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AN ACT relating to taxation. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 132.020 is amended to read as follows: 3
(1) The owner or person assessed shall pay an annual ad valorem tax for state purposes 4
at the rate of: 5
(a) Twelve and two-tenths cents ($0.122)[Thirty-one and one-half cents ($0.315)] 6
upon each one hundred dollars ($100) of value of all real property directed to 7
be assessed for taxation; 8
(b) Twenty-five cents ($0.25) upon each one hundred dollars ($100) of value of 9
all motor vehicles qualifying for permanent registration as historic motor 10
vehicles under KRS 186.043; 11
(c) Fifteen cents ($0.15) upon each one hundred dollars ($100) of value of all: 12
1. Machinery actually engaged in manufacturing; 13
2. Commercial radio and television equipment used to receive, capture, 14
produce, edit, enhance, modify, process, store, convey, or transmit audio 15
or video content or electronic signals which are broadcast over the air to 16
an antenna, including radio and television towers used to transmit or 17
facilitate the transmission of the signal broadcast and equipment used to 18
gather or transmit weather information, but excluding telephone and 19
cellular communication towers; and 20
3. Tangible personal property which has been certified as a pollution 21
control facility as defined in KRS 224.1-300. In the case of tangible 22
personal property certified as a pollution control facility which is 23
incorporated into a landfill facility, the tangible personal property shall 24
be presumed to remain tangible personal property for purposes of this 25
paragraph if the tangible personal property is being used for its intended 26
purposes; 27 UNOFFICIAL COPY 22 RS BR 337
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(d) Ten cents ($0.10) upon each one hundred dollars ($100) of value on the 1
operating property of railroads or railway companies that operate solely within 2
the Commonwealth; 3
(e) Five cents ($0.05) upon each one hundred dollars ($100) of value of goods 4
held for sale in the regular course of business, which includes: 5
1. Machinery and equipment held in a retailer's inventory for sale or lease 6
originating under a floor plan financing arrangement; 7
2. Motor vehicles: 8
a. Held for sale in the inventory of a licensed motor vehicle dealer, 9
including licensed motor vehicle auction dealers, which are not 10
currently titled and registered in Kentucky and are held on an 11
assignment pursuant to KRS 186A.230; or 12
b. That are in the possession of a licensed motor vehicle dealer, 13
including licensed motor vehicle auction dealers, for sale, although 14
ownership has not been transferred to the dealer; 15
3. Raw materials, which includes distilled spirits and distilled spirits 16
inventory; 17
4. In-process materials, which includes distilled spirits and distilled spirits 18
inventory, held for incorporation in finished goods held for sale in the 19
regular course of business; and 20
5. For the January 1, 2021, and January 1, 2022, assessment dates only, 21
qualified heavy equipment; 22
(f) One and one-half cents ($0.015) upon each one hundred dollars ($100) of 23
value of all: 24
1. Privately owned leasehold interests in industrial buildings, as defined 25
under KRS 103.200, owned and financed by a tax-exempt governmental 26
unit, or tax-exempt statutory authority under the provisions of KRS 27 UNOFFICIAL COPY 22 RS BR 337
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Chapter 103, upon the prior approval of the Kentucky Economic 1
Development Finance Authority, except that the rate shall not apply to 2
the proportion of value of the leasehold interest created through any 3
private financing; 4
2. Qualifying voluntary environmental remediation property, provided the 5
property owner has corrected the effect of all known releases of 6
hazardous substances, pollutants, contaminants, petroleum, or petroleum 7
products located on the property consistent with a corrective action plan 8
approved by the Energy and Environment Cabinet pursuant to KRS 9
224.1-400, 224.1-405, or 224.60-135, and provided the cleanup was not 10
financed through a public grant or the petroleum storage tank 11
environmental assurance fund. This rate shall apply for a period of three 12
(3) years following the Energy and Environment Cabinet's issuance of a 13
No Further Action Letter or its equivalent, after which the regular tax 14
rate shall apply; 15
3. Tobacco directed to be assessed for taxation; 16
4. Unmanufactured agricultural products; 17
5. Aircraft not used in the business of transporting persons or property for 18
compensation or hire; 19
6. Federally documented vessels not used in the business of transporting 20
persons or property for compensation or hire, or for other commercial 21
purposes; and 22
7. Privately owned leasehold interests in residential property described in 23
KRS 132.195(2)(g); 24
(g) One-tenth of one cent ($0.001) upon each one hundred dollars ($100) of value 25
of all: 26
1. Farm implements and farm machinery owned by or leased to a person 27 UNOFFICIAL COPY 22 RS BR 337
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actually engaged in farming and used in his farm operations; 1
2. Livestock and domestic fowl; 2
3. Tangible personal property located in a foreign trade zone established 3
pursuant to 19 U.S.C. sec. 81, provided that the zone is activated in 4
accordance with the regulations of the United States Customs Service 5
and the Foreign Trade Zones Board; and 6
4. Property which has been certified as an alcohol production facility as 7
defined in KRS 247.910, or as a fluidized bed energy production facility 8
as defined in KRS 211.390; and 9
(h) Forty-five cents ($0.45) upon each one hundred dollars ($100) of value of all 10
other property directed to be assessed for taxation shall be paid by the owner 11
or person assessed, except as provided in KRS 132.030, 132.200, 136.300, 12
and 136.320, providing a different tax rate for particular property. 13
(2) [Notwithstanding subsection (1)(a) of this section, the state tax rate on real property 14
shall be reduced to compensate for any increase in the aggregate assessed value of 15
real property to the extent that the increase exceeds the preceding year's assessment 16
by more than four percent (4%), excluding: 17
(a) The assessment of new property as defined in KRS 132.010(8); 18
(b) The assessment from property which is subject to tax increment financing 19
pursuant to KRS Chapter 65; and 20
(c) The assessment from leasehold property which is owned and financed by a 21
tax-exempt governmental unit, or tax-exempt statutory authority under the 22
provisions of KRS Chapter 103 and entitled to the reduced rate of one and 23
one-half cents ($0.015) pursuant to subsection (1)(f) of this section. In any 24
year in which the aggregate assessed value of real property is less than the 25
preceding year, the state rate shall be increased to the extent necessary to 26
produce the approximate amount of revenue that was produced in the 27 UNOFFICIAL COPY 22 RS BR 337
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preceding year from real property. 1
(3) By July 1 each year, the department shall compute the state tax rate applicable to 2
real property for the current year in accordance with the provisions of subsection (2) 3
of this section and certify the rate to the county clerks for their use in preparing the 4
tax bills. If the assessments for all counties have not been certified by July 1, the 5
department shall, when either real property assessments of at least seventy-five 6
percent (75%) of the total number of counties of the Commonwealth have been 7
determined to be acceptable by the department, or when the number of counties 8
having at least seventy-five percent (75%) of the total real property assessment for 9
the previous year have been determined to be acceptable by the department, make 10
an estimate of the real property assessments of the uncertified counties and compute 11
the state tax rate. 12
(4) If the tax rate set by the department as provided in subsection (2) of this section 13
produces more than a four percent (4%) increase in real property tax revenues, 14
excluding: 15
(a) The revenue resulting from new property as defined in KRS 132.010(8); 16
(b) The revenue from property which is subject to tax increment financing 17
pursuant to KRS Chapter 65; and 18
(c) The revenue from leasehold property which is owned and financed by a tax-19
exempt governmental unit, or tax-exempt statutory authority under the 20
provisions of KRS Chapter 103 and entitled to the reduced rate of one and 21
one-half cents ($0.015) pursuant to subsection (1) of this section; 22
the rate shall be adjusted in the succeeding year so that the cumulative total of each 23
year's property tax revenue increase shall not exceed four percent (4%) per year. 24
(5) The provisions of subsection (2) of this section notwithstanding, the assessed value 25
of unmined coal certified by the department after July 1, 1994, shall not be 26
included with the assessed value of other real property in determining ]The 27 UNOFFICIAL COPY 22 RS BR 337
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state real property tax rate levied under subsection (1)(a) of this section shall 1
apply[. All omitted unmined coal assessments made after July 1, 1994, shall 2
also be excluded from the provisions of subsection (2) of this section. The 3
calculated rate shall, however, be applied] to unmined coal property, and the 4
state revenue shall be devoted to the program described in KRS 146.550 to 5
146.570, except that four hundred thousand dollars ($400,000) of the[ state] 6
revenue shall be paid annually to the State Treasury and credited to the Office 7
of Energy Policy for the purpose of public education of coal-related issues. 8
Section 2. KRS 136.291 is amended to read as follows: 9
(1) (a) Beginning January 1, 2021, but before January 1, 2023, the savings and loan 10
tax under KRS 136.290, 136.300, and 136.310 shall not[no longer] apply to 11
savings and loan associations. 12
(b) Beginning January 1, 2023, the savings and loan tax under KRS 136.290, 13
136.300, and 136.310 shall apply to savings and loan associations. 14
(2) Beginning January 1, 2021, but before January 1, 2023, all savings and loan 15
associations shall be subject to the corporation income tax under KRS 141.040 and 16
the limited liability entity tax under KRS 141.0401. Notwithstanding KRS 141.040 17
and 141.0401, any savings and loan association operating on a fiscal year shall file a 18
short-year corporation income and limited liability entity tax return and pay any tax 19
due thereon for the period beginning January 1, 2021, through the end of the savings 20
and loan association's normal fiscal year. The department may issue guidance 21
regarding the filing of the short-year return. 22
Section 3. KRS 136.500 is amended to read as follows: 23
As used in KRS 136.500 to 136.575, unless the context requires otherwise: 24
(1) "Billing address" means the location indicated in the books and records of the 25
financial institution, on the first day of the taxable year or the date in the taxable 26
year when the customer relationship began, as the address where any notice, 27 UNOFFICIAL COPY 22 RS BR 337
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statement, or bill relating to a customer's account is mailed; 1
(2) "Borrower located in this state" means a borrower, other than a credit card holder, 2
that is engaged in a trade or business that maintains its commercial domicile in this 3
state or a borrower that is not engaged in a trade or business; 4
(3) "Credit card holder located in this state" means a credit card holder whose billing 5
address is in this state; 6
(4) "Department" means the Department of Revenue; 7
(5) "Commercial domicile" means: 8
(a) The location from which the trade or business is principally managed and 9
directed; or 10
(b) The state of the United States or the District of Columbia from which the 11
financial institution's trade or business in the United States is principally 12
managed and directed, if a financial institution is organized under the laws of 13
a foreign country, the Commonwealth of Puerto Rico, or any territory or 14
possession of the United States. 15
It shall be presumed, subject to rebuttal, that the location from which the financial 16
institution's trade or business is principally managed and directed is the state of the 17
United States or the District of Columbia to which the greatest number of 18
employees are regularly connected or out of which they are working, irrespective of 19
where the services of the employees are performed, as of the last day of the taxable 20
year; 21
(6) "Compensation" means wages, salaries, commissions, and any other form of 22
remuneration paid to employees for personal services that are included in the 23
employee's gross income under the Internal Revenue Code. In the case of employees 24
not subject to the Internal Revenue Code, the determination of whether the 25
payments would constitute gross income to the employees under the Internal 26
Revenue Code shall be made as though the employees were subject to the Internal 27 UNOFFICIAL COPY 22 RS BR 337
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Revenue Code; 1
(7) "Credit card" means credit, travel, or entertainment card; 2
(8) "Credit card issuer's reimbursement fee" means the fee a financial institution 3
receives from a merchant's bank because one (1) of the persons to whom the 4
financial institution has issued a credit card has charged merchandise or services to 5
the credit card; 6
(9) "Employee" means, with respect to a particular financial institution, "employee" as 7
defined in Section 3121(d) of the Internal Revenue Code; 8
(10) "Financial institution" means: 9
(a) A national bank organized as a body corporate and existing or in the process 10
of organizing as a national bank association pursuant to the provisions of the 11
National Bank Act, 12 U.S.C. secs. 21 et seq., in effect on December 31, 12
1997, exclusive of any amendments made subsequent to that date; 13
(b) Any bank or trust company incorporated or organized under the laws of any 14
state, except a banker's bank organized under KRS 286.3-135; 15
(c) Any corporation organized under the provisions of 12 U.S.C. secs. 611 to 631, 16
in effect on December 31, 1997, exclusive of any amendments made 17
subsequent to that date, or any corporation organized after December 31, 18
1997, that meets the requirements of 12 U.S.C. secs. 611 to 631, in effect on 19
December 31, 1997; or 20
(d) Any agency or branch of a foreign depository as defined in 12 U.S.C. sec. 21
3101, in effect on December 31, 1997, exclusive of any amendments made 22
subsequent to that date, or any agency or branch of a foreign depository 23
established after December 31, 1997, that meets the requirements of 12 U.S.C. 24
sec. 3101 in effect on December 31, 1997; 25
(11) "Gross rents" means the actual sum of money or other consideration payable for the 26
use or possession of property. 27 UNOFFICIAL COPY 22 RS BR 337
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(a) "Gross rents" includes but is not limited to: 1
1. Any amount payable for the use or possession of real property or 2
tangible property, whether designated as a fixed sum of money or as a 3
percentage of receipts, profits, or otherwise; 4
2. Any amount payable as additional rent or in lieu of rent, such as interest, 5
taxes, insurance, repairs, or any other amount required to be paid by the 6
terms of a lease or other arrangement; and 7
3. A proportionate part of the cost of any improvement to real property 8
made by or on behalf of the financial institution which reverts to the 9
owner or lessor upon termination of a lease or other arrangement. The 10
amount to be included in gross rents is the amount of amortization or 11
depreciation allowed in computing the taxable income base for the 12
taxable year. However, where a building is erected on leased land by or 13
on behalf of the financial institution, the value of the land is determined 14
by multiplying the gross rent by eight (8) and the value of the building is 15
determined in the same manner as if owned by the financial institution; 16
(b) The following are not included in the term "gross rents": 17
1. Reasonable amounts payable as separate charges for water and electric 18
service furnished by the lessor; 19
2. Reasonable amounts payable as service charges for janitorial services 20
furnished by the lessor; 21
3. Reasonable amounts payable for storage, if these amounts are payable 22
for space not designated and not under the control of the financial 23
institution; and 24
4. That portion of any rental payment which is applicable to the space 25
subleased from the financial institution and not used by it; 26
(12) "Internal Revenue Code" means the Internal Revenue Code, Title 26 U.S.C., in 27 UNOFFICIAL COPY 22 RS BR 337
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effect on December 31, 2001, exclusive of any amendments made subsequent to 1
that date; 2
(13) "Loan" means any extension of credit resulting from direct negotiations between the 3
financial institution and its customer, and the purchase, in whole or in part, of the 4
extension of credit from another. Loans include participations, syndications, and 5
leases treated as loans for federal income tax purposes. Loans shall not include 6
properties treated as loans under Section 595 of the Internal Revenue Code, futures 7
or forward contracts, options, notional principal contracts such as swaps, credit card 8
receivables, including purchased credit card relationships, noninterest-bearing 9
balances due from depository institutions, cash items in the process of collection, 10
federal funds sold, securities purchased under agreements to resell, assets held in a 11
trading account, securities, interests in a real estate mortgage investment company, 12
or other mortgage-backed or asset-backed security, and other similar items; 13
(14) "Loan secured by real property" means a loan or other obligation for which fifty 14
percent (50%) or more of the aggregate value of the collateral used to secure the 15
loan or other obligation, when valued at fair market value as of the time the original 16
