Inventory Tax Credit

The inventory tax credit is a nonrefundable and nontransferable credit that may be applied against income taxes imposed by KRS 141.020 (individual income tax) or KRS 141.040 (corporation income tax) and the limited liability entity tax (LLET) imposed by KRS 141.0401 for any taxpayer that, on or after January 1, 2018, timely pays ad valorem (tangible personal property) taxes on inventory to a taxing jurisdiction in Kentucky. Unused credit amounts cannot be carried forward to later tax years.

Phase-In Period

The credit will be phased in over four years. The table to the right shows the allowable credit percentage by tax year.

Tax Year	Allowable %
2018	25%
2019	50%
2020	75%
2021	100%

Who Can Claim the Credit?

Pass-through Entities

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.

Individuals

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.

Corporations

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.

Timely Payment of Inventory Tax Credit Required

The credit is available ONLY for taxes paid on a timely basis. All property taxes are due and payable on or before December 31 of the assessment year. If December 31 falls on a Sunday, payments must be postmarked or paid by the next business day to be considered timely. Each property tax bill will show a due date. Payments made or postmarked on or before that due date are considered timely. Payments made after that due date are subject to penalty and are NOT considered timely.

You can find an overview of the property tax calendar in the Sheriff's Office Manual. If the regular collection schedule is delayed, state law provides for an alternative collection schedule. In that case, property taxes are due two full months from the date the tax bills are mailed. See KRS 134.015(3).

Limitations

The inventory tax credit is nontransferable, nonrefundable, and unused amounts cannot be carried forward.
The inventory tax credit CANNOT reduce the LLET liability below the $175 minimum.
The inventory tax credit is available only after all other available credits have been claimed. KRS 141.0205 establishes the order in which credits should be claimed.