A pass-through entity (partnership, S-Corporation, LLC, general partnership, etc.) may apply the inventory tax credit against the LLET on its Kentucky Income and LLET Return and pass the credit through to its members, partners, or shareholders in the same proportion as the distributive share of income or loss is passed through, in accordance with KRS 141.408(3). The pass-through entity is not required to have income for the credit to be passed through and utilized by members, partners, or shareholders.
The credit is passed through with the income or loss and is reported on the Kentucky Schedule K-1. Any credit that is passed through to the members, partners, or shareholders may be used against individual income tax or corporate income tax and LLET.
A sole proprietor reporting business income on Schedule C (federal Form 1040) may claim the credit, as long as they timely paid ad valorem tax on inventory. An individual may also claim the credit if it is passed through to them from a partnership, LLC, or S-Corporation on a Kentucky Schedule K-1.
A corporation may apply the inventory tax credit against income tax and LLET on its Kentucky Corporation Income Tax and LLET Return. A corporation may also claim the credit if it is passed through to them from a pass-through entity on a Kentucky Schedule K-1.