loan or obligation was incurred, was real property; 17
(15) "Merchant discount" means the fee or negotiated discount charged to a merchant by 18
the financial institution for the privilege of participating in a program where a credit 19
card is accepted in payment for merchandise or services sold to the card holder; 20
(16) "Person" means an individual, estate, trust, partnership, corporation, limited liability 21
company, or any other business entity; 22
(17) "Principal base of operations" means: 23
(a) With respect to transportation property, the place from which the property is 24
regularly directed or controlled; and 25
(b) With respect to an employee: 26
1. The place the employee regularly starts work and to which the employee 27 UNOFFICIAL COPY 22 RS BR 337
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customarily returns in order to receive instructions from his or her 1
employer; or 2
2. If the place referred to in subparagraph 1. of this paragraph does not 3
exist, the place the employee regularly communicates with customers or 4
other persons; or 5
3. If the place referred to in subparagraph 2. of this paragraph does not 6
exist, the place the employee regularly performs any other functions 7
necessary to the exercise of the employee's trade or profession at some 8
other point or points; 9
(18) "Real property owned" and "tangible personal property owned" mean real and 10
tangible personal property, respectively, on which the financial institution may 11
claim depreciation for federal income tax purposes, or property to which the 12
financial institution holds legal title and on which no other person may claim 13
depreciation for federal income tax purposes or could claim depreciation if subject 14
to federal income tax. Real and tangible personal property do not include coin, 15
currency, or property acquired in lieu of or pursuant to a foreclosure; 16
(19) "Regular place of business" means an office at which the financial institution carries 17
on its business in a regular and systematic manner and which is continuously 18
maintained, occupied, and used by employees of the financial institution; 19
(20) "State" means a state of the United States, the District of Columbia, the 20
Commonwealth of Puerto Rico, any territory or possession of the United States, or 21
any foreign country; 22
(21) "Syndication" means an extension of credit in which two (2) or more persons fund 23
and each person is at risk only up to a specified percentage of the total extension of 24
credit or up to a specified dollar amount; 25
(22) (a) "Taxable year" means calendar year 1996 through calendar year 2020 and 26
calendar years after 2022 for purposes of the state bank franchise tax under 27 UNOFFICIAL COPY 22 RS BR 337
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KRS 136.505; and 1
(b) "Taxable year" means calendar year 1996 and every calendar year thereafter 2
for purposes of the local government franchise tax under KRS 136.575; 3
(23) "Transportation property" means vehicles and vessels capable of moving under their 4
own power, such as aircraft, trains, water vessels, and motor vehicles, as well as any 5
equipment or containers attached to the property, such as rolling stock, barges, or 6
trailers; 7
(24) "United States obligations" means all obligations of the United States exempt from 8
taxation under 31 U.S.C. sec. 3124(a) or exempt under the United States 9
Constitution or any federal statute, including the obligations of any instrumentality 10
or agency of the United States that are exempt from state or local taxation under the 11
United States Constitution or any statute of the United States; and 12
(25) "Kentucky obligations" means all obligations of the Commonwealth of Kentucky, 13
its counties, municipalities, taxing districts, and school districts, exempt from 14
taxation under the Kentucky Revised Statutes and the Constitution of Kentucky. 15
Section 4. KRS 136.505 is amended to read as follows: 16
(1) Every financial institution regularly engaged in business in this Commonwealth at 17
any time during the taxable year as determined under KRS 136.520 shall pay an 18
annual state franchise tax for each taxable year or portion of a taxable year prior to 19
January 1, 2021, and for each taxable year or portion of a taxable year on or after 20
January 1, 2023, to be measured by its net capital as determined in KRS 136.515 21
and, for financial institutions with business activity that is taxable both within and 22
without this Commonwealth, apportioned under KRS 136.525. 23
(2) For taxable years beginning on or after January 1, 2023, every financial 24
institution regularly engaged in business in this Commonwealth shall be subject 25
to all state taxes in effect on July 15, 1996, except for the corporation income tax 26
levied in KRS Chapter 141, the limited liability entity tax levied in Section 27 of 27 UNOFFICIAL COPY 22 RS BR 337
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this Act, and the corporation license tax levied in this chapter. 1
Section 5. KRS 136.506 is amended to read as follows: 2
(1) (a) Beginning January 1, 2021, but before January 1, 2023, the state bank 3
franchise tax under KRS 136.505 shall not[no longer] apply to financial 4
institutions. 5
(b) Beginning January 1, 2023, the state bank franchise tax under Section 4 of 6
this Act shall apply to financial institutions. 7
(2) Beginning January 1, 2021, but before January 1, 2023, all financial institutions 8
shall be subject to the corporation income tax under KRS 141.040 and the limited 9
liability entity tax under KRS 141.0401. Notwithstanding KRS 141.040 or 10
141.0401, any financial institution operating on a fiscal year basis shall file a short-11
year corporation income and limited liability entity tax return and pay any tax due 12
thereon for the period beginning January 1, 2021, through the end of the financial 13
institution's normal fiscal year. The department may issue guidance regarding the 14
filing of the short-year return. 15
(3) Financial institutions shall be subject to all applicable local government franchise 16
taxes imposed under KRS 136.575. 17
Section 6. KRS 138.130 is amended to read as follows: 18
As used in KRS 138.130 to 138.205: 19
(1) (a) "Chewing tobacco" means any leaf tobacco that is not intended to be smoked 20
and includes loose leaf chewing tobacco, plug chewing tobacco, and twist 21
chewing tobacco. 22
(b) "Chewing tobacco" does not include snuff; 23
(2) "Cigarettes" means any roll for smoking made wholly or in part of tobacco, or any 24
substitute for tobacco, irrespective of size or shape and whether or not the tobacco 25
is flavored, adulterated, or mixed with any other ingredient, the wrapper or cover of 26
which is made of paper or any other substance or material, except tobacco; 27 UNOFFICIAL COPY 22 RS BR 337
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(3) "Cigarette tax" means the group of taxes consisting of: 1
(a) The tax imposed by KRS 138.140(1)(a); 2
(b) The surtax imposed by KRS 138.140(1)(b); and 3
(c) The surtax imposed by KRS 138.140(1)(c); 4
(4) (a) "Closed vapor cartridge" means a pre-filled disposable cartridge that: 5
1. Is intended to be used with or in a noncombustible product that employs 6
a heating element, battery, power source, electronic circuit, or other 7
electronic, chemical, or mechanical means, regardless of shape or size, 8
to deliver vaporized or aerosolized nicotine, non-nicotine substances, or 9
other materials to users that may be inhaling from the product such as 10
any electronic cigarette, electronic cigar, electronic cigarillo, electronic 11
pipe, or other similar product or device and every variation thereof, 12
regardless of whether marketed as such; and 13
2. Contains nicotine or non-nicotine substances or other material consumed 14
during the process of vaporization or aerosolization. 15
(b) "Closed vapor cartridge" does not include any product regulated as a drug or 16
device by the United States Food and Drug Administration under Chapter V 17
of the Food, Drug, and Cosmetic Act; 18
(5) "Department" means the Department of Revenue; 19
(6) "Distributor" means any person within this state in possession of tobacco products[ 20
or vapor products] for resale within this state on which the tobacco products tax 21
imposed under KRS 138.140(2) has not been paid; 22
(7) "Half-pound unit" means a consumer-sized container, pouch, or package: 23
(a) Containing at least four (4) ounces but not more than eight (8) ounces of 24
chewing tobacco by net weight; 25
(b) Produced by the manufacturer to be sold to consumers as a half-pound unit 26
and not produced to be divided or sold separately; and 27 UNOFFICIAL COPY 22 RS BR 337
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(c) Containing one (1) individual container, pouch, or package; 1
(8) "Manufacturer" means any person who manufactures or produces cigarettes or 2
tobacco products within or without this state; 3
(9) "Nonresident wholesaler" means any person who purchases cigarettes directly from 4
the manufacturer and maintains a permanent location outside this state where 5
Kentucky cigarette tax evidence is attached or from where Kentucky cigarette tax is 6
reported and paid; 7
(10) (a) "Open vaping system" means: 8
1. Any noncombustible product that employs a heating element, battery, 9
power source, electronic circuit, or other electronic, chemical, or 10
mechanical means, regardless of shape or size and including the 11
component parts and accessories thereto, that uses a refillable liquid 12
solution to deliver vaporized or aerosolized nicotine, non-nicotine 13
substances, or other materials to users that may be inhaling from the 14
product such as any electronic cigarette, electronic cigar, electronic 15
cigarillo, electronic pipe, or similar product or device and every 16
variation thereof, regardless of whether marketed as such; and 17
2. Any liquid solution that is intended to be used with the product 18
described in subparagraph 1. of this paragraph. 19
(b) "Open vaping system" does not include any product regulated as a drug or 20
device by the United States Food and Drug Administration under Chapter V 21
of the Food, Drug, and Cosmetic Act; 22
(11) "Person" means any individual, firm, copartnership, joint venture, association, 23
municipal or private corporation whether organized for profit or not, the 24
Commonwealth of Kentucky or any of its political subdivisions, an estate, trust, or 25
any other group or combination acting as a unit; 26
(12) "Pound unit" means a consumer-sized container, pouch, or package: 27 UNOFFICIAL COPY 22 RS BR 337
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(a) Containing more than eight (8) ounces but not more than sixteen (16) ounces 1
of chewing tobacco by net weight; 2
(b) Produced by the manufacturer to be sold to consumers as a pound unit and not 3
produced to be divided or sold separately; and 4
(c) Containing one (1) individual container, pouch, or package; 5
(13) "Reference products" means tobacco products, vapor products, or cigarettes made 6
by a manufacturer specifically for an accredited state college or university to be held 7
by the college or university until sale or transfer to a laboratory, hospital, medical 8
center, institute, college or university, manufacturer, or other institution; 9
(14) "Resident wholesaler" means any person who purchases at least seventy-five 10
percent (75%) of all cigarettes purchased by the wholesaler directly from the 11
manufacturer on which the cigarette tax is unpaid, and who maintains an established 12
place of business in this state where the wholesaler attaches cigarette tax evidence 13
or receives untax-paid cigarettes; 14
(15) "Retail distributor" means a retailer who has obtained a retail distributor's license 15
under KRS 138.195; 16
(16) "Retailer" means any person who sells to a consumer or to any person for any 17
purpose other than resale; 18
(17) "Sale" or "sell" means any transfer for a consideration, exchange, barter, gift, offer 19
for sale, advertising for sale, soliciting an order for cigarettes or tobacco products, 20
and distribution in any manner or by any means whatsoever; 21
(18) "Sale at retail" means a sale to any person for any other purpose other than resale; 22
(19) "Single unit" means a consumer-sized container, pouch, or package: 23
(a) Containing less than four (4) ounces of chewing tobacco by net weight; 24
(b) Produced by the manufacturer to be sold to consumers as a single unit and not 25
produced to be divided or sold separately; and 26
(c) Containing one (1) individual container, pouch, or package; 27 UNOFFICIAL COPY 22 RS BR 337
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(20) (a) "Snuff" means tobacco that: 1
1. Is finely cut, ground, or powdered; and 2
2. Is not for smoking. 3
(b) "Snuff" includes snus; 4
(21) "Subjobber"["Sub-jobber"] means any person who purchases cigarettes from a 5
resident wholesaler, nonresident wholesaler, or unclassified acquirer licensed under 6
KRS 138.195 on which the cigarette tax has been paid and makes them available to 7
retailers for resale. No person shall make cigarettes available to retailers for resale 8
unless the person certifies and establishes to the satisfaction of the department that 9
firm arrangements have been made to regularly supply at least five (5) retail 10
locations with Kentucky tax-paid cigarettes for resale in the regular course of 11
business; 12
(22) "Tax evidence" means any stamps, metered impressions, or other indicia prescribed 13
by the department by administrative regulation as a means of denoting the payment 14
of cigarette taxes; 15
(23) "Tobacco products" means: 16
(a) Any smokeless tobacco products, smoking tobacco, chewing tobacco, and any 17
kind or form of tobacco prepared in a manner suitable for chewing, snorting, 18
[or ]smoking, or any combination thereof;[both, or ] 19
(b) Any kind or form of tobacco that is suitable to be placed in an individual's oral 20
cavity, except cigarettes; or 21
(c) Vapor products; 22
(24) "Tobacco products tax" means the tax imposed by KRS 138.140(2)(a)1. to 3.; 23
(25) "Transporter" means any person transporting untax-paid cigarettes obtained from 24
any source to any destination within this state, other than cigarettes transported by 25
the manufacturer thereof; 26
(26) "Unclassified acquirer" means any person in this state who acquires cigarettes from 27 UNOFFICIAL COPY 22 RS BR 337
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any source on which the cigarette tax has not been paid, and who is not a person 1
otherwise required to be licensed under KRS 138.195; 2
(27) "Untax-paid cigarettes" means any cigarettes on which the cigarette tax imposed by 3
KRS 138.140 has not been paid; 4
(28) "Untax-paid tobacco or vapor products" means any tobacco products or vapor 5
products on which the tax imposed by KRS 138.140(2) has not been paid; 6
(29) "Vapor products" has the same meaning as in KRS 438.305; and[ means a closed 7
vapor cartridge or an open vaping system;] 8
(30) ["Vapor products tax" means tax imposed under KRS 138.140(2)(a)4. and 5.; and 9
(31)] "Vending machine operator" means any person who operates one (1) or more 10
cigarette vending machines. 11
Section 7. KRS 138.132 is amended to read as follows: 12
(1) It is the declared legislative intent of KRS 138.130 to 138.205 that any untax-paid 13
tobacco products[ or vapor products] held, owned, possessed, or in control of any 14
person other than as provided in KRS 138.130 to 138.205 are contraband and 15
subject to seizure and forfeiture as set out in this section. 16
(2) (a) If a retailer, who is not a licensed retail distributor, purchases tobacco 17
products[ or vapor products] from a licensed distributor and the purchase 18
invoice does not contain the separate identification and display of the tobacco 19
products tax[ or vapor products tax], the retailer shall, within twenty-four (24) 20
hours, notify the department in writing. 21
(b) The notification shall include the name and address of the person from whom 22
the tobacco products[ or vapor products] were purchased and a copy of the 23
purchase invoice. 24
(c) The tobacco products[ or vapor products] for which the required information 25
was not included on the invoice shall be retained by the retailer, and not sold, 26
for a period of fifteen (15) days after giving the proper notice as required by 27 UNOFFICIAL COPY 22 RS BR 337
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this subsection. 1
(d) After the fifteen (15) day period, the retailer may pay the tax due on the 2
tobacco products[ or vapor products] described in paragraph (c) of this 3
subsection according to administrative regulations promulgated by the 4
department, and after which may proceed to sell the tobacco products[ or 5
vapor products]. 6
(3) If a retailer, who is not a licensed retail distributor, purchases tobacco products[ or 7
vapor products] for resale from a person not licensed under KRS 138.195(7), which 8
is prohibited by KRS 138.140(2), the retailer may not sell those tobacco products[ 9
or vapor products] until the retailer applies for and is granted a retail distributor's 10
license under KRS 138.195(7)(b). 11
(4) If, upon examination, the department determines that the retailer has failed to 12
comply with the provisions of subsection (3) of this section, the retailer shall pay all 13
tax and interest and applicable penalties due and the following shall apply: 14
(a) For the first offense, an additional penalty shall be assessed equal to ten 15
percent (10%) of the tax due; 16
(b) For a second offense within three (3) years or less of the first offense, an 17
additional penalty shall be assessed equal to twenty-five percent (25%) of the 18
tax due; and 19
(c) For a third offense or subsequent offense within three (3) years or less of the 20
first offense, the tobacco products[ or vapor products] shall be contraband and 21
subject to seizure and forfeiture as provided in subsection (5) of this section. 22
(5) (a) Whenever a representative of the department finds contraband tobacco 23
products[ or contraband vapor products] within the borders of this state, the 24
tobacco products[ or vapor products] shall be immediately seized and stored 25
in a depository to be determined by the representative. 26
