receipts from bulk vending machine sales of tangible personal property made in portions of fifty (50) cents or less are exempt from the sales and use tax pursuant to KRS 139.470(5).

Section 4. A statement in the following form shall be affixed upon each vending machine in a conspicuous place: "This vending machine is owned (operated) by _______ Owner (Operator), __________ Place of Business of Owner (Operator), who holds Permit No._____, issued pursuant to the Sales and Use Tax Law."

Section 5. If the owner or operator of vending machines also places upon each machine a statement that the sales tax is included in the price of the property dispensed, the liability for the tax may be computed in the same manner as all other retailers who separately state the tax.

Section 6. Adequate and complete records shall be kept by the owner or operator showing the location of each vending machine owned or operated, the serial number thereof, purchases and inventories of merchandise bought for sale through each machine, and the gross receipts derived from each location during each tax period.

Section 7. Forms. The forms listed within this administrative regulation may be inspected, copied, or obtained:

(1) At the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) At a Kentucky Taxpayer Service Center; or

(3) On the department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.240, 139.260, 139.470, 139.485, 139.720
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes the requirements when interpreting the sales and use tax law as it applies to sales of tangible personal property through vending machines.
History: SU-55; 1 Ky.R. 466; eff. 3-12-1975; Am. 13 Ky.R. 1084; eff. 1-13-1987; TAm eff. 6-22-2016; 44 Ky.R. 1100, 1495; eff. 2-2-2018; 46 Ky.R. 577, 1088; eff. 11-1-2019.

103 KAR 27:220 Restaurant transactions {#sec-103-kar-27-220 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:220}

Section 1. Definitions.

(1) "Food and food ingredients" is defined by KRS 139.485(2).

(2) "Mandatory gratuity" means a gratuity or tip charged by a restaurant. An example of a mandatory gratuity is a gratuity charge made by a restaurant for serving a large number of customers in a single group.

(3) "Prepared food" is defined by KRS 139.485(3)(g).

(4) "Voluntary gratuity" means a gratuity or tip not required by a restaurant, but willfully added by a customer.

Section 2.

(1) Tax shall apply to any charge added to the price of prepared food by a restaurant, including a mandatory gratuity, service charge, surcharge, or fee itemized on the invoice or ticket to the customer by the restaurant. These charges shall be considered part of the selling price of prepared food.

(2) A voluntary gratuity left by the customer shall not be subject to tax.

Section 3. A restaurant employee shall pay tax on the sales price of any prepared food or other taxable item purchased from the employer.

Section 4.

(1) Taxable tangible personal property shall be subject to sales and use tax based upon the restaurant's purchase price if the property was:

(a) Purchased exempt from tax under a Resale Certificate (Form 51A105) or a Streamlined Sales and Use Tax Agreement - Certificate of Exemption (Form 51A260); and

(b) Provided free of charge to employees or customers, or otherwise used or consumed by the restaurant.

(2) Food and food ingredients and prepared food donated by a restaurant to charity shall not be subject to the tax.

Section 5. The tax imposed by a city on a restaurant pursuant to KRS 91A.400 shall be classified as a license tax that when passed on to customers shall constitute gross receipts subject to sales tax according to the provisions of KRS 139.010.

Section 6.

(1) This administrative regulation shall replace Revenue Circular 51C001-S2 and Revenue Policy 51P345.

(2) Revenue Circular 51C001-S2 and Revenue Policy 51P345 are rescinded and shall be void.

Section 7. Forms. The forms listed within this administrative regulation may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center; or

(3) The department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 91A.400, 139.010, 139.200, 139.210, 139.260, 139.270, 139.290, 139.310, 139.330, 139.480, 139.485
STATUTORY AUTHORITY: KRS 131.130, 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the assessment, collection, refunding, administration, and enforcement of Kentucky tax laws. This administrative regulation establishes the sales and use tax requirements for miscellaneous transactions relating to restaurants.
History: 33 Ky.R. 2804; 3151; eff. 5-4-2007; TAm eff. 5-20-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1287; 2025; eff. 4-1-2020.

103 KAR 27:230 Motor vehicle body shops {#sec-103-kar-27-230 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:230}

Section 1. Definitions.

(1) "Extended warranty services" is defined by KRS 139.010(13).

(2) "Motor vehicle" is defined by KRS 138.450(5).

(3) "Original warranty" means the guarantee to furnish, pursuant to the provisions of an original contract of sale and for a specified period of time, replacement parts, materials, or labor related to the property or service sold.

(4) "Person" is defined by KRS 139.010(26).

(5) "Retailer" is defined by KRS 139.010(35).

Section 2. Motor Vehicle Body Shops as Retailers.

(1) Motor vehicle body shops shall be classified as retailers of all tangible personal property sold (including repair parts, replacement parts, and materials) along with all service installation and repair charges associated with installing or applying the tangible personal property sold.

(2) Motor vehicle body shops shall be classified as retailers of parts and materials used in body work that become a component part of a motor vehicle.

(3) The list in this subsection shall serve as examples of parts and materials used in body work that become a component part of a motor vehicle:

(a) Body putty;

(b) Body solder;

(d) Lacquers;

(e) Paint;

(f) Plastic filler;

(g) Primer;

(h) Resins (epoxy, fiberglass, or polyester);

(i) Sealants;

(j) Shellacs;

(k) Thinners;

(l) Undercoating; and

(m) Welding rods.

(4) A motor vehicle body shop may purchase materials and parts that become component parts of a motor vehicle exempt for resale if the body shop issues a Resale Certificate, Form 51A105, a "Streamlined Sales and Use Tax Agreement-Certificate of Exemption," Form 51A260, or a "Multistate Tax Commission's Uniform Sales and Use Tax Exemption/Resale Certificate-Multijurisdiction" to the seller at the time of purchase pursuant to KRS 139.270.

Section 3. Taxable and Nontaxable Service and Installation Labor Performed by Motor Vehicle Body Shops Outside a Warranty Contract.

(1) Charges for labor or services provided in installing or applying taxable repair parts sold shall be subject to sales and use tax. For example, a motor vehicle repair shop that sells and installs bumpers on an automobile shall collect and remit sales tax on the sale of the bumpers and any service, installation, or labor charge associated with the installation of the bumpers. Since the bumpers sold are subject to sales tax, the service, installation, or labor charges associated with the installation of the bumpers shall also be subject to sales and use tax.

(2) Service, installation, or labor charges made to tangible personal property where there is no sale of taxable tangible personal property, digital property, or service shall not be subject to sales tax. For example, if a motor vehicle body shop provides a vehicle inspection with no sale of taxable property or services, the service, installation, or labor charge associated with the vehicle inspection shall not be subject to sales tax.

Section 4. Extended Warranty Services.

(1)

(a) Effective July 1, 2018, receipts from the sale of extended warranty services, including the sale of optional service, maintenance, and extended warranty contracts related to taxable tangible personal property, shall be subject to sales and use tax.

(b) The person performing repair work under the provisions of an extended warranty service agreement or contract subject to tax sold on or after July 1, 2018 may purchase the repair parts used in fulfilling the contract as a sale for resale exempt from sales and use tax by presenting a resale certificate in accordance with the provisions of KRS 139.270.

(c) Charges by a motor vehicle body shop to perform repair labor under the provisions of an extended warranty service agreement or contract sold on or after July 1, 2018, where the provided repair parts are covered as part of the contract, shall not be subject to sales and use tax.

(d) Charges by a third party to perform repair work for the extended warranty service agreement provider under the provision of an extended warranty service agreement or contract sold on or after July 1, 2018, where the provided repair parts are covered as part of the contract, shall not be subject to sales and use tax.

(e) Charges for repair work made outside the provisions of the extended warranty service agreement or contract, that include otherwise taxable repair parts and service and installation labor, shall be included in gross receipts subject to sales and use tax pursuant to KRS 139.010(15)(a)(6).

(f) Deductibles charged as part of the provision of a taxable extended warranty service contract shall be subject to sales and use tax.

(2)

(a) Receipts from the sale of optional service, maintenance, or extended warranty contracts sold prior to July 1, 2018, not required as a part of the sale of taxable tangible personal property, shall not be subject to sales and use tax if the retailer separately itemized the charge for the sale of the service, maintenance, or extended warranty contract on the customer's invoice and in the retailer's books and records.

(b) The person performing the repair work under a contract sold prior to July 1, 2018, shall report and pay the tax on the purchase price of all tangible personal property used in the fulfillment of the optional service, maintenance, or extended warranty contracts.

Section 5. Original Warranty Services.

(1) Receipts from the sale of original warranties shall be subject to sales and use tax.

(2) The person performing repair work under the provisions of an original warranty may purchase the repair parts used in fulfilling the warranty exempt as a sale for resale exempt from sales and use tax by presenting a resale certificate in accordance with the provisions of KRS 139.270.

(3) Charges by a motor vehicle body shop to perform repair labor under the provisions of an original warranty, if the provided repair parts are covered as part of the warranty, shall not be subject to sales and use tax.

(4) Charges by a third party to perform repair work for the original warranty provider under the provision of an original warranty, if the provided repair parts are covered as part of the warranty, shall not be subject to sales and use tax.

(5) Charges for repair work made outside the provisions of an original warranty, that include otherwise taxable repair parts and service and installation labor, shall be included in gross receipts subject to sales and use tax pursuant to KRS 139.010(15)(a)(6).

(6) Deductibles charged as part of the provision of a taxable original warranty shall be subject to sales and use tax.

Section 6. A Motor Vehicle Body Shop Classified as a Consumer When Performing Services Outside a Warranty Contract.

(1) Pursuant to KRS 139.215, if the value of the component parts and materials sold by a motor vehicle body shop is less than ten percent (10%) of the total charges for the component parts, materials, and the labor or other services performed, and if no separate charge is made for the property, the motor vehicle body shop shall be classified as the consumer of the property and the parts and materials shall be subject to sales and use tax when purchased from their suppliers.

(2) If the value of the component parts and materials sold by a motor vehicle body shop is less than ten percent (10%) of the total charges for the component parts, materials, and the labor or other services performed, and if no separate charge is made for the property, sales tax shall not be due on the sale from the motor vehicle body shop to the customer.

(3) A motor vehicle [ body shop shall be classified as the consumer of items of tangible personal property used in the performance of body work that do not become a component part of the motor vehicle and shall pay sales and use tax on the items accordingly.

(4) The list in this subsection shall serve as examples of items used in the performance of body work that do not become a component part of a motor vehicle:

(a) Acetylene and other welding gases;

(b) Cleaners;

(d) Flux;

(e) Masking paper;

(f) Masking tape;

(g) Polishing or buffing pads;

(h) Removers (liquid or paste);

(i) Rubbing compounds;

(j) Sanding discs;

(k) Sandpaper; or

(l) Waxes.

(5) A motor vehicle body shop shall pay sales and use tax on the purchase of shop supplies because these supplies are consumed when furnishing the repair service.

Section 6. Forms. The forms referenced herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; or

(3) The department website at http://revenue.ky.gov.

Section 7.

(1) This administrative regulation shall replace Revenue Circular 51C001-S12.

(2) Revenue Circular 51C001-S12 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.200, 139.210, 139.215, 139.240, 139.250, 139.260, 139.270, 139.280, 139.290, 139.310, 139.330, 139.470, 139.480
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation interprets the sales and use tax law as it applies to motor vehicle body shops.
History: 33 Ky.R. 2806; 3152; eff. 5-4-2007; TAm eff. 5-20-2009; 48 Ky.R. 495; eff. 2-1-2022.

103 KAR 27:240 Reporting of sales tax relating to equine breeding fees {#sec-103-kar-27-240 omnilex-key=us-ky-regs-official--title-103--103 KAR 27:240}

Section 1. Reporting Requirements. Any person who breeds a stallion to a mare in Kentucky shall:

(1) Maintain records pursuant to KRS 139.720;

(2) Collect, report, and remit applicable sales tax due on the transactions; and

(3) File a supplementary schedule entitled "Kentucky Sales and Use Tax Equine Breeders Supplementary Schedule", Form 51A132, which is incorporated by reference in 103 KAR 3:020, for each sales tax filing period that includes sales tax from sales for breeding a stallion to a mare in Kentucky.

Section 2. Filing Process. The supplementary schedule shall be due the same date as the sales and use tax return for which the supplement is required. The supplementary schedule shall be filed separately from the sales and use tax return according to the instructions provided by the department in the form.

History

RELATES TO: KRS 139.010, 139.200, 139.531, 139.720, 230.800, 230.802, 230.804
STATUTORY AUTHORITY: KRS 131.130(1), 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes requirements for the application and reporting of the sales tax from breeding a stallion to a mare in Kentucky pursuant to KRS 139.531 and the transfer of these funds pursuant to KRS 230.800, 230.802, and 230.804.
History: 33 Ky.R. 2807; 3152; eff. 5-4-2007; TAm eff. 5-20-2009; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

Chapter 28 Sales and Use Tax; Miscellaneous Retail Transactions

103 KAR 28:010 Admissions {#sec-103-kar-28-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 28:010}

Section 1. Definition. "Admissions" is defined by KRS 139.010(1).

Section 2. Excluded Admissions. The admissions listed in this section are specifically excluded from sales tax by statute:

(1) Admissions to race tracks upon which tax is levied under KRS 138.480;

(2) Admission fees paid to enter or participate in a fishing tournament or for the use of a boat ramp as provided by KRS 139.010(1)(b);

(3) Admissions to historical sites defined by KRS 139.482(1);

(4) Admissions charged by nonprofit educational, charitable, or religious institutions exempt under KRS 139.495(2)(a)5;

(5) Admissions charged by nonprofit civic, governmental, or other nonprofit organizations exempt under KRS 139.498(1)(a); and

(6) Admissions to unarmed combat shows such as boxing and wrestling shows taxed under KRS 229.031(1).

Section 3. Nontaxable Fees.

(1)

(a) Fees for instruction (tuition, registration fees, or ticket charges paid to attend instructional seminars, conferences, or workshops) shall not be considered the taxable sale of admissions if the primary intent of the program is for education rather than entertainment. Separate charges for meals, books, recordings, or other materials sold at or in conjunction with instructional seminars, conferences, or workshops shall be subject to sales and use tax unless an applicable exemption applies.

(b) Examples of nontaxable instructional seminars, conferences, or workshops include:

Art classes, including painting and pottery;
Certified training programs for lifeguard certification classes;
Classes providing continuing education credits;
Classes to obtain a professional designation, such as a Certified Public Accountant, Registered Nurse, or Registered Land Surveyor;
Dance lessons;
Instructor-led recreational training, such as swimming classes, fitness classes, golf lessons, and personal trainer exercise instruction;
Music lessons;
Summer resident camps and day camps; or
Team memberships fees that include athletic training skills for youth.

(2) Other non-taxable fees include:

(a) Day care and child care facility fees;

(b) Driver's license, hunting license, and fishing license fees;

(d) Professional and fraternal order membership fees.

Section 4. Taxable Admissions. The list in this section shall serve as examples of admissions charges that are subject to the tax either as a payment for the right of entrance, payment for the privilege of using facilities, or payment to participate in an event or activity. These same charges made by an Internal Revenue Code 501(c)(3) charitable, religious, or educational organization, nonprofit civic organization, governmental organization, and all other nonprofit organizations are exempt under the provisions of KRS 139.495 and KRS 139.498:

(1) Amusement park entrance and ride charges;

(2) Art exhibits;

(3) Auditoriums where lectures and concerts are given for entertainment purposes;

(4) Bars with cover charges;

(5) Baseball parks;

(6) Bowling center rentals and fees to participate in games;

(7) Box seats;

(8) Dance halls;

(9) Disc golf courses;

(10) Fitness and recreational sports centers;

(11) Golf courses;

(12) Gymnasiums;

(13) Health spas;

(14) Indoor and outdoor play spaces such as arcade games, ball pits, inflatables, obstacle courses, rides, slides, and other similar activities;

(15) Locker rentals at recreational facilities;

(16) Miniature golf fees;

(17) Movie theatres;

(18) Museums;

(19) National park facilities that are operated under lease by a for-profit entity;

(20) Night clubs;

(21) Race tracks not taxed under KRS 138.480;

(22) Simulcast facilities;

(23) Shooting ranges and gun clubs;

(24) Skating rink rentals and fees to participate in activities;

(25) Skiing charges;

(26) Sports league fees to participate in games;

(27) Street fairs;

(28) Swimming pool rentals and fees to participate in activities;

(29) Tennis court rentals and fees to participate in activities;

(30) Theaters; or

(31) Weight training facilities.

Section 5. No Resale of Admissions. Sales of admissions are not eligible for the resale exemption according to the provisions of KRS 139.260.

Section 6. Ticketing.

(1)

(a) If the tax is included in the total price, a statement shall appear on the ticket to the effect that the sales tax is included in the price unless the tax is separately stated on a sign posted in a conspicuous place at the ticket window and all sales are made at the ticket window. For online sales, a prominent statement on the website may substitute for a statement on the ticket itself.

(b) If the tax is not included in the total price, a receipt shall be given showing that the sales tax was charged and separately stated.

(2) Each admission shall be a separate sale.

(3) Complimentary passes provided by the person conducting the event are not subject to the tax.

(4) Separately stated event sponsorships and advertising that do not include admission to an event are not subject to the tax.

Section 7. Required Payments. Payments that are required as a prerequisite for admission, even if designated as a donation, shall be subject to tax.

Section 8.

(1) This administrative regulation shall replace Revenue Circular 51C001-S6 and Revenue Policies 51P396 and 51P400.

(2) Revenue Circular 51C001-S6 and Revenue Policies 51P396 and 51P400 are hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 138.480, 139.010, 139.200, 139.260, 139.470, 139.480, 139.482, 139.495, 139.498, 229.031
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes sales and use tax requirements for sale of admissions.
History: SU-57-2; 1 Ky.R. 467; eff. 3-12-1975; Am. 9 Ky.R. 1153; eff. 5-4-1983; 33 Ky.R. 2346; 3153; eff. 5-4-2007; TAm eff. 6-22-2016; 46 Ky.R. 578, 1089; eff. 11-1-2019.

103 KAR 28:020 Layaway sales {#sec-103-kar-28-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 28:020}

Section 1. In the case of a layaway or will-call sales (including those in which a deposit is made by the customer), retailers who maintain records on a cash basis and report cash collections rather than sales transactions for sales tax purposes must report cash collections on layaway sales in the return for the period in which the cash is received. All other retailers must report layaway sales on the return for the taxable period in which they are entered as a sale on the retailer's books.

Section 2. If the deposit is forfeited by the customer, the seller shall include only the amount of the deposit received in his gross receipts subject to tax.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: To interpret the sales and use tax law as it applies to layaway sales.
History: SU-66-1; 1 KY.R. 230; eff. 1-8-1975; TAm eff. 6-22-2016; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 28:030 Producing, fabricating and processing {#sec-103-kar-28-030 omnilex-key=us-ky-regs-official--title-103--103 KAR 28:030}

Section 1. Tax shall apply to charges for producing, fabricating, processing, printing, or imprinting tangible personal property for consumers who furnish either directly or indirectly the materials used.

Section 2. "Producing," " fabricating," and "processing" shall include any labor which results in the creation or production of tangible personal property or which is a step in a process or series of operations resulting in the creation or production of tangible personal property.

Section 3. Tangible personal property which is cut, threaded, shaped, bent, polished, welded, sheared, engraved, punched, drilled, machined, monogrammed, decoratively stitched, or in some other way has work performed on it to change it from its original state into something else with different characteristics shall be considered to have been fabricated. Examples of taxable charges shall include the items listed in this section:

(1) A piece of rod is bent into a "U" shape; the two (2) ends threaded to form a U-bolt. An entirely new item is made which doesn't resemble the original. This shall be considered fabrication and shall be taxable. Tax shall be applied to the total selling price of the fabricated article.

(2) Two (2) pieces of sheet steel are laid side by side and a single-bead weld is drawn along the two (2) edges to join them together. This shall be considered fabrication, and tax shall be applicable to the total selling price.

(3) If a gear with a worn hole is filled in or built up and a larger or smaller hole bored in it to fit a larger or smaller shaft, this shall be considered fabrication and the full amount charged shall be subject to tax.

(4) The total charge for manufacturing a part in the shop from stock shall be fully taxable.

(5) Decorative stitching, monogramming, or engraving added to any tangible personal property shall be considered fabrication and shall be subject to tax.

Section 4. "Producing," "fabricating," and "processing" shall not include labor which does not result in the creation or production of tangible personal property or which does not constitute a step in a process or series of operations resulting in the creation or production of tangible personal property, but which constitute merely the repair or reconditioning of tangible personal property to refit it for the use for which it was originally produced. This repair and reconditioning shall be governed by the provisions of 103 KAR 27:150.

Section 5.

(1) This administrative regulation shall replace Revenue Policy 51P200.

