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Hot Topics

Current Hot Topics for the Kentucky Department of Revenue.

This Postcard is a Scam

Front of Postcard                 Back of Postcard

The post card is from a Business Compliance Division, with a Lexington address. It has Important Compliance Notice in red on the front and then the Business Name, Business Entity # (which looks like the Secretary of State Org #) on the back. It is asking that they call immediately to avoid fees and penalties. If you receive one of these post cards, please be aware that it is a scam.

Disaster Declaration for Ten Kentucky Counties

There was a recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency for ten counties in Kentucky that experienced storms, tornadoes, floods and landslides during the period of April 2-17. The affected counties are:  Bath, Bourbon, Carter, Elliot, Franklin, Jefferson, Lawrence, Madison, Rowan and Scott.

The declaration permits the IRS and the Department of Revenue to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after April 2 and on or before July 31 have been postponed to July 31, 2015. This includes the April 15 deadline for filing 2014 individual income tax returns, making income tax payments and making 2014 contributions to an individual retirement account (IRA).  There is other relief for businesses, exempt organizations and individuals spelled out in the news release.

Click here for Frequently Asked Questions.

Insurance Premium Taxes

For inquiries, questions or additional information regarding the Insurance Premium Taxes, please contact Elyse Weigel at (502) 564-3226.

Special Notice on Enactment of HB 299 and Effective Excise Tax Rate

Excise Tax Rate for April 1, 2015

Providers of Multichannel Video Services and Communications Service Remain Liable for the Telecommunications Tax

A recent decision by the Kentucky Court of Appeals has caused some confusion among taxpayers regarding the Excise and Gross Revenues Taxes (Telecommunications Tax) administered by the DOR under the provisions of KRS 136.600 to 136.660. In Nov. 2014, the Court issued a decision in the case styled as City of Florence, et al. v. Lori Hudson Flanery (in her official capacity as Secretary of the Finance and Administration Cabinet) et al., (case no. 2013-CA-001112-MR). The Court held unconstitutional the Telecommunications Tax insofar as it prohibits political subdivisions from assessing and collecting franchise fees or taxes in order to participate in the Telecommunications Tax fund and receive monthly distributions. However, this case is not yet final and the DOR believes the provisions of the law in question are valid under the Kentucky Constitution. The Department is likely to seek discretionary review by the Kentucky Supreme Court of any adverse determination of its pending petition for rehearing before the Court of Appeals, and therefore does not anticipate a resolution of the case until the year 2016. When disposition of the case finally occurs, the Department will provide further guidance as necessary.

Accordingly, the DOR reminds multichannel video programming and communications service providers to continue reporting and remitting their monthly Telecommunications Taxes. Failure to do so will result in imposition of the appropriate penalties and interest. Providers may contact the Department’s Division of Sales and Use Tax at (502) 564-5170, Option 2, for questions regarding Telecommunications Tax registration and reporting requirements.

Forms Not Available for Download

NOTE: The following forms are not available for download due to compatibility constraints within our processing software. Please obtain these forms from your tax preparation software, a Taxpayer Service Center, or the Forms area (502-564-3658).

  • Form 720-ES, Estimated Tax Voucher
  • Form 41A720SL, Extension of Time to File Kentucky Corporation/LLET Return
  • Form 720-V, Electronic Filing Payment Voucher 

Online Filing - Withholding Tax Returns

The Kentucky Department of Revenue now offers online filing of Withholding Tax returns. WRAPS, the Withholding Return and Payment System, provides the ability to file Withholding Tax K-1 and K-3 returns online. Taxpayers can file returns, view and/or amend previously filed online returns, request refunds and credit forwards, as well as the ability to pay Withholding Tax using the Enterprise Electronic Payment System.

WRAPS is available at http://wraps.ky.gov

New Motor Vehicle Trade-In Allowance for Motor Vehicle Usage Tax

As part of HB 440 enacted by the 2013 Kentucky General Assembly, a trade-in allowance will be allowed on new vehicles sold on or after July 1, 2014.  New vehicles purchased prior to July 1, but titled/registered after July 1, are not eligible for the trade-in allowance.

New Markets Development Program Tax Credit

During the 2014 Legislative Session, HB 445 was signed into law by the governor.  This bill included provisions that increased the credit cap for the New Markets Tax Credit from $5 million to $10 million.  The bill also added a refundable performance fee that would be required when a New Markets Tax Credit application is submitted.  The Department anticipates accepting applications for the credit beginning July 15, 2014. 

To ensure prompt and proper processing, it is suggested that the following address be used to submit New Markets Tax Credit applications:
 
Department of Revenue
Division of Corporation Tax
Station 52
501 High Street
Frankfort, KY 40601-2103
Attention:  Regina Ritchey

Clarification on Computing Costs of Goods Sold

In the September 2013 Kentucky Tax Alert, the Department released guidance regarding cost of goods sold (COGS) in computing the gross profits component of the Limited Liability Entity Tax (LLET). Subsequently, the Department developed a new schedule (Schedule COGS) to assist taxpayers in calculating Kentucky COGS for LLET purposes.

In completing the Schedule COGS, separate accounting must be utilized in order to calculate and report the amount of Kentucky COGS. However, several taxpayers and tax practitioners have recently contacted the Department to explain why separate accounting is not feasible for them or their clients. For those taxpayers, the Department provides the following additional information for assistance in completing Schedule COGS.

If separate accounting is not possible for the taxpayer, a supporting statement explaining why separate accounting cannot be used to complete Schedule COGS must be attached. In such instances, as an alternative to separate accounting, the taxpayer must then take the following four steps in filling out Schedule COGS:

1. Complete the column titled Federal Form 1125-A Cost of Goods Sold, in its entirety.

2. Complete Column B, Total Costs of Goods Sold, in its entirety. Please note that the beginning and ending inventory may be different from the amounts reported on Federal Form 1125-A because of costs excluded from the COGS calculation. For a discussion of what costs must be excluded, please see the September 2013 Kentucky Tax Alert and the instructions to Schedule COGS.