(b) At the time of seizure, the representative shall deliver to the person in whose 27 UNOFFICIAL COPY 22 RS BR 337
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custody the tobacco products[ or vapor products] are found a receipt for the 1
seized products. The receipt shall state on its face that any inquiry concerning 2
any tobacco products[ or vapor products] seized shall be directed to the 3
commissioner of the Department of Revenue, Frankfort, Kentucky. 4
(c) Immediately upon seizure, the representative shall notify the commissioner of 5
the nature and quantity of the tobacco products[ or vapor products] seized. 6
Any seized tobacco products[ or vapor products] shall be held for a period of 7
twenty (20) days, and if after that period no person has claimed the tobacco 8
products[ or vapor products] as his or her property, the commissioner shall 9
cause the tobacco products[ or vapor products] to be destroyed. 10
(6) All fixtures, equipment, materials, and personal property used in substantial 11
connection with the sale or possession of tobacco products[ or vapor products] 12
involved in a knowing and intentional violation of KRS 138.130 to 138.205 shall be 13
contraband and subject to seizure and forfeiture as follows: 14
(a) The department's representative shall seize the property and store the property 15
in a safe place selected by the representative; and 16
(b) The representative shall proceed as provided in KRS 138.165(2). The 17
commissioner shall cause the property to be sold after notice published 18
pursuant to KRS Chapter 424. The proceeds from the sale shall be applied as 19
provided in KRS 138.165(2). 20
(7) The owner or any person having an interest in the fixtures, materials, or personal 21
property that has been seized as provided by subsection (6) of this section may 22
apply to the commissioner for remission of the forfeiture for good cause shown. If it 23
is shown to the satisfaction of the commissioner that the owner or person having an 24
interest in the property was without fault, the department shall remit the forfeiture. 25
(8) Any party aggrieved by an order entered under this section may appeal to the Board 26
of Tax Appeals pursuant to KRS 49.220. 27 UNOFFICIAL COPY 22 RS BR 337
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Section 8. KRS 138.135 is amended to read as follows: 1
(1) (a) Every manufacturer, whether located in this state or outside this state, that 2
ships tobacco products[ or vapor products] to a distributor, retailer, retail 3
distributor, or any other person located in this state shall file a report with the 4
department on or before the twentieth day of each month identifying all such 5
shipments made by the manufacturer during the preceding month. The 6
department, within its discretion, may allow a manufacturer to file the report 7
for periods other than monthly. 8
(b) The reports shall identify: 9
1. The names and addresses of the persons in this state to whom the 10
shipments were made; 11
2. The quantities of tobacco products[ and vapor products] shipped, by type 12
of product and brand; and 13
3. Any other information the department may require. 14
(2) Each licensed distributor and each licensed retail distributor shall keep in each 15
licensed place of business complete and accurate records for that place of business, 16
including: 17
(a) Itemized invoices of: 18
1. Tobacco products[ and vapor products] purchased, manufactured, 19
imported, or caused to be imported into this state from outside this state, 20
or shipped or transported to other distributors or retailers in this state or 21
outside this state, including type of product and brand; 22
2. All sales of tobacco products[ and vapor products], including sales of 23
tobacco products[ and vapor products] manufactured or produced in this 24
state, including type of product and brand; and 25
3. All tobacco products[ and vapor products] transferred to retail outlets 26
owned or controlled by the licensed distributor, including type of 27 UNOFFICIAL COPY 22 RS BR 337
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product and brand; and 1
(b) Any other records required by the department. 2
(3) Each retailer of tobacco products[ or vapor products] shall keep complete and 3
accurate records of all purchases of tobacco products or vapor products, including 4
invoices that identify: 5
(a) The distributor's name and address; 6
(b) The name, quantity, and purchase price of the product purchased; 7
(c) The license number of the distributor licensed under KRS 138.195(7); and 8
(d) The tobacco products tax[ or the vapor products] tax imposed by KRS 9
138.140. 10
(4) All books, records, invoices, and documents required by this section shall be 11
preserved, in a form prescribed by the department, for not less than four (4) years 12
from the making of the records unless the department authorizes, in writing, the 13
destruction of the records. 14
Section 9. KRS 138.140 is amended to read as follows: 15
(1) (a) A tax shall be paid on the sale of cigarettes within the state at a proportionate 16
rate of three cents ($0.03) on each twenty (20) cigarettes. 17
(b) 1. Effective July 1, 2018, through July 31, 2022, a surtax shall be paid in 18
addition to the tax levied in paragraph (a) of this subsection at a 19
proportionate rate of one dollar and six cents ($1.06) on each twenty 20
(20) cigarettes; and 21
2. Effective August 1, 2022, a surtax shall be paid in addition to the tax 22
levied in paragraph (a) of this subsection at a proportionate rate of 23
one dollar and fifty-six cents ($1.56) on each twenty (20) cigarettes. 24
(c) A surtax shall be paid in addition to the tax levied in paragraph (a) of this 25
subsection and in addition to the surtax levied by paragraph (b) of this 26
subsection, at a proportionate rate of one cent ($0.01) on each twenty (20) 27 UNOFFICIAL COPY 22 RS BR 337
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cigarettes. The revenues from this surtax shall be deposited in the cancer 1
research institutions matching fund created in KRS 164.043. 2
(d) The surtaxes imposed by paragraphs (b) and (c) of this subsection shall be 3
paid at the time that the tax imposed by paragraph (a) of this subsection is 4
paid. 5
(2) (a) An excise tax is hereby imposed upon every distributor for the privilege of 6
selling tobacco products in this state at the following rates: 7
1. a. Prior to August 1, 2022, upon snuff at the rate of nineteen cents 8
($0.19) per each one and one-half (1-1/2) ounces or portion thereof 9
by net weight sold; and 10
b. On or after August 1, 2022, upon snuff at the rate of fifty-one 11
cents ($0.51) per each one and one-half (1-1/2) ounces or 12
portion thereof by net weight sold; 13
2. a. Prior to August 1, 2022, upon chewing tobacco at the rate of: 14
i.[a.] Nineteen cents ($0.19) per each single unit sold; 15
ii.[b.] Forty cents ($0.40) per each half-pound unit sold; or 16
iii.[c.] Sixty-five cents ($0.65) per each pound unit sold. 17
If the container, pouch, or package on which the tax is levied 18
contains more than sixteen (16) ounces by net weight, the rate that 19
shall be applied to the unit shall equal the sum of sixty-five cents 20
($0.65) plus nineteen cents ($0.19) for each increment of four (4) 21
ounces or portion thereof exceeding sixteen (16) ounces sold; and 22
b. On or after August 1, 2022, upon chewing tobacco at the rate of: 23
i. Fifty-one cents ($0.51) per each single unit sold; 24
ii. One dollar and seven cents ($1.07) per each half-pound 25
unit sold; or 26
iii. One dollar and seventy-three cents ($1.73) per each pound 27 UNOFFICIAL COPY 22 RS BR 337
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unit sold. 1
If the container, pouch, or package on which the tax is levied 2
contains more than sixteen (16) ounces by net weight, the rate 3
that shall be applied to the unit shall equal the sum of one dollar 4
and seventy-three cents ($1.73) plus fifty-one cents ($0.51) for 5
each increment of four (4) ounces or portion thereof exceeding 6
sixteen (16) ounces sold; and 7
3. a. Prior to August 1, 2022, upon tobacco products sold, at the rate of 8
fifteen percent (15%) of the actual price for which the distributor 9
sells tobacco products, except snuff and chewing tobacco, within 10
the Commonwealth; and 11
b. On or after August 1, 2022, upon tobacco products sold, at the 12
rate of forty percent (40%) of the actual price for which the 13
distributor sells tobacco products, except snuff and chewing 14
tobacco, within the Commonwealth 15
[4. Upon closed vapor cartridges, one dollar and fifty cents ($1.50) per 16
cartridge; and 17
5. Upon open vaping systems, fifteen percent (15%) of the actual price for 18
which the distributor sells: 19
a. The open vaping system when the actual price includes the items 20
described in both KRS 138.130(10)(a)1. and 2.; or 21
b. The liquid solution described in KRS 138.130(10)(a)2. when the 22
solution is sold separately]. 23
(b) The net weight posted by the manufacturer on the container, pouch, or 24
package or on the manufacturer's invoice shall be used to calculate the tax due 25
on snuff or chewing tobacco. 26
(c) 1. A retailer located in this state shall not purchase tobacco products for 27 UNOFFICIAL COPY 22 RS BR 337
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resale to consumers from any person within or outside this state unless 1
that person is a distributor licensed under KRS 138.195(7)(a) or the 2
retailer applies for and is granted a retail distributor's license under KRS 3
138.195(7)(b) for the privilege of purchasing untax-paid tobacco 4
products and remitting the tax as provided in this paragraph. 5
2. A licensed retail distributor of tobacco products shall be subject to the 6
excise tax as follows: 7
a. On purchases of untax-paid snuff, at the same rate levied by 8
paragraph (a)1. of this subsection; 9
b. On purchases of untax-paid chewing tobacco, at the same rates 10
levied by paragraph (a)2. of this subsection; and 11
c. i. Prior to August 1, 2022, on purchases of untax-paid tobacco 12
products, except snuff and chewing tobacco, fifteen percent 13
(15%) of the total purchase price as invoiced by the retail 14
distributor's supplier; and 15
ii. On or after August 1, 2022, on purchases of untax-paid 16
tobacco products, except snuff and chewing tobacco, forty 17
percent (40%) of the total purchase price as invoiced by the 18
retail distributor's supplier 19
[d. On purchases of untax-paid closed vapor cartridges, at the same 20
rate levied by paragraph (a)4. of this subsection; and 21
e. On purchases of untax-paid open vaping systems, fifteen percent 22
(15%) of the total purchase price as invoiced by the retail 23
distributor's supplier as described in paragraph (a)5. of this 24
subsection]. 25
(d) 1. The licensed distributor that first possesses tobacco products[ or vapor 26
products] for sale to a retailer in this state or for sale to a person who is 27 UNOFFICIAL COPY 22 RS BR 337
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not licensed under KRS 138.195(7) shall be the distributor liable for the 1
tax imposed by this subsection except as provided in subparagraph 2. of 2
this paragraph. 3
2. A distributor licensed under KRS 138.195(7)(a) may sell tobacco 4
products[ or vapor products] to another distributor licensed under KRS 5
138.195(7)(a) without payment of the excise tax. In such case, the 6
purchasing licensed distributor shall be the distributor liable for the tax. 7
3. A licensed distributor or licensed retail distributor shall: 8
a. Identify and display the distributor's or retail distributor's license 9
number on the invoice to the retailer; and 10
b. Identify and display the excise tax separately on the invoice to the 11
retailer. If the excise tax is included as part of the product's sales 12
price, the licensed distributor or licensed retail distributor shall list 13
the total excise tax in summary form by tax type with invoice 14
totals. 15
4. It shall be presumed that the excise tax has not been paid if the licensed 16
distributor or licensed retail distributor does not comply with 17
subparagraph 3. of this paragraph. 18
(e) No tax shall be imposed on tobacco products[ or vapor products] under this 19
subsection that are not within the taxing power of this state under the 20
Commerce Clause of the United States Constitution. 21
(3) [(a) ]The taxes imposed by subsections (1) and (2) of this section: 22
(a)[1.] Shall not apply to reference products; and 23
(b)[2.] Shall be paid only once, regardless of the number of times the cigarettes 24
or tobacco products may be sold. 25
[(b) The taxes imposed by subsection (1)(a) and (b) and subsection (2) of this 26
section shall be reduced by: 27 UNOFFICIAL COPY 22 RS BR 337
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1. Fifty percent (50%) on any product as to which a modified risk tobacco 1
product order is issued under 21 U.S.C. sec. 387k(g)(1); or 2
2. Twenty-five percent (25%) for any product as to which a modified risk 3
tobacco product order is issued under 21 U.S.C. sec. 387k(g)(2).] 4
(4) A reference product shall carry a marking labeling the contents as a research 5
cigarette[, research vapor product,] or a research tobacco product to be used only for 6
tobacco-health research and experimental purposes and shall not be offered for sale, 7
sold, or distributed to consumers. 8
(5) The department may prescribe forms and promulgate administrative regulations to 9
execute and administer the provisions of this section.[ 10
(6) The General Assembly recognizes that increasing taxes on tobacco products should 11
reduce consumption, and therefore result in healthier lifestyles for Kentuckians. The 12
relative taxes on tobacco products proposed in this section reflect the growing data 13
from scientific studies suggesting that although smokeless tobacco poses some 14
risks, those health risks are significantly less than the risks posed by other forms of 15
tobacco products. Moreover, the General Assembly acknowledges that some in the 16
public health community recognize that tobacco harm reduction should be a 17
complementary public health strategy regarding tobacco products. Taxing tobacco 18
products according to relative risk is a rational tax policy and may well serve the 19
public health goal of reducing smoking-related mortality and morbidity and 20
lowering health care costs associated with tobacco-related disease. 21
(7) Any person subject to the taxes imposed under subsections (1) and (2) of this 22
section that: 23
(a) Files an application related to a modified risk tobacco product shall report to 24
the department that an application has been filed within thirty (30) days of that 25
filing; and 26
(b) Receives an order authorizing the marketing of a modified risk tobacco 27 UNOFFICIAL COPY 22 RS BR 337
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product shall report to the department that an authorizing order has been 1
received. 2
(8) Upon receipt of the information required by subsection (7)(b) of this section, the 3
department shall reduce the tax imposed on the modified risk tobacco product as 4
required by subsection (3)(b) of this section on the first day of the calendar month 5
following the expiration of forty-five (45) days following receipt of the information 6
required by subsection (7)(b) of this section.] 7
Section 10. KRS 138.143 is amended to read as follows: 8
(1) Every retailer, subjobber[sub-jobber], resident wholesaler, nonresident wholesaler, 9
and unclassified acquirer shall: 10
(a) Take a physical inventory of all cigarettes in packages bearing Kentucky tax 11
stamps, and all unaffixed Kentucky cigarette tax stamps possessed by them or 12
in their control at 11:59 p.m. on July 31, 2022[June 30, 2018]. Inventory of 13
cigarettes in vending machines may be accomplished by: 14
1. Taking an actual physical inventory; 15
2. Estimating the cigarettes in vending machines by reporting one-half 16
(1/2) of the normal fill capacity of the machines, as reflected in 17
individual inventory records maintained for vending machines; or 18
3. Using a combination of the methods prescribed in subparagraphs 1. and 19
2. of this paragraph; 20
(b) File a return with the department on or before August 10, 2022[July 10, 21
2018], showing the entire wholesale and retail inventories of cigarettes in 22
packages bearing Kentucky tax stamps, and all unaffixed Kentucky cigarette 23
tax stamps possessed by them or in their control at 11:59 p.m. on July 31, 24
2022[June 30, 2018]; and 25
(c) Pay a floor stock tax at a proportionate rate equal to fifty cents ($0.50) on each 26
twenty (20) cigarettes in packages bearing a Kentucky tax stamp and 27 UNOFFICIAL COPY 22 RS BR 337
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unaffixed Kentucky tax stamps in their possession or control at 11:59 p.m. on 1
July 31, 2022[June 30, 2018]. 2
(2) Every retailer and subjobber[sub-jobber] shall: 3
(a) 1. Take a physical inventory of all units of snuff possessed by them or in 4
their control at 11:59 p.m. on July 31, 2022[March 31, 2009]; 5
2. File a return with the department on or before August 10, 2022[April 10, 6
2009], showing the entire inventory of snuff possessed by them or in 7
their control at 11:59 p.m. on July 31, 2022[March 31, 2009]; and 8
3. Pay a floor stock tax for each unit of snuff in their possession or 9
control at 11:59 p.m. on July 31, 2022, at a proportionate rate equal to 10
thirty-two cents ($0.32)[nine and one-half cents ($0.095)] per each one 11
and one-half (1-1/2) ounces or portion therefor[on each unit of snuff in 12
their possession or control at 11:59 p.m. on March 31, 2009]; [and] 13
(b) 1. Take a physical inventory of all units of chewing tobacco possessed by 14
them or in their control at 11:59 p.m. on July 31, 2022; 15
2. File a return with the department on or before August 10, 2022, 16
showing the entire inventory of chewing tobacco possessed by them or 17
in their control at 11:59 p.m. on July 31, 2022; and 18
3. Pay a floor stock tax for each unit of chewing tobacco in their 19
possession or control at 11:59 p.m. on July 31, 2022; at proportionate 20
rates equal to the following: 21
a. Thirty-two cents ($0.32) on each single unit; 22
b. Sixty-seven cents ($0.67) on each half-pound unit; or 23
c. One dollar and eight cents ($1.08) on each unit of chewing 24
tobacco; and 25