(2) Revenue Policy 51P200 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.260
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes sales and use tax requirements for the producing, fabricating or processing of property furnished by consumers.
History: SU-28; 1 Ky.R. 704; eff. 5-14-1975; 33 Ky.R. 2347; 3154; eff. 5-4-2007; TAm eff. 6-22-2016; Crt eff. 11-6-2019.

103 KAR 28:051 Leases and rentals {#sec-103-kar-28-051 omnilex-key=us-ky-regs-official--title-103--103 KAR 28:051}

Section 1. Definitions.

(1) "Primary property location" means the location as indicated by an address for the property provided by the lessee that is available to the lessor from the lessor's records maintained in the ordinary course of business, if use of this address does not constitute bad faith. This location shall not be altered by intermittent use of the property at different locations.

(2) "Transportation equipment" means any of the following:

(a) Locomotives and railcars that are utilized for the carriage of persons or property in interstate commerce;

(b) Trucks and truck-tractors with a gross vehicle weight rating (GVWR) of 10,001 pounds or greater, trailers, semi-trailers, or passenger buses that are:

Registered through the International Registration Plan; and
Operated under authority of a carrier authorized and certificated by the U.S. Department of Transportation or another federal authority to engage in the carriage of persons or property in interstate commerce;

(c) Aircraft that are operated by air carriers authorized and certificated by the U.S. Department of Transportation or another federal authority or a foreign authority to engage in the carriage of persons or property in interstate or foreign commerce; and

(d) Containers designed for use on and component parts attached or secured on the items set forth in paragraphs (a) through (c) of this section.

Section 2. Registrants.

(1) A person engaged in leasing or renting tangible personal property or digital property for use in Kentucky is a retailer and shall:

(a) Complete a "Kentucky Tax Registration Application", Revenue Form 10A100; and

(b) Report and pay the applicable tax derived from the gross lease or rental receipts utilizing the "Sales and Use Tax Return", Revenue Form 51A102.

(2) Each period for which a lease or rental is payable shall be considered a complete transaction in determining a retailer responsible for the tax in accordance with KRS 139.010.

Section 3. Gross Receipts.

(1) Gross receipts from the lease or rental of tangible personal property or digital property shall include:

(a) The total amount of payments, or consideration received by the lessor from the lessee;

(b) Payments paid by the lessee to a third party for the benefit of the lessor which are required by the terms of the agreement; and

(c) All itemized charges for costs incurred by the lessor and passed on to the lessee as separate charges in the lease or rental agreement including finance or interest charges, property tax, and insurance charges.

(2) Charges by a lessor to a lessee for a separately-executed maintenance agreement, which is not a part of the lease or rental agreement, shall not be subject to tax.

Section 4. Tax Responsibility.

(1) The retailer/lessor leasing or renting tangible personal property or digital property within Kentucky shall be required to collect the sales tax from the customer/lessee.

(2) Every out-of-state retailer leasing or renting tangible personal property or digital property for storage, use or other consumption in this state shall be required to collect the use tax from the purchaser and remit the tax on gross lease or rental receipts to the Department of Revenue.

(3) The lessee's responsibility for the use tax shall not be relieved until payment of the amount due has been made to the Department of Revenue or to a retailer/lessor authorized to collect the Kentucky tax.

Section 5. Resale.

(1) A lessor may claim a resale exemption for tangible personal property or digital property purchased exclusively for lease or rental.

(2) Parts and accessories purchased by the lessor which become part of the leased or rented property may also be purchased under a resale exemption. However, property purchased by a lessee to maintain leased or rented property of a lessor shall be subject to the sales and use tax.

(3) Tangible personal property or digital property purchased for resale without payment of the tax and to be utilized exclusively for lease or rental, and so used, but subsequently used by the retailer/lessor for some purpose other than lease or rental shall become subject to tax upon this subsequent use. The tax shall be measured by purchase price of the property and shall be in addition to the tax due on the lease or rental receipts.

(4) Tangible personal property or digital property purchased in part for lease or rental and in part for use shall not be purchased from a seller or retailer under a resale exemption and shall be subject to tax.

(5) A retailer who purchases tangible personal property or digital property for outright sale, but, while holding the property in the retailer's inventory, makes use of the property in the retailer's business through lease or rental shall be responsible for the applicable tax to the lease or rental receipts.

(6) Tangible personal property or digital property purchased by a retailer engaged exclusively in leasing or renting the property may be eligible for a deduction from the retailer's gross lease or rental receipts for an amount equal to the purchase price of the property used exclusively for lease or rental if the retailer has paid the sales or use tax applicable to the purchase price of the property.

Section 6. Lease with an Exemption Certificate. A lessor of tangible personal property or digital property shall not include within the measure of the tax gross receipts from a lease or rental if the lessor takes from the lessee a fully completed certificate of exemption as evidence that the property leased will be used in an exempt manner under the sales and use tax law.

Section 7. Motor Vehicles.

(1) The lease or rental of motor vehicles, which are for use on the public highways and upon which any applicable tax levied under KRS 138.460 or KRS 138.463 has been paid, shall not be subject to the sales or use tax.

(2) Motor vehicles, which are not subject to the motor vehicle usage tax established in KRS 138.460 or the U-Drive-It tax, established in KRS 138.463, shall be subject to the sales and use tax unless another applicable exemption applies.

Section 8. Reciprocity.

(1) The sales and use tax law shall provide for credit against any Kentucky use tax for state sales tax paid in another state which imposes a sales tax substantially identical to that of Kentucky.

(2) Out-of-state lessors who have collected sales tax on a lump-sum basis for their state shall be able to receive credit for the amount paid that other state up to the amount due to Kentucky.

(3) Kentucky shall tax any excess lease or rentals, relating to the lump-sum tax amounts.

(4) Reciprocity shall apply to any tax due Kentucky on lease or rental receipts only if the reciprocal state has levied and is legally due the sales or use tax paid on the lease or rental receipts.

Section 9. Lease of Real, Tangible, Digital and Intangible Property.

(1) If lease or rental activity involves the lease or rental of real property, in combination with tangible personal, digital property or intangible property, as in the lease or rental of a business operation or establishment, the total amount of the lease or rental shall be subject to the sales and use tax unless the amount applicable to the tangible personal property or digital property is separately stated.

(2) The amount separately stated for the tangible personal property and digital property shall not be less than the fair market lease or rental value for like property for a like rental or lease period.

(3) The lease or rental of tangible personal property and digital property between separate entities owned by the same or similar stockholders shall be subject to the tax unless otherwise exempted by the sales and use tax law.

(4) The tax shall be levied on the lease or rental amount charged or the fair market lease or rental amount, whichever is greater.

Section 10. General Sourcing Rules.

(1) The lease or rental of tangible personal property or digital property, other than property identified in subsection (5) of this section, shall be sourced according to the provisions of KRS 139.105(1).

(2) For a lease or rental that requires recurring periodic payments, the first periodic payment shall be sourced as follows according to the provisions of KRS 139.105(1). Periodic payments made subsequent to the first payment shall be sourced to the primary property location for each period covered by the payment. The primary property location shall not be altered by intermittent use at different locations. Intermittent use shall include business property that accompanies employees on business trips and service calls.

(3) For a lease or rental that does not require recurring periodic payments, the payment shall be sourced the same as a retail sale in accordance with the provisions of KRS 139.105(1).

(4) This subsection shall not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.

(5) The lease or rental of motor vehicles, trailers, semi-trailers, or aircraft that do not qualify as transportation equipment shall be sourced as follows:

(a) For a lease or rental that requires recurring periodic payments, each periodic payment shall be sourced to the primary property location.

(b) For a lease or rental that does not require recurring periodic payments, the payment shall be sourced in accordance with the provisions of KRS 139.105(1).

(c) This subsection shall not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.

Section 11. Forms. The forms listed within this administrative regulation may be inspected, copied, or obtained, subject to applicable copyright law:

(1) At the Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) At a Kentucky Taxpayer Service Center; or

(3) On the department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 138.460, 138.463, 139.010, 139.105, 139.200, 139.210, 139.270, 139.280, 139.290, 139.310, 139.330, 139.340, 139.430, 139.471, 139.484, 139.600, 139.620
STATUTORY AUTHORITY: KRS 131.130(1), 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to make administrative regulations for the administration and enforcement of all tax laws in this state, and KRS 139.710 requires the department to administer the provisions of KRS Chapter 139, regarding sales and use taxes. This administrative regulation sets forth requirements for leases and rentals of tangible personal property or digital property relating to the sales and use tax law.
History: 12 Ky.R. 458; 651; eff. 11-12-1985; 17 Ky.R. 1130; eff. 11-21-1990; 32 Ky.R. 469; eff. 9-22-2005; TAm eff. 6-22-2016; 44 Ky.R. 1101, 1496; eff. 2-2-2018; Crt eff. 6-7-2019; Crt to Am., due 12-2-2027; Am filed 6-2-2026.

103 KAR 28:090 Tangible personal property; security instrument enforcement {#sec-103-kar-28-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 28:090}

Section 1. The sales or use tax shall not apply to sales of tangible personal property at public auction enforcing the provisions of a security instrument if the sale is made pursuant to a court decree by a court appointed official and if the property is bid in by the secured party.

Section 2. The sales or use tax shall apply to other sales of tangible personal property enforcing the provisions of a security instrument and to subsequent sales of tangible personal property by the secured party who bids in the property at public auction to the same extent as other sales.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to sales of tangible personal property enforcing the provisions of a security instrument.
History: SU-35; 1 Ky.R. 468; eff. 3-12-1975; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1288; eff. 4-1-2020.

103 KAR 28:130 Tire retreading and recapping {#sec-103-kar-28-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 28:130}

Section 1. Persons engaged in retreading or recapping of tires for customers are retailers and the tax applies to the gross receipts from such retreading or recapping of tires. The total price charged by the retreader or recapper is the measure of the tax for either retreading or recapping a tire belonging to his customer, or for a recapped or retreaded tire sold outright by the recapper or retreader to his customer.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: To interpret the sales and use tax law as it applies to charges for tire retreading and recapping.
History: SU-88; 1 Ky.R. 231; eff. 1-8-1975; TAm eff. 6-22-2016; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 28:150 Collection of sales tax on certain motor vehicle sales {#sec-103-kar-28-150 omnilex-key=us-ky-regs-official--title-103--103 KAR 28:150}

Section 1. Definition. "Motor vehicle" is defined by KRS 138.450(5).

Section 2. Reporting Requirements. A motor vehicle dealer making sales of motor vehicles shall:

(1) Maintain records pursuant to KRS 139.720;

(2) Collect, report, and remit applicable sales tax on motor vehicle sales to nonresidents not exempt under KRS 139.470(19)(b);

(3) Provide a completed copy of the "Certificate of Sales Tax Paid on the Purchase of a Motor Vehicle" (Revenue Form 51A270) to each customer from whom Kentucky sales tax is due; and

(4) File a supplementary schedule entitled "Kentucky Sales Tax Motor Vehicle Sales Supplementary Schedule" (Revenue Form 51A135) for each sales tax filing period that includes sales tax from sales of motor vehicles.

Section 3. Filing Process. The due date of the supplementary schedule shall be the same due date as the sales and use tax return for which the supplement is required. The supplementary schedule shall be filed separately from the sales and use tax return according to the instructions provided by the department on the form.

Section 4. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m.; or

(3) The department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.470, 139.720
STATUTORY AUTHORITY: KRS 131.130, 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130 authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. KRS 139.710 authorizes the department to administer the provisions of KRS Chapter 139, relating to the assessment, collection, refunding, and administration of taxes. This administrative regulation establishes requirements for the application and reporting of the sales tax by sellers of motor vehicles to certain nonresidents pursuant to KRS 139.470(19)(b).
History: 33 Ky.R. 1212; 1523; eff. 1-5-2007; TAm eff. 6-22-2016; 44 Ky.R. 772; eff. 1-5-2018; TAm eff. 11-6-2019; Cert eff. 1-28-2020; Cert eff. 12-6-2024.

Chapter 30 Sales and Use Tax; General Exemptions

103 KAR 30:091 Sales to farmers {#sec-103-kar-30-091 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:091}

Section 1. Definitions.

(1) "Attachments" means tangible personal property that:

(a) Is necessary for the operation of farm machinery and is purchased primarily to improve efficiency to diversify the function which the machinery is capable of performing; and

(b) Includes replacement attachments, or repair or replacement parts for the attachments.

(2) "Crops" means plants, trees, or shrubs grown for sale, including corn, flowers, fruit, hay, sod, soybeans, straw, timber, tobacco, vegetables, and wheat.

(3) "Farmer" means any person that is regularly engaged in the occupation of:

(a) Tilling and cultivating the soil for the production of crops as a business;

(b) Raising livestock or poultry, if the livestock or poultry, or the products of the livestock or poultry, are for sale;

(d) Breeding or producing:

Aquatic organisms;
Buffalos;
Cervids;
Llamas or alpacas; or
Ratites.[

(4) "Farm machinery" is defined by KRS 139.480(11).

(5) "Livestock" means animals of a kind the products of which ordinarily constitute food for human consumption.

(6) "On-farm facility" means property used in the pursuits provided under KRS 139.480 as follows:

(a) Fencing or structures permanently affixed to or installed on the premises of the property;

(b) Improvements to real property such as ponds;

(c) Any materials incorporated into the construction, renovation, or repair of the fencing, structures, or improvements described in paragraph (a) or (b) of this subsection; and

(d) Any equipment, machinery, or attachments including repair or replacement parts for the equipment, machinery, or attachments used in the operation of the facility.

(7) "Person" is defined by KRS 139.010(26).

Section 2. The examples of taxable and nontaxable items contained in this administrative regulation shall be used for illustrative purposes only and are not intended to be all inclusive.

Section 3. Farm Machinery. In addition to the more commonly recognized items that are classified as "farm machinery", the list provided in this section shall serve as examples of the items that shall qualify for exemption if used exclusively and directly for farming as provided in KRS 139.480(11):

(1) All terrain vehicles (ATV) or utility vehicles;

(2) Automatic or portable feeding equipment including:

(a) Livestock creep feeders; and

(b) Poultry feeders;

(3) Automatic egg gathering systems;

(4) Automatic washers;

(5) Automatic waterers;

(6) Brooders;

(7) Bulk tanks (mechanical);

(8) Bush hogs;

(9) Chain saws;

(10) Cleaning machinery (mechanical);

(11) Clippers for livestock;

(12) Coke stoves for curing tobacco;

(13) Cooling units or cooling fans;

(14) Egg processing machinery;

(15) Farm wagons;

(16) Grain or hay elevators;

(17) Hay mowers;

(18) Heaters (portable);

(19) Incubators;

(20) Insecticide sprayers (hand-held);

(21) Irrigation systems;

(22) Log splitters;

(23) Milking machines;

(24) Posthole diggers (mechanical);

(25) Roller mills;

(26) Seed sowers (automatic);

(27) Shop welders or other machinery (mechanical) used exclusively to maintain other farm machinery;

(28) Silo unloaders (augers);

(29) Tilt table for livestock;

(30) Tobacco curing machinery;

(31) Tobacco setter;

(32) Tobacco transplant system machinery, including:

(a) Clipping equipment;

(b) Heating equipment;

(d) Seeding equipment; and

(e) Ventilation equipment; or

(33) Tractor mounted sprayer.

Section 4. Exempt Chemicals. In addition to more commonly recognized items that are classified as "farm chemicals", the list provided in this section shall serve as examples of items that shall qualify for the farm chemical exemption as provided in KRS 139.480(8):

(1) Adjuvant to enhance herbicide coverage of crops;

(2) Antiseptic wipes to clean cows' udders;

(3) Insecticidal dipping chemicals;

(4) Insecticidal ear tags;

(5) Lime or hydrated lime for disinfectant;

(6) Methyl bromide gas or similar tobacco chemicals; or

(7) Seed flow enhancers to optimize seed planting and spacing, including talc or graphite.

Section 5. Exempt Feed. The list provided in this section shall serve as examples of items that shall qualify for the feed and feed additive exemptions as provided in KRS 139.480(9):

(1) Bag or block salt;

(2) Dietary supplements as a feed additive;

(3) Fish pellets, grain, corn gluten, peanut hulls, soybean hulls, or distiller's grain;

(4) Milk replacer;

(5) Mineral blocks;

(6) Protein blocks;

(7) Protein supplements; or

(8) Special medicated feed pre-mixes.

Section 6. On-farm Facilities. The list provided in this section shall serve as examples of items the sale or purchase of which shall qualify for the exemption provided for all on-farm facilities under KRS 139.480:

(1) Branding iron heaters or irons;

(2) Bucket racks;

(3) Building materials, including:

(a) Concrete;

(b) Gravel;

(d) Insulation;

(e) Lumber;

(f) Nails;

(g) Paint;

(h) Rock;

(i) Roofing materials; or

(j) Sand;

(4) Culvert pipe;

(5) Drainage tile;

(6) Erosion mats;

(7) Farm gates;

(8) Feeding system materials or equipment, including:

(a) Feed buckets;

(b) Feed bunks for farm wagons;

(d) Nozzles;

(e) Pipelines;

(f) Round bale feeders;

(g) Salt or mineral feeders; or

(h) Tubes;

(9) Fencing materials, including:

(a) Cattle guards;

(b) Fence chargers;

(d) Planks;

(e) Posts;

(f) Staples; or

(g) Wire;

(10) Handling facilities, including:

(a) Corral panels, chutes, or sweeps;

(b) Farrowing crates;

(d) Holding crates or hutches;

(11) Insect control (electric);

(12) Livestock oilers;

(13) Manure pit for livestock;

(14) Pond sealers;

(15) Silos, silo covers, or silage covers;

(16) Water hydrants or water tanks; or

(17) Water pipe including plastic or other material.

Section 7. Packaging Materials. The list provided in this section shall serve as examples of items the sale or purchase of which shall be exempt from sales and use tax if used in the packaging of products for sale, in addition to the exemption provided for twine and wire used for baling hay and straw in KRS 139.480(26):

(1) Bags or sacks;

(2) Baskets;

(3) Crates;

(4) Net Wrap ; or

(5) Shrink Wrap .

Section 8. Farm Work Stock. The list provided in this section shall serve as examples of farm work stock the sale or purchase of which shall be exempt from sales and use tax as provided in KRS 139.480(6):

(1) Donkeys or burros;

(2) Draft horses;

(3) Guard dogs, including the Pyrenees or Polish Tatra breeds, to protect sheep, goats, or other livestock;

(4) Herd dogs for herding sheep, cattle, or other livestock;

(5) Jacks; or

(6) Mules.

Section 9. Attachments, Repair and Replacement Parts.

(1) Attachments sold or purchased for use on farm machinery which are necessary to the operation of the farm machinery shall be exempt from sales and use tax. The list provided in this subsection shall serve as examples of items of sale or purchase of which shall be exempt from sales and use tax:

(a) Dual wheel assemblies;

(b) Hitches;

(d) Water tanks; or

(e) Weights.

(2) Repair and replacement parts sold or purchased for use on farm machinery which are necessary to the operation of the machinery shall be exempt from sales and use tax. The list provided in this subsection shall serve as examples of items the sale or purchase of which shall be exempt from sales and use tax:

(a) Batteries;

(b) Bolts;

(d) Cutting parts;

(e) Fan belts;

(f) Farm machinery filters;

(g) Miscellaneous motor repair parts;

(h) Mufflers;

(i) Plow points;

(j) Spark plugs;

(k) Springs;

(l) Tires; or

(m) V-belts.

Section 10. Taxable Items. The list provided in this section shall serve as examples of items commonly used on farms, the sale or purchase of which shall not be exempt from the sales or use tax as provided by KRS 139.480:

(1) Hand tools or wholly hand-operated equipment, including:

(a) Axes;

(b) Barn brooms;

(d) Brooms;

(e) Drench guns;

(f) Grease guns;

(g) Hoes;

(h) Jacks (manual or electronic);

(i) Ladders;

(j) Pitchforks;

(k) Pliers;

(l) Post hole diggers (manual);

(m) Rakes;

(n) Shovels;

(o) Tobacco balers (hand operated);

(p) Wheelbarrows; or

(q) Wrenches;

(2) Accessories not essential to the operation of the farm machinery except if sold as a part of an assembled unit, including:

(a) Air conditioning units;

(b) Cabs;

(d) Cigarette lighters;

(e) Deluxe seats;

(f) Lubricators;

(g) Radios;

(h) Seat cushions or covers; or

(i) Tool or utility boxes;

(3) Miscellaneous equipment, materials, or supplies, including:

(a) Antifreeze, oil, grease, lubricant, hydraulic fluid, or transmission fluid;

(b) Bedding materials including:

Chicken bedding;
Chicken litter;
Straw;
Sawdust; or
Wood shavings;

(d) Bromo gas applicators;

(e) Bumper hitch trailers;

(f) Calcium chloride;

(g) Castrators or elastrator bands or rings;

(h) Chains;

(i) Charcoal for cistern filtration;

(j) Chicken transport cages;

(k) Coke for curing tobacco;

(l) Copper sulphate;

(m) Dehorners;

(n) Dog food;

(o) Feed for work stock animals;

(p) Identification tags;

(q) Lawn or garden equipment, including:

Push mowers;
Riding lawn mowers;
Rotor tillers;
Weed eaters; or
Zero turn mowers;

(r) Livestock oil unless containing insecticide;

(s) Milk cans, milk strainers, or milk storage tanks;

(t) Rope;

(u) Snaps or washers;

(v) Tobacco canvas or other plant bed covers;

(w) Tobacco knives, tobacco spears, or tobacco sticks;

(x) Tobacco transplant system materials, including:

Plastic;
Trays; or
Ventilation curtains.

