Corporation Income and Limited Liability Entity Tax

Tax Administration

Protest Time Period Changes For notices of tax due and refund denials issued on or after July 1, 2018, the time to file a protest increased from 45 to 60 days. This 60-day protest period applies to tangible personal property tax bills. These changes do not apply to protests of real property tax assessments.

Federal Audit Final Determinations The due date for submission to Kentucky increases from 30 to 180 days. Taxpayers now have 180 days to submit an amended income tax return to Kentucky from the date the federal audit final determination is issued by the IRS.

Tax Rates

For tax years beginning on or after January 1, 2018, the previous rate brackets have been replaced with a flat 5% tax rate.

Calculating KY Corporate Income Tax

There are three steps involved in calculating Kentucky Corporate Income Tax.

1)	Make Kentucky adjustments to Federal taxable income.
	Kentucky’s corporate income tax calculation starts with federal taxable income as reported on a business’s federal tax return. Then that income is adjusted according to Kentucky’s specific tax laws. Kentucky’s laws require some amounts to be added to federal income and some amounts to be subtracted. For example, federal law includes amounts received as dividends in a company’s taxable income. Kentucky does not tax such dividend income, so the amount of dividends received is subtracted from a company’s federal income. On the other hand, the IRS allows companies to deduct the amount they pay in state income taxes; Kentucky requires those amounts to be added back. After all the various additions and subtractions, a company arrives at Kentucky net income.
2)	Apportion net income to Kentucky.
	Kentucky only taxes a business on the portion of its net income that was generated by its business activity in Kentucky. To figure Kentucky's portion, Kentucky net income is multiplied by an apportionment factor. For most companies that do business in Kentucky, that formula is calculated by taking the amount of receipts derived from its business activity in Kentucky and dividing it by the amount of receipts derived from its business activity everywhere. (Certain types of companies must use different apportionment formulas, depending on the industry in which they operate). The apportionment factor is then multiplied by Kentucky net income to derive Kentucky taxable net income. (Certain other types of income generated by intangible assets sited in Kentucky may get allocated to Kentucky and be included in taxable net income.)
3)	Multiply taxable net income by the tax rate.
	After subtracting any net operating loss carryforwards from taxable net income, the taxpayer calculates its tax due by multiplying taxable net income by the Kentucky tax rate. Kentucky's current tax rate is a flat 5%. The total tax due may be reduced by various tax credits offered by the state to arrive at the business's net income tax liability.

Calculating KY Limited Liability Entity Tax (LLET)

Kentucky imposes a tax on every business that is protected from liability by the laws of the state. This includes corporations, LLCs, S-Corporations, limited partnerships, and other types of businesses. It does not include sole proprietorships and general partnerships because these types of businesses do not have limited liability. (There are also some types of businesses that are statutorily exempt from the LLET).

There are three steps involved in calculating the LLET.

1)	Calculate Kentucky gross receipts and Kentucky gross profits.
	The amount of LLET is based on the amount of business a company does in Kentucky. This is measured by the company's Kentucky gross receipts or its Kentucky gross profits. Kentucky gross receipts is calculated by figuring the total receipts earned in the state after returns and allowances. A pass-through entity also reduces its Kentucky gross receipts by the share of those receipts allocable to any tax-exempt organizations. A company then subtracts the Kentucky share of its cost of goods sold from its Kentucky gross receipts to derive Kentucky gross profits. Only companies in certain economic sectors (manufacturing, producing, wholesaling, retailing, and reselling of tangible products) are allowed to deduct cost of goods sold from their Kentucky gross receipts. Kentucky's definition of cost of goods sold also differs from the federal definition, so certain costs cannot be included in Kentucky cost of goods sold.
2)	Calculate total gross receipts and total gross profits.
	There is a small-business exemption to the LLET based on a business's amount of total gross receipts or total gross profits. Total gross receipts includes receipts from all business activities everywhere, adjusted for returns and allowances. Companies operating in the economic sectors that are allowed to subtract cost of goods sold subtract costs from gross receipts to derive total gross profits. If either total gross receipts or total gross profits amounts to $3 million or less, then the company just pays a $175 minimum LLET.
3)	Multiply Kentucky gross receipts and Kentucky gross profits by the applicable tax rate.
	If a business does not qualify for the small-business exemption and has total gross receipts or total gross profits in excess of $6 million, it multiplies its Kentucky gross receipts by 0.095% and its Kentucky gross profits by 0.75% to figure its LLET liability. (If total gross receipts or total gross profits falls between $3 million and $6 million, a sliding-scale formula is applied to the amount to calculate the LLET liability). The company then pays the smaller of the amount calculated on gross receipts or the amount calculated on gross profits. If a company also owes Kentucky corporate income tax, it is allowed to reduce its income tax liability by the amount of its LLET liability less the minimum $175.

Apportionment

For tax years beginning on or after January 1, 2018:

Single Sales Factor
Market Based Sourcing of receipts for sales of intangible property
Three-factor apportionment retained for providers.