3. Multiply the Total Cost of Goods Sold in Column B by the taxpayer’s Kentucky sales factor.

4. Enter the result of step 3 on Column A, Cost of Goods Sold, Line 8.

It is critical that such taxpayers comply with these steps. For example, without the supporting statement, the Department will assume that separate accounting was possible and compliance the return on that basis.

Notice to Remote Vendors

Effective July 1, 2013, out-of-state retailers with no legal requirement to collect tax in this state, and who expect more than $100,000 in gross annual sales to Kentucky residents, must notify their Kentucky customers that use tax must be reported and paid directly to the Department of Revenue on applicable purchases in accordance with KRS 139.450. 

The notice must be readily visible and contain the information set forth as follows:

  • The retailer is not required to and does not collect Kentucky sales or use tax;
    The purchase may be subject to Kentucky use tax unless the purchase is exempt from taxation in Kentucky;
  • The purchase is not exempt merely because it is made over the Internet, by catalog, or by other remote means; and
  • The Commonwealth of Kentucky requires Kentucky purchasers to report all purchases of tangible personal property or digital property that are not taxed by the retailer and pay use tax on those purchases unless exempt under Kentucky law.  The tax may be reported and paid on the Kentucky individual income tax return or by filing a consumer use tax return with the Kentucky Department of Revenue.

The referenced forms and corresponding instructions can be found on DOR’s website at http://revenue.ky.gov/individual/usetax.htm.

For recent correspondence on this subject, click here.

Important Schedule A Information for Multistate Corporations or Pass-Through Entities

A multistate corporation or pass-through entity must use the statutory formula to apportion income unless the corporation or pass-through entity has been required or granted approval in writing by the Department of Revenue (DOR) to use an alternative method provided by KRS 141.120(9)(a).  A copy of the letter from the DOR must be attached to the return when filed.  Do not check the box on Schedule A, Apportionment and Allocation, indicating the use of an alternative allocation and apportionment formula if the corporation has not received written approval from the DOR.  

Common errors on Corporation Income and Pass Through Entity Income and Limited Liability Entity returns which may result in a delay of processing the return and/or result in the issuance of a tax bill.

Common errors on Corporation Income and Pass Through Entity Income and Limited Liability Entity returns which may result in a delay of processing the return and/or result in the issuance of a tax bill.
Forms & Schedules:

  • Submitting a Schedule CP without the form 725;
  • Submitting a Schedule LLET without the form 720, 720S, 765 or 725;
  • Submitting a return on the wrong year’s form;
  • Submitting an amended return on the wrong form;
  • Attaching the nonresident income tax withholding tax return (forms 740NP-WH and PTE-WH) to an income and limited liability entity tax return when it is a separate tax return.

Payments:

  • Not including payment with a return reflecting tax due;
  • Submitting payment with a return which doesn’t match the amount due on the return;
  • Submitting a payment without documentation or anything written on the check indicating the tax, year or account for which it is intended. The FEIN should be written on the check.
  • Submitting payments with the incorrect account number;
  • Submitting one payment for multiple liabilities, tax types or different period ends;
  • Omitting Form 41A720SL when paying with an extension;
  • Omitting Form 41A720ES when paying an estimated payment
  • Indicating the estimate payment due date instead of the tax year end on EFT payments which results in the payment being posted to the incorrect period end.
  • Failure to record the payment on the correct line when claiming declaration and extension payments.
  • EFT payments are only authorized for estimates and extensions; balance due payments should not be submitted via EFT.

Information on Returns:

  • Omitting beginning and ending dates from the return;
  • Fiscal year end filers omitting their taxable year ending date;
  • Address changes; check the box on the front page of the return to indicate a change of address so department records may be updated;
  • Omitting contact information including a phone number and/or responsible party information;
  • Omitting the business name from the form 725;

1099/W2G Reporting Information

The Kentucky Department of Revenue (DOR) is now accepting 1099Gs, 1099Ms, 1099Rs, 1099-Bs, 1099DIVs, 1099-INTs, 1099-Ks, 1099-OIDs and W2Gs electronically.  Electronic submissions can only be made via CD and are required to be in the federal format found in Pub. 1220 Rev. Proc. 2010-26.  View detailed specifications on the state defined fields.
1099 Forms are only required to be submitted to Kentucky DOR when Kentucky tax is withheld.

Letters of Good Standing

Information regarding Letters of Good Standing.

Individual Income Taxpayer Assistance

This link provides detailed information regarding taxpayer assistance in filing individual income tax.  Click here for additional information.

Employer Health Insurance Notification

Employer Health Insurance Notification [PDF - 67KB] (updated 03-21-11)

2014 Tax Interest Rate

Annual adjustment of tax interest rate set for 2014

Pursuant to KRS 131.183, the 2014 tax interest rate has been set at 4 percent .The rate charged by the Kentucky Department of Revenue on unpaid taxes is 6 percent . When interest is due on a refund, the rate shall be 2 percent.

This rate, effective Jan. 1, 2014, is based on the prime interest rate charged by Kentucky banks during the month of October 2013. A recent survey of Kentucky banks revealed that the average prime interest rate in October was 4 percent.

Official Memo regarding the 2014 Tax Interest Rate 

Additional Hot Topics

Additional Hot Topics include:

  • Military Spouses Residency Relief Act (MSRRA)
  • Military Pay Income Tax Exemption
  • Nexus Consolidated Return Guidelines

Click here for more details.

 

Last Updated 6/16/2015
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