(y) Tractor paint;

(z) Truck batteries and truck tires; or

(aa) Work shoes or boots, work clothes, or safety goggles;

(4) Items sold or purchased for use in raising, feeding, showing, exhibiting, or breeding of horses except water as provided in KRS 139.470(12);

(5) Items sold or purchased for use in the raising and keeping of bees;

(6) Medicines, vaccines, vitamins, or wormers; or

(7) Veterinary instruments, including:

(a) Needles;

(b) Operating tables; or

Section 11. Exemption Certificates.

(1) A farmer shall issue a Farm Exemption Certificate, Form 51A158, or a Streamlined Sales and Use Tax Agreement –Certificate of Exemption, Form 51A260, for the exempt purchase of tangible personal property other than tangible personal property referenced in subsection (2) of this section.

(2)

(a) A farmer shall issue an On-farm Facilities Certificate of Exemption for Materials, Machinery and Equipment, Form 51A159, for the exempt purchase of tangible personal property for incorporation into the construction, repair, or renovation of on-farm facilities exempt under the provisions of KRS 139.480.

(b) A farmer shall issue a separate, individual certificate for new construction, repairs, or renovations. Unless the certificate has an expiration date when submitted jointly with a contractor, the certificate shall remain effective for each project type (new construction, repairs, or renovations) until the purchaser notifies the seller in writing that it is no longer valid.

(3)

(a) A contractor may jointly execute an On-farm Facilities Certificate of Exemption for Materials, Machinery, and Equipment, Form 51A159, with a farmer for building materials, machinery, and equipment that are for incorporation into the construction, repair, or renovation of an on-farm facility.

(b) A contractor shall not use the certificate for the purchase, rental, or lease of construction equipment, consumable supplies, or other tangible personal property that is not for incorporation into the on-farm facility.

(c) A jointly executed On-farm Facilities Certificate of Exemption for Materials, Machinery, and Equipment, Form 51A159, with a contractor shall be acceptable only for purchases made for periods within the effective dates indicated on the certificate at the time of purchase.

(d) A contractor shall jointly execute a new certificate with a farmer for additional purchases of materials, machinery, or equipment required for the same project after the initial expiration date or for additional projects.

Section 12. Service Providers.

(1) Persons engaged in spraying fertilizer, hauling agricultural lime, or providing other services to persons regularly engaged in farming shall not qualify for the farm machinery exemption.

(2) The service provider shall not execute an exemption certificate on behalf of the farmer for the purchase of fertilizer, agricultural lime, or other tangible personal property used to perform the service.

(3) Services otherwise treated as landscaping services pursuant to KRS 139.200(2)(g), including fence clearing, mowing, spraying, and tree trimming provided to a farmer where the service is performed on land that is regularly used in the business of farming shall not be subject to sales tax.

Section 13. Non-taxable Service and Installation Labor. If installing or applying property that is not subject to sales tax, charges for labor or services to install or apply the property shall also not be subject to sales tax. This treatment shall include charges for the installation or repair of tax-exempt farm machinery and any tax-exempt attachments, repair, or replacement parts thereto.

Section 14.

(1) This administrative regulation shall replace Revenue Policies 51P090, 51P100, 51P105, 51P120, 51P130, 51P135 and 51P360.

(2) Revenue Policies 51P090, 51P100, 51P105, 51P120, 51P130, 51P135 and 51P360 are hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.470, 139.480
STATUTORY AUTHORITY: 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. KRS 139.480 exempts specified property from sales and use taxes. This administrative regulation establishes the sales and use tax requirements for sales to farmers.
History: 17 Ky.R. 1254; Am. 1973; eff. 11-21-1990, 35 Ky.R. 96; 580; 772; eff. 10-31-2008; TAm eff. 6-22-2016; 48 Ky.R. 497, 1511; eff. 2-1-2022.

103 KAR 30:120 Machinery for new and expanded industry {#sec-103-kar-30-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:120}

Section 1. Definitions.

(1) "Directly used in the manufacturing or industrial processing process" is defined by KRS 139.010(12).

(2) "Industrial processing" is defined by KRS 139.010(17).

(3) "License" is defined by KRS 241.010(34).

(4) "Machinery" means machines, in general, or collectively; also, the working parts of a machine, engine, or instrument; such as, the machinery of a watch. (Webster's New International Dictionary). This definition does not require machinery to have working parts and be able to perform a function in and of itself, as a "machine" would. The machinery of a manufacturing operation is composed of all the components making up the process, including the fixed and nonmoving parts as well as the moving parts. This is illustrated in the example of the machinery of a watch.

(5) "Machinery for new and expanded industry" is defined by KRS 139.010(19).

(6) "Manufacturing" is defined by KRS 139.010(20).

(7) "Plant facility" is defined by KRS 139.010(28).

(8) "Premises" is defined by KRS 241.010(44).

(9) "Recycled materials" is defined by KRS 139.010(31).

Section 2. Requirements for Exemption. The machinery and the appurtenant equipment necessary to the completed installation of the machinery, together with the materials directly used in the installation of the machinery and appurtenant equipment, which are incorporated for the first time into new or existing plant facilities or licensed premises as provided in KRS 139.010(19), or which are installed in the place of existing machinery having a lesser productive capacity, and which are directly used in a manufacturing or industrial processing operation shall be exempt from the sales and use tax. In summary, the following four (4) specific requirements shall be met before machinery qualifies for exemption:

(1) It shall be machinery.

(2) It shall be used directly in the manufacturing or industrial processing process.

(3) It shall be incorporated for the first time into:

(a) Plant facilities established in this state; or

(b) The premises of alcohol beverage producers in this state that include a retail establishment licensed under KRS 243.030 or KRS 243.040.

(4) It shall not replace other machinery.

Section 3. Analysis of Requirements.

(1) It shall be machinery.

(2) It shall be used directly in the manufacturing or industrial processing process. Machinery shall be intimately involved in production in order to be considered used "directly" in the manufacturing or industrial processing process. The fact that machinery is necessary for a manufacturing or industrial processing process shall not automatically qualify it for exemption. A single manufacturer may, within its primary manufacturing process, have more than one (1) production activity.

(a) Primary manufacturing process.

The primary manufacturing process is the production operation resulting in a finished product which will be transferred from the producing plant for distribution to customers or for further processing at another plant site. Production begins at a point where the raw material enters a process and is acted upon to change its size, shape, or composition or is transformed in some manner. Production ends when the finished goods are packaged or ready for sale. Packaging is considered complete when the product is in the container in which it is normally received by the purchaser.
All activities preceding the point of introduction of the raw material into the manufacturing process and following the point at which the finished product is packaged or ready for sale are not production activities and the machinery used therein shall be subject to tax.
Storage facilities, including those provided for the storage of in-process materials which have been removed from the production line to await further processing, are not used directly in the manufacturing process and shall be subject to tax. Proximity of storage facilities to the production line is immaterial.

(b) Contributory or secondary manufacturing process. This activity generally falls into one (1) of four (4) categories:

The manufacture of industrial tools to be used in the manufacturing process. Examples include the manufacture of dies, patterns, rolls, molds, cutters and cutter blades, and like property. The exemption for machinery used shall be determined by the same criteria used for determining the exemption provided in the primary manufacturing process.
The processing of materials which do not become an ingredient of the finished product but are consumed as industrial supplies directly in the primary manufacturing process. Examples include water cooling systems, bottle washing preparatory to filling, and chemical processes whereby the chemical is used as a catalyst directly on the product being manufactured. This machinery exemption begins at the point where the material is acted upon to condition it for use in the manufacturing process or at the point where it performs a function itself, if it is not acted upon prior to that point. The exemption ends when the material leaves the process.
Electrical machinery and similar equipment used directly in the operation of other machinery which is used directly in the manufacturing process.
Machinery used exclusively for quality control of in-process material or the efficient operation of machinery. Examples are air cooling or air conditioning systems, control panels, exhaust systems, and similar activities.

(3) It shall be incorporated for the first time into plant facilities or licensed premises established in this state. To meet this requirement, the machinery shall be installed in this state for the first time and it shall be incorporated into plant facilities or licensed premises in this state. Machinery which has been once installed into manufacturing facilities or licensed premises in this state may be subject to tax when subsequently sold by that manufacturer. Machinery purchased and delivered in Kentucky shall be subject to tax when the machinery is not acquired for installation in Kentucky.

(4) It shall not replace other machinery. New machinery purchased to replace other machinery in the plant or licensed premises shall be subject to tax unless the new machinery increases the consumption of recycled materials at the plant facility or licensed premises by not less than ten (10) percent, performs a different function, manufactures a different product, or has a greater productive capacity, measured by units of production, than the machinery replaced.

(a) Modification of existing machinery may qualify for exemption if the modification is to perform a different function or manufacture a different product. Modification of existing machinery is not replacement machinery but maintenance of existing machinery; therefore, modifications that merely provide a greater productive capacity as measured by units of production shall not qualify for exemption.

(b) Modification of existing machinery that results in automation of non-automated functions without performance of a different function or manufacture of a different product shall not qualify for exemption.

Section 4. Pursuant to KRS 139.470(22), charges for labor or services to apply, install, repair, or maintain tangible personal property directly used in manufacturing or industrial processing process shall not be subject to sales and use tax if the charges for labor or services are separately stated. Purchasers may issue a fully completed "Certificate of Exemption Labor or Services on Manufacturing Equipment," Form 51A360, or "Streamlined Sales and Use Tax Agreement-Certificate of Exemption," Revenue Form 51A206, to claim the applicable exemption for the labor or service charges on tangible personal property directly used in the manufacturing or industrial processing process.

Section 5. In all cases where a question arises concerning the exemption of machinery for new and expanded industry, the burden of proof that each qualification has been met shall be on the one seeking the exemption.

Section 6. Forms. The forms referenced herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; or

(3) The Department or Revenue Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.470, 139.480, 241.010, 243.030, 243.040
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. KRS 139.480 exempts specified property from sales and use taxes. This administrative regulation interprets the sales and use tax law as it applies to exemption qualification for "machinery for new and expanded industry."
History: SU-6-1; 1 Ky.R. 469; eff. 3-12-1975; TAm eff. 6-22-2016; 48 Ky.R. 501, 1514; eff. 2-1-2022.

103 KAR 30:140 Energy and energy-producing fuels {#sec-103-kar-30-140 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:140}

Section 1. Definitions.

(1) "Cost of production" means the total of all costs, according to accepted accounting principles, incurred in manufacturing, mining, processing, or refining of tangible personal property computed on the basis of "plant facilities" except for:

(a) The cost of the energy or energy-producing fuels used therein; and

(b) The related distribution, transmission, and transportation services for this energy that are billed to the user.

(2) "EDP Authorization" means the "Energy Direct Pay Authorization", Form 51F010 for use for the exemption from the sales and use tax or Form 51F011 for use for the exemption from the utility gross receipts license tax as approved by the department.

(3) "In the course of" means those phases of a company's operations in which the expenses incurred are properly included in the computation of the cost of production.

(4) "Plant facilities" is defined by KRS 139.010(28).

(5) "Toller" is defined by KRS 139.480(3).

(6) "UGRLT" means utility gross receipts license tax imposed by KRS 160.613.

Section 2. Cost of production expenses. The list in this section shall serve as examples of accounts or classifications normally reflected in the computation of the cost of production:

(1) Direct labor cost;

(2) Direct materials; and

(3) Overhead expenses:

(a) Administrative expenses allocated to cost of production;

(b) Compensation insurance;

(d) Indirect labor;

(e) Indirect materials;

(f) Insurance for plant equipment;

(g) Miscellaneous factory expenses;

(h) Office expenses allocated to cost of production;

(i) Rent or depreciation for plant building; and

(j) Taxes for plant equipment.

Section 3.

(1) A taxpayer claiming an exemption for energy or energy-producing fuels under KRS 139.480(3) or KRS 160.613(3) shall compute the cost of production on a basis consistent with accepted accounting principles. Any significant deviations from procedures used in previously reported periods which are based on considerations of sales tax or UGRLT reduction shall not be permitted.

(2) A toller beginning tolling operations on or after July 1, 2018, shall fulfill the itemized requirements specified in KRS 139.480(3)(d)(1) through (5) before a determination can be made whether to exclude any portion of the cost of tangible personal property that is incorporated into or becomes a part of the product of its manufacturing or industrial processing activity when calculating the annual cost of production to determine eligibility for these exemptions.

Section 4. To qualify for the partial exemption as described in this regulation, consumers of energy and energy-producing fuel shall:

(1) Submit to the Department of Revenue an "Application for Energy Direct Pay Authorization", Form 51A109; and

(2) Upon receipt of an EDP Authorization, forward a copy of the EDP authorization to their suppliers of taxable production energy in order to claim the applicable exemption.

Section 5. Determination of sales and use tax liability.

(1) When completing the "Application for an Energy Direct Pay Authorization", Form 51A109, an applicant shall:

(a) Indicate the tax type for which the application applies;

(b) Provide an itemization of the accounts included in the computation of the sales and use tax cost of production based upon applicable costs incurred in the last completed fiscal or calendar year ending prior to the date of the application;

(c) Submit documentation with the application substantiating the annual energy purchases corresponding to the accounts included in the computation of cost of production for sales and use tax purposes; and

(d) If the energy cost and any related distribution, transmission, and transportation services for this energy billed to the user exceeds three (3) percent of the cost of production:

Estimate the sales and use tax liability by:

a. Multiplying the cost of production calculated for sales and use tax purposes by three (3) percent; and

b. Multiplying the resulting amount by six (6) percent; and

Report and make monthly payments equal to one-twelfth (1/12) of the total estimated tax on the monthly sales and use tax returns.

(2) By the 20th day of the fifth month following the end of each taxpayer's fiscal year ending subsequent to the date of the authorization, the taxpayer shall:

(a) File a "Kentucky Sales and Use Tax Energy Exemption Annual Return", Form 51A129, reconciling the estimate to the final amount of tax due; and

Pay the additional tax due; or
Designate the refund amount due if no additional tax is due and an overpayment exists; and

(b) Make an estimate for the succeeding year and adjust the payment for the months remaining so that the total tax to be paid for the year will agree with the total estimated tax. The estimate shall remain consistent with the cost of production accounts used to estimate the sales tax liability on the application for authorization.

Section 6. Determination of UGRLT Liability.

(1) When completing the "Application for an Energy Direct Pay Authorization", Form 51A109, an applicant shall:

(a) Indicate the tax type for which the application applies;

(b) Provide an itemization of the accounts included in the computation of the UGRLT cost of production based upon applicable costs incurred in the last completed fiscal or calendar year ending prior to the date of the application;

(c) Submit documentation with the application substantiating the annual energy purchases corresponding to the accounts included in the computation of cost of production for UGRLT purposes; and

(d) If the energy cost and any related distribution, transmission, and transportation services for this energy billed to the user exceeds three percent (3%) of the cost of production, the taxpayer shall:

Estimate the tax by:

a. Multiplying the cost of production calculated for UGRLT purposes by three percent (3%); and

b. Multiplying the resulting amount by the percentage rate imposed by the local school district, not to exceed three percent (3%); and

Report and make monthly payments equal to one-twelfth (1/12) of the total estimated tax on the monthly UGRLT returns.

(2) By the 20th day of the fifth month following the end of each taxpayer's fiscal year ending subsequent to the date of the authorization, the taxpayer shall:

(a) File a "Utility Gross Receipts License Tax (UGRLT) Energy Exemption Annual Return", Form 73A902, reconciling the estimate to the amount of tax due; and

Pay the additional tax due; or
If no additional tax is due, credit the overpayment on the following year's estimate or designate the refund amount due; and

(b) Make an estimate for the succeeding year and adjust the payment for the months remaining so the total tax to be paid for the year will agree with the total estimated tax. The estimate shall remain consistent with the cost of production accounts used to estimate the UGRLT liability on the application for authorization.

Section 7. An EDP Authorization shall not be used for any purchases other than energy or energy-producing fuels used in the course of manufacturing, processing, mining, or refining and any related distribution, transmission, and transportation services for this energy that are billed to the user.

Section 8.

(1) An EDP Authorization shall not be issued unless the cost of taxable energy or energy-producing fuels used in the course of manufacturing, processing, mining, or refining and any related distribution, transmission, and transportation services for this energy billed to the user during the immediately preceding year exceeds three (3) percent of the previous year's cost of production.

(2) For UGRLT calculations, fuels not subject to tax, but used in the course of manufacturing, processing, mining, or refining, shall be included in the cost of production. Examples of fuels not subject to UGRLT include:

(a) Bottled gases;

(b) Coal;

(d) Diesel;

(e) Fuel oil;

(f) Gasoline;

(g) Kerosene;

(h) Nitrogen;

(i) Propane; and

(j) Steam.[

Section 9. An operator of a commercial greenhouse shall be considered engaged in a processing operation and shall be eligible to purchase energy and energy-producing fuel and any related distribution, transmission, and transportation services for this energy billed to the user exempt from applicable taxes if the requirements provided in this administrative regulation are met

Section 10. Forms. The forms referenced herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; or

(3) The Department or Revenue website at http://revenue.ky.gov.

Section 11.

(1) This administrative regulation shall replace Revenue Policy 51P020.

(2) Revenue Policy 51P020 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.480(3), 160.613(3)
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky's tax laws. This administrative regulation establishes the requirements for the partial exemptions provided for energy and energy-producing fuels.
History: SU-7-3; 1 Ky.R. 706; eff. 5-14-75; Am. 4 Ky.R. 559; eff. 8-2-1978; 17 Ky.R. 1134; eff. 11-21-1990; 33 Ky.R. 2349; 3155; eff. 5-4-2007; TAm eff. 6-22-2016; 48 Ky.R. 504; eff. 2-1-2022.

103 KAR 30:160 Natural gas; by-product gases and fuels {#sec-103-kar-30-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:160}

Section 1. The sales and use tax shall not apply to the use or consumption of natural, artificial or manufactured gas owned and consumed by a pipeline from its own lines as fuel to operate compressor stations and other facilities necessary to the marketing of such gas. Also, tax does not apply to natural gasoline, manufactured gases, liquefied petroleum gases and fuels which are produced as by-products of a manufacturing or refining process and which are subsequently used or consumed directly in such manufacturing or refining process of the owner and producer of the by-products.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: To interpret the sales and use tax law as it applies to the use of gases and other fuels by the producer of such gases and other fuels.
History: SU-80; 1 Ky.R. 232; eff. 1-8-1975; TAm eff. 6-22-2016; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 30:170 Containers, wrapping, and packing materials {#sec-103-kar-30-170 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:170}

Section 1. Definitions.

(1) "Containers" means articles used for shipment or delivery of tangible personal property. Examples of such articles are wrapping materials, bags, cans, twine, gummed tape, boxes, bottles, drums, carboys, cartons, baling wire, and sacks.

(2) "Nonreturnable containers" means all containers other than those defined in subsection (3) of this section. Examples are wrapping and packing materials, paper bags, twine, medicine packaging, and distilled spirits bottles.

(3) "Returnable containers" means containers of a kind customarily returned by the buyer of the contents for reuse. Examples of returnable containers are milk bottles, steel drums, beer and soft drink bottles, wine barrels, chemical carboys, totes, and gas cylinders.

Section 2. Sales of Returnable Containers.

(1) Sales of returnable containers when sold without the contents to manufacturers, compounders, bottlers, etc., who place the contents in the container and sell the contents together with the container are not subject to the sales or use tax. The container is not subject to the tax when it is sold at retail in connection with a retail sale of its contents. The fact that the retailer may require a deposit against the return of the container or allows a credit upon its return does not alter the rule. Returnable containers are not subject to the tax when they are resold by the final buyer for refilling.

(2) Sales of returnable containers, for example totes, to manufacturing suppliers who place the contents in the totes and sell the contents but not the tote to their manufacturing customer are subject to the sales and use tax. As the tote is not sold to the manufacturer, the sales and use tax exemption found in KRS 139.470(2) is not applicable.

Section 3. Sales of Nonreturnable Containers.

(1) Sales of nonreturnable containers to manufacturers, compounders, bottlers, etc., for use in packaging their product for resale which are not intended to be returned for reuse are not subject to the sales or use tax. Bottle caps and crowns shall be treated at all times as nonreturnable containers for use in packaging a product for resale.

(2) Sales of wrapping paper, clothes hangers, twine, tape, and similar articles to persons who use them to package merchandise for sale at retail are usually sales made for resale and are therefore not subject to the tax. Sales of such articles to persons who use them in the conduct of an activity other than sale of tangible personal property at retail are subject to the sales or use tax.