d. If the container, pouch or package on which the tax is levied 26
contains more than sixteen (16) ounces by net weight, the rate 27 UNOFFICIAL COPY 22 RS BR 337
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that shall be applied to the unit shall equal the sum of one dollar 1
and eight cents ($1.08) plus thirty-two cents ($0.32) for each 2
increment of four (4) ounces or portion thereof exceeding 3
sixteen (16) ounces sold; 4
(c) 1. a. Take a physical inventory of all vapor products possessed by 5
them or in their control at 11:59 p.m. on July 31, 2022; 6
b. File a return with the department on or before August 10, 2022, 7
showing the entire inventories of vapor products possessed by 8
them or in their control at 11:59 p.m. on July 31, 2022; and 9
c. i. Pay a floor stock tax on closed vapor cartridges at a 10
proportionate rate equal to the difference between one 11
dollar and fifty cents ($1.50) per cartridge and forty percent 12
(40%) of the purchase price for each cartridge in their 13
possession or control at 11:59 p.m. on July 31, 2022; and 14
ii. Pay a floor stock tax on open vapor systems at a 15
proportionate rate equal to twenty-five percent (25%) of the 16
purchase price for each open vapor system in their 17
possession or control at 11:59 p.m. on July 31, 2022. 18
2. a. As used in subparagraph 1. of this paragraph, "purchases price" 19
means the actual amount paid for the closed vapor cartridge or 20
the open vapor system subject to the tax imposed by this 21
subsection. 22
b. If the retailer or subjobber cannot determine the actual amount 23
paid for each closed vapor cartridge or open system, the retailer 24
or subjobber may use as the purchase price the amount per unit 25
paid as reflected on the most recent invoice received prior to 26
August 1, 2022, for the same category of vapor product. 27 UNOFFICIAL COPY 22 RS BR 337
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c. To prevent double taxation, if the invoice used by the retailer or 1
subjobber to determine the purchase price of the vapor product 2
does not separately state the tax paid by the wholesaler, the 3
retailer or subjobber may reduce the amount paid per unit by 4
fifteen percent (15%); and 5
(d)[(b)] 1. a. Take a physical inventory of all[ other] tobacco products, 6
except vapor products, possessed by them or in their control at 7
11:59 p.m. on July 31, 2022[March 31, 2009]; 8
b. File a return with the department on or before August 10, 9
2022[April 10, 2009], showing the entire inventories of[ other] 10
tobacco products, except vapor products, possessed by them or in 11
their control at 11:59 p.m. on July 31, 2022[March 31, 2009]; and 12
c. Pay a floor stock tax at a proportionate rate equal to twenty-five 13
percent (25%)[seven and one-half percent (7.5%)] on the purchase 14
price of[ other] tobacco products, except vapor products, in their 15
possession or control at 11:59 p.m. on July 31, 2022[March 31, 16
2009]. 17
2. a. As used in this paragraph, "purchase price" means the actual 18
amount paid for the[ other] tobacco products subject to the tax 19
imposed by this paragraph. 20
b. If the retailer or subjobber[sub-jobber] cannot determine the actual 21
amount paid for each item of[ other] tobacco product, the retailer 22
or subjobber[sub-jobber] may use as the purchase price the 23
amount per unit paid as reflected on the most recent invoice 24
received prior to August 1, 2022[April 1, 2009], for the same 25
category of[ other] tobacco product. 26
c. To prevent double taxation, if the invoice used by the retailer or 27 UNOFFICIAL COPY 22 RS BR 337
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subjobber[sub-jobber] to determine the purchase price of the[ 1
other] tobacco product does not separately state the tax paid by the 2
wholesaler, the retailer or subjobber[sub-jobber] may reduce the 3
amount paid per unit by fifteen percent (15%)[seven and one-half 4
percent (7.5%)]. 5
(3) (a) The taxes imposed by this section may be paid in three (3) installments. The 6
first installment, in an amount equal to at least one-third (1/3) of the total 7
amount due, shall be remitted with the return provided by the department on 8
or before August 10, 2022[July 10, 2018]. The second installment, in an 9
amount that brings the total amount paid to at least two-thirds (2/3) of the total 10
amount due, shall be remitted on or before September 10, 2022[August 10, 11
2018]. The third installment, in an amount equal to the remaining balance, 12
shall be remitted on or before October 10, 2022[September 10, 2018]. 13
(b) Interest shall not be imposed against any outstanding installment payment not 14
yet due from any retailer, subjobber[sub-jobber], resident wholesaler, 15
nonresident wholesaler, or unclassified acquirer who files the return and 16
makes payments as required under this section. 17
(c) Any retailer, subjobber[sub-jobber], resident wholesaler, nonresident 18
wholesaler, or unclassified acquirer who fails to file a return or make a 19
payment on or before the dates provided in this section shall, in addition to the 20
tax, pay interest at the tax interest rate as defined in KRS 131.010(6) from the 21
date on which the return was required to be filed. 22
Section 11. KRS 138.146 is amended to read as follows: 23
(1) The cigarette tax shall be due when any licensed wholesaler or unclassified acquirer 24
takes possession within this state of untax-paid cigarettes. 25
(2) (a) The cigarette tax shall be paid by the purchase of stamps by a resident 26
wholesaler within forty-eight (48) hours after the wholesaler receives the 27 UNOFFICIAL COPY 22 RS BR 337
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cigarettes. 1
(b) A stamp shall be affixed to each package of an aggregate denomination not 2
less than the amount of the cigarette tax on the package. 3
(c) The affixed stamp shall be prima facie evidence of payment of the cigarette 4
tax. 5
(d) Unless stamps have been previously affixed, they shall be affixed by each 6
resident wholesaler prior to the delivery of any cigarettes to a retail location or 7
any person in this state. 8
(e) The evidence of cigarette tax payment shall be affixed to each individual 9
package of cigarettes by a nonresident wholesaler prior to the introduction or 10
importation of the cigarettes into the territorial limits of this state. 11
(f) The evidence of cigarette tax payment shall be affixed by an unclassified 12
acquirer within twenty-four (24) hours after the cigarettes are received by the 13
unclassified acquirer. 14
(3) (a) The department shall by regulation prescribe the form of cigarette tax 15
evidence, the method and manner of the sale and distribution of cigarette tax 16
evidence, and the method and manner that tax evidence shall be affixed to the 17
cigarettes. 18
(b) All cigarette tax evidence prescribed by the department shall be designed and 19
furnished in a fashion to permit identification of the person that affixed the 20
cigarette tax evidence to the particular package of cigarettes, by means of 21
numerical rolls or other mark on the cigarette tax evidence. 22
(c) The department shall maintain for at least three (3) years information 23
identifying the person that affixed the cigarette tax evidence to each package 24
of cigarettes. This information shall not be kept confidential or exempt from 25
disclosure to the public through open records. 26
(4) (a) Units of cigarette tax evidence shall be sold at their face value, but the 27 UNOFFICIAL COPY 22 RS BR 337
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department shall allow as compensation to any licensed wholesaler an amount 1
of tax evidence equal to thirty cents ($0.30) face value for each three dollars 2
($3) of tax evidence purchased at face value and attributable to the tax 3
assessed in KRS 138.140(1)(a). No compensation shall be allowed for tax 4
evidence purchased at face value attributable to the surtaxes imposed in KRS 5
138.140(1)(b) or (c). 6
(b) The department shall have the power to withhold compensation as provided in 7
paragraph (a) of this subsection from any licensed wholesaler for failure to 8
abide by any provisions of KRS 138.130 to 138.205 or any administrative 9
regulations promulgated thereunder. Any refund or credit for unused cigarette 10
tax evidence shall be reduced by the amount allowed as compensation at the 11
time of purchase. 12
(5) (a) Payment for units of cigarette tax evidence shall be made at the time the units 13
are sold, unless the licensed wholesaler: 14
1. Has filed with the department a bond, issued by a corporation authorized 15
to do surety business in Kentucky, in an amount: 16
a. Determined by the department; or 17
b. i. Not less than the monthly average of payments by the 18
wholesaler for the units of cigarette tax evidence purchased 19
in the immediately preceding calendar year, which may be 20
delayed under paragraph (b) of this subsection; and 21
ii. No greater than ten million dollars ($10,000,000); and 22
2. Has registered and agrees to make the payment of tax to the department 23
electronically. 24
At no time shall the licensed wholesaler be allowed to delay any payment for 25
units of cigarette tax evidence, including tax, penalty, interest, or collection 26
fees, which would exceed the amount of bond filed with the department. 27 UNOFFICIAL COPY 22 RS BR 337
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(b) Except as provided in paragraph (c) of this subsection, if the licensed 1
wholesaler qualifies under paragraph (a) of this subsection, the licensed 2
wholesaler shall have ten (10) days from the date of purchase to remit 3
payment of cigarette tax, without the assessment of civil penalties under KRS 4
131.180 or interest under KRS 131.183 during the ten (10) day period. 5
(c) 1. The ten (10) day payment period under paragraph (b) of this subsection 6
shall not apply to the payment for units of cigarette tax evidence during 7
the last ten (10) days of the month of June during each fiscal year. 8
2. All payments for units of cigarette tax evidence made under paragraph 9
(b) of this subsection during the month of June shall be made the earlier 10
of: 11
a. The ten (10) day period; or 12
b. June 25. 13
(d) If the licensed wholesaler does not make the payment of cigarette tax within 14
the ten (10) day period, or within the period of time under paragraph (c) of 15
this subsection, the department shall: 16
1. Revoke the license required under KRS 138.195; 17
2. Issue a demand for payment in an amount equal to the cigarette tax 18
evidence purchased, plus all penalties, interest, and collection fees 19
applicable, up to the amount of the required bond; and 20
3. Require immediate payment of the bond. 21
(6) (a) The bond required under subsection (5) of this section shall be on a form and 22
with a surety approved by the department. 23
(b) The licensed wholesaler shall be named as the principal obligor and the 24
department shall be named as the obligee within the bond. 25
(c) The bond shall be conditioned upon the payment by the licensed wholesaler of 26
all cigarette tax imposed by the Commonwealth. 27 UNOFFICIAL COPY 22 RS BR 337
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(d) The provisions of KRS 131.110 shall not apply to the demand for payment 1
required under subsection (5)(c)2. of this section. 2
(7) (a) No tax evidence may be affixed, or used in any way, by any person other than 3
the person purchasing the evidence from the department. 4
(b) Tax evidence may not be transferred or negotiated, and may not, by any 5
scheme or device, be given, bartered, sold, traded, or loaned to any other 6
person. 7
(c) Unaffixed tax evidence may be returned to the department for credit or refund 8
for any reason satisfactory to the department. 9
(8) (a) In the event any retailer receives into his possession cigarettes to which 10
evidence of Kentucky tax payment is not properly affixed, the retailer shall, 11
within twenty-four (24) hours, notify the department of the receipt. 12
(b) The notification to the department shall be in writing, stating the name of the 13
person from whom the cigarettes were received and the quantity of those 14
cigarettes. 15
(c) The written notice may be: 16
1. Given to any field agent of the department; or 17
2. Directed to the commissioner of the Department of Revenue, Frankfort, 18
Kentucky. 19
(d) If the notice is given by means of the United States mail, it shall be sent by 20
certified mail. 21
(e) Any such cigarettes shall be retained by the retailer, and not sold, for a period 22
of fifteen (15) days after giving the notice provided in this subsection. 23
(f) The retailer may, at his option, pay the tax due on those cigarettes according to 24
administrative regulations prescribed by the department, and proceed to sell 25
those cigarettes after the payment. 26
(9) (a) Cigarettes stamped with the cigarette tax evidence of another state shall at no 27 UNOFFICIAL COPY 22 RS BR 337
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time be commingled with cigarettes on which the Kentucky cigarette tax 1
evidence has been affixed. 2
(b) Any licensed wholesaler, licensed subjobber[sub-jobber], or licensed vending 3
machine operator may hold cigarettes stamped with the tax evidence of 4
another state for any period of time, subsection (2) of this section 5
notwithstanding. 6
Section 12. KRS 138.195 is amended to read as follows: 7
(1) (a) No person other than a manufacturer shall acquire cigarettes in this state on 8
which the Kentucky cigarette tax has not been paid, nor act as a resident 9
wholesaler, nonresident wholesaler, vending machine operator, 10
subjobber[sub-jobber], transporter or unclassified acquirer of such cigarettes 11
without first obtaining a license from the department as set out in this section. 12
(b) No person shall act as a distributor of tobacco products[ or vapor products] 13
without first obtaining a license from the department as set out in this section. 14
(c) For licenses effective for periods beginning on or after July 1, 2015, no 15
individual, entity, or any other group or combination acting as a unit may be 16
eligible to obtain a license under this section if the individual, or any partner, 17
director, principal officer, or manager of the entity or any other group or 18
combination acting as a unit has been convicted of or entered a plea of guilty 19
or nolo contendere to: 20
1. A crime relating to the reporting, distribution, sale, or taxation of 21
cigarettes[,] or tobacco products[, or vapor products]; or 22
2. A crime involving fraud, falsification of records, improper business 23
transactions or reporting; 24
for ten (10) years from the expiration of probation or final discharge from 25
parole or maximum expiration of sentence. 26
(2) (a) Each resident wholesaler shall secure a separate license for each place of 27 UNOFFICIAL COPY 22 RS BR 337
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business at which cigarette tax evidence is affixed or at which cigarettes on 1
which the Kentucky cigarette tax has not been paid are received. 2
(b) Each nonresident wholesaler shall secure a separate license for each place of 3
business at which evidence of Kentucky cigarette tax is affixed or from where 4
Kentucky cigarette tax is reported and paid. 5
(c) Each license shall be secured on or before July 1 of each year. 6
(d) Each licensee shall pay the sum of five hundred dollars ($500) for each year, 7
or portion thereof, for which each license is secured. 8
(3) (a) Each subjobber[sub-jobber] shall secure a separate license for each place of 9
business from which cigarettes, upon which the cigarette tax has been paid, 10
are made available to retailers, whether the place of business is located within 11
or without this state. 12
(b) Each license shall be secured on or before July 1 of each year. 13
(c) Each licensee shall pay the sum of five hundred dollars ($500) for each year, 14
or portion thereof, for which each license is secured. 15
(4) (a) Each vending machine operator shall secure a license for the privilege of 16
dispensing cigarettes, on which the cigarette tax has been paid, by vending 17
machines. 18
(b) Each license shall be secured on or before July 1 of each year. 19
(c) Each licensee shall pay the sum of twenty-five dollars ($25) for each year, or 20
portion thereof, for which each license is secured. 21
(d) No vending machine shall be operated within this Commonwealth without 22
having prominently affixed thereto the name of its operator and the license 23
number assigned to that operator by the department. 24
(e) The department shall prescribe by administrative regulation the manner in 25
which the information shall be affixed to the vending machine. 26
(5) (a) Each transporter shall secure a license for the privilege of transporting 27 UNOFFICIAL COPY 22 RS BR 337
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cigarettes within this state. 1
(b) Each license shall be secured on or before July 1 of each year. 2
(c) Each licensee shall pay the sum of fifty dollars ($50) for each year, or portion 3
thereof, for which each license is secured. 4
(d) No transporter shall transport any cigarettes without having in actual 5
possession an invoice or bill of lading therefor, showing: 6
1. The name and address of the consignor and consignee; 7
2. The date acquired by the transporter; 8
3. The name and address of the transporter; 9
4. The quantity of cigarettes being transported; and 10
5. The license number assigned to the transporter by the department. 11
(6) Each unclassified acquirer shall secure a license for the privilege of acquiring 12
cigarettes on which the cigarette tax has not been paid. The license shall be secured 13
on or before July 1 of each year. Each licensee shall pay the sum of fifty dollars 14
($50) for each year, or portion thereof, for which the license is secured. 15
(7) (a) 1. Each distributor shall secure a license for the privilege of selling tobacco 16
products[ or vapor products] in this state. Each license shall be secured 17
on or before July 1 of each year, and each licensee shall pay the sum of 18
five hundred dollars ($500) for each year, or portion thereof, for which 19
the license is secured. 20
2. a. A resident wholesaler, nonresident wholesaler, or subjobber 21
licensed under this section may also obtain and maintain a 22
