Pass Through Entities Tax

The 2006 Extraordinary Special Session of the General Assembly passed House Bill 1 which defined a “Corporation” to mean a “corporation” as provided by Section 7701(a)(3) of the Internal Revenue Code effective for taxable years beginning before January 1, 2005 and after December 31, 2006. Corporations are now subject to the corporation income tax imposed by KRS 141.040 and the limited liability entity tax (LLET) imposed by KRS 141.0401(2). Limited liability pass-through entities will be subject to the LLET imposed by KRS 141.0401(2). The limitations imposed and protections provided by the United States Constitution or Pub. L. No. 86-272 do not apply to the LLET. The LLET does not apply to entities listed in KRS 141.0401(6).

Pass-through entities and limited liability pass through entities shall withhold Kentucky income tax on the distributive share income, whether distributed or undistributed, of each nonresident individual partner, member, or shareholder, or each corporate partner or member that is doing business in Kentucky only through its ownership interest in a pass-through entity. A nonresident individual partner, member, or shareholder exempt from withholding pursuant to KRS 141.206(4)(b)2 and whose only source of income within this state is distributive share income from one (1) or more pass-through entities may elect to be included in a composite income tax return filed pursuant to KRS 141.206(13). The pass-through entity will calculate the income tax for each eligible electing individual partner, member or shareholder on a composite return filed on Form 740-NP.  The tax must be calculated at the highest marginal rate provided for under KRS141.020 on the partners’, members’, or shareholders’ distributive share income. Partners, Members, or Shareholders included in a composite return cannot claim any of the credits allowed by KRS 141.0205 on the composite tax return, but may file an individual tax return to take advantage of the graduated tax rates and any credits allowed by KRS 141.0205, and shall receive credit for any tax paid on the partner’s, member’s, or shareholder’s behalf by the pass-through entity.

Distributive Share withholding for nonresident individual and corporate partners, members or shareholders

Pursuant to KRS 141.206, Kentucky income tax on distributive share income is to be withheld from each non-resident individual or corporate partner, member or shareholder.  The withholdings shall be reported on form 740NP-WH with the PTE-WH forms attached.  A copy of the PTE-WH shall also be sent to each non-resident partner, member or shareholder as well. The withholdings on the distributive share income is due on the 15th day of the 4th month following the close of the entities taxable year.  For calendar year filers the due date is April 15.

Downloadable forms & instructions.

**********NOTICE************

The Kentucky Estimated Tax Voucher, 2008 Corporation Income/Limited Liability Entity Tax Form 720ES, will not be mailed to corporations and limited liability pass-thru entities that are subject to declaration payments. It was determined 95 percent of corporations and pass-thru entities are using software for their estimated tax vouchers.

Current Year - Corporation Tax Forms

Current Year - General Partnership Forms

Prior Year - Pass Through Entities Tax Forms

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