(3) Sales of nonreturnable paper napkins, straws, and like articles to restaurants, lunch counters, etc., who use them in connection with the sale and serving of food are sales made for resale and are therefore not subject to the tax.

Section 4. Labels and Name Plates.

(1) Sales of labels and name plates are not subject to the sales or use tax if:

(a) They are affixed to a nonreturnable container of property sold; or

(b) They are affixed to returnable containers if a new label is affixed to the container each time it is refilled.

(2) Labels, name plates, and price tags which are permanently affixed to the product for sale become a component part of that product and thus not subject to tax when sold to the manufacturer to be affixed by him.

(3) Price tags, shipping tags, and advertising materials used in connection with the sale of property or enclosed with the property sold are subject to the tax.

History

RELATES TO: KRS 139.010, 139.470
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of Kentucky tax laws. This administrative regulation defines and clarifies the sales and use tax law as it applies to containers, wrapping and packing materials, labels, and related products.
History: SU-17-1; 1 Ky.R. 706; eff. 5-14-1975; Am. 3 Ky.R. 324; eff. 11-3-1976; TAm eff. 6-22-2016; 46 Ky.R. 581, 1091; eff. 11-1-2019; 46 Ky.R. 2602; eff. 6-30-2020.

103 KAR 30:190 Interstate and foreign commerce {#sec-103-kar-30-190 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:190}

Section 1. Definitions.

(1) "Consummated" means the point at which a sales transaction is completed and accepted to the extent that both the seller and the purchaser are legally committed to fulfill the transaction.

(2) "Industrial machinery" is defined by KRS 139.486(1).

(3)

(a) "Receive" means:

Taking possession of tangible personal property;
Making first use of services; or
Taking possession or making first use of digital products, whichever comes first.

(b) "Receive" does not include possession by a shipping company on behalf of the purchaser.

(4) "Seller" is defined by KRS 139.010(39).

(5) "Use" is defined by KRS 139.010(44).

Section 2. Sales Tax: Transactions Consummated in Kentucky.

(1) Where tangible personal property is located in this state at the time of its sale or is subsequently produced in this state, and then delivered in this state to the purchaser, the seller shall be subject to the sales tax if the sale is at retail and is consummated in Kentucky. A sale shall not be presumed to be made in interstate commerce if the purchaser or its representative receives possession of tangible personal property, receives digital property, or makes first use of taxable services in this state. This is true notwithstanding the fact that the purchaser may, after receiving the property in this state, transport or send the property out of the state for use outside the state or for use in the conduct of interstate commerce.

(2)

(a) The sales tax shall not apply to gross receipts from sales if, under the terms of its agreement with the purchaser, the seller makes delivery of tangible personal property sold from a point in this state to a point outside this state, not to be returned to a point within this state if delivery is actually made. Tangible personal property may be delivered by carrier, mail, or any other method of delivery.

(b) The sales tax shall not apply if a shipping company, on behalf of a purchaser, takes possession of the tangible personal property in this state for delivery outside this state, not to be returned to a point within this state, and delivery is actually made.

(3) The sales tax shall not apply to gross receipts from sales of tangible personal property to a common carrier under the conditions that are exempt pursuant to KRS 139.470(4).

(a) Normally, when a sale by a Kentucky retailer involves a transfer of title and possession of the goods to the purchaser outside this state, the sale shall not be subject to Kentucky sales tax. The purpose of the exemption in KRS 139.470(4) is to place common carriers on the same footing as other out-of-state purchasers who take title and possession of goods outside this state without requiring retailers to use some other common carrier to transport the goods outside this state to the purchasing common carrier. Thus, the exemption shall apply only to tangible personal property shipped as cargo via the purchasing carrier. It shall not apply to tangible personal property placed in use by the purchasing common carrier in this state.

(b) Examples of when the exemption shall apply include:

Bulk purchases of inventory items by a common carrier for immediate transport and storage outside this state;
Purchases of tangible personal property by a common carrier for immediate shipment outside this state without removal of the property from its original container within this state; and
Purchases of jet fuel by a common carrier placed in a tanker vehicle in this state for immediate transport outside this state where the fuel will be placed in the tanks of the planes which will consume it.

Purchases of repair parts by a common carrier for the carrier's own vehicles which are installed within this state;
Purchases of components and furnishings for the common carrier's vehicles which are placed in use in this state; and
Purchases of jet fuel placed in the tanks of the common carrier's plane which will consume it within this state, regardless of whether all of the fuel purchased will be consumed within this state.

(d) Mere compliance with the bill of lading requirements pursuant to KRS 139.470(4) shall not exempt a purchase if the tangible personal property is placed in use before leaving this state.

(4) The sales tax shall not apply to gross receipts from sales of property sold to a foreign purchaser for shipment abroad and delivered to a ship, airplane, or other conveyance furnished by the purchaser for the purpose of carrying the property abroad if the property is actually carried to a foreign destination, with title and control of the property passing to the foreign purchaser upon delivery, and no portion of the property is being used or consumed in the United States.

(5) The sales tax shall not apply to gross receipts from sales of industrial machinery for use out of state pursuant to KRS 139.486.

(6) To establish that the gross receipts from any given sale are exempt because the tangible personal property is delivered by the seller from a point within this state to a point outside this state, under the terms of an agreement with the purchaser, the seller shall retain in its records documentary evidence which satisfies the department that there was an agreement and a bona fide delivery outside this state of the property sold.

Section 3. Use Tax: Transactions Consummated Outside Kentucky.

(1) The use tax shall apply to sales consummated outside Kentucky if the tangible personal property sold is delivered to the purchaser in this state or digital property is purchased for storage, use, or other consumption in this state. Examples of transactions subject to use tax shall include:

(a) An order for goods consummated outside Kentucky and the seller's branch office or other place of business in this state is utilized in any way, such as in receiving the order, distributing the goods, or billing for the merchandise;

(b) An order for goods given in this state to an agent of an out-of-state seller who transmits the order to a point outside Kentucky for acceptance; or

(c) An order for goods that results from the solicitation in this state of the purchaser by an agent of an out-of-state seller and the order is sent by the purchaser directly to a point outside Kentucky for acceptance.

(2) The use tax shall apply with respect to any tangible personal property or digital property purchased for storage, use, or other consumption in this state, the sale of which is exempt from sales tax under this administrative regulation, except property not subject to the sales or use tax or property held or stored in this state for sale in the regular course of business or subsequent use solely outside this state, and except property purchased for use in interstate or foreign commerce, placed in use in interstate or foreign commerce, prior to its entry into this state, and thereafter used continuously in interstate or foreign commerce.[

History

RELATES TO: KRS 139.010, 139.105, 139.260, 139.340, 139.470, 139.486
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets sales and use tax law as it applies to sales in interstate and foreign commerce. The purpose of this administrative regulation is to state, generally, the application of the Commerce Clause of the Constitution of the United States of America to the sales and use tax law.
History: SU-44; 1 Ky.R. 707; eff. 5-14-1975; Am. 9 Ky.R. 1153; eff. 5-4-1983; 12 Ky.R. 1601; eff. 5-6-1986; TAm eff. 6-22-2016; 48 Ky.R. 506, 1515; eff. 2-1-2022.

103 KAR 30:235 Sales to the federal government {#sec-103-kar-30-235 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:235}

Section 1. The term "federal government" as used in this administrative regulation shall mean federal agencies, instrumentalities, or corporations which are exempt from all state taxation under the Federal Constitution or statutes, and shall not include an agency, corporation or instrumentality that is simply regulated by or receives funds or grants from the federal government.

Section 2. The exemption applies only to sales made directly to the federal government for use in the government function. Any official or employee who uses a position to make a tax-free purchase for personal use or that of any other person shall be subject to the penalties provided in KRS 139.990 and other applicable laws.

Section 3. Sellers and retailers shall include sales made directly to the federal government in the gross receipts entered on line one (1) of the retailer's Kentucky Sales and Use Tax Return (Form 51A102). Sellers or retailers may deduct these sales on line six (6) of the return. Sellers or retailers claiming a deduction for sales to the federal government shall maintain in their records a copy of the exemption authorization letter issued to the federal agency and a copy of the invoice upon which an official, or an employee exercising comparable authority, of the federal government has signed and acknowledged in writing that delivery of the property was actually made to the federal government.

Section 4. Contractors may not claim the exemption when purchasing property to be used in fulfilling contracts with the federal government. As provided by 103 KAR 26:070, sales of property to contractors for use in fulfilling contracts with the federal, state, or local governments for erecting, remodeling, or repairing structures or improvement on or to real estate are subject to tax.

Section 5. All federal government agencies seeking exemption under authority of this administrative regulation shall apply to the Division of Sales and Use Tax for a tax exemption authorization letter. The application (Form 51A125) may be obtained from the Division of Sales and Use Tax, 501 High Street, Frankfort, Kentucky 40620 or from one (1) of the department's field offices.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.310, 139.330, 139.470, 139.720, 139.990
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws. This administrative regulation establishes requirements for application of the sales tax to transactions involving the federal government.
History: 3 Ky.R. 716; eff. 7-6-1977; TAm eff 6-22-2016; 44 Ky.R. 1103, 1497; eff. 2-2-2018; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 30:250 Property used in the publication of newspapers {#sec-103-kar-30-250 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:250}

Section 1. Definitions.

(1) "Manufacturing" is defined by KRS 139.010(20).

(2) "Plant facility" is defined by KRS 139.010(28).

Section 2. Requirements for Exemption. The storage, use, or other consumption of tangible personal property for use in the manufacturing process of newspaper publication shall be exempt from the sales and use tax in accordance with KRS 139.470(9), 139.480(10), and 103 KAR 30:120.

Section 3. Manufacturing Process. The manufacturing process within a plant facility commences with the movement of raw materials from storage into a continuous, unbroken, integrated process, and ends when the finished product is packaged and ready for sale. The manufacturing process shall include the following newspaper publication operations performed at a plant facility in a continuous, unbroken, integrated process:

(1) Prepress operations:

(a) Type-setting that transforms the text and images from the final preprint edit format into a design, layout, or paste-up format ready for printing whether performed electronically, digitally, by hard copy layout, or by other printing technology now in existence or later devised; and

(b) The production of printing plates made photo mechanically or digitally;

(2) Press room and printing process:

(a) Printing and collating the hard copy newspaper pages in accordance with the preprint design;

(b) Examples of conventional printing processes shall include:

Letterpress;
Flexography;
Lithography; or
Gravure; and

(3) Mail room operations, including addressing, labeling, and packaging for distribution.

Section 4. Nonmanufacturing Process. The following operations shall not constitute activities performed within the manufacturing process of newspaper publication:

(1) Photography and reporting, except for development of negatives and the production of prints at the newspaper plant facility;

(2) Newsroom activities. The list in this subsection shall serve as examples of newsroom activities:

(a) Monitoring of news events or related research;

(b) Composition of news stories, opinions, or editorials for editorial review;

(d) Layout and page design by editorial staff;

(3) Selling and design of advertisements;

(4) Library and research, including the use of servers, computers, and other equipment to compile and index information; or

(5) Storage and loading dock operations, including the storage of paper or other raw materials or the conveyance of packaged newspapers for storage, loading, or distribution.

Section 5. Subscription charges for wire services for the transmission of unedited text shall be considered purchases of services not subject to the sales and use tax.

Section 6.

(1) This administrative regulation shall replace Revenue Circular 51C012.

(2) Revenue Circular 51C012 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.280, 139.290, 139.310, 139.330, 139.470(9), 139.480(10)
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes sales and use tax requirements for manufacturing activities relating to the publication of newspapers.
History: 33 Ky.R. 2810; 3156; eff. 5-4-2007; TAm eff. 6-22-2016; 48 Ky.R. 509, 1517; eff. 2-1-2022.

103 KAR 30:270 Oil and gas extraction machinery {#sec-103-kar-30-270 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:270}

Section 1.

(1) Definitions. "Contract driller" means a person performing a drilling service for the owner or operator of an oil or gas well under a contractual relationship for consideration.

(2) "Repair, replacement, or spare parts" is defined by KRS 139.010(34).

Section 2. Eligible Property for Exemption. The storage, use, or other consumption of tangible personal property for use in the extraction or production process for oil or natural gas which will be for sale shall be exempt from the sales and use tax according to the provisions of KRS 139.010, 139.470(9), and 103 KAR 30:120.

(1) The extraction or production process for oil shall be considered as beginning with the erection of the drilling rig at the drilling location and shall be considered as terminating at the settling tank immediately prior to transportation. Oil tanks used for storage alone shall be subject to tax.

(2) The extraction or production process for natural gas shall be considered as beginning with the erection of the drilling rig at the location of the well and shall be considered as continuing until the gas leaves the outlet on the discharge side of the final gathering compressor station. The pipeline from the outlet to the transmission line shall be subject to tax.

(3) The list in this subsection shall serve as examples of machinery used in the extraction or production process:

(a) Drilling rigs;

(b) Casings;

(d) Well head equipment;

(e) Pumps;

(f) Compressors;

(g) Production and gathering pipe;

(h) Cleaning equipment; and

(i) Oil settling tanks.

(4) The list in this subsection shall serve as examples of other tangible personal property used in the extraction or production process:

(a) Drilling bits;

(b) Explosives;

(d) Chemicals; and

(e) Fracking fluids, including water and sand.

(5) Tangible personal property shall not be exempt from sales and use tax if it is used as "repair, replacement, or spare parts".

Section 3. The extraction or production process shall include the following operations:

(1) Drilling and equipping wells, to include:

(a) Drilling of the hole by the drilling rig to the producing formation;

(b) Installing casing and tubing in the hole;

(d) Hydraulic fracturing or fracking; and

(e) Completion of the well by the installation of machinery and equipment; and

(2) Pumping, gathering, and cleaning.

(a) Pumping shall include the use of separate pumps on individual wells, group well pumps, and auxiliary pumps at other points on the gathering system. The machinery and appurtenant equipment used in secondary methods of recovery including gas repressuring or water-flooding shall be considered part of the extraction or production process.

(b) The gathering system shall consist of a series of pipelines connecting several different wells with settling tanks grouped together for production purposes. Compressors used to stimulate production and to continue in effect the processing production operation shall be considered part of the gathering system.

(c) Cleaning operations shall occur in the final settling tank where impurities are removed from oil by chemical heating and settling processes. If a well produces both oil and gas, separator equipment shall be necessary at appropriate points in the gathering lines to separate the oil and gas. In addition, various types of machinery may be used at different points in the gathering system to clean oil or gas.

Section 4. Nonproduction Process. Preliminary work, transportation, and marketing shall not be considered part of the oil or gas extraction or production process.

(1) Preliminary work shall include:

(a) Geological and geophysical work;

(b) Leasing or purchasing operations;

(d) Surface work preparatory to drilling.

(2) The transportation of oil shall be considered as commencing when the oil is pumped from the settling tank into transportation facilities, which may be truck, rail, or pipeline, or a combination thereof.

(3) The transportation of natural gas shall be considered as commencing at the point where the production or gathering system ceases, and it is delivered into pipelines for transportation to the retail distribution system.

(4) The marketing of natural gas shall be considered as commencing when the pressure in the transportation line is reduced and the gas is delivered into a low-pressure system for distribution to the ultimate retail consumer.

Section 5. Contract Drillers.

(1) The exemptions provided in KRS 139.470(9) and 139.480(10) shall not apply to purchases made by a contract driller since a contract driller is providing a service and is the consumer of the machinery and materials used to provide the service.

(2) A contract driller may jointly execute a "Certificate of Exemption Machinery for New and Expanded Industry," Form 51A111, with an oil or gas well owner or operator to purchase machinery used to provide drilling services to the oil or gas well owner or operator only if the oil or gas well owner or operator is the actual title owner of the machinery used to provide the drilling services after the contract between the contract driller and the oil or gas well owner or operator has been completed.

Section 6.

(1) This administrative regulation shall replace Revenue Circular 51C013.

(2) Revenue Circular 51C013 is rescinded and shall be void.

Section 7. Forms. The form listed within this administrative regulation may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center; or

(3) The department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.280, 139.290, 139.310,
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of Kentucky tax laws. This administrative regulation establishes the sales and use tax requirements for transactions relating to the oil and gas extraction industry.
History: 33 Ky.R. 2813; 3157; eff. 5-4-2007; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1289; 2025; eff. 4-1-2020.

103 KAR 30:280 Sales to water haulers {#sec-103-kar-30-280 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:280}

Section 1. Definition. "Water hauler" means a person in the business of transporting water by truck for sale to a customer.

Section 2.

(1) A water hauler shall issue a resale certificate in the form described in 103 KAR 31:111 to a water company when purchasing water for resale.

(2) Gross receipts from the sale of water by a water hauler to customers for:

(a) Residential use shall not be subject to the sales and use tax; and

(b) Use other than residential shall be subject to sales and use tax unless another exemption pursuant to KRS Chapter 139 is applicable.

Section 3.

(1) This administrative regulation shall replace Revenue Policy 51P261.

(2) Revenue Policy 51P261 is hereby rescinded and shall be null, void and unenforceable.

History

RELATES TO: KRS 139.010, 139.200, 139.270, 139.470
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes requirements for the exemption of water used for residential purposes when purchased from water haulers.
History: 33 Ky.R. 2815; 3158; eff. 5-4-2007; TAm eff. 6-22-2016; Crt eff. 6-7-2019; Crt to Am., due 12-2-2027; Am filed 6-2-2026.

103 KAR 30:290 Security lighting {#sec-103-kar-30-290 omnilex-key=us-ky-regs-official--title-103--103 KAR 30:290}

Section 1. Gross receipts from the sale of security lighting by utility companies for residential use shall be considered a sale of electricity exempt from the sales and use tax under the provisions of KRS 139.470(7).

Section 2. Gross receipts from the sale of security lighting by utility companies for commercial customers, or common areas, shall be subject to the sales and use tax unless another exemption pursuant to KRS Chapter 139 is applicable.

Section 3. The utility company shall be subject to sales and use tax on the cost of the poles, light fixtures, and other materials utilized in providing security lighting.

Section 4.

(1) This administrative regulation shall replace Revenue Policy 51P265.

(2) Revenue Policy 51P265 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 139.010, 139.200, 139.310, 139.330, 139.470
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes requirements for the sale of security lighting to residential or commercial customers.
History: 33 Ky.R. 2816; 3158; eff. 5-4-2007; TAm eff. 6-22-2016; TAm eff.10-10-2019; Crt eff. 1-28-2020.

Chapter 31 Sales and Use Tax; Administration and Accounting

103 KAR 31:011 Methods of accounting for and remitting tax {#sec-103-kar-31-011 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:011}

Section 1. Generally, all persons (e.g., corporations, partnerships, associations and proprietorships) are required to determine and report their gross receipts (or sales price in the case of the use tax) by the accrual accounting method. That is, all cash, credit, installment and conditional sales are to be included in the measure of the tax on the return for the month in which the sales transaction occurs, even though all or a part of the payments owing from customers on those sales are deferred under a credit, installment or conditional sale arrangement. However, if the retailer maintains his records on a cash basis and accounts for cash collections rather than sales transactions, he may elect to use that method in reporting his sales and use tax liability provided all cash collections for the reporting period are included in his return without deduction for amounts received from sales transactions occurring during any period preceding the reporting period. By electing the cash basis, the taxpayer has established the point of "sale" as the act of receiving payment and not the filing of the customer's order, the issuance of the billing to the customer or the delivery of the goods or services.

Section 2. Where sales transactions are regularly recorded on the cash basis described in Section 1 of this administrative regulation but adjustments are made at the end of the year to determine receipts on an accrual sale basis for income tax purposes, the cash reporting basis authorized in Section 1 of this administrative regulation may still be used by the retailer in reporting and paying the tax. However, the retailer must include in his last sales and use tax return filed for each year the year-end accrual adjustment made and any additional tax due must be remitted with the return. Any overpayment will be refunded or credited to the account of the permit holder.

Section 3. If a retailer elects to employ the cash basis of reporting authorized in Section 1 of this administrative regulation, the tax must be paid on the taxable ending accounts receivables when the business is discontinued or sold. However, if the buyer of the business (including the accounts receivable) by written agreement with the department agrees to report his sales and use tax liability on the cash basis authorized, his receipts from the accounts receivable purchased may be reported and the tax due thereon paid by him when collected.

Section 4. A retailer, after adopting a method of reporting his sales and use tax liability, shall not change that method without obtaining the written consent of the department. The department shall not consider authorizing a change from the accrual to the cash basis unless the taxpayer submits clear and convincing evidence that either the nature of the business or the general accounting procedures and practices of the business have changed significantly so as to warrant a change to the cash basis. No request to change from accrual to the cash basis shall be authorized if, in the opinion of the department, the real or ultimate purpose of the change is to reduce the taxpayer's current sales or use tax payments to the Commonwealth.