distributor's license at each place of business at no additional cost 23
each year. 24
b. An unclassified acquirer licensed under this section may also 25
obtain and maintain a distributor's license for the privilege of 26
selling tobacco products[ or vapor products] in this state. The 27 UNOFFICIAL COPY 22 RS BR 337
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license shall be secured on or before July 1 of each year, and each 1
licensee shall pay the sum of four hundred fifty dollars ($450) for 2
each year, or portion thereof, for which the license is secured. 3
3. The department may, upon application, grant a distributor's license to a 4
person other than a retailer and who is not otherwise required to hold a 5
distributor's license under this paragraph. If the department grants the 6
license, the licensee shall pay the sum of five hundred dollars ($500) for 7
each year, or portion thereof, for which the license is secured, and the 8
licensee shall be subject to the excise tax in the same manner and subject 9
to the same requirements as a distributor required to be licensed under 10
this paragraph. 11
(b) The department may, upon application, grant a retail distributor's license to a 12
retailer for the privilege of purchasing tobacco products[ or vapor products] 13
from a distributor not licensed by the department. If the department grants the 14
license, the licensee shall pay the sum of one hundred dollars ($100) for each 15
year, or portion thereof, for which the license is secured. 16
(8) Nothing in KRS 138.130 to 138.205 shall be construed to prevent the department 17
from requiring a person to purchase more than one (1) license if the nature of that 18
person's business is so diversified as to justify the requirement. 19
(9) (a) The department may by administrative regulation require any person 20
requesting a license or holding a license under this section to supply such 21
information concerning his or her business, sales or any privilege exercised, as 22
is deemed reasonably necessary for the regulation of the licensees, and to 23
protect the revenues of the state. 24
(b) Failure on the part of the applicant or licensee to: 25
1. Comply with KRS 131.600 to 131.630, 138.130 to 138.205, 248.752, or 26
248.754 or any administrative regulations promulgated thereunder; or 27 UNOFFICIAL COPY 22 RS BR 337
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2. Permit an inspection of premises, machines, or vehicles by an authorized 1
agent of the department at any reasonable time; 2
shall be grounds for the denial or revocation of any license issued by the 3
department, after due notice and a hearing by the department. 4
(c) The commissioner may assign a time and place for the hearing and may 5
appoint a conferee who shall conduct a hearing, receive evidence, and hear 6
arguments. 7
(d) The conferee shall thereupon file a report with the commissioner together with 8
a recommendation as to the denial or revocation of the license. 9
(e) From any denial or revocation made by the commissioner on the report, the 10
licensee may prosecute an appeal to the Board of Tax Appeals pursuant to 11
KRS 49.220. 12
(f) Any person whose license has been revoked for the willful violation of any 13
provision of KRS 131.600 to 131.630, 138.130 to 138.205, 248.752, or 14
248.754 or any administrative regulations promulgated thereunder shall not be 15
entitled to any license provided for in this section, or have any interest in any 16
license, either disclosed or undisclosed, either as an individual, partnership, 17
corporation or otherwise, for a period of two (2) years after the revocation. 18
(10) No license issued pursuant to this section shall be transferable or negotiable, except 19
that a license may be transferred between an individual and a corporation if that 20
individual is the exclusive owner of that corporation, or between a subsidiary 21
corporation and its parent corporation. 22
(11) Every manufacturer located or doing business in this state and the first person to 23
import cigarettes into this state shall keep written records of all shipments of 24
cigarettes to persons within this state, and shall submit to the department monthly 25
reports of such shipments. All books, records, invoices, and documents required by 26
this section shall be preserved in a form prescribed by the department for not less 27 UNOFFICIAL COPY 22 RS BR 337
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than four (4) years from the making of the records unless the department authorizes, 1
in writing, the destruction of the records. 2
(12) No person licensed under this section except nonresident wholesalers shall either 3
sell to or purchase from any other such licensee untax-paid cigarettes. 4
(13) (a) Licensed distributors of tobacco products[ or vapor products] shall pay and 5
report the tobacco products tax[ or vapor products tax] on or before the 6
twentieth day of the calendar month following the month in which the 7
possession or title of the tobacco products[ or vapor products] are transferred 8
from the licensed distributor to retailers or consumers in this state, as the case 9
may be. 10
(b) Retailers who have applied for and been granted a retail distributor's license 11
for the privilege of purchasing tobacco products[ or vapor products] from a 12
person who is not a distributor licensed under KRS 138.195(7)(a) shall report 13
and pay the tobacco products tax[ or vapor products tax] on or before the 14
twentieth day of the calendar month following the month in which the 15
products are acquired by the licensed retail distributors. 16
(c) If the distributor or retail distributor timely reports and pays the tax due, the 17
distributor or retail distributor may deduct an amount equal to one percent 18
(1%) of the tax due. 19
(d) The department shall promulgate administrative regulations setting forth the 20
details of the reporting requirements. 21
(14) A tax return shall be filed for each reporting period whether or not tax is due. 22
(15) Any license issued by the department under this section shall not be construed to 23
waive or condone any violation that occurred or may have occurred prior to the 24
issuance of the license and shall not prevent subsequent proceedings against the 25
licensee. 26
(16) (a) The department may deny the issuance of a license under this section if: 27 UNOFFICIAL COPY 22 RS BR 337
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1. The applicant has made any material false statement on the application 1
for the license; or 2
2. The applicant has violated any provision of KRS 131.600 to 131.630, 3
138.130 to 138.205, 248.754, or 248.756 or any administrative 4
regulations promulgated thereunder. 5
(b) If the department denies the applicant a license under this section, the 6
department shall notify the applicant of the grounds for the denial, and the 7
applicant may request a hearing and appeal the denial as provided in 8
subsection (9) of this section. 9
Section 13. KRS 138.197 is amended to read as follows: 10
The department shall publish and maintain on its Web site an up-to-date list of tobacco 11
products[ and vapor products] distributors licensed under KRS 138.195(7). 12
Section 14. KRS 138.510 is amended to read as follows: 13
(1) (a) Except as provided in paragraph (d) of this subsection and subsection (3) of 14
this section, an excise tax is imposed on all tracks conducting pari-mutuel 15
wagering on live racing under the jurisdiction of the commission as follows: 16
1. For each track with a daily average live handle of one million two 17
hundred thousand dollars ($1,200,000) or above, the tax shall be in the 18
amount of three and one-half percent (3.5%) of all money wagered on 19
live races at the track during the fiscal year; and 20
2. For each track with a daily average live handle under one million two 21
hundred thousand dollars ($1,200,000), the tax shall be one and one-half 22
percent (1.5%) of all money wagered on live races at the track during the 23
fiscal year. 24
(b) Beginning on April 1, 2014, an excise tax is imposed on all tracks conducting 25
pari-mutuel wagering on historical horse races under the jurisdiction of the 26
commission at a rate of one and one-half percent (1.5%) of all money wagered 27 UNOFFICIAL COPY 22 RS BR 337
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on historical horse races at the track during the fiscal year. 1
(c) Money shall be deducted from the tax paid under paragraphs (a) and (b) of 2
this subsection and deposited as follows: 3
1. An amount equal to three-quarters of one percent (0.75%) of all money 4
wagered on live races and historical horse races at the track for 5
Thoroughbred racing shall be deposited in the Thoroughbred 6
development fund established in KRS 230.400; 7
2. An amount equal to one percent (1%) of all money wagered on live 8
races and historical horse races at the track for harness racing shall be 9
deposited in the Kentucky standardbred development fund established in 10
KRS 230.770; 11
3. An amount equal to one percent (1%) of all money wagered on live 12
races and historical horse races at the track for quarter horse, paint horse, 13
Appaloosa, and Arabian horse racing shall be deposited in the Kentucky 14
quarter horse, paint horse, Appaloosa, and Arabian development fund 15
established by KRS 230.445; 16
4. An amount equal to two-tenths of one percent (0.2%) of all money 17
wagered on live races and historical horse races at the track shall be 18
deposited in the equine industry program trust and revolving fund 19
established by KRS 230.550 to support the Equine Industry Program at 20
the University of Louisville, except that the amount deposited from 21
money wagered on historical horse races in any fiscal year shall not 22
exceed six hundred fifty thousand dollars ($650,000); 23
5. a. An amount equal to one-tenth of one percent (0.1%) of all money 24
wagered on live races and historical horse races at the track shall 25
be deposited in a trust and revolving fund to be used for the 26
construction, expansion, or renovation of facilities or the purchase 27 UNOFFICIAL COPY 22 RS BR 337
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of equipment for equine programs at state universities, except that 1
the amount deposited from money wagered on historical horse 2
races in any fiscal year shall not exceed three hundred twenty 3
thousand dollars ($320,000). 4
b. These funds shall not be used for salaries or for operating funds for 5
teaching, research, or administration. Funds allocated under this 6
subparagraph shall not replace other funds for capital purposes or 7
operation of equine programs at state universities. 8
c. The Kentucky Council on Postsecondary Education shall serve as 9
the administrative agent and shall establish an advisory committee 10
of interested parties, including all universities with established 11
equine programs, to evaluate proposals and make 12
recommendations for the awarding of funds. 13
d. The Kentucky Council on Postsecondary Education may 14
promulgate administrative regulations to establish procedures for 15
administering the program and criteria for evaluating and awarding 16
grants; and 17
6. An amount equal to one-tenth of one percent (0.1%) of all money 18
wagered on live races and historical horse races shall be distributed to 19
the commission to support equine drug testing as provided in KRS 20
230.265(3), except that the amount deposited from money wagered on 21
historical horse races in any fiscal year shall not exceed three hundred 22
twenty thousand dollars ($320,000). 23
(d) The excise tax imposed by paragraph (a) of this subsection shall not apply to 24
pari-mutuel wagering on live harness racing at a county fair. 25
(e) The excise tax imposed by paragraph (a) of this subsection, and the 26
distributions provided for in paragraph (c) of this subsection, shall apply to 27 UNOFFICIAL COPY 22 RS BR 337
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money wagered on historical horse races beginning September 1, 2011, 1
through March 31, 2014, and historical horse races shall be considered live 2
racing for purposes of determining the daily average live handle. Beginning 3
April 1, 2014, the tax imposed by paragraph (b) of this subsection shall apply 4
to money wagered on historical horse races. 5
(2) (a) Except as provided in paragraph (c) of this subsection, an excise tax is 6
imposed on: 7
1. All tracks conducting telephone account wagering; 8
2. All tracks participating as receiving tracks in intertrack wagering under 9
the jurisdiction of the commission; and 10
3. All tracks participating as receiving tracks displaying simulcasts and 11
conducting interstate wagering thereon. 12
(b) The tax shall be three percent (3%) of all money wagered on races as provided 13
in paragraph (a) of this subsection during the fiscal year. 14
(c) A noncontiguous track facility approved by the commission on or after 15
January 1, 1999, shall be exempt from the tax imposed under this subsection, 16
if the facility is established and operated by a licensed track which has a total 17
annual handle on live racing of two hundred fifty thousand dollars ($250,000) 18
or less. The amount of money exempted under this paragraph shall be retained 19
by the noncontiguous track facility, KRS 230.3771 and 230.378 20
notwithstanding. 21
(d) Money shall be deducted from the tax paid under paragraphs (a) and (b) of 22
this subsection as follows: 23
1. An amount equal to two percent (2%) of the amount wagered shall be 24
deposited as follows: 25
a. In the Thoroughbred development fund established in KRS 26
230.400 if the host track is conducting a Thoroughbred race 27 UNOFFICIAL COPY 22 RS BR 337
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meeting or the interstate wagering is conducted on a Thoroughbred 1
race meeting; 2
b. In the Kentucky standardbred development fund established in 3
KRS 230.770, if the host track is conducting a harness race 4
meeting or the interstate wagering is conducted on a harness race 5
meeting; or 6
c. In the Kentucky quarter horse, paint horse, Appaloosa, and 7
Arabian development fund established by KRS 230.445, if the host 8
track is conducting a quarter horse, paint horse, Appaloosa, or 9
Arabian horse race meeting or the interstate wagering is conducted 10
on a quarter horse, paint horse, Appaloosa, or Arabian horse race 11
meeting; 12
2. An amount equal to one-twentieth of one percent (0.05%) of the amount 13
wagered shall be allocated to the equine industry program trust and 14
revolving fund established by KRS 230.550 to be used to support the 15
Equine Industry Program at the University of Louisville; 16
3. An amount equal to one-tenth of one percent (0.1%) of the amount 17
wagered shall be deposited in a trust and revolving fund to be used for 18
the construction, expansion, or renovation of facilities or the purchase of 19
equipment for equine programs at state universities, as detailed in 20
subsection (1)(c)5. of this section; and 21
4. An amount equal to one-tenth of one percent (0.1%) of the amount 22
wagered shall be distributed to the commission to support equine drug 23
testing as provided in KRS 230.265(3). 24
(3) If a host track in this state is the location for the conduct of a two (2) day 25
international horse racing event that distributes in excess of a total of twenty million 26
dollars ($20,000,000) in purses and awards: 27 UNOFFICIAL COPY 22 RS BR 337
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(a) The excise tax imposed by subsection (1)(a) of this section and the surtax 1
imposed by subsection (4) of this section shall not apply to money wagered at 2
the track on live races conducted at the track during the two (2) day 3
international horse racing event; and 4
(b) Amounts wagered at the track on live races conducted at the track during the 5
two (2) day international horse racing event shall not be included in 6
calculating the daily average live handle for purposes of subsection (1) of this 7
section. 8
(4) (a) Beginning August 1, 2022, in addition to the taxes imposed in subsections 9
(1) and (2) of this section and KRS 138.513, a surtax shall be imposed on 10
all: 11
1. Tracks conducting pari-mutuel wagering on live racing under the 12
jurisdiction of the commission; 13
2. Tracks conducting pari-mutuel wagering on historical horse races 14
under the jurisdiction of the commission; 15
3. Tracks conducting telephone account wagering; 16
4. Tracks participating as receiving tracks in intertrack wagering under 17
the jurisdiction of the commission; 18
5. Tracks participating as receiving tracks displaying simulcasts and 19
conducting interstate wagering thereon; and 20
6. Licensees licensed under KRS 230.260 receiving amounts wagered by 21
Kentucky residents. 22
(b) The surtax imposed under paragraph (a) of this subsection shall be levied 23
upon all amounts wagered at the following rates: 24
1. For tracks conducting pari-mutuel wagering on live racing and 25
remitting tax under subsection (1)(a)2. of this section, two percent 26
(2%); 27 UNOFFICIAL COPY 22 RS BR 337
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2. For tracks conducting pari-mutuel wagering on historical horse races, 1
two percent (2%); 2
3. For tracks conducting telephone account wagering, one-half of one 3
percent (0.5%); 4
4. For tracks participating as receiving tracks in intertrack wagering, 5
one-half of one percent (0.5%); 6
5. For tracks participating as receiving tracks displaying simulcasts and 7
conducting interstate wagering thereon, one-half of one percent 8
(0.5%); and 9
6. For licensees licensed under KRS 230.260 receiving amounts wagered 10
by Kentucky residents, three percent (3%). 11
(c) All moneys collected from the surtax imposed under this subsection shall be 12
deposited in the general fund with no distributions made therefrom. 13
(5) The taxes imposed by this section shall be paid, collected, and administered as 14
provided in KRS 138.530. 15
Section 15. KRS 139.010 is amended to read as follows: 16
As used in this chapter, unless the context otherwise provides: 17
(1) (a) "Admissions" means the fees paid for: 18
1. The right of entrance to a display, program, sporting event, music 19
concert, performance, play, show, movie, exhibit, fair, or other 20
entertainment or amusement event or venue; and 21
2. The privilege of using facilities or participating in an event or activity, 22
