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.
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.
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.
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.)
Multiply taxable net income by the tax rate.
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.
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.
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.
Multiply Kentucky gross receipts and Kentucky gross profits by the applicable tax rate.
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.