History

RELATES TO: KRS 139.010, 139.025, 139.200, 139.260, 139.340, 139.550, 139.710, 139.720
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: To interpret the sales and use tax law as it relates to methods of accounting for and remitting the tax.
History: 17 Ky.R. 1256; eff. 11-21-1990; TAm 6-9-2009, TAm eff. 6-22-2016; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 31:020 Records {#sec-103-kar-31-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:020}

Section 1. Every seller, retailer, and person storing, using, or otherwise consuming in the state tangible personal property, digital property, or services included in KRS 139.200 purchased from a retailer, shall keep adequate and complete records showing:

(1) The gross receipts from the sales of tangible personal property, digital property, and services included in KRS 139.200 (including any services that are a part of the sale) made within Kentucky.

(2) All deductions allowed by law and claimed in filing returns.

(3) The total purchase price of all tangible personal property, digital property, and services included in KRS 139.200 purchased for sale or consumption in Kentucky.

Section 2. These records shall include:

(1) The normal books of account ordinarily maintained by the business engaged in the activity in questions;

(2) All bills, receipts, invoices, cash register tapes, cancelled checks, bank statements, or other documents of original entry supporting the entries in the books of account;

(3) All schedules or working papers used in connection with the preparation of tax returns; and

(4) All other approved certificates or standard data elements from an electronic form that correspond to the information provided on exemption certificates minus the signature received from purchasers.

Section 3. All records for any period shall be preserved until the statutory limitation relating to the assessment of additional tax for that period has expired pursuant to KRS 139.620, unless the department provides written authorization to destroy the records prior to the expiration of the statute of limitations. An agreement between the taxpayer and the department, extending the period of limitation upon assessment, shall automatically extend the period for which preservation of the records is required. Failure to maintain such records shall be considered evidence of negligence or intent to evade the tax, and may result in the imposition of appropriate penalties.

History

RELATES TO: KRS 131.180, 139.010, 139.200, 139.270, 139.620, 139.720
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to the records required to be maintained to support sales and use tax reports.
History: SU-63; 1 Ky.R. 232; eff. 1-8-1975; TAm eff. 6-9-2009; Crt eff. 1-28-2020; 46 Ky.R. 1595; eff. 5-5-2020.

103 KAR 31:030 Direct pay authorization {#sec-103-kar-31-030 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:030}

Section 1. Definitions.

(1) "Direct pay authorization" or "DPA" means an authorization issued by the Department of Revenue that permits a taxpayer to report Kentucky sales and use tax directly to the department on all purchases of tangible personal property, digital property, or the services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3), excluding energy and energy-producing fuels.

(2) "Distribution facility" means a specific location which is used to receive, hold, and ship business inventory.

(3) "Industrial processing" is defined in KRS 139.010(17).

(4) "Manufacturing" as defined by KRS 139.010(20).

Section 2. Qualifications. An applicant shall:

(1) Be a person engaged in:

(a) Manufacturing;

(b) Industrial processing;

(d) Operating a distribution facility; and

(2) Hold a valid Kentucky retail sales and use tax permit; and

(3) Have a record of timely payment of taxes administered by the department;

(4) Maintain records in such a manner that, as applicable, the amount of tangible property, digital property, and the services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3), purchased from:

(a) A Kentucky seller or retailer may be properly reported; or

(b) An out-of-state seller or retailer for storage, use, or other consumption in Kentucky or elsewhere can be verified; and

(5) Be engaged in business in Kentucky, and own property, other than office furniture and equipment, that is located in more than one (1) state; or

(6)

(a) Have been engaged in business in Kentucky in excess of twenty-four (24) months; and

(b) Have purchased digital property, tangible personal property, or the services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3), excluding energy and energy-producing fuels, of at least $10,000,000 for use in its Kentucky operations in the preceding calendar or fiscal year, as applicable.

Section 3. Application.

(1) An applicant shall apply to the department for a DPA by submitting a fully completed Revenue Form 51A112, "Application for Direct Pay Authorization".

(2) The application shall include:

(a) If an applicant is engaged in business and has property, other than office furniture and equipment, located in more than one (1) state, the location of the applicant's home office, and plants or places of business;

(b) If the applicant is not engaged in business and does not have property, other than office furniture and equipment, located in more than one (1) state, the amount of tangible property, digital property, and the services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3), purchased for use in the applicant's Kentucky business operations in the last calendar or fiscal year, as applicable;

(c) Statements relating to records and documentation required by Sections 2(3) and (4) and 7 of this administrative regulation;

(d) Most recent year's financial statement certified by the applicant's chief financial officer or a certified public accountant; and

(e) A detailed description of the records maintained to document that the amount of taxable purchases is properly reported.

Section 4. Requirements. A DPA holder shall:

(1) Furnish all of itssellers or retailers, excluding sellers or retailers of energy and energy-producing fuels, with a copy of Revenue Form 51A110, "Direct Pay Authorization";

(2) Report and remit the sales or use tax on all taxable purchases of digital property, tangible personal property, or the services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3), excluding energy and energy-producing fuels, that would have been remitted by the applicant's retailer if the DPA had not been granted; and

(3) Report all taxable purchases in accordance with KRS 139.540, 139.550, and 139.590.

Section 5. Seller or Retailer Responsibility.

(1) A seller or retailer shall be relieved of the duty of collecting and paying the sales or use tax if it:

(a) Accepts a copy of a company's DPA; and

(b) Retains the copy in its records pursuant to KRS 139.720(2).

(2) A seller or retailer shall:

(a) Include sales for which a DPA has been accepted in Line 1, Gross Receipts, of Revenue Form 51A102, "Sales and Use Tax Return"; and

(b) Take a corresponding deduction on Line 19, which shall be labeled "DPA Sales".

Section 6. Limitations. A DPA holder shall not:

(1) Issue the DPA to a construction contractor; or

(2) Allow a contractor to use the holder's DPA to purchase, lease, or rent tangible personal property, digital property, or purchase taxable services.

Section 7. Records. A DPA holder shall maintain records pursuant to KRS 139.720(2) and 103 KAR 31:020.

Section 8. Bond Requirement. Upon demand of the department, the applicant or holder of a direct pay authorization shall execute pursuant to KRS 139.660, a bond or an indemnity agreement securing the payment of the sales or use taxes to the department in an amount not less than $75,000 and not greater than three (3) times the estimated monthly liability.

Section 9. Transfer of Authorization.

(1) A DPA shall not be transferable upon the sale, lease, or other transfer of the business.

(2) A DPA holder shall notify the department within ten (10) days of the effective date of the sale, lease, or other transfer of the business.

Section 10. Termination.

(1) The department shall terminate a DPA if the DPA holder:

(a) Fails or ceases to be an eligible taxpayer;

(b) Fails to timely file its sales and use tax returns or timely pay any tax due; or

(2)

(a) The department shall notify a DPA holder of the termination by certified mail at its last known address.

(b) Upon receipt of the notification of termination, a DPA holder shall notify all sellers or retailers within thirty (30) days of the date of termination.

(3) The effective date of the termination shall be the date of the mailing of the termination notice.

Section 11. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) At a Kentucky Taxpayer Service Center during business hours; or

(3) On the department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.240, 139.250, 139.260, 139.540, 139.550, 139.590, 139.660, 139.710, 139.720
STATUTORY AUTHORITY: KRS 131.130, 139.260, 139.660, 139.710, 139.720
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1), 139.260, and 139.710 authorize the Department of Revenue to promulgate administrative regulations for the assessment, collection, refunding, administration, and enforcement of Kentucky tax laws and direct pay authorization. This administrative regulation establishes the requirements and procedures for the direct payment of Kentucky sales and use tax on purchases of tangible personal property, digital property, or the services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3), excluding energy and energy producing fuels.
History: SU-56; 1 Ky.R. 470; eff. 3-12-1975; Am. 24 Ky.R. 920; 1522; 1643; eff. 2-10-1998; 44 Ky.R. 1105, 1498; eff. 2-2-2018; 46 Ky.R. 70, 877; eff. 10-4-2019.

103 KAR 31:050 Returned merchandise {#sec-103-kar-31-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:050}

Section 1. "Gross receipts" and "sales price" shall not include the amount charged for merchandise returned by customers if:

(1) The full sale price, including that portion designated as "sales tax" or "use tax" is refunded either in cash or credit; and

(2) The customer, in order to obtain the refund or credit, is not required to purchase other property at a price greater than the amount charged for the property that is returned.

Section 2. Refunding or crediting the customer with the purchase price, less rehandling and restocking costs, shall constitute a refund or credit of the entire amount.

Section 3. The records of the taxpayer shall clearly reflect and support the taxpayer's claim for all these deductions for merchandise returned for credit or refund.

Section 4. Articles of tangible personal property that are repossessed by the seller shall not be classified as returned goods.

Section 5. Credits or refunds allowed by sellers to consumers on account of defects in merchandise sold shall be excluded in the same manner as credits or refunds for returned merchandise.

History

RELATES TO: KRS 139.010
STATUTORY AUTHORITY: KRS 131.130(1), 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130 authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws in Kentucky. KRS 139.710 authorizes the department to have all powers, rights, duties, and authority with respect to the assessment, collection, refunding, and administration of the taxes levied by KRS Chapter 139. This administrative regulation establishes requirements for returned merchandise.
History: SU-53; 1 Ky.R. 233; eff. 1-8-1975; TAm eff. 6-9-2009; TAm eff. 6-22-2016; 44 Ky.R. 774; 1211; eff. 1-5-2018; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 31:080 Coupons or redemption certificates {#sec-103-kar-31-080 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:080}

Section 1. Definitions.

(1) "Cash discounts" means the exchange value of coupons or redemption certificates issued by the retailer, not a wholesaler or other third party, and are taken by the retailer from customers.

(2) "Coupon" and "redemption certificate" means a certificate vesting in a customer, upon the purchase of certain tangible personal property, digital property, or services included in KRS 139.200, the right to a reduction in the sales price of the property or service.

Section 2. A retailer shall include within their gross receipts the exchange value of coupons or redemption certificates taken from their customers if the retailer redeems such certificates from their wholesaler or other third party. The exchange value shall be included in gross receipts under either of the following methods:

(1) The retailer may include the exchange value in their gross receipts for the period during which the coupons or redemption certificates were taken from their customers; or

(2) The retailer may include the exchange value in their gross receipts for the period during which the coupons or redemption certificates are redeemed from their wholesaler or other third party.

(3) In either event, the retailer shall collect from customers the tax applicable to the coupon or redemption certificate exchange value.

Section 3. Cash discounts shall not be included in the retailer's gross receipts. The retailer shall not collect tax from customers on the exchange value of such coupons or redemption certificates.

Section 4. Coupons or redemption certificates that represent combinations of those described in Sections 2 and 3 of this administrative regulation shall be taxable on that portion of the coupon or redemption certificate value that may be redeemed from the retailer's wholesaler or other third party. The cash discount portion of such coupons or redemption certificates shall not be subject to tax.

History

RELATES TO: KRS 139.010, 139.200
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to coupons and redemption certificates.
History: SU-68; 1 Ky.R. 470; eff. 3-12-1975; 17 Ky.R. 1137; eff. 11-21-1990; TAm eff. 6-9-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1597, 2226; eff. 5-5-2020.

103 KAR 31:090 Tax-paid purchases resold {#sec-103-kar-31-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:090}

Section 1. Definition. "Tax-paid purchases resold" means a sales and use tax deduction taken by a retailer on the sales tax return in the amount of the purchase price of property where the retailer:

(1) Sells the property before making any use thereof, other than retention, demonstration, or display while holding it for sale in the regular course of business;

(2) Reports the sale and remits applicable sales and use tax on the sales price of the property; and

(3) Has previously paid the Kentucky sales or use tax on the purchase price of the property.

Section 2. The tax-paid purchases resold deduction described in Section 1 of this administrative regulation may be used in any of the following circumstances:

(1) The retailer, when making the purchase, intends to use the property rather than resell it but later resells it before making any use thereof;

(2) The particular property is not of a kind ordinarily sold or stocked by the retailer and not customarily covered by resale certificates given to their vendors;

(3) The particular property is generally for the use of the retailer, but a small portion is incidentally resold; or

(4) Through error, sales or use tax is paid by the retailer with respect to the purchase price of property purchased for resale in the regular course of business.

History

RELATES TO: KRS 139.010, 139.200, 139.290, 139.310
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets the sales and use tax law as it applies to tax-paid purchases resold.
History: SU-61; 1 Ky.R. 233; eff. 1-8-1975; TAm eff. 6-9-2009; TAm eff. 6-22-2016; Crt eff. 1-28-2020; 46 Ky.R. 1598; eff. 5-5-2020.

103 KAR 31:102 Rebate for a governmental public facility {#sec-103-kar-31-102 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:102}

Section 1. Definitions.

(1) "Effective date" is defined by KRS 139.533(1)(a).

(2) "Governmental entity" is defined by KRS 139.533(1)(b).

(3) "Public facility" is defined in KRS 139.533(1)(c).

Section 2. Registration Process.

(1) To determine eligibility for the sales tax rebate under KRS 139.533, the governmental entity shall submit to the Department of Revenue a fully completed Governmental Public Facility Sales Tax Rebate Registration, Form 51A400.

(2) The department shall notify the qualifying governmental entity of the effective date for sales eligible for the sales tax rebate according to the provisions of KRS 139.533(1)(a) and (3).

Section 3. Quarterly Rebate Application Requirements.

(1) An approved governmental entity shall file the following within the sixty (60) day timeframe as provided for in KRS 139.533(4):

(a) A fully completed Governmental Public Facility Application for Sales Tax Rebate, Form 51A401; and

(b) A properly executed Vendor Assignment Agreement for Sales at a Qualifying Public Facility, Form 51A402, for any seller other than the qualifying governmental entity whose receipts are included in the rebate request.

(2) To be considered valid, all applications and other documents required shall be postmarked, electronically submitted or, if delivered by messenger, hand-stamped by the department by the date required.

(3) The department shall pay the rebate amount determined due within the forty-five (45) day timeframe as provided for in KRS 139.533(5).

Section 4. Recordkeeping Requirements.

(1) The qualifying governmental entity shall keep adequate and complete records supporting each rebate request for at least four (4) years as provided for in KRS 139.720.

(2) The department may audit part or all of the records of all parties involved as necessary to verify the refund request and to ensure compliance with KRS 139.533.

Section 5. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) At a Kentucky Taxpayer Service Center during business hours; or

(3) On the department website at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.200, 139.533
STATUTORY AUTHORITY: KRS 131.130(1), 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) requires the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. KRS 139.710 authorizes the department to administer the provisions of KRS Chapter 139 relating to the assessment, collection, refund, and administration of sales and use taxes. KRS 139.533 establishes the sales tax rebate provisions for sales of admissions to and sales of tangible personal property at a governmental public facility. This administrative regulation establishes the requirements and procedures to apply for the sales tax rebate created by KRS 139.533.
History: 37 Ky.R. 945; eff. 11-5-2010; 44 Ky.R. 1107; eff. 2-2-2018; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 31:111 Sales and purchases for resale {#sec-103-kar-31-111 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:111}

Section 1. A resale certificate shall either be a "single purchase certificate" or a "blanket certificate".

(1) A "Single purchase certificate" shall include an itemization by the purchaser of the tangible personal property, digital property, or services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3) to be purchased. A single purchase certificate may only be used for a single purchase of applicable property and services for resale and shall not be used for subsequent purchases.

(2) A "Blanket certificate" shall include a general description by the purchaser of the kind of tangible personal property, digital property, or services specifically enumerated in KRS 139.200(g) through (q) according to the provisions of KRS 139.260(3) to be purchased for resale in the regular course of business. A purchaser who has executed a blanket certificate shall not be required to execute additional certificates of resale for individual purchases if:

(a) There is no change in the character of the purchaser's operation; and

(b) The purchases are of applicable property and services of the kind usually purchased by the purchaser for resale.

Section 2. The resale certificate issued by the purchaser shall be in the form of either the "Resale Certificate", Form 51A105, the "Streamlined Sales and Use Tax Agreement - Certificate of Exemption", Revenue Form 51A260, or the Multistate Tax Commission's "Uniform Sales and Use Tax Exemption/Resale Certificate - Multijurisdiction".

Section 3. If the purchaser is not required to hold a permit because the purchaser is a nonresident purchaser not required to register in Kentucky, the purchaser may issue a fully completed:

(1) Streamlined Sales and Use Tax Agreement - Certificate of Exemption (Revenue Form 51A260); or

(2) Resale Certificate (Revenue Form 51A105). If the purchaser issues a "Resale Certificate", Form 51A105, the purchaser shall note on the face of the certificate that the purchaser is a nonresident purchaser not required to register and obtain a permit in Kentucky. The certificate shall bear the purchaser's signature, name, address, and any other information requested on the form. The purchaser shall clearly mark on the certificate whether it is a single purchase certificate or a blanket certificate.

Section 4.

(1) If the retailer or seller has not obtained a completed resale certificate in a timely manner according to the provisions of KRS 139.270, the burden of proving that a sale is exempt as a sale for resale shall be upon the retailer or seller. The retailer or seller may offer proof to the department that the sale in question is not subject to tax in accordance with 103 KAR 1:010.

(2)

(a) For example, if a retailer or seller only receives a completed resale certificate from a restaurant business for silverware after the 120 day period required under KRS 139.270, the burden of proof shall be considered "not met" and the retailer or seller shall remain liable for the tax. The items in this example are for use within the restaurant business rather than for resale.

(b) If the retailer or seller receives a completed resale certificate in the course of a department audit for purchases of disposable utensils from the same restaurant business, the burden of proof shall be considered "met" because the product is of the type resold in the normal course of the restaurant business.

Section 5. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) At a Kentucky Taxpayer Service Center during business hours; or

(3) On the department website at http://revenue.ky.gov.

History

RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.280, 139.290, 139.300, 139.430, 139.440, 139.760, 139.990
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes requirements to consolidate and clarify various provisions of the sales and use tax law as they relate to the authorized issuance of resale certificates by purchasers and acceptance thereof by retailers and sellers.
History: 17 Ky.R. 1257; eff. 11-21-1990; 33 Ky.R. 2351; 3159; eff. 5-4-2007; 44 Ky.R. 1109, 1499; eff. 2-2-2018; 46 Ky.R. 72, 878, eff. 10-4-2019.

103 KAR 31:170 Disaster Area Relief Sales and Use Tax Refunds {#sec-103-kar-31-170 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:170}

Section 1. Definitions.

(1) "Building materials" is defined by KRS 139.519(1)(a).

(2) "Disaster" is defined by KRS 139.519(1)(b).

(3) "Disaster area" is defined by KRS 139.519(1)(c).

(4) "Qualifying construction" means:

(a) Construction that repairs the portion of a building damaged by a disaster in a disaster area; or

(b) Construction that replaces a building damaged by a disaster in a disaster area.

Section 2. Refund Application Requirements.

(1) A request for a refund shall be filed with the Department of Revenue after completion of the qualifying construction and in accordance with the provisions of KRS 139.519(4)(a).

(2) To be considered valid, a refund request shall be postmarked, electronically submitted, or if delivered by messenger, hand-stamped by the department by the date required in subsection (1) of this section and shall include the following completed information:

(a) Application for Kentucky Disaster Relief Sales and Use Tax Refund, Form 51A600;

(b) Information Sharing and Assignment Agreement for Disaster Relief Refund Claims, Form 51A601;

(d) Copies of contractor invoices to the legal building owner, if applicable;

(e) Related sample sales receipts of building materials purchased from each vendor;

(f) Photographs of disaster damage and related construction;

(g) Other applicable documents that the applicant believes will support the refund claim; and

(h) One of the following types of documentation:

Confirmation letter that the legal building owner is eligible for assistance from the Federal Emergency Management Agency (FEMA), United States Department of Homeland Security because of property damage from the disaster; or
A copy of the insurance claim filed for the building damage sustained in the disaster.

(3) Any request for a refund filed with the Department after the three (3) year period established in KRS 139.519(4)(a) shall be denied.

Section 3. Record Keeping Requirements. The legal owner of the building and other applicable parties shall keep adequate and complete records supporting the refund request for a period not less than four (4) years as provided for in KRS 139.720. The department may audit the records of all parties involved as necessary to verify the refund request and to ensure compliance.

Section 4. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) At a Kentucky Taxpayer Service Center during business hours; or

(3) On the department website at http://revenue.ky.gov.

History

RELATES TO: KRS 139.519, 139.720, 139.770
STATUTORY AUTHORITY: KRS 131.130(1), 139.519(7)(a), 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. KRS 139.710 authorizes the department to administer the provisions of KRS Chapter 139, relating to the assessment, collection, refund, and administration of sales and use taxes. KRS 139.519 establishes the tax refund provisions for sales and use tax paid on building materials purchased for the purpose of repairing or replacing a building damaged or destroyed by a disaster within a disaster area. This administrative regulation establishes the requirements for disaster area relief sales and use tax refunds.
History: 38 Ky.R. 2107; 39 Ky.R. 458; eff. 10-5-2012; 44 Ky.R. 1110, 1500; eff. 2-2-2018; Crt eff. 6-7-2019; Crt eff. 6-2-2026.

103 KAR 31:180 Signature project refunds on construction costs {#sec-103-kar-31-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:180}

Section 1. Definitions.

(1) "Agency" is defined in KRS 65.7045(2).

(2) "Approved public infrastructure costs" is defined by KRS 154.30-010(3).

(3) "Approved signature projects costs" is defined by KRS 154.30-010(4).

(4) "Commencement date" is defined in KRS 65.7045(8).

(5) "Fiscal year" means the Commonwealth of Kentucky's accounting period, which begins every July 1 and ends on June 30 of the following year.

(6) "Purchaser" means the contractor, subcontractor, or other entity that purchases tangible personal property used in the construction of a signature project.

(7) "Signature project" is defined by KRS 139.515(1)(b) and 154.30-010(27).

(8) "Tangible personal property used in the construction of a signature project" is defined in KRS 139.515(1)(c).

(9) "Vendor" means an individual or entity from whom tangible personal property used in the construction of a signature project is purchased.

Section 2. Refund Application Requirements.

(1) Requests for refunds shall be filed with the Department of Revenue annually by the agency within the sixty (60) day timeframe as provided for in KRS 139.515 and shall only cover purchases made after the "commencement date" of the project grant agreement.

(2) Refund requests shall be postmarked, electronically submitted, or if delivered by messenger, hand-stamped by the department by the date required and shall include the following:

(a) Application for Kentucky Signature Project Sales and Use Tax Refund, Form 51A291;

(b) Information Sharing and Assignment Agreement for Designated Refund Claims, Form 51A290. The agency shall cause to be executed a separate Information Sharing and Assignment for Designated Refund Claims for every purchaser and vendor relationship. Each agreement shall be submitted to the Department of Revenue with the first request for refund that includes the purchaser vendor relationship filed after the execution of the agreement. Only one (1) agreement shall be required for each vendor and purchaser relationship for the life of the signature project;

(c) Expenditure Report for Signature Project Refunds, Form 51A292, from each purchaser detailing all "tangible personal property used in the construction of the signature project" and the total corresponding Kentucky sales and use tax paid;

(d) Sample invoices between each purchaser and vendor; and

(e) The percentage of each purchaser's "tangible personal property used in the construction of the signature project" not included in the project grant agreement as approved public infrastructure costs or approved signature project costs.

Section 3. Record-Keeping Requirements. The approved agency shall keep adequate and complete records supporting its refund request for periods not less than four (4) years as provided by KRS 139.720. The department may audit part or all of the records of all parties involved as necessary to verify the refund request and to ensure compliance with KRS 139.515.

Section 4. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m.; or

(3) The department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 65.7045, 139.515, 154.30-010
STATUTORY AUTHORITY: KRS 131.130(1), 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. KRS 139.710 authorizes the department to administer the provisions of KRS Chapter 139, relating to the assessment, collection, refund, and administration of taxes. KRS 139.515 requires sales tax refunds for qualified signature projects. This administrative regulation establishes requirements for a sales and use tax refund relating to a signature project.
History: 34 Ky.R. 1592; 2524; eff. 7-7-2008; 44 Ky.R. 775, 1211; eff. 1-5-2018; TAm eff. 10-10-2019; Crt eff. 1-28-2020.

103 KAR 31:190 Alternative fuel, gasification, and renewable energy facility refunds on construction costs {#sec-103-kar-31-190 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:190}

Section 1. Definitions.

(1) "Activation date" is defined in KRS 154.27-010(1).

(2) "Alternative fuel facility" is defined by KRS 154.27-010(3).

(3) "Approved company" is defined in KRS 154.27-010(5).

(4) "Authority" is defined in KRS 154.27-010(6).

(5) "Construction period" is defined in KRS 154.27-010(14).

(6) "Eligible project" is defined in KRS 154.27-010(16).

(7) "Facility" is defined in KRS 154.27-010(20).

(8) "Gasification facility" is defined in KRS 154.27-010(22).

(9) "Renewable energy facility" is defined in KRS 154.27-010(26).

(10) "Retrofit" is defined in KRS 154.27-010(28).

(11) "Upgrade" is defined in KRS 154.27-010(32).

Section 2. Refund Application Requirements.

(1) The approved company shall file requests for refunds with the Department of Revenue annually within the sixty (60) day deadlines provided for in KRS 139.517(4) and according to the activation date requirements of KRS 154.27-070.

(2) Refund requests shall be postmarked, electronically submitted, or if delivered by messenger, hand-stamped by the department by the date required to qualify for consideration and shall include the following:

(a) Application for Kentucky Alternative Fuel, Gasification, and Renewable Energy Facility Sales and Use Tax Refund, Form 51A301;

(b) Information Sharing and Assignment Agreement for Designated Refund Claims, Form 51A290. This agreement shall be completed and signed by the approved company, the subcontractor or contractor (purchaser), and the vendor as applicable;

(c) Expenditure Report for Alternative Fuel, Gasification, and Renewable Energy Facility Refunds, Form 51A302, from each purchaser detailing all tangible personal property used in the construction, retrofitting, or upgrading of an eligible project and the total corresponding Kentucky sales and use tax paid; and

(d) Sample invoices between each purchaser and vendor.

(3) Failure to file the request for a refund within the sixty (60) day deadlines shall result in the forfeiture of the refund for that year and the amount forfeited shall not be subject to a refund request for any subsequent years.

Section 3. Record-keeping Requirements. The approved company shall keep adequate and complete records supporting its refund request for periods not less than four (4) years as provided for in KRS 139.720. The department may audit the records of all parties involved as necessary to verify the refund request and to ensure compliance with KRS 139.517.

Section 4. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m.; or

(3) The department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 139.517, 139.720, 154.27-010, 154.27-070
STATUTORY AUTHORITY: KRS 131.130(1), 139.517(4)(d), 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. KRS 139.710 authorizes the department to administer the provisions of KRS Chapter 139, relating to the assessment, collection, refund, and administration of taxes. KRS 139.517 establishes the sales tax incentive for alternative fuel, gasification and renewable energy facilities. This administrative regulation establishes requirements for a sales and use tax refund relating to the construction, retrofit, or upgrade of an alternative fuel, gasification, or renewable energy facility.
History: 35 Ky.R. 1952; 2005; eff. 4-3-2009; TAm 6-22-2016; 44 Ky.R. 777; eff. 1-5-2018; Crt eff. 6-7-2019; Cert eff. 6-2-2026.

103 KAR 31:200 Energy efficiency projects {#sec-103-kar-31-200 omnilex-key=us-ky-regs-official--title-103--103 KAR 31:200}

Section 1. Definitions.

(1) "Energy efficiency project" is defined by KRS 139.518(1).

(2) "Manufacturing" is defined by KRS 139.010(20).

(3) "Plant facility" is defined by KRS 139.010(28).

Section 2. Efficiency Requirements. To determine if an energy efficiency project reduces the consumption of energy or energy-producing fuels in the manufacturing process at a plant facility in this state by at least fifteen (15) percent, the manufacturer shall:

(1) Determine the total energy or energy-producing fuels consumed within all combined manufacturing at one (1) plant facility during the twelve (12) month period immediately after the new or replacement machinery or equipment is placed in service;

(2) Subtract the total energy or energy-producing fuels amounts determined in subsection (1) from the total energy or energy-producing fuels amounts submitted with the application for preapproval as required in KRS 139.518(4); and

(3) Divide any reduction in energy or energy-producing fuels calculated in subsection (2) by the total amount of energy or energy-producing fuels consumed within all combined manufacturing at the single plant facility submitted with the application for preapproval as required in KRS 139.518(4).

Section 3. Refund Application Requirements.

(1) The applicant shall file a completed Application for Preapproval for Energy Efficiency Machinery or Equipment, Form 51A300, with the Department of Revenue along with energy and energy producing fuel consumption and units of production documentation within the timeframe required under KRS 139.518(4).

(2) Requests for the sales and use tax incentive shall be filed within the timeframe required by KRS 139.518(6)(a). The following completed documentation demonstrating achievement of the fifteen (15) percent energy efficiency threshold shall be submitted:

(a) Application for Energy Efficiency Machinery or Equipment Sales and Use Tax Incentive, Form 51A351;

(b) Information Sharing and Assignment Agreement for Energy Efficiency Project Incentive, Form 51A350. This agreement shall be completed and signed by the manufacturer, the vendor, and the contractor as applicable; and

(3) To be considered valid, all applications and other documents required shall be post-marked, electronically submitted, or if delivered by messenger, hand-stamped by the department by the date required.

(4) The applicant shall keep adequate and complete records supporting its refund request for periods not less than four (4) years as provided for in KRS 139.720. The department may audit part or all of the records of all parties involved as necessary to verify the refund request and to ensure compliance with KRS 139.518.

Section 4. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40601;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8:00 a.m. to 4:30 p.m.; or

(3) The department Web site at

History

RELATES TO: KRS 139.010, 139.518, 139.720
STATUTORY AUTHORITY: KRS 131.130, 139.710
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) requires the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. KRS 139.710 authorizes the department to administer the provisions of KRS Chapter 139, relating to the assessment, collection, refund, and administration of taxes. KRS 139.518 establishes the sales and use tax refund provisions for energy efficiency products used at manufacturing plants. This administrative regulation establishes requirements for a sales and use tax refund relating to an energy efficiency project.
History: 35 Ky.R. 452; 777; eff. 10-31-2008; 44 Ky.R.778, 1212; eff. 1-5-2018; Crt eff. 1-28-2020; 46 Ky.R. 1599, 2226; eff. 5-5-2020.

Chapter 40 Selective Excise Tax; Alcoholic Beverages

103 KAR 40:010 Maintaining records {#sec-103-kar-40-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 40:010}

Section 1. All records of a licensee trafficking in alcoholic beverages shall be accessible upon demand for inspection by agents of the Department of Revenue for a period of at least four (4) years.

History

RELATES TO: KRS 244.150
STATUTORY AUTHORITY: KRS 131.130, 244.150
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation, under the authority of KRS 244.150, specifies the length of time that records must be accessible.
History: CH-9; 1 Ky.R. 709; eff. 5-14-1975; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 1-28-2020; 46 Ky.R. 1601,2227; eff. 5-5-2020; Crt to Am; Am filed 7-9-2026.

103 KAR 40:035 Alcoholic beverages; tax exemptions {#sec-103-kar-40-035 omnilex-key=us-ky-regs-official--title-103--103 KAR 40:035}

Section 1. Sales of alcoholic beverages to agencies and instrumentalities of the federal government, including the military, are not subject to the case sales tax, the gallonage tax or the wholesale sales tax levied under KRS Chapter 243.

History

RELATES TO: KRS 243.710, 243.720, 243.884
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: To clarify the application of taxes imposed pursuant to KRS Chapter 243 to alcoholic beverage sales to federal agencies and instrumentalities, including sales which occur on federal military reservations.
History: 9 Ky.R. 387; eff. 10-6-1982; TAm eff. 6-28-2016; Crt eff. 8-5-2019; Crt to Am; Am filed 7-9-2026.

103 KAR 40:050 Transporter's reports {#sec-103-kar-40-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 40:050}

Section 1. Report Required.

(1) All transporters holding a Transporter's license issued under KRS 243.200 shall file reports with the department on or before the 20th of each month covering the preceding month's transactions. It is necessary that only one (1) report, prepared on forms supplied by the department, be submitted to cover each unit shipment of alcoholic beverages transported into or between points in Kentucky.

(2) Reports are required on all shipments of alcoholic beverages delivered to a Kentucky wholesaler, distiller, or rectifier.

(3) When a shipment is handled by two (2) or more licensed transporters, the licensed transporter making final delivery to the consignee or retiring the waybill is required to submit the report to the department.

Section 2. Report Not Required.

(1) Transporters are not required to submit a report on the following:

(a) Shipments of spirits consigned by Kentucky wholesalers to Kentucky retailers;

(b) Shipments of spirits delivered to a different transporter in Kentucky;

(c) Shipments originating from a Kentucky wholesaler, distiller, or rectifier and delivered to points outside of Kentucky; and

(d) Shipments of spirits originating in some other state, transported through Kentucky and delivered elsewhere.

(2) A railroad involved in switch movement only is not considered the delivering transporter.

History

RELATES TO: KRS 243.020, 243.200, 243.850
STATUTORY AUTHORITY: KRS 131.130, 131.131
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation summarizes the statute dealing with the transportation of alcoholic beverages and outlines reporting requirements of the department.
History: CH-32; 1 Ky.R. 709; eff. 5-14-1975; Am. 9 Ky.R. 1156; eff. 5-4-1983; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 1-28-2020; 46 Ky.R. 2107; eff. 6-30-2020; Crt to Am; Am filed 7-9-2026.

103 KAR 40:100 Consumer tax; customs {#sec-103-kar-40-100 omnilex-key=us-ky-regs-official--title-103--103 KAR 40:100}

Section 1. Excise taxes imposed under KRS 243.720 on the use of alcoholic beverages shall be paid on all quantities of distilled spirits, wine and malt beverages imported into Kentucky through the United States Bureau of Customs for personal consumption in this state.

Section 2. Persons desiring to secure releases of alcoholic beverages from the United States Bureau of Customs shall issue to customs authorities an acknowledgment of liability for Kentucky alcoholic beverage taxes. The acknowledgment shall be on a form prescribed by the Department of Revenue and shall contain such information as the department may deem necessary to reasonably protect the revenues of the Commonwealth.

Section 3. The tax due pursuant to Section 1 of this administrative regulation shall be paid to the department by the importer on or before the 20th day of the calendar month following the month in which the beverages are imported into this state.

History

RELATES TO: KRS 243.720, 243.730
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: This administrative regulation provides the method of collection of consumer taxes on alcoholic beverages entering Kentucky through the United States Bureau of Customs.
History: CH-39-1; 1 Ky.R. 709; eff. 5-14-1975; Am. 2 Ky.R. 255; eff. 1-14-1976; 9 Ky.R. 1157; eff. 5-4-1983; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 8-9-2019; Crt to Am; Am filed 7-9-2026.

Chapter 41 Selective Excise Tax; Cigarettes

103 KAR 41:040 Cigarette vending machine operators {#sec-103-kar-41-040 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:040}

Section 1. Upon issuance of a cigarette vending machine operator's license by the Department of Revenue, the license shall be retained at the principal address of the vending machine operator. If a change of address occurs, written notification shall be given to the department. The license number along with the name and address of the operator shall be affixed to each machine in operation in such a manner as to be visible at the time of the purchase of cigarettes.

History

RELATES TO: KRS 138.130, 138.195
STATUTORY AUTHORITY: KRS 131.130, 138.195
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation, under authority of KRS 138.195, outlines license requirements for cigarette vending machine operators.
History: CT-24, 25, 27; 1 Ky.R. 710; eff. 5-14-1975; 5 Ky.R. 1070; eff. 9-5-1979; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 1-28-2020; 46 Ky.R. 1602; eff. 5-5-2020; Crt to Am; Am filed 7-9-2026.

103 KAR 41:090 Evidence of tax payment {#sec-103-kar-41-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:090}

Section 1. Payment of cigarette tax shall be evidenced by either the affixing of decal stamp or a metered impression to each individual package of cigarettes.

Section 2. The decal stamps shall be printed, manufactured, and distributed exclusively by the authority of the Department of Revenue or its appointed agents. The stamps can be affixed either by manual or mechanical application. The privilege of using a machine for affixing decal stamps must be secured from the Department of Revenue in advance of use. The application must be filed, in writing, by the party desiring to use this method of affixing tax evidence.

Section 3. The use of any type of metering device, affixing tax evidence by the application of an impression, shall be subject to the approval of the Department of Revenue. The person affixing the tax evidence shall declare in writing to the Department of Revenue his intentions of using this method of stamping, and request permission to purchase the required tax units from the department or its appointed agents. The setting and sealing of any tax meter register shall be performed exclusively by authorized employees or agents of the department. The privilege of using the metering device shall be withdrawn from any party failing to affix tax impressions in a manner satisfactory to the Department of Revenue.

Section 4. The stamp or metered impression shall be affixed to either the top or bottom edge of all standard packages of twenty (20) cigarettes in such a manner that the tax evidence will be visible when the packages are displayed for sale by the retailer. On packages containing more or less than twenty (20) cigarettes, the tax evidence shall be affixed to any part of the outer wrapping affording ample space and providing for a ready inspection by agents of the department.

History

RELATES TO: KRS 138.146
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: This administrative regulation interprets KRS 138.146 and outlines requirements of the Department of Revenue for affixing evidence of cigarette tax payment.
History: CT-29; 1 Ky.R. 711; eff. 5-14-1975; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 8-5-2019; Crt to Am; Am filed 7-9-2026.

103 KAR 41:100 Segregation of cigarettes {#sec-103-kar-41-100 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:100}

Section 1. Inventories of cigarettes held by persons licensed under KRS 138.195 shall be maintained in the following manner:

(1) Untax-paid cigarettes shall be stored in a separate area from cigarettes bearing tax evidence. Kentucky tax evidence, or that of another state shall be affixed to all packages within the required time, pursuant to KRS 138.146(2), unless the cigarettes are distributed within the same period of time into states not using tax evidence. Any receipt and distribution records deemed necessary by the Department of Revenue shall be established and maintained by all licensees authorized to receive untax-paid cigarettes.

(2) Cigarettes stamped with the tax evidence of another state shall be stored in a separate and distinct area from cigarettes bearing Kentucky tax evidence. These tax paid cigarettes shall be either shipped by the wholesaler directly into the state for which the packages were stamped or transferred to persons licensed to receive and distribute cigarettes for resale into the said state.

History

RELATES TO: KRS 138.146
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation interprets KRS 138.146 as it applies to the segregation of cigarettes and the maintaining of records by persons licensed as cigarette dealers under KRS 138.195.
History: CT-30; 1 Ky.R. 333; eff. 2-5-1975; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 1-28-2020; 46 Ky.R. 1603; eff. 5-5-2020; Crt eff. 7-9-2026.

103 KAR 41:110 Sample of cigarettes {#sec-103-kar-41-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:110}

Section 1. In lieu of the affixture of stamps, tax on cigarettes packaged and distributed by manufacturers as a complimentary gift to consumers shall be paid on a monthly reporting basis. The report and tax remittance shall be submitted to the Department of Revenue, Frankfort, Kentucky, by the manufacturer on or before the 20th of the month following the month in which the cigarettes are shipped from the factory. The report shall set forth the number of cigarettes distributed and the method by which these cigarettes were distributed to consumers.

Section 2. All packages tax-paid by the manufacturer on a monthly reporting system shall bear an inscription beneath the cellophane wrapper indicating that the cigarettes contained therein are "not for sale."

Section 3. The records of the manufacturer relative to the distribution of sample cigarettes shall be retained for a period of four (4) years and subject to audit by agents of the department.

History

RELATES TO: KRS 138.135, 138.140, 138.155
STATUTORY AUTHORITY: KRS 131.130, 138.155
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130 (1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation, under authority of KRS 138.155, describes the procedure for payment of tax on sample cigarettes on a reporting basis in lieu of affixing cigarette tax evidence to individual packages.
History: CT-31; 1 Ky.R. 333; eff. 2-5-1975; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 1-28-2020; 46 Ky.R. 1604; eff. 5-5-2020; Crt eff. 7-9-2026.

103 KAR 41:120 Retention of records {#sec-103-kar-41-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:120}

Section 1.

(1) Every licensee or other person required by KRS 138.135(4) and 138.195 to preserve books, records, invoices, and documents shall keep copies of those books, records, invoices, and documents on the immediate premises of each place of business for a period of four (4) years.

(2) This requirement shall be effective for books, records, invoices, and documents created, made, or received on or after:

(a) July 1, 2013, for licensed distributors, retail distributors, and retailers of tobacco products, in accordance with KRS 138.135; and

(b) August 1, 2013, for manufacturers and importers of cigarettes, in accordance with KRS 138.195.

(3) These books, records, invoices, and documents shall be available upon demand during this period of time for inspection by agents of the Department of Revenue.

History

RELATES TO: KRS 138.135(4),138.195
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. This administrative regulation prescribes rules for the retention of records required to be maintained by cigarette dealers licensed under KRS 138.195 and all other persons required to maintain records under the provisions of KRS 138.135(4) and 138.195.
History: CT-32; 1 Ky.R. 333; eff. 2-5-1975; TAm eff. 5-20-2009; 40 Ky.R. 359; 785; eff. 11-1-2013; TAm eff. 6-28-2016; Crt eff. 12-3-2019; Crt eff. 1-28-2020; Crt eff. 7-9-2026.

103 KAR 41:130 Elimination of cigarette tax indicia {#sec-103-kar-41-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:130}

Section 1. The affixture of Kentucky cigarette tax indicia is not required on packages of cigarettes sold under the following conditions:

(1) To the United States or any instrumentality thereof for resale to and consumption by members of the armed services of the United States;

(2) To the Veterans Canteen Service of the Veterans Administration for resale to and consumption by veterans hospitalized or domiciled in facilities of the Veterans Administration.

History

RELATES TO: KRS 138.140, 138.146
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: This administrative regulation, by the elimination of cigarette tax indicia on certain sales, reflects federal requirements which prohibit state taxation of cigarettes sold to an instrumentality of the United States Government.
History: CT-33; 1 Ky.R. 333; eff. 2-5-1975; TAm eff. 6-28-2016; Crt eff. 8-5-2019; Crt eff. 7-9-2026.

103 KAR 41:140 Circular relating to cigarette licenses and taxes {#sec-103-kar-41-140 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:140}

Section 1. Revenue Circular 73C456 merely restates or summarizes the requirements or provisions of the cigarette licenses and tax statutes of KRS Chapter 138 and applicable administrative regulations (KRS 138.130, 138.195, 138.205(5), 103 KAR 41:030, 41:040, 41:050, and 41:060) and is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 138.130, 138.140, 138.146, 138.155, 138.165, 138.175, 138.183, 138.185, 138.195, 138.205
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 13A.100(1) requires administrative bodies, when promulgating statements of general applicability that implement, interpret or prescribe law or policy, to do so only through an administrative regulation. The Department of Revenue has many policies and circulars that predate the enactment of KRS Chapter 13A and conflict with, or are redundancies of, current tax laws. This administrative regulation formally rescinds the previously-issued circular administered by the department's Office of Sales and Excise Taxes relating to cigarette licenses and taxes.
History: 33 Ky.R. 2818; 3160; eff. 5-4-2007; Crt eff. 8-5-2019; Crt eff. 7-9-2026.

103 KAR 41:150 Cigarette subjobber licenses {#sec-103-kar-41-150 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:150}

Section 1. Definition. "Retail location" means a place of business making any sales of cigarettes to the ultimate consumer, including premises upon which cigarettes are sold through vending machines and premises from where internet sales are made, but not sales for further distribution or processing.

Section 2. A subjobber may simultaneously act in a wholesale and a retail capacity, but the invoices, inventories, and sales records shall be separately maintained.

Section 3. A subjobber shall accept delivery of cigarettes at the wholesaler's place of business or the subjobber's licensed business location. A subjobber shall not have cigarettes delivered directly to the retailer by the wholesaler on his behalf.

Section 4.

(1) This administrative regulation shall replace Revenue Circular 73C455.

(2) Revenue Circular 73C455 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 138.130
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes requirements for a cigarette "subjobber" to regularly supply Kentucky tax paid inventory to "retail locations."
History: 33 Ky.R. 2819; 3160; eff. 5-4-2007; Crt eff. 9-4-2019; Crt eff. 7-9-2026.

103 KAR 41:160 Unstamped cigarettes damaged in transit {#sec-103-kar-41-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:160}

Section 1. Definitions.

(1) "Resident wholesaler" is defined by KRS 138.130(14).

(2) "Unclassified acquirer" is defined by KRS 138.130(26).

Section 2.

(1) All damaged cigarettes not accepted by the resident wholesaler or unclassified acquirer at time of delivery shall be reported by the transporter to the Department of Revenue within twenty-four (24) hours after the transporter returns to his or her place of business.

(2) Notification may be mailed or hand-delivered in the form of:

(a) A letter to the Tobacco Tax Section, 501 High Street, Frankfort, Kentucky 40620;

(b) A facsimile transmission (fax) addressed to the cigarette tax administrator at 502-564-3393; or

(3) As part of its notification to the department of damaged cigarettes, the transporter shall also confirm its decision to either:

(a) Return the cigarettes to the manufacturer; or

(b) Destroy the cigarettes in the presence of a department representative.

Section 3.

(1) Damaged cigarettes delivered to and accepted by the resident wholesaler or unclassified acquirer from the transporter shall be included as receipts on the resident wholesaler's or unclassified acquirer's monthly report.

(2) The resident wholesaler or unclassified acquirer shall select one (1) of the following methods for disposal:

(a) Stamp and sell the cigarettes;

(b) Return the cigarettes to the manufacturer; or

Section 4. The resident wholesaler or unclassified acquirer shall provide a copy of the credit documentation issued by the manufacturer to the department to verify the quantity of damaged cigarettes returned for each consignment or delivery returned to the manufacturer.

Section 5.

(1) This administrative regulation shall replace Revenue Circular 73C459.

(2) Revenue Circular 73C459 is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 138.130, 138.140, 138.146, 138.155, 138.165, 138.195, 138.990
STATUTORY AUTHORITY: KRS 131.130(1), 138.140(3), 138.146(3)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes requirements for the proper disposal of unstamped and untax-paid cigarettes damaged in transit from manufacturers to Kentucky licensed resident wholesalers and Kentucky licensed unclassified acquirers.
History: 103 KAR 041:160. 33 Ky.R. 2820; 3160; eff. 05-04-2007; TAm eff. 05-20-2009; TAm eff. 06-28-2016; Crt eff. 08-05-2019; Crt/TAm eff. 07-09-2026.

103 KAR 41:220 Applications, stamp orders, returns, reports, and statements to be filed electronically -- waiver {#sec-103-kar-41-220 omnilex-key=us-ky-regs-official--title-103--103 KAR 41:220}

Section 1. For the purpose of facilitating the administration of the taxes it administers, the department may require any license application, cigarette tax stamp order, tax return, report, or statement to be electronically filed. Pursuant to KRS 131.250, the following information shall be filed electronically as directed by the department for periods beginning on or after January 1, 2020:

(1) Manufacturer reports required under the provisions of KRS 138.135;

(2) Floor stock returns required under the provisions of KRS 138.143;

(3) Purchases of tax evidence required under the provisions of KRS 138.146; and

(4) Licenses, monthly reports, and returns required under the provisions of KRS 138.195.

Section 2. Waiver. A person required to electronically file under the provisions of this administrative regulation may apply for a waiver from this requirement by submitting a request for consideration to the department according to the provisions of KRS 131.250.

History

RELATES TO: KRS 138.135, 138.143, 138.146, 138.195
STATUTORY AUTHORITY: KRS 131.130, 131.250
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. This administrative regulation requires electronic filing for applications, reports, returns, and related statements for cigarettes and tobacco products in accordance with KRS 138.135, 138.143, 138.146, and 138.195.
History: 46 Ky.R. 779; eff. 11-1-2019; Crt eff. 7-9-2026.

Chapter 43 Selective Excise Tax; Motor Fuels

103 KAR 43:010 Accountable Losses {#sec-103-kar-43-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 43:010}

Section 1. No allowance for losses of gasoline or special fuels on which the Kentucky tax has been paid can be made on gasoline or special fuels held in retail filling stations or in tanks other than bulk plant or distribution tanks by licensed dealers and gasoline or special fuels held in any tanks by parties other than licensed dealers. Such gasoline or special fuels having passed the statutory process of "receiving," the act of use, sale, distribution or delivery, on which the tax is levied, has already occurred.

Section 2. An allowance may be made by the department for a loss of "received" gasoline or special fuels held in bulk and distribution tanks by licensed dealers from which sale or delivery is made, provided an affidavit signed by the licensed gasoline or special fuels dealer is furnished the department.

Section 3. If, after investigation, the losses are proved to the satisfaction of the department to have occurred the dealer will be advised to make a deduction from subsequent monthly reports equal to the amount of such approved losses.

History

RELATES TO: KRS 138.210, 138.220
STATUTORY AUTHORITY: KRS 131.130, 138.226
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of Kentucky tax laws. This administrative regulation, under authority of KRS 138.226, interprets the statute dealing with accountable losses and excludes non licensed dealers.
History: GL-2; 1 Ky.R. 711; eff. 5-14-1975; 15 Ky.R. 1661; eff. 3-23-1989; TAm eff. 5-20-2009; TAm eff. 6-28-2016; Crt eff. 1-28-2020; 46 Ky.R. 1606; eff. 5-5-2020; Crt eff. 7-9-2026.

103 KAR 43:310 Subjobber issuance of refund invoices {#sec-103-kar-43-310 omnilex-key=us-ky-regs-official--title-103--103 KAR 43:310}

Section 1. Definitions.

(1) "Authorized subjobber agent" means any person who, pursuant to a written contract, purchases gasoline or special fuels exclusively from a single dealer licensed under KRS 138.310 and 138.320 and, subject to the licensed dealer's control and consent, sells the gasoline or special fuels so purchased to others by the authority and on the account of the licensed dealer to whom an accounting of the sales is regularly made.

(2) "Gasoline dealer" or "special fuels dealer" is defined by KRS 138.210(6).

(3) "Gasoline" is defined by KRS 138.210(11).

(4) "Special fuels" is defined by KRS 138.210(18).

Section 2. An authorized subjobber agent shall be subject to the same statutory and regulatory requirements as a licensed dealer with respect to the execution of a gasoline or special fuel refund invoice, or the allowance of credit in lieu of the tax refund procedure pursuant to KRS 138.349.

History

RELATES TO: KRS 138.210, 138.344, 138.349, 138.351, 138.358
STATUTORY AUTHORITY: KRS 131.130
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations necessary to administer and enforce Kentucky's tax laws. KRS 138.349 provides that only a gasoline or special fuels dealer, or their subjobber agent, may execute a gasoline or special fuel refund invoice. KRS 138.344 authorizes a credit in lieu of the tax refund procedure. This administrative regulation establishes the requirements to become an authorized subjobber agent.
History: 16 Ky.R. 674; 1157; eff. 11-30-1989; 36 Ky.R. 1977; 2031-A; eff. 5-7-2010; TAm eff. 6-28-2016; Crt eff. 9-4-2019; Crt eff. 7-9-2026.

103 KAR 43:320 Policies and circulars relating to motor fuels taxes {#sec-103-kar-43-320 omnilex-key=us-ky-regs-official--title-103--103 KAR 43:320}

Section 1. The following circular merely restates or summarizes the requirements or provisions of the motor fuel tax statutes of KRS Chapter 138, cited below, and is hereby rescinded and shall be null, void, and unenforceable: Circular 72C142 (revised 10/4/96), relating to dealer nonhighway special fuels use deduction (KRS 138.240(2)(g), 138.340, 138.990(8)).

Section 2. The following circulars are obsolete under the motor fuel tax statutes of KRS Chapter 138 cited below, and are hereby rescinded and shall be null, void, and unenforceable:

(1) 72C051 (revised 10/4/96), relating to motor fuels tax refund invoices and credits to licensed dealers (KRS 138.210(14), 138.341, 138.344(1), 138.348(1), 138.349, 138.445, 138.446, 138.351(1), 138.351(2), and 138.354); and

(2) 72C079 (revised 10/4/96), relating to motor fuels purchases by licensed Kentucky dealers: KRS 138.220, 138.224, 138.250, and 138.270.

History

RELATES TO: KRS 138.210 to 138.448, 138.502
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. The department has issued policies and circulars, a number of which predate KRS Chapter 13A, that conflict with current tax laws or are redundant in light of other relevant legal authority expressed in those policies and circulars. This administrative regulation formally rescinds the previously-issued circulars relating to taxes administered by the department's Office of Sales and Excise Taxes.
History: 33 Ky.R. 2821; 3161; eff. 5-4-2007; Crt eff. 8-7-2019; Crt eff. 7-9-2026.

103 KAR 43:330 Measurement of compressed natural gas (CNG) and liquefied natural gas (LNG) in gallons {#sec-103-kar-43-330 omnilex-key=us-ky-regs-official--title-103--103 KAR 43:330}

Section 1. Definitions.

(1) "Compressed natural gas" means natural gas compressed into high pressure fuel cylinders capable of being used to operate or propel any vehicle on public roadways.

(2) "Liquefied natural gas" means natural gas that has been converted to liquid form for ease of storage or transport.

(3) "Special fuels" is defined by KRS 138.210(18).

Section 2. "Special Fuels" shall include compressed natural gas and liquefied natural gas.

Section 3. Conversion Method.

(1) For purposes of reporting the number of gallons subject to the tax imposed by KRS 138.220 as required by KRS 138.250, every special fuels dealer shall convert compressed natural gas or liquefied natural gas into gallons.

(2) The conversion rate for compressed natural gas shall be 5.66 pounds or 126.67 cubic feet of compressed natural gas to one (1) gallon of special fuels.

(3) The conversion rate for liquefied natural gas shall be 6.06 pounds of liquefied natural gas to one (1) gallon of special fuels.

History

RELATES TO: KRS 138.210, 138.220, 138.250
STATUTORY AUTHORITY: KRS 131.130(1), 138.226(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration of all tax laws. KRS 138.226(1) authorizes the department to promulgate administrative regulations necessary to administer gasoline and special fuel taxes. This administrative regulation prescribes the method of measurement of compressed natural gas and liquefied natural gas in gallons as a special fuel.
History: 33 Ky.R. 2823; 3161; eff. 5-4-2007; 40 Ky.R. 2589; 41 Ky.R. 12; eff. 8-1-2014; TAm eff. 6-28-2016; Crt eff. 8-7-2019; Crt eff. 7-9-2026.

Chapter 44 Selective Excise Tax; Motor Vehicle Usage

103 KAR 44:060 Motor vehicle usage tax valuation {#sec-103-kar-44-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 44:060}

Section 1. Definitions.

(1) "Gift" means the transfer of a motor vehicle from one (1) party to another for no consideration or nominal consideration.

(2) "MSRP" means the manufacturer's suggested retail price.

Section 2. The following special valuation procedures shall be followed:

(1) For purposes of establishing retail price for used motor vehicles if a notarized affidavit signed by both the buyer and the seller is not available, retail price shall be the average retail value as listed in the appropriate automotive reference manual prescribed in Section 3 of this administrative regulation.

(2) For purposes of establishing retail price for used motor vehicles whose values do not appear in the automotive reference manual prescribed by the department, and if a notarized affidavit signed by both the buyer and the seller is not available, retail price shall be determined by the department based upon relevant, available information.

(3) For purposes of establishing retail price for used vehicles of the current model year for which an average retail value has not been published in one of the reference manuals prescribed by the department, retail price shall be eighty-five (85) percent of the MSRP, including the MSRP of all equipment and accessories, standard and optional, and transportation charges.

Section 3. The following automotive reference manuals shall be followed for the valuation of the motor vehicles contained therein for motor vehicle usage tax, listed in order of prescribed use:

(1) Automobiles and light trucks:

(a) NADA Official Used Car Guide®;

(b) NADA Official Older Used Car Guide; or

(2) Other trucks: NADA Official Commercial Truck Guide®.

(3) Miscellaneous vehicles:

(a) NADA Recreational Vehicle Appraisal Guide;

(b) NADA Van/Truck Conversion and Limousine Appraisal Guide; or

(4) General use: Automotive Invoice Service New Car Cost Guide.

Section 4.

(1) If an affidavit of total consideration given is not available and a retail price based on MSRP is prescribed by statute, a copy of the window sticker or other documentation from the manufacturer showing MSRP and listing the base price, all equipment and accessories, standard and optional, and transportation charges shall be provided to the county clerk when a new automobile is presented for registration.

(2) An itemized statement showing the MSRP of any additional equipment and accessories installed by the dealer and not reflected on the window sticker shall also be provided to the county clerk.

(3) If the manufacturer's documentation does not include complete MSRP information, the department shall obtain MSRP information from available sources.

(4) If the manufacturer's invoice to the dealer does not contain MSRP information, the dealer shall provide the county clerk a copy of the manufacturer's invoice and provide an itemized list of all equipment and accessories, whether installed by the manufacturer or dealer, plus transportation charges.

(5) Taxable valuation shall then be determined through the use of MSRP information listed in this section provided in the price reference manual, prescribed in Section 3 of this administrative regulation, or other source of MSRP information.

Section 5. Forms.

(1) The department forms applicable to this regulation are:

(a) Revenue Form 71A100, "Affidavit of Total Consideration Given for a Motor Vehicle"; and

(b) Revenue Form 71F001, "Kentucky's Taxation of Motor Vehicles for Motor Vehicle Usage Tax".

(2) These forms may be inspected, copied, or obtained, subject to applicable copyright law, at:

(a) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(b) A Kentucky Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m.; or

History

RELATES TO: KRS 138.450-138.470
STATUTORY AUTHORITY: KRS 131.130(1), 138.460(12)(b)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the department to promulgate administrative regulations for the administration of all tax laws. This administrative regulation establishes the procedures to determine the retail value.
History: 25 Ky.R. 1743; Am. 2126; eff. 2-25-1999; TAm eff. 5-20-2009; TAm eff. 6-28-2016; 44 Ky.R. 780, 1212; eff. 1-5-2018; Cert to Am; filing deadline 6-12-2026.

103 KAR 44:070 Taxation of loaner and rental motor vehicles {#sec-103-kar-44-070 omnilex-key=us-ky-regs-official--title-103--103 KAR 44:070}

Section 1. Definitions.

(1) "AVIS" means the Automated Vehicle Information System prescribed by KRS Chapter 186A.

(2) "Department" is defined by KRS 131.010(2).

(3) "Due date" means the date by which a report and payment of loaner or rental tax due is required to be submitted to the department.

(4) "Eligible taxpayer" means a motor vehicle dealer licensed under KRS 190.010 who in the course of business loans or rents designated motor vehicles exclusively to customers of their service or repair components.

(5) "Loaner or rental motor vehicle" is defined by KRS 138.450(13).

(6) "Month" means a calendar month or any portion of a calendar month.

Section 2. Reporting and Payment Requirements.

(1) Any eligible taxpayer who has vehicles dedicated as loaner or rental motor vehicles shall:

(a) Register with the department utilizing Revenue Form 73A054;

(b) Provide the county clerk with their dealer number as issued by the Kentucky Motor Vehicle Commission; and

(c) Provide to the department a listing of all vehicles designated as loaner or rental motor vehicles including the vehicle identification number, license plate number, make, model, and model year.

(2) Any registered eligible taxpayer who wishes to designate a vehicle as a loaner or rental motor vehicle shall advise the county clerk of this designation when the vehicle is first registered or transferred to the dealer. The county clerk shall enter the dealer number and appropriate exception code, provided by the department, in the AVIS computer system. The motor vehicle usage tax shall not be collected by the county clerk. The taxpayer shall also notify the department of the addition of the vehicle to the loaner or rental program when the next monthly report is submitted.

(3) If a dealer transfers a vehicle out of inventory to be used in the loaner or rental program, the dealer shall notify the department of the transfer to the loaner or rental program when the next monthly report is submitted.

(4) Any registered eligible taxpayer who has vehicles identified to the department as loaner or rental motor vehicles shall submit to the department on a monthly basis a report of the number of these vehicles utilizing Revenue Form 73A055 and remit payment of twenty-five (25) dollars per vehicle with the report, pursuant to KRS 138.4605.

(5) The due date of the report and payment shall be fifteen (15) calendar days after the last day of the reporting month.

(6) Penalties provided in KRS 131.180 and 138.990 shall apply to any late report or payment.

Section 3. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(2) A Kentucky Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m.; or

(3) The department Web site at http://revenue.ky.gov.

History

RELATES TO: KRS 131.180, 138.450-138.470, 138.990
STATUTORY AUTHORITY: KRS 131.130(1), 138.4605(4)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration of all tax laws. KRS 138.4605(4) requires the department to promulgate administrative regulations prescribing forms and procedures to collect the tax due on loaner or rental motor vehicles. This administrative regulation establishes those forms and procedures.
History: 29 Ky.R. 1426; 1759; eff. 1-16-2003; TAm eff. 5-20-2009; TAm eff. 6-28-2016; 44 Ky.R. 782, 1211; eff. 1-5-2018; Crt eff. 8-7-2019; Crt eff. 7-9-2026.

103 KAR 44:090 Policies and circulars relating to motor vehicle usage tax {#sec-103-kar-44-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 44:090}

Section 1. The following policies and circulars merely restate or summarize the requirements or provisions of the motor vehicle usage tax statutes of KRS Chapter 138 and applicable administrative regulations cited below, and are hereby formally rescinded and shall be null, void, and unenforceable:

(1) Policies:

(a) Revenue Policy 71P015 (revised 12/1/86), relating to which price must be used for motor vehicle usage tax purposes when a price increase has occurred on the manufacturer's suggested retail price between the order date and the delivery date of a vehicle (KRS 138.450, 138.460, and 103 KAR 44:060);

(b) Revenue Policy 71P016 (revised 12/1/86), relating to the applicable usage tax due on equipment and accessories mounted on a truck chassis (KRS 138.450(9));

(c) Revenue Policy 71P025 (revised 12/1/86), relating to the tax exempt transfer of a vehicle which has been transferred from a proprietorship to a corporation, back to a proprietorship within six (6) months from the date the business is incorporated (KRS 138.470(8));

(d) Revenue Policy 71P030 (revised 12/1/94), relating to credit for tax previously paid when registering a motor vehicle that was previously registered in another state (KRS 138.460(6));

(e) Revenue Policy 71P070 (revised 6/1/83), relating to the tax treatment of transactions involving repossessed vehicles that are held for resale (KRS 138.470(13));

(f) Revenue Policy 71P120 (revised 6/1/83), relating to the collection of usage tax when registering a vehicle in the names of both spouses when only one spouse qualifies for the military exemption (KRS 138.470(4) and (6)); and

(g) Revenue Policy 71P130 (revised 6/1/83), relating to credit for sales tax paid on the purchase of a motorcycle collected at time of purchase against the usage tax paid at time of registration (KRS 138.460(6)); and

(2) Circulars:

(a) Revenue Circular 71C169 (revised 4/15/83), relating to usage tax on forced registrations (KRS 138.470(5) and 186.145); and

(b) Revenue Circular 71C183 (revised 4/15/83), relating to sales tax credit on initial motorcycle registration (KRS 138.460(6)).