including but not limited to: 23
a. Bowling centers; 24
b. Skating rinks; 25
c. Health spas; 26
d. Swimming pools; 27 UNOFFICIAL COPY 22 RS BR 337
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e. Tennis courts; 1
f. Weight training facilities; 2
g. Fitness and recreational sports centers; and 3
h. Golf courses, both public and private; 4
regardless of whether the fee paid is per use or in any other form, 5
including but not limited to an initiation fee, monthly fee, membership 6
fee, or combination thereof. 7
(b) "Admissions" does not include: 8
1. Any fee paid to enter or participate in a fishing tournament; or 9
2. For transactions occurring on or after July 1, 2019, but before 10
October 1, 2022, any fee paid for the use of a boat ramp for the purpose 11
of allowing boats to be launched into or hauled out from the water; 12
(2) "Advertising and promotional direct mail" means direct mail the primary purpose of 13
which is to attract public attention to a product, person, business, or organization, or 14
to attempt to sell, popularize, or secure financial support for a product, person, 15
business, or organization. As used in this definition, "product" means tangible 16
personal property, an item transferred electronically, or a service; 17
(3) "Business" includes any activity engaged in by any person or caused to be engaged 18
in by that person with the object of gain, benefit, or advantage, either direct or 19
indirect; 20
(4) "Commonwealth" means the Commonwealth of Kentucky; 21
(5) "Department" means the Department of Revenue; 22
(6) (a) "Digital audio-visual works" means a series of related images which, when 23
shown in succession, impart an impression of motion, with accompanying 24
sounds, if any. 25
(b) "Digital audio-visual works" includes movies, motion pictures, musical 26
videos, news and entertainment programs, and live events. 27 UNOFFICIAL COPY 22 RS BR 337
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(c) "Digital audio-visual works" shall not include video greeting cards, video 1
games, and electronic games; 2
(7) (a) "Digital audio works" means works that result from the fixation of a series of 3
musical, spoken, or other sounds. 4
(b) "Digital audio works" includes ringtones, recorded or live songs, music, 5
readings of books or other written materials, speeches, or other sound 6
recordings. 7
(c) "Digital audio works" shall not include audio greeting cards sent by electronic 8
mail; 9
(8) (a) "Digital books" means works that are generally recognized in the ordinary and 10
usual sense as books, including any literary work expressed in words, 11
numbers, or other verbal or numerical symbols or indicia if the literary work is 12
generally recognized in the ordinary or usual sense as a book. 13
(b) "Digital books" shall not include digital audio-visual works, digital audio 14
works, periodicals, magazines, newspapers, or other news or information 15
products, chat rooms, or Web logs; 16
(9) (a) "Digital code" means a code which provides a purchaser with a right to obtain 17
one (1) or more types of digital property. A "digital code" may be obtained by 18
any means, including electronic mail messaging or by tangible means, 19
regardless of the code's designation as a song code, video code, or book code. 20
(b) "Digital code" shall not include a code that represents: 21
1. A stored monetary value that is deducted from a total as it is used by the 22
purchaser; or 23
2. A redeemable card, gift card, or gift certificate that entitles the holder to 24
select specific types of digital property; 25
(10) (a) "Digital property" means any of the following which is transferred 26
electronically: 27 UNOFFICIAL COPY 22 RS BR 337
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1. Digital audio works; 1
2. Digital books; 2
3. Finished artwork; 3
4. Digital photographs; 4
5. Periodicals; 5
6. Newspapers; 6
7. Magazines; 7
8. Video greeting cards; 8
9. Audio greeting cards; 9
10. Video games; 10
11. Electronic games; or 11
12. Any digital code related to this property. 12
(b) "Digital property" shall not include digital audio-visual works or satellite 13
radio programming; 14
(11) (a) "Direct mail" means printed material delivered or distributed by United States 15
mail or other delivery service to a mass audience or to addressees on a mailing 16
list provided by the purchaser or at the direction of the purchaser when the 17
cost of the items are not billed directly to the recipient. 18
(b) "Direct mail" includes tangible personal property supplied directly or 19
indirectly by the purchaser to the direct mail retailer for inclusion in the 20
package containing the printed material. 21
(c) "Direct mail" does not include multiple items of printed material delivered to 22
a single address; 23
(12) "Directly used in the manufacturing or industrial processing process" means the 24
process that commences with the movement of raw materials from storage into a 25
continuous, unbroken, integrated process and ends when the finished product is 26
packaged and ready for sale; 27 UNOFFICIAL COPY 22 RS BR 337
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(13) (a) "Extended warranty services" means services provided through a service 1
contract agreement between the contract provider and the purchaser where the 2
purchaser agrees to pay compensation for the contract and the provider agrees 3
to repair, replace, support, or maintain tangible personal property or digital 4
property according to the terms of the contract if: 5
1. The service contract agreement is sold or purchased on or after July 1, 6
2018; and 7
2. The tangible personal property or digital property for which the service 8
contract agreement is provided is subject to tax under this chapter or 9
under KRS 138.460. 10
(b) "Extended warranty services" does not include the sale of a service contract 11
agreement for tangible personal property to be used by a small telephone 12
utility as defined in KRS 278.516 or a Tier III CMRS provider as defined in 13
KRS 65.7621 to deliver communications services as defined in KRS 136.602 14
or broadband as defined in KRS 278.5461; 15
(14) (a) "Finished artwork" means final art that is used for actual reproduction by 16
photomechanical or other processes or for display purposes. 17
(b) "Finished artwork" includes: 18
1. Assemblies; 19
2. Charts; 20
3. Designs; 21
4. Drawings; 22
5. Graphs; 23
6. Illustrative materials; 24
7. Lettering; 25
8. Mechanicals; 26
9. Paintings; and 27 UNOFFICIAL COPY 22 RS BR 337
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10. Paste-ups; 1
(15) (a) "Gross receipts" and "sales price" mean the total amount or consideration, 2
including cash, credit, property, and services, for which tangible personal 3
property, digital property, or services are sold, leased, or rented, valued in 4
money, whether received in money or otherwise, without any deduction for 5
any of the following: 6
1. The retailer's cost of the tangible personal property, digital property, or 7
services sold; 8
2. The cost of the materials used, labor or service cost, interest, losses, all 9
costs of transportation to the retailer, all taxes imposed on the retailer, or 10
any other expense of the retailer; 11
3. Charges by the retailer for any services necessary to complete the sale; 12
4. Delivery charges, which are defined as charges by the retailer for the 13
preparation and delivery to a location designated by the purchaser 14
including transportation, shipping, postage, handling, crating, and 15
packing; 16
5. Any amount for which credit is given to the purchaser by the retailer, 17
other than credit for tangible personal property or digital property traded 18
when the tangible personal property or digital property traded is of like 19
kind and character to the property purchased and the property traded is 20
held by the retailer for resale; and 21
6. The amount charged for labor or services rendered in installing or 22
applying the tangible personal property, digital property, or service sold. 23
(b) "Gross receipts" and "sales price" shall include consideration received by the 24
retailer from a third party if: 25
1. The retailer actually receives consideration from a third party and the 26
consideration is directly related to a price reduction or discount on the 27 UNOFFICIAL COPY 22 RS BR 337
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sale to the purchaser; 1
2. The retailer has an obligation to pass the price reduction or discount 2
through to the purchaser; 3
3. The amount of consideration attributable to the sale is fixed and 4
determinable by the retailer at the time of the sale of the item to the 5
purchaser; and 6
4. One (1) of the following criteria is met: 7
a. The purchaser presents a coupon, certificate, or other 8
documentation to the retailer to claim a price reduction or discount 9
where the coupon, certificate, or documentation is authorized, 10
distributed, or granted by a third party with the understanding that 11
the third party will reimburse any seller to whom the coupon, 12
certificate, or documentation is presented; 13
b. The price reduction or discount is identified as a third-party price 14
reduction or discount on the invoice received by the purchaser or 15
on a coupon, certificate, or other documentation presented by the 16
purchaser; or 17
c. The purchaser identifies himself or herself to the retailer as a 18
member of a group or organization entitled to a price reduction or 19
discount. A "preferred customer" card that is available to any 20
patron does not constitute membership in such a group. 21
(c) "Gross receipts" and "sales price" shall not include: 22
1. Discounts, including cash, term, or coupons that are not reimbursed by a 23
third party and that are allowed by a retailer and taken by a purchaser on 24
a sale; 25
2. Interest, financing, and carrying charges from credit extended on the sale 26
of tangible personal property, digital property, or services, if the amount 27 UNOFFICIAL COPY 22 RS BR 337
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is separately stated on the invoice, bill of sale, or similar document given 1
to the purchaser; 2
3. Any taxes legally imposed directly on the purchaser that are separately 3
stated on the invoice, bill of sale, or similar document given to the 4
purchaser; or 5
4. Local alcohol regulatory license fees authorized under KRS 243.075 that 6
are separately stated on the invoice, bill of sale, or similar document 7
given to the purchaser. 8
(d) As used in this subsection, "third party" means a person other than the 9
purchaser; 10
(16) "In this state" or "in the state" means within the exterior limits of the 11
Commonwealth and includes all territory within these limits owned by or ceded to 12
the United States of America; 13
(17) "Industrial processing" includes: 14
(a) Refining; 15
(b) Extraction of minerals, ores, coal, clay, stone, petroleum, or natural gas; 16
(c) Mining, quarrying, fabricating, and industrial assembling; 17
(d) The processing and packaging of raw materials, in-process materials, and 18
finished products; and 19
(e) The processing and packaging of farm and dairy products for sale; 20
(18) (a) "Lease or rental" means any transfer of possession or control of tangible 21
personal property for a fixed or indeterminate term for consideration. A lease 22
or rental shall include future options to: 23
1. Purchase the property; or 24
2. Extend the terms of the agreement and agreements covering trailers 25
where the amount of consideration may be increased or decreased by 26
reference to the amount realized upon sale or disposition of the property 27 UNOFFICIAL COPY 22 RS BR 337
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as defined in 26 U.S.C. sec. 7701(h)(1). 1
(b) "Lease or rental" shall not include: 2
1. A transfer of possession or control of property under a security 3
agreement or deferred payment plan that requires the transfer of title 4
upon completion of the required payments; 5
2. A transfer of possession or control of property under an agreement that 6
requires the transfer of title upon completion of the required payments 7
and payment of an option price that does not exceed the greater of one 8
hundred dollars ($100) or one percent (1%) of the total required 9
payments; or 10
3. Providing tangible personal property and an operator for the tangible 11
personal property for a fixed or indeterminate period of time. To qualify 12
for this exclusion, the operator must be necessary for the equipment to 13
perform as designed, and the operator must do more than maintain, 14
inspect, or setup the tangible personal property. 15
(c) This definition shall apply regardless of the classification of a transaction 16
under generally accepted accounting principles, the Internal Revenue Code, or 17
other provisions of federal, state, or local law; 18
(19) (a) "Machinery for new and expanded industry" means machinery: 19
1. Directly used in the manufacturing or industrial processing process of: 20
a. Tangible personal property at a plant facility; 21
b. Distilled spirits or wine at a plant facility or on the premises of a 22
distiller, rectifier, winery, or small farm winery licensed under 23
KRS 243.030 that includes a retail establishment on the premises; 24
or 25
c. Malt beverages at a plant facility or on the premises of a brewer or 26
microbrewery licensed under KRS 243.040 that includes a retail 27 UNOFFICIAL COPY 22 RS BR 337
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establishment; 1
2. Which is incorporated for the first time into: 2
a. A plant facility established in this state; or 3
b. Licensed premises located in this state; and 4
3. Which does not replace machinery in the plant facility or licensed 5
premises unless that machinery purchased to replace existing machinery: 6
a. Increases the consumption of recycled materials at the plant 7
facility by not less than ten percent (10%); 8
b. Performs different functions; 9
c. Is used to manufacture a different product; or 10
d. Has a greater productive capacity, as measured in units of 11
production, than the machinery being replaced. 12
(b) "Machinery for new and expanded industry" does not include repair, 13
replacement, or spare parts of any kind, regardless of whether the purchase of 14
repair, replacement, or spare parts is required by the manufacturer or seller as 15
a condition of sale or as a condition of warranty; 16
(20) "Manufacturing" means any process through which material having little or no 17
commercial value for its intended use before processing has appreciable commercial 18
value for its intended use after processing by the machinery; 19
(21) "Marketplace" means any physical or electronic means through which one (1) or 20
more retailers may advertise and sell tangible personal property, digital property, or 21
services, or lease tangible personal property or digital property, such as a catalog, 22
Internet Web site, or television or radio broadcast, regardless of whether the 23
tangible personal property, digital property, or retailer is physically present in this 24
state; 25
(22) (a) "Marketplace provider" means a person, including any affiliate of the person, 26
that facilitates a retail sale by satisfying subparagraphs 1. and 2. of this 27 UNOFFICIAL COPY 22 RS BR 337
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paragraph as follows: 1
1. The person directly or indirectly: 2
a. Lists, makes available, or advertises tangible personal property, 3
digital property, or services for sale by a marketplace retailer in a 4
marketplace owned, operated, or controlled by the person; 5
b. Facilitates the sale of a marketplace retailer's product through a 6
marketplace by transmitting or otherwise communicating an offer 7
or acceptance of a retail sale of tangible personal property, digital 8
property, or services between a marketplace retailer and a 9
purchaser in a forum including a shop, store, booth, catalog, 10
Internet site, or similar forum; 11
c. Owns, rents, licenses, makes available, or operates any electronic 12
or physical infrastructure or any property, process, method, 13
copyright, trademark, or patent that connects marketplace retailers 14
to purchasers for the purpose of making retail sales of tangible 15
personal property, digital property, or services; 16
d. Provides a marketplace for making retail sales of tangible personal 17
property, digital property, or services, or otherwise facilitates retail 18
sales of tangible personal property, digital property, or services, 19
regardless of ownership or control of the tangible personal 20
property, digital property, or services, that are the subject of the 21
retail sale; 22
e. Provides software development or research and development 23
activities related to any activity described in this subparagraph, if 24
the software development or research and development activities 25
are directly related to the physical or electronic marketplace 26
provided by a marketplace provider; 27 UNOFFICIAL COPY 22 RS BR 337
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f. Provides or offers fulfillment or storage services for a marketplace 1
retailer; 2
g. Sets prices for a marketplace retailer's sale of tangible personal 3
property, digital property, or services; 4
h. Provides or offers customer service to a marketplace retailer or a 5
marketplace retailer's customers, or accepts or assists with taking 6
orders, returns, or exchanges of tangible personal property, digital 7
property, or services sold by a marketplace retailer; or 8
i. Brands or otherwise identifies sales as those of the marketplace 9
provider; and 10
2. The person directly or indirectly: 11
a. Collects the sales price or purchase price of a retail sale of tangible 12
personal property, digital property, or services; 13
b. Provides payment processing services for a retail sale of tangible 14
personal property, digital property, or services; 15
c. Through terms and conditions, agreements, or arrangements with a 16
third party, collects payment in connection with a retail sale of 17
tangible personal property, digital property, or services from a 18
purchaser and transmits that payment to the marketplace retailer, 19
regardless of whether the person collecting and transmitting the 20
payment receives compensation or other consideration in exchange 21