Current Year Corporation Income Tax Forms

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Additional Resources

Corporate Federal Audit Adjustments

File a Corporate Income Tax Extension

Frequently Asked Questions

Pay Corporation Income Tax

To pay a bill, an estimated payment, an extension payment, or a payment for paper filed or electronically filed Corporation Income Tax and/or Limited Liability Entity Tax (LLET) return:

Electronic payment: Choose to pay directly from your bank account or by credit card. Service provider fees may apply.

If filing a paper return with payment, make the check or money order payable to "Kentucky State Treasurer" and mail to
Kentucky Department of Revenue
Frankfort, KY 40620-0021

If filing a paper return showing no tax due or a refund, please mail to
Kentucky Department of Revenue
Frankfort, KY 40618-0010

If paying an estimate, extension, or other payment without a paper return, mail check or money order made payable to "Kentucky State Treasurer" to

Kentucky Department of Revenue
Frankfort, KY 40620-0021

Estimated Payments

For tax years beginning on or after January 1, 2019: Estimated tax rules and penalties changed to generally follow federal rules for corporations and pass-through entities.

Four installments at 25% of the estimated tax due on April 15, June 15, September 15, and December 15
Allow Annualization and Adjusted Seasonal Installment Methods
Declaration Penalty replaced with "Addition to Tax" Penalty
See 2019 720ES Instructions
KY-TAM-19-02

Section 179 Expense Deduction

IRC §179 expense deduction increased to $100,000 for Kentucky for property placed in service on or after January 1, 2020:

Property placed into service 9/10/01 - 12/31/19

Use December 31, 2001 IRC ($25,000 § 179 maximum)

Property placed into service on or after 1/1/20

Use December 31, 2003 IRC ($100,000 § 179 maximum)

Corporate Extensions

For valid extensions filed on or after June 27, 2019:

C-Corporations allowed 7 month extension to file complete and accurate return

Bank Franchise Tax Repealed Effective 2021

For tax years beginning on or after January 1, 2021:

Bank Franchise Tax repealed and replaced with Corporation Income Tax and LLET

Applies to banks, savings and loan associations, and other financial institutions doing business in Kentucky.
Short year returns required for bank franchise tax returns with a fiscal year end

Statute of Limitations Extended for LLET Assessments of Pass-through Entities

If a pass-through entity is billed for LLET, the shareholders, partners, or members are allowed the greater of the ordinary statute of limitations or 180 days from the date an assessment is final to file amended returns.

Group Filing Methods and Net Operating Loss Provisions

For tax years beginning on or after January 1, 2019:

Filing:

Unitary Combined Group filing required; or
Group election for a 48 month same-as-federal consolidated group filing; otherwise
Separate entity filing if not part of a unitary or consolidated group

Unitary Combined Filing:

Combined group includes domestic corporations (with some exceptions) involved in unitary business
Unitary business means related corporations between which there is a significant flow of value
50% voting stock ownership required for combined group
Distributive share of pass-through income counts as part of corporation business income
Each entity calculates its own apportionment fraction
Group apportionable income is the sum of members' individual net incomes
Intercompany transactions are eliminated from group income and apportionment calculations
NOLs can be shared among members of a combined group; tax credits cannot be shared.

NOL:

Adopt the 80% federal NOL limitation under IRC Sec 172(a) for NOL generated after January 1, 2018
Adopt federal unlimited carryforward of NOL generated after January 1, 2018
Kentucky does not allow a NOL carryback for tax years beginning on or after January 1, 2005
Unitary Group NOL Sharing

Kentucky Net Operating Loss (KNOL) incurred by a taxpayer member prior to inclusion in a unitary combined group may be deducted from the apportioned income of:

That taxpayer member which originally incurred the KNOL *
Another taxpayer member, but in no case shall the deduction reduce any taxpayer member's Kentucky apportioned taxable income by more than 50% in any taxable year

KNOL incurred by a taxpayer member while included in a unitary combined group may be deducted from the apportioned income of:

That taxpayer member which originally incurred the KNOL*
Another taxpayer member that was a taxpayer member in the same combined group in the year in which the KNOL was originally incurred *

If the taxable income results in a net loss for a taxpayer member of the combined group, that taxpayer member has a KNOL
Any amount of NOL carryover that is deducted by another taxpayer member of the combined group shall reduce the amount of net operating loss carryover that may be carried over by the taxpayer member that originally incurred the loss

All KNOL are subject to the limits specified in IRC Section 172 and KRS 141.011
No prior year KNOL carryforward shall be available to entities that were not doing business in Kentucky in the year in which the loss was incurred

Electronic Filing

For tax years beginning on or after October 1, 2020, E-Filing is required for separate corporation and pass-through entity returns with federal gross receipts exceeding $1,000,000. See 103 KAR 1:160.

Internal Revenue Code Reference Date

For tax years beginning on or after January 1, 2018, IRC reference date is updated to December 31, 2017.
For tax years beginning on or after January 1, 2019, IRC reference date is updated to December 31, 2018.