Section 2. The following policies and circulars are no longer accurate due to subsequent regulatory or statutory changes and are hereby formally rescinded and shall be null, void, and unenforceable:

(1) Policies:

(a) Revenue Policy 71P010 (revised 12/1/86), relating to the computation of usage tax using the value of the vehicle on the date of registration or the date appearing on the transfer document (KRS 138.460 and 138.470(6));

(b) Revenue Policy 71P020 (revised 3/31/94), relating to credit for tax paid in another state by one (1) spouse, ex-spouse, parent, child, stepparent, stepchild, grandparent or grandchild allowed against the Kentucky usage tax when the other spouse, ex-spouse, parent, child, stepparent, stepchild, grandparent or grandchild registers an out-of-state motor vehicle in his or her name (KRS 138.460 and 138.470(6));

(c) Revenue Policy 71P071 (revised 11/30/92), relating to credit for tax previously paid when registering a motor vehicle that was previously registered in another state (KRS 138.460(6));

(d) Revenue Policy 71P080 (revised 6/1/83), relating to the reduction of the retail price of a used vehicle when more than one (1) used vehicle is traded-in on the vehicle being registered (KRS 138.450(10));

(e) Revenue Policy 71P085 (revised 12/1/86), relating to trade-credit allowed on used vehicles purchased in another state by a licensed Kentucky dealer that is registered in the dealer's name and subsequently traded to a Kentucky resident (KRS 138.450 and 138.470); and

(f) Revenue Policy 71P150 (revised 6/1/83), relating to transfers of used school buses (KRS 138.450 and 103 KAR 44:060); and

(2) Circulars:

(a) Revenue Circular 71C172 (revised 12/1/90), relating to trade-in allowance (KRS 138.450);

(b) Revenue Circular 71C176 (revised 4/15/83), relating to "For Sale and Transfer" registrations (KRS 138.460);

(c) Revenue Circular 71C179 (revised 12/1/86), relating to vehicles that have been repossessed by a financial institution and redeemed by the debtor (KRS 138.470(13)); and

(d) Revenue Circular 71C189 (revised 4/15/83), relating to tax credit given to a Kentucky resident for a similar tax paid to another state (KRS 138.460).

Section 3. The following policies are not covered by statute and are being rescinded and shall be null, void, and unenforceable:

(1) Revenue Policy 71P040 (revised 6/1/83), relating to two (2) names on the same registration when transferred into only one (1) of those names; and

(2) Revenue Policy 71P060 (revised 6/1/83), relating to when usage tax is applicable and when it is refundable on the transfer of stolen vehicles.

History

RELATES TO: KRS 138.450 to 138.470
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. The department has issued policies and circulars, a number of which predate KRS Chapter 13A, that conflict with current tax laws or are redundant in light of other relevant legal authority, resulting in needless uncertainty as to the validity of the information expressed in those policies and circulars. This administrative regulation formally rescinds the previously-issued policies and circulars relating to taxes administered by the department's Office of Sales and Excise Taxes.
History: 33 Ky.R. 2824; 3162; eff. 5-4-2007; Crt eff. 8-7-2019; Crt eff. 7-9-2026.

103 KAR 44:100 Procedures for refund based on vehicle condition {#sec-103-kar-44-100 omnilex-key=us-ky-regs-official--title-103--103 KAR 44:100}

Section 1. Definitions.

(1) "Adjusted retail price" means, for a motor vehicle subjected to motor vehicle usage tax pursuant to the provisions of KRS 138.450(16)(a), the price based upon the following calculation:

(a) Trade-in value based on the reference guide for the motor vehicle listed on the Vehicle Condition Refund Application (71A010);

(b) Less the trade-in value based on the reference guide for any motor vehicle given in trade; and

(2) "Reference manual" is defined by KRS 138.450(23).

(3) "Repair cost" means costs or estimates for parts or labor to return the motor vehicle to trade-in value or drivable condition, except for upgrading or improving the vehicle beyond trade-in value condition.

(4) "Vehicle condition verification documents" means originals or copies of the following dated items:

(a) Photographs of the vehicle supplied by the motor vehicle owner or the Department of Revenue that:

Are taken by the owner or Department of Revenue personnel;
Indicate the condition of the vehicle; and
Show the vehicle damage and the VIN plate attached to the vehicle;

(b) Copies of receipts for parts purchased for repair that contain the name of the parts purchase, the price of the parts, the name, address, and telephone number of the business where purchased, and the date of purchase;

(c) Copies of repair cost estimates that contain the VIN of the vehicle being repaired, the date the estimate was prepared, and the name, address, and telephone number of the estimate preparer; or

(d) Copies of repair cost receipts that contain the VIN of the vehicle being repaired, the date the repair was rendered, and the name, address, and telephone number of the vehicle repairer.

(5) "Vehicle Identification Number" or "VIN" means the numbers, letters, or combination of numbers and letters assigned by the manufacturer or a governmental entity and stamped upon or otherwise affixed to a motor vehicle or motor vehicle part for the purpose of identification, except for the letters, numbers, or combinations on registration plates issued under KRS Chapter 186.

Section 2. Refund Application Process.

(1) The owner of a motor vehicle who has paid the motor vehicle usage tax according to the provisions of KRS 138.450(16)(a) and requests a refund of a portion of the tax paid shall submit to the department a completed Vehicle Condition Refund Application (Form 71A010) with the following documents attached:

(a) A copy of the owner's Kentucky Registration Receipt (Form TC 96-181) for the vehicle;

(b) A copy of the owner's completed Application for Kentucky Certificate of Title/Registration (Form TC 96-182) for the vehicle; and

(2) All documents submitted with the Vehicle Condition Refund Application shall include the VIN to identify the motor vehicle for which the applicant is requesting the refund.

(3) The owner of the motor vehicle may utilize one of the department's Taxpayer Service Centers to obtain photographs of the damaged vehicle and for submittal of the Vehicle Condition Refund Application.

Section 3. Refund Calculation Amount.

(1) The department shall consider all refund requests based upon whether the condition of the motor vehicle at the time the motor vehicle usage tax was paid as evidenced by documentation provided to the department merits an adjusted retail price.

(2) Any approved refund shall be the actual amount of tax paid less the tax due based on the greater of the adjusted retail price or the applicant's purchase price as stated on the Application for Kentucky Certificate of Title or Registration (Form TC 96-182).

Section 4. Refund Denial. Any incomplete or erroneous information on the Vehicle Condition Refund Application (Form 71A010) or the associated vehicle condition verification documents shall result in the denial of the refund. If the department has denied a refund request, the applicant may resubmit a refund request if additional information is made available.

Section 5. Forms.

(1) The department forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:

(a) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;

(b) A Kentucky Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m.; or

(2) Form TC 96-181 and TC 96-182 listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Transportation Cabinet Forms Library Web site at http://transportation.ky.gov/Organizational-Resources/Pages/Forms-Library.aspx, or by calling (502)564-4610.

History

RELATES TO: KRS 138.450 -138.470
STATUTORY AUTHORITY: 131.130(1), 138.450, 138.460
NECESSITY, FUNCTION, AND CONFORMITY: KRS 138.460(12)(b) requires the Department of Revenue to promulgate administrative regulations to develop the forms and the procedures by which the owner of a motor vehicle may apply for a refund and document the condition of the vehicle under KRS 138.460(12)(a). KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration of all tax laws. This administrative regulation establishes the procedures required for claiming and documenting a refund request for motor vehicle usage tax when the tax paid was based upon fifty (50) percent of trade-in value as provided in KRS 138.450(16)(a) and the actual condition of the vehicle at the time the usage tax was paid was less than fifty (50) percent of the trade-in value.
History: 33 Ky.R. 2826; 3162; eff. 5-4-2007; TAm eff. 5-20-2009; 44 Ky.R.783, 1214; eff. 1-5-2018; Crt eff. 8-7-2019; Crt eff. 7-9-2026.

103 KAR 44:120 Incorrect Statement of Origin or Certificate of Title {#sec-103-kar-44-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 44:120}

Section 1. Definitions.

(1) "Kentucky Certificate of Title" means a document of ownership issued by the Kentucky Transportation Cabinet as Form TC 96-180 which contains the following minimum vehicle information:

(a) Date the Kentucky title was issued;

(b) Vehicle identification number assigned to the vehicle; and

(2) "Motor vehicle usage tax" means the tax levied upon the transfer of ownership of a motor vehicle pursuant to KRS 138.450 to 138.470.

(3) "Statement of Origin" means a document generated by the manufacturer of a motor vehicle which contains the following minimum vehicle information:

(a) Date the vehicle was manufactured;

(b) Vehicle identification number assigned to the vehicle; and

Section 2. Correction of Transfer Record.

(1) A motor vehicle registered under an incorrect Statement of Origin issued by a manufacturer or an incorrect Kentucky Certificate of Title issued by the Kentucky Transportation Cabinet shall be registered using the corrected Statement of Origin or the corrected Kentucky Certificate of Title. Upon registration of the correct vehicle, the motor vehicle usage tax shall be paid.

(2) Since the motor vehicle usage tax was paid on both transfers, a written request shall be filed with the Department of Revenue for a refund of the tax paid on the vehicle registered in error.

Section 3. Refund Application Process. The owner of a motor vehicle who has paid the motor vehicle usage tax on a vehicle that has been issued an incorrect Statement of Origin or incorrect Kentucky Certificate of Title shall submit in writing a refund request indicating the reason for the request to the Department of Revenue with the following documents attached:

(1) "Authority to Cancel or Refund", memorandum issued by the Transportation Cabinet;

(2) A copy of the owner's Kentucky Registration Receipt (Form TC 96-181), for the vehicle which was incorrectly registered;

(3) A copy of the owner's completed Application for Kentucky Certificate of Title/Registration (Form TC 96-182), for the vehicle;

(4) If applicable, a copy of the owner's incorrect Kentucky Certificate of Title (Form TC 96-180), under which the vehicle had been previously registered; and

(5) If applicable, a copy of the owner's incorrect Statement of Origin, under which the vehicle had been previously registered.

Section 4.

(1) This administrative regulation shall replace Policy 71P110.

(2) Revenue Policy 71P110 is hereby rescinded and shall be null, void, and unenforceable.

Section 5. The forms listed herein may be obtained at the Kentucky Transportation Cabinet Forms Library Web site at http://transportation.ky.gov/Organizational-Resources/Pages/Forms-Library.aspx, or by calling (502)564-4610.

History

RELATES TO: KRS 138.460
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. This administrative regulation establishes the requirements relating to taxes paid on a motor vehicle which has been registered under an incorrect statement of origin or other certificate of title.
History: 33 Ky.R. 2827; 3163; eff. 5-4-2007; TAm eff. 5-20-2009; 44 Ky.R. 785; eff. 1-5-2018; Crt eff. 8-7-2019; Crt eff. 7-9-2026.

Chapter 45 Selective Excise Tax - Miscellaneous

103 KAR 45:015 Circular relating to the legal process tax and the Spouse Abuse Shelter Fund {#sec-103-kar-45-015 omnilex-key=us-ky-regs-official--title-103--103 KAR 45:015}

Section 1. Revenue Circular 73C203 (revised 12/1/00), relating to state taxes on legal processes and instruments (KRS 142.010 and 209.160) merely restates or summarizes the requirements or provisions of the legal process tax and the Spouse Abuse Shelter Fund (KRS 142.010 and 209.160 respectively) and is hereby rescinded and shall be null, void, and unenforceable.

History

RELATES TO: KRS 142.010, 209.160
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations necessary for the administration and enforcement of all tax laws in Kentucky. The Department of Revenue has many policies and circulars that predate the enactment of KRS Chapter 13A and conflict with, or are redundancies of, current tax laws. This administrative regulation formally rescinds the previously issued circular relating to taxes administered by the department's Office of Sales and Excise Taxes.
History: 33 Ky.R. 2829; 3164; eff. 5-4-2007; Crt eff. 8-7-2019; Crt eff. 7-9-2026.

Title 103 KAR — Finance and Administration Cabinet - Department of Revenue

Chapter 1 General Administration

103 KAR 1:010 Protests {#sec-103-kar-1-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:010}

103 KAR 1:040 Waiver of penalties {#sec-103-kar-1-040 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:040}

103 KAR 1:060 Electronic fund transfer {#sec-103-kar-1-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:060}

103 KAR 1:070 Uniform collection procedures {#sec-103-kar-1-070 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:070}

103 KAR 1:092 General administration policies and circulars {#sec-103-kar-1-092 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:092}

103 KAR 1:120 Employee access to Federal Tax Information (FTI) {#sec-103-kar-1-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:120}

103 KAR 1:130 Taxation of federal and certain nonfederal obligations {#sec-103-kar-1-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:130}

103 KAR 1:150 Electronic data match and levy procedures {#sec-103-kar-1-150 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:150}

103 KAR 1:160 Mandatory electronic filing and payment requirements {#sec-103-kar-1-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 1:160}

Chapter 2 Inheritance Tax

103 KAR 2:005 Life Mortality Table {#sec-103-kar-2-005 omnilex-key=us-ky-regs-official--title-103--103 KAR 2:005}

103 KAR 2:020 Lien on ''Qualified Real Estate'' {#sec-103-kar-2-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 2:020}

103 KAR 2:030 Policies and circulars relating to inheritance tax {#sec-103-kar-2-030 omnilex-key=us-ky-regs-official--title-103--103 KAR 2:030}

Chapter 5 Ad Valorem Tax; Administration

103 KAR 5:160 Property valuation administrator office employees: payment of leave upon separation {#sec-103-kar-5-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:160}

103 KAR 5:180 Procedures for sale of certificates of delinquency by county clerks {#sec-103-kar-5-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:180}

103 KAR 5:190 State registration requirements and application process for purchasing certificates of delinquency; fees; and definitions for related entities and related interests {#sec-103-kar-5-190 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:190}

103 KAR 5:220 Installment payment plan guidelines for third party purchasers of certificates of delinquency {#sec-103-kar-5-220 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:220}

103 KAR 5:230 Information to be provided by the sheriff when transferring delinquent property tax bills to the county clerk {#sec-103-kar-5-230 omnilex-key=us-ky-regs-official--title-103--103 KAR 5:230}

Chapter 8 Ad Valorem Tax; State Assessment

103 KAR 8:090 Classification of property; public service corporations {#sec-103-kar-8-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:090}

103 KAR 8:110 Apportioned vehicles {#sec-103-kar-8-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:110}

103 KAR 8:130 Ad valorem taxation of machinery actually engaged in the manufacturing of coal, crushed stone, sand, gravel and hot mix asphalt {#sec-103-kar-8-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:130}

103 KAR 8:160 Valuation of municipal solid waste landfill facilities {#sec-103-kar-8-160 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:160}

103 KAR 8:170 Pollution control facilities exemption {#sec-103-kar-8-170 omnilex-key=us-ky-regs-official--title-103--103 KAR 8:170}

Chapter 15 Income Tax; General Administration

103 KAR 15:050 Filing dates and extensions {#sec-103-kar-15-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:050}

103 KAR 15:110 Ethanol tax credit {#sec-103-kar-15-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:110}

103 KAR 15:120 Cellulosic ethanol tax credit {#sec-103-kar-15-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:120}

103 KAR 15:140 Biodiesel tax credit {#sec-103-kar-15-140 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:140}

103 KAR 15:180 Kentucky new markets development program tax credit {#sec-103-kar-15-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:180}

103 KAR 15:195 Endow Kentucky Tax Credit {#sec-103-kar-15-195 omnilex-key=us-ky-regs-official--title-103--103 KAR 15:195}

Chapter 16 Income Tax; Corporations

103 KAR 16:060 Income classification; apportionable and non-apportionable {#sec-103-kar-16-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:060}

103 KAR 16:090 Apportionment; payroll factor {#sec-103-kar-16-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:090}

103 KAR 16:200 Consolidated Kentucky corporation income tax return {#sec-103-kar-16-200 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:200}

103 KAR 16:230 Intangible expenses, intangible interest expense, and management fees {#sec-103-kar-16-230 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:230}

103 KAR 16:240 Nexus standard for corporations and pass-through entities {#sec-103-kar-16-240 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:240}

103 KAR 16:250 Net operating loss computation and deduction for corporations {#sec-103-kar-16-250 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:250}

103 KAR 16:270 Apportionment; receipts factor {#sec-103-kar-16-270 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:270}

103 KAR 16:290 Apportionment; property factor {#sec-103-kar-16-290 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:290}

103 KAR 16:320 Claim of right doctrine {#sec-103-kar-16-320 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:320}

103 KAR 16:330 Apportionment and allocation; alternative apportionment; separate accounting {#sec-103-kar-16-330 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:330}

103 KAR 16:340 Completed contract method {#sec-103-kar-16-340 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:340}

103 KAR 16:352 Corporation income taxes policies and circulars {#sec-103-kar-16-352 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:352}

103 KAR 16:370 Corporation income tax treatment of foreign sales corporations and domestic international sales corporations {#sec-103-kar-16-370 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:370}

103 KAR 16:400 Combined Unitary Kentucky corporation income tax return {#sec-103-kar-16-400 omnilex-key=us-ky-regs-official--title-103--103 KAR 16:400}

Chapter 17 Income Tax; Individual

103 KAR 17:010 Residence {#sec-103-kar-17-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:010}

103 KAR 17:020 Combined individual returns {#sec-103-kar-17-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:020}

103 KAR 17:060 Income subject to taxation; portions {#sec-103-kar-17-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:060}

103 KAR 17:100 Division of income between married individuals filing separate tax returns {#sec-103-kar-17-100 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:100}

103 KAR 17:130 Individual income tax - military personnel - nonresidents {#sec-103-kar-17-130 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:130}

103 KAR 17:140 Individual income tax - reciprocity - nonresidents {#sec-103-kar-17-140 omnilex-key=us-ky-regs-official--title-103--103 KAR 17:140}

Chapter 18 Income Tax; Withholding

103 KAR 18:010 Employers required to withhold {#sec-103-kar-18-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:010}

103 KAR 18:020 Withholding return adjustment {#sec-103-kar-18-020 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:020}

103 KAR 18:050 Withholding statements {#sec-103-kar-18-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:050}

103 KAR 18:060 Miscellaneous payroll period {#sec-103-kar-18-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:060}

103 KAR 18:070 Supplemental wages and other payments subject to withholding {#sec-103-kar-18-070 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:070}

103 KAR 18:090 Payroll records {#sec-103-kar-18-090 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:090}

103 KAR 18:110 Voluntary withholding {#sec-103-kar-18-110 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:110}

103 KAR 18:120 Security for compliance; bonds {#sec-103-kar-18-120 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:120}

103 KAR 18:150 Employer's withholding reporting requirements {#sec-103-kar-18-150 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:150}

103 KAR 18:172 Withholding tax circulars {#sec-103-kar-18-172 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:172}

103 KAR 18:180 Kentucky economic development acts wage assessment {#sec-103-kar-18-180 omnilex-key=us-ky-regs-official--title-103--103 KAR 18:180}

Chapter 19 Income Tax; Miscellaneous

103 KAR 19:010 Computation of income; estates and trusts {#sec-103-kar-19-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 19:010}

Chapter 25 Sales and Use Tax; Registration and Collection

103 KAR 25:050 Factors and agents {#sec-103-kar-25-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 25:050}

103 KAR 25:060 Temporary vendors and transient merchants {#sec-103-kar-25-060 omnilex-key=us-ky-regs-official--title-103--103 KAR 25:060}

103 KAR 25:131 Current month accelerated payment of sales and use taxes by larger taxpayers {#sec-103-kar-25-131 omnilex-key=us-ky-regs-official--title-103--103 KAR 25:131}

Chapter 26 Sales and Use Tax; Service and Professional Occupations

103 KAR 26:010 Nontaxable service enterprises {#sec-103-kar-26-010 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:010}

103 KAR 26:030 Optometrists, oculists, and opticians {#sec-103-kar-26-030 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:030}

103 KAR 26:050 Common carriers {#sec-103-kar-26-050 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:050}

103 KAR 26:070 Contractors {#sec-103-kar-26-070 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:070}

103 KAR 26:080 Dentists and dental laboratories {#sec-103-kar-26-080 omnilex-key=us-ky-regs-official--title-103--103 KAR 26:080}