for the service; or 22
d. Provides a virtual currency that purchasers are allowed or required 23
to use to purchase tangible personal property, digital property, or 24
services. 25
(b) "Marketplace provider" includes but is not limited to a person that satisfies the 26
requirements of this subsection through the ownership, operation, or control 27 UNOFFICIAL COPY 22 RS BR 337
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of a digital distribution service, digital distribution platform, online portal, or 1
application store; 2
(23) "Marketplace retailer" means a seller that makes retail sales through any 3
marketplace owned, operated, or controlled by a marketplace provider; 4
(24) (a) "Occasional sale" includes: 5
1. A sale of tangible personal property or digital property not held or used 6
by a seller in the course of an activity for which he or she is required to 7
hold a seller's permit, provided such sale is not one (1) of a series of 8
sales sufficient in number, scope, and character to constitute an activity 9
requiring the holding of a seller's permit. In the case of the sale of the 10
entire, or a substantial portion of the nonretail assets of the seller, the 11
number of previous sales of similar assets shall be disregarded in 12
determining whether or not the current sale or sales shall qualify as an 13
occasional sale; or 14
2. Any transfer of all or substantially all the tangible personal property or 15
digital property held or used by a person in the course of such an activity 16
when after such transfer the real or ultimate ownership of such property 17
is substantially similar to that which existed before such transfer. 18
(b) For the purposes of this subsection, stockholders, bondholders, partners, or 19
other persons holding an interest in a corporation or other entity are regarded 20
as having the "real or ultimate ownership" of the tangible personal property or 21
digital property of such corporation or other entity; 22
(25) (a) "Other direct mail" means any direct mail that is not advertising and 23
promotional direct mail, regardless of whether advertising and promotional 24
direct mail is included in the same mailing. 25
(b) "Other direct mail" includes but is not limited to: 26
1. Transactional direct mail that contains personal information specific to 27 UNOFFICIAL COPY 22 RS BR 337
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the addressee, including but not limited to invoices, bills, statements of 1
account, and payroll advices; 2
2. Any legally required mailings, including but not limited to privacy 3
notices, tax reports, and stockholder reports; and 4
3. Other nonpromotional direct mail delivered to existing or former 5
shareholders, customers, employees, or agents, including but not limited 6
to newsletters and informational pieces. 7
(c) "Other direct mail" does not include the development of billing information or 8
the provision of any data processing service that is more than incidental to the 9
production of printed material; 10
(26) "Person" includes any individual, firm, copartnership, joint venture, association, 11
social club, fraternal organization, corporation, estate, trust, business trust, receiver, 12
trustee, syndicate, cooperative, assignee, governmental unit or agency, or any other 13
group or combination acting as a unit; 14
(27) "Permanent," as the term applies to digital property, means perpetual or for an 15
indefinite or unspecified length of time; 16
(28) "Plant facility" means a single location that is exclusively dedicated to 17
manufacturing or industrial processing activities. A location shall be deemed to be 18
exclusively dedicated to manufacturing or industrial processing activities even if 19
retail sales are made there, provided that the retail sales are incidental to the 20
manufacturing or industrial processing activities occurring at the location. The term 21
"plant facility" shall not include any restaurant, grocery store, shopping center, or 22
other retail establishment; 23
(29) (a) "Prewritten computer software" means: 24
1. Computer software, including prewritten upgrades, that are not designed 25
and developed by the author or other creator to the specifications of a 26
specific purchaser; 27 UNOFFICIAL COPY 22 RS BR 337
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2. Software designed and developed by the author or other creator to the 1
specifications of a specific purchaser when it is sold to a person other 2
than the original purchaser; or 3
3. Any portion of prewritten computer software that is modified or 4
enhanced in any manner, where the modification or enhancement is 5
designed and developed to the specifications of a specific purchaser, 6
unless there is a reasonable, separately stated charge on an invoice or 7
other statement of the price to the purchaser for the modification or 8
enhancement. 9
(b) When a person modifies or enhances computer software of which the person 10
is not the author or creator, the person shall be deemed to be the author or 11
creator only of the modifications or enhancements the person actually made. 12
(c) The combining of two (2) or more prewritten computer software programs or 13
portions thereof does not cause the combination to be other than prewritten 14
computer software; 15
(30) (a) "Purchase" means any transfer of title or possession, exchange, barter, lease, 16
or rental, conditional or otherwise, in any manner or by any means 17
whatsoever, of: 18
1. Tangible personal property; 19
2. An extended warranty service; 20
3. Digital property transferred electronically; or 21
4. Services included in KRS 139.200; 22
for a consideration. 23
(b) "Purchase" includes: 24
1. When performed outside this state or when the customer gives a resale 25
certificate, the producing, fabricating, processing, printing, or imprinting 26
of tangible personal property for a consideration for consumers who 27 UNOFFICIAL COPY 22 RS BR 337
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furnish either directly or indirectly the materials used in the producing, 1
fabricating, processing, printing, or imprinting; 2
2. A transaction whereby the possession of tangible personal property or 3
digital property is transferred but the seller retains the title as security for 4
the payment of the price; and 5
3. A transfer for a consideration of the title or possession of tangible 6
personal property or digital property which has been produced, 7
fabricated, or printed to the special order of the customer, or of any 8
publication; 9
(31) "Recycled materials" means materials which have been recovered or diverted from 10
the solid waste stream and reused or returned to use in the form of raw materials or 11
products; 12
(32) "Recycling purposes" means those activities undertaken in which materials that 13
would otherwise become solid waste are collected, separated, or processed in order 14
to be reused or returned to use in the form of raw materials or products; 15
(33) "Remote retailer" means a retailer with no physical presence in this state; 16
(34) (a) "Repair, replacement, or spare parts" means any tangible personal property 17
used to maintain, restore, mend, or repair machinery or equipment. 18
(b) "Repair, replacement, or spare parts" does not include machine oils, grease, or 19
industrial tools; 20
(35) (a) "Retailer" means: 21
1. Every person engaged in the business of making retail sales of tangible 22
personal property, digital property, or furnishing any services in a retail 23
sale included in KRS 139.200; 24
2. Every person engaged in the business of making sales at auction of 25
tangible personal property or digital property owned by the person or 26
others for storage, use or other consumption, except as provided in 27 UNOFFICIAL COPY 22 RS BR 337
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paragraph (c) of this subsection; 1
3. Every person making more than two (2) retail sales of tangible personal 2
property, digital property, or services included in KRS 139.200 during 3
any twelve (12) month period, including sales made in the capacity of 4
assignee for the benefit of creditors, or receiver or trustee in bankruptcy; 5
4. Any person conducting a race meeting under the provision of KRS 6
Chapter 230, with respect to horses which are claimed during the 7
meeting. 8
(b) When the department determines that it is necessary for the efficient 9
administration of this chapter to regard any salesmen, representatives, 10
peddlers, or canvassers as the agents of the dealers, distributors, supervisors or 11
employers under whom they operate or from whom they obtain the tangible 12
personal property, digital property, or services sold by them, irrespective of 13
whether they are making sales on their own behalf or on behalf of the dealers, 14
distributors, supervisors or employers, the department may so regard them and 15
may regard the dealers, distributors, supervisors or employers as retailers for 16
purposes of this chapter. 17
(c) 1. Any person making sales at a charitable auction for a qualifying entity 18
shall not be a retailer for purposes of the sales made at the charitable 19
auction if: 20
a. The qualifying entity, not the person making sales at the auction, is 21
sponsoring the auction; 22
b. The purchaser of tangible personal property at the auction directly 23
pays the qualifying entity sponsoring the auction for the property 24
and not the person making the sales at the auction; and 25
c. The qualifying entity, not the person making sales at the auction, is 26
responsible for the collection, control, and disbursement of the 27 UNOFFICIAL COPY 22 RS BR 337
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auction proceeds. 1
2. If the conditions set forth in subparagraph 1. of this paragraph are met, 2
the qualifying entity sponsoring the auction shall be the retailer for 3
purposes of the sales made at the charitable auction. 4
3. For purposes of this paragraph, "qualifying entity" means a resident: 5
a. Church; 6
b. School; 7
c. Civic club; or 8
d. Any other nonprofit charitable, religious, or educational 9
organization; 10
(36) "Retail sale" means any sale, lease, or rental for any purpose other than resale, 11
sublease, or subrent; 12
(37) (a) "Ringtones" means digitized sound files that are downloaded onto a device 13
and that may be used to alert the customer with respect to a communication. 14
(b) "Ringtones" shall not include ringback tones or other digital files that are not 15
stored on the purchaser's communications device; 16
(38) (a) "Sale" means: 17
1. The furnishing of any services included in KRS 139.200; 18
2. Any transfer of title or possession, exchange, barter, lease, or rental, 19
conditional or otherwise, in any manner or by any means whatsoever, of: 20
a. Tangible personal property; or 21
b. Digital property transferred electronically; 22
for a consideration. 23
(b) "Sale" includes but is not limited to: 24
1. The producing, fabricating, processing, printing, or imprinting of 25
tangible personal property or digital property for a consideration for 26
purchasers who furnish, either directly or indirectly, the materials used 27 UNOFFICIAL COPY 22 RS BR 337
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in the producing, fabricating, processing, printing, or imprinting; 1
2. A transaction whereby the possession of tangible personal property or 2
digital property is transferred, but the seller retains the title as security 3
for the payment of the price; and 4
3. A transfer for a consideration of the title or possession of tangible 5
personal property or digital property which has been produced, 6
fabricated, or printed to the special order of the purchaser. 7
(c) This definition shall apply regardless of the classification of a transaction 8
under generally accepted accounting principles, the Internal Revenue Code, or 9
other provisions of federal, state, or local law; 10
(39) "Seller" includes every person engaged in the business of selling tangible personal 11
property, digital property, or services of a kind, the gross receipts from the retail 12
sale of which are required to be included in the measure of the sales tax, and every 13
person engaged in making sales for resale; 14
(40) (a) "Storage" includes any keeping or retention in this state for any purpose 15
except sale in the regular course of business or subsequent use solely outside 16
this state of tangible personal property or digital property purchased from a 17
retailer. 18
(b) "Storage" does not include the keeping, retaining, or exercising any right or 19
power over tangible personal property for the purpose of subsequently 20
transporting it outside the state for use thereafter solely outside the state, or for 21
the purpose of being processed, fabricated, or manufactured into, attached to, 22
or incorporated into, other tangible personal property to be transported outside 23
the state and thereafter used solely outside the state; 24
(41) "Tangible personal property" means personal property which may be seen, weighed, 25
measured, felt, or touched, or which is in any other manner perceptible to the senses 26
and includes natural, artificial, and mixed gas, electricity, water, steam, and 27 UNOFFICIAL COPY 22 RS BR 337
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prewritten computer software; 1
(42) "Taxpayer" means any person liable for tax under this chapter; 2
(43) "Transferred electronically" means accessed or obtained by the purchaser by means 3
other than tangible storage media; and 4
(44) (a) "Use" includes the exercise of: 5
1. Any right or power over tangible personal property or digital property 6
incident to the ownership of that property, or by any transaction in which 7
possession is given, or by any transaction involving digital property 8
where the right of access is granted; or 9
2. Any right or power to benefit from extended warranty services. 10
(b) "Use" does not include the keeping, retaining, or exercising any right or power 11
over tangible personal property or digital property for the purpose of: 12
1. Selling tangible personal property or digital property in the regular 13
course of business; or 14
2. Subsequently transporting tangible personal property outside the state 15
for use thereafter solely outside the state, or for the purpose of being 16
processed, fabricated, or manufactured into, attached to, or incorporated 17
into, other tangible personal property to be transported outside the state 18
and thereafter used solely outside the state. 19
Section 16. KRS 139.200 is amended to read as follows: 20
A tax is hereby imposed upon all retailers at the rate of six percent (6%) of the gross 21
receipts derived from: 22
(1) Retail sales of: 23
(a) Tangible personal property, regardless of the method of delivery, made within 24
this Commonwealth; and 25
(b) Digital property regardless of whether: 26
1. The purchaser has the right to permanently use the property; 27 UNOFFICIAL COPY 22 RS BR 337
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2. The purchaser's right to access or retain the property is not permanent; or 1
3. The purchaser's right of use is conditioned upon continued payment; and 2
(2) The furnishing of the following: 3
(a) The rental of any room or rooms, lodgings, campsites, or accommodations 4
furnished by any hotel, motel, inn, tourist camp, tourist cabin, campgrounds, 5
recreational vehicle parks, or any other place in which rooms, lodgings, 6
campsites, or accommodations are regularly furnished to transients for a 7
consideration. The tax shall not apply to rooms, lodgings, campsites, or 8
accommodations supplied for a continuous period of thirty (30) days or more 9
to a person; 10
(b) Sewer services; 11
(c) The sale of admissions, except: 12
1. Admissions to racetracks taxed under KRS 138.480; 13
2. Admissions to historical sites exempt under KRS 139.482; 14
3. Admissions taxed under KRS 229.031; 15
4. Admissions that are charged by nonprofit educational, charitable, or 16
religious institutions and for which an exemption is provided under KRS 17
139.495; and 18
5. Admissions that are charged by nonprofit civic, governmental, or other 19
nonprofit organizations and for which an exemption is provided under 20
KRS 139.498; 21
(d) Prepaid calling service and prepaid wireless calling service; 22
(e) Intrastate, interstate, and international communications services as defined in 23
KRS 139.195, except the furnishing of pay telephone service as defined in 24
KRS 139.195; 25
(f) Distribution, transmission, or transportation services for natural gas that is for 26
storage, use, or other consumption in this state, excluding those services 27 UNOFFICIAL COPY 22 RS BR 337
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furnished: 1
1. For natural gas that is classified as residential use as provided in KRS 2
139.470(7); or 3
2. To a seller or reseller of natural gas; 4
(g) Landscaping services, including but not limited to: 5
1. Lawn care and maintenance services; 6
2. Tree trimming, pruning, or removal services; 7
3. Landscape design and installation services; 8
4. Landscape care and maintenance services; and 9
5. Snow plowing or removal services; 10
(h) Janitorial services, including but not limited to residential and commercial 11
cleaning services, and carpet, upholstery, and window cleaning services; 12
(i) For transaction occurring on or after July 1, 2018, but before October 1, 13
2022, small animal veterinary services, excluding veterinary services for 14
equine, cattle, poultry, swine, sheep, goats, llamas, alpacas, ratite birds, 15
buffalo, and cervids; 16
(j) Pet care services, including but not limited to grooming and boarding services, 17
pet sitting services, and pet obedience training services; 18
(k) Industrial laundry services, including but not limited to industrial uniform 19
supply services, protective apparel supply services, and industrial mat and rug 20
supply services; 21
(l) Non-coin-operated laundry and dry cleaning services; 22
(m) Linen supply services, including but not limited to table and bed linen supply 23
services and nonindustrial uniform supply services; 24
(n) Indoor skin tanning services, including but not limited to tanning booth or 25
tanning bed services and spray tanning services; 26
(o) Non-medical diet and weight reducing services; 27 UNOFFICIAL COPY 22 RS BR 337
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(p) Limousine services, if a driver is provided;[ and] 1
(q) Extended warranty services; 2
(r) Garment alteration services; 3
(s) Armored car services; 4
(t) Security consulting services, security guard services, or protection services, 5
including but not limited to: 6
1. Personal and property protection; 7
2. Parking security services; 8
3. Security patrol services; 9
4. Security system monitoring services; and 10
5. Protective guard services; 11
(u) Exterminating and pest control services; 12
(v) Marina services, including but not limited to: 13
1. Boat storage or docking services; and 14
2. Repairing, maintaining, or renting houseboats, fishing boats, 15
commercial dining boats, or pleasure boats; 16
(w) Non-coin-operated washing and waxing services; 17
(x) Swimming pool cleaning and maintenance services; 18
(y) Residential interior decorating service; 19
1. Including but not limited to: 20
a. Planning, designing, and administering projects in interior 21
spaces; and 22
b. Interior fittings and furniture placement; 23
to meet the aesthetic needs of people using the space; and 24
2. Excluding physical renovations that take into consideration: 25
a. Building codes; 26
b. Health and safety regulations; 27 UNOFFICIAL COPY 22 RS BR 337
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c. Traffic patterns and floor planning; and 1
d. Mechanical and electrical needs; and 2
(z) Photography and videography services: 3
1. Including but not limited to: 4
a. Passport photography services; 5
b. Portrait photography services; 6
c. Portrait or video recording services of special events, including 7
weddings, birthdays, and anniversaries; 8
d. All fees associated with providing onsite location photography 9
and videography sessions; 10
e. All fees associated with studio photography sessions; and 11
f. All fees associated with enhancing or modifying pictures or 12
videos; and 13
2. Excluding: 14
a. Commercial photography services; 15
b. Medical photography services; 16
c. Aerial photography services; and 17
d. Video recording services for legal depositions. 18
Section 17. KRS 139.260 is amended to read as follows: 19
For the purpose of the proper administration of this chapter and to prevent evasion of the 20
duty to collect the taxes imposed by KRS 139.200 and 139.310, it shall be presumed that 21
all gross receipts and all tangible personal property, digital property, and services sold by 22
any person for delivery or access in this state are subject to the tax until the contrary is 23
established. The burden of proving the contrary is upon the person who makes the sale of: 24
(1) Tangible personal property or digital property unless the person takes from the 25
purchaser a certificate to the effect that the property is either: 26
(a) Purchased for resale according to the provisions of KRS 139.270; 27 UNOFFICIAL COPY 22 RS BR 337
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(b) Purchased through a fully completed certificate of exemption or fully 1
completed Streamlined Sales and Use Tax Agreement Certificate of 2
Exemption in accordance with KRS 139.270; or 3
(c) Purchased according to administrative regulations promulgated by the 4
department governing a direct pay authorization; 5
(2) A service included in KRS 139.200(2)(a) to (f) unless the person takes from the 6
purchaser a certificate to the effect that the service is purchased through a fully 7
completed certificate of exemption or fully completed Streamlined Sales and Use 8
Tax Agreement Certificate of Exemption in accordance with KRS 139.270; and 9
(3) A service included in KRS 139.200(2)(g) to (z)[(q)] unless the person takes from 10
the purchaser a certificate to the effect that the service is: 11
(a) Purchased for resale according to KRS 139.270; 12
(b) Purchased through a fully completed certificate of exemption or fully 13
completed Streamlined Sales and Use Tax Agreement Certificate of 14
Exemption in accordance with KRS 139.270; or 15
(c) Purchased according to administrative regulations promulgated by the 16
department governing a direct pay authorization. 17
Section 18. KRS 139.470 is amended to read as follows: 18
There are excluded from the computation of the amount of taxes imposed by this chapter: 19
(1) Gross receipts from the sale of, and the storage, use, or other consumption in this 20
state of, tangible personal property or digital property which this state is prohibited 21
from taxing under the Constitution or laws of the United States, or under the 22
Constitution of this state; 23
(2) Gross receipts from sales of, and the storage, use, or other consumption in this state 24
of: 25
(a) Nonreturnable and returnable containers when sold without the contents to 26
persons who place the contents in the container and sell the contents together 27 UNOFFICIAL COPY 22 RS BR 337
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with the container; and 1
(b) Returnable containers when sold with the contents in connection with a retail 2
sale of the contents or when resold for refilling; 3
As used in this section the term "returnable containers" means containers of a kind 4
customarily returned by the buyer of the contents for reuse. All other containers are 5
"nonreturnable containers"; 6
(3) Gross receipts from occasional sales of tangible personal property or digital 7
property and the storage, use, or other consumption in this state of tangible personal 8
property or digital property, the transfer of which to the purchaser is an occasional 9
sale; 10
(4) Gross receipts from sales of tangible personal property to a common carrier, 11
shipped by the retailer via the purchasing carrier under a bill of lading, whether the 12
freight is paid in advance or the shipment is made freight charges collect, to a point 13
outside this state and the property is actually transported to the out-of-state 14
destination for use by the carrier in the conduct of its business as a common carrier; 15
(5) Gross receipts from sales of tangible personal property sold through coin-operated 16
bulk vending machines, if the sale amounts to fifty cents ($0.50) or less, if the 17
retailer is primarily engaged in making the sales and maintains records satisfactory 18
to the department. As used in this subsection, "bulk vending machine" means a 19
vending machine containing unsorted merchandise which, upon insertion of a coin, 20
dispenses the same in approximately equal portions, at random and without 21
selection by the customer; 22
(6) Gross receipts from sales to any cabinet, department, bureau, commission, board, or 23
other statutory or constitutional agency of the state and gross receipts from sales to 24
counties, cities, or special districts as defined in KRS 65.005. This exemption shall 25
apply only to purchases of tangible personal property, digital property, or services 26
for use solely in the government function. A purchaser not qualifying as a 27 UNOFFICIAL COPY 22 RS BR 337
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governmental agency or unit shall not be entitled to the exemption even though the 1
purchaser may be the recipient of public funds or grants; 2
(7) (a) Gross receipts from the sale of sewer services, water, and fuel to Kentucky 3
residents for use in heating, water heating, cooking, lighting, and other 4
residential uses. As used in this subsection, "fuel" shall include but not be 5
limited to natural gas, electricity, fuel oil, bottled gas, coal, coke, and wood. 6
Determinations of eligibility for the exemption shall be made by the 7
department; 8
(b) In making the determinations of eligibility, the department shall exempt from 9
taxation all gross receipts derived from sales: 10
1. Classified as "residential" by a utility company as defined by applicable 11
tariffs filed with and accepted by the Public Service Commission; 12
2. Classified as "residential" by a municipally owned electric distributor 13
which purchases its power at wholesale from the Tennessee Valley 14
Authority; 15
3. Classified as "residential" by the governing body of a municipally owned 16
electric distributor which does not purchase its power from the 17
Tennessee Valley Authority, if the "residential" classification is 18
reasonably consistent with the definitions of "residential" contained in 19
tariff filings accepted and approved by the Public Service Commission 20
with respect to utilities which are subject to Public Service Commission 21
regulation. 22
If the service is classified as residential, use other than for "residential" 23
purposes by the customer shall not negate the exemption; 24
(c) The exemption shall not apply if charges for sewer service, water, and fuel are 25
billed to an owner or operator of a multi-unit residential rental facility or 26
mobile home and recreational vehicle park other than residential 27 UNOFFICIAL COPY 22 RS BR 337
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classification; and 1
(d) The exemption shall apply also to residential property which may be held by 2
legal or equitable title, by the entireties, jointly, in common, as a 3
condominium, or indirectly by the stock ownership or membership 4
representing the owner's or member's proprietary interest in a corporation 5
owning a fee or a leasehold initially in excess of ninety-eight (98) years; 6
(8) Gross receipts from sales to an out-of-state agency, organization, or institution 7
exempt from sales and use tax in its state of residence when that agency, 8
organization, or institution gives proof of its tax-exempt status to the retailer and the 9
retailer maintains a file of the proof; 10
(9) (a) Gross receipts derived from the sale of tangible personal property, as provided 11
in paragraph (b) of this subsection, to a manufacturer or industrial processor if 12
the property is to be directly used in the manufacturing or industrial 13
processing process of: 14
1. Tangible personal property at a plant facility; 15
2. Distilled spirits or wine at a plant facility or on the premises of a 16
distiller, rectifier, winery, or small farm winery licensed under KRS 17
243.030 that includes a retail establishment on the premises; or 18
3. Malt beverages at a plant facility or on the premises of a brewer or 19
microbrewery licensed under KRS 243.040 that includes a retail 20
establishment; 21
and which will be for sale. 22
(b) The following tangible personal property shall qualify for exemption under 23
this subsection: 24
1. Materials which enter into and become an ingredient or component part 25
of the manufactured product; 26
2. Other tangible personal property which is directly used in the 27 UNOFFICIAL COPY 22 RS BR 337
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manufacturing or industrial processing process, if the property has a 1
useful life of less than one (1) year. Specifically these items are 2
categorized as follows: 3
a. Materials. This refers to the raw materials which become an 4
ingredient or component part of supplies or industrial tools exempt 5
under subdivisions b. and c. below; 6
b. Supplies. This category includes supplies such as lubricating and 7
compounding oils, grease, machine waste, abrasives, chemicals, 8
solvents, fluxes, anodes, filtering materials, fire brick, catalysts, 9
dyes, refrigerants, and explosives. The supplies indicated above 10
need not come in direct contact with a manufactured product to be 11
exempt. "Supplies" does not include repair, replacement, or spare 12
parts of any kind; and 13
c. Industrial tools. This group is limited to hand tools such as jigs, 14
dies, drills, cutters, rolls, reamers, chucks, saws, and spray guns 15
and to tools attached to a machine such as molds, grinding balls, 16
grinding wheels, dies, bits, and cutting blades. Normally, for 17
industrial tools to be considered directly used in the manufacturing 18
or industrial processing process, they shall come into direct contact 19
with the product being manufactured or processed; and 20
3. Materials and supplies that are not reusable in the same manufacturing 21
or industrial processing process at the completion of a single 22
manufacturing or processing cycle. A single manufacturing cycle shall 23
be considered to be the period elapsing from the time the raw materials 24
enter into the manufacturing process until the finished product emerges 25
at the end of the manufacturing process. 26
(c) The property described in paragraph (b) of this subsection shall be regarded as 27 UNOFFICIAL COPY 22 RS BR 337
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having been purchased for resale. 1
(d) For purposes of this subsection, a manufacturer or industrial processor 2
includes an individual or business entity that performs only part of the 3
manufacturing or industrial processing activity, and the person or business 4
entity need not take title to tangible personal property that is incorporated into, 5
or becomes the product of, the activity. 6
(e) The exemption provided in this subsection does not include repair, 7
replacement, or spare parts; 8
(10) Any water use fee paid or passed through to the Kentucky River Authority by 9
facilities using water from the Kentucky River basin to the Kentucky River 10
Authority in accordance with KRS 151.700 to 151.730 and administrative 11
regulations promulgated by the authority; 12
(11) Gross receipts from the sale of newspaper inserts or catalogs purchased for storage, 13
use, or other consumption outside this state and delivered by the retailer's own 14
vehicle to a location outside this state, or delivered to the United States Postal 15
Service, a common carrier, or a contract carrier for delivery outside this state, 16
regardless of whether the carrier is selected by the purchaser or retailer or an agent 17
or representative of the purchaser or retailer, or whether the F.O.B. is retailer's 18
shipping point or purchaser's destination. 19
(a) As used in this subsection: 20
1. "Catalogs" means tangible personal property that is printed to the special 21
order of the purchaser and composed substantially of information 22
regarding goods and services offered for sale; and 23
2. "Newspaper inserts" means printed materials that are placed in or 24
distributed with a newspaper of general circulation. 25
(b) The retailer shall be responsible for establishing that delivery was made to a 26
non-Kentucky location through shipping documents or other credible evidence 27 UNOFFICIAL COPY 22 RS BR 337
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as determined by the department; 1
(12) Gross receipts from the sale of water used in the raising of equine as a business; 2
(13) Gross receipts from the sale of metal retail fixtures manufactured in this state and 3
purchased for storage, use, or other consumption outside this state and delivered by 4
the retailer's own vehicle to a location outside this state, or delivered to the United 5
States Postal Service, a common carrier, or a contract carrier for delivery outside 6
this state, regardless of whether the carrier is selected by the purchaser or retailer or 7
an agent or representative of the purchaser or retailer, or whether the F.O.B. is the 8
retailer's shipping point or the purchaser's destination. 9
(a) As used in this subsection, "metal retail fixtures" means check stands and 10
belted and nonbelted checkout counters, whether made in bulk or pursuant to 11
specific purchaser specifications, that are to be used directly by the purchaser 12
or to be distributed by the purchaser. 13
(b) The retailer shall be responsible for establishing that delivery was made to a 14
non-Kentucky location through shipping documents or other credible evidence 15
as determined by the department; 16
(14) Gross receipts from the sale of unenriched or enriched uranium purchased for 17
ultimate storage, use, or other consumption outside this state and delivered to a 18
common carrier in this state for delivery outside this state, regardless of whether the 19
carrier is selected by the purchaser or retailer, or is an agent or representative of the 20
purchaser or retailer, or whether the F.O.B. is the retailer's shipping point or 21
purchaser's destination; 22
(15) Amounts received from a tobacco buydown. As used in this subsection, "buydown" 23
means an agreement whereby an amount, whether paid in money, credit, or 24
otherwise, is received by a retailer from a manufacturer or wholesaler based upon 25
the quantity and unit price of tobacco products sold at retail that requires the retailer 26
to reduce the selling price of the product to the purchaser without the use of a 27 UNOFFICIAL COPY 22 RS BR 337
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manufacturer's or wholesaler's coupon or redemption certificate; 1
(16) Gross receipts from the sale of tangible personal property or digital property 2
returned by a purchaser when the full sales price is refunded either in cash or credit. 3
This exclusion shall not apply if the purchaser, in order to obtain the refund, is 4
required to purchase other tangible personal property or digital property at a price 5
greater than the amount charged for the property that is returned; 6
(17) Gross receipts from the sales of gasoline and special fuels subject to tax under KRS 7
Chapter 138; 8
(18) The amount of any tax imposed by the United States upon or with respect to retail 9
sales, whether imposed on the retailer or the consumer, not including any 10
manufacturer's excise or import duty; 11
(19) Gross receipts from the sale of any motor vehicle as defined in KRS 138.450 which 12
is: 13
(a) Sold to a Kentucky resident, registered for use on the public highways, and 14
upon which any applicable tax levied by KRS 138.460 has been paid; or 15
(b) Sold to a nonresident of Kentucky if the nonresident registers the motor 16
vehicle in a state that: 17
1. Allows residents of Kentucky to purchase motor vehicles without 18
payment of that state's sales tax at the time of sale; or 19
2. Allows residents of Kentucky to remove the vehicle from that state 20
within a specific period for subsequent registration and use in Kentucky 21
without payment of that state's sales tax; 22
(20) Prior to October 1, 2022, gross receipts from the sale of a semi-trailer as defined in 23
KRS 189.010(12) and trailer as defined in KRS 189.010(17); 24
(21) Gross receipts from the collection of: 25
(a) Any fee or charge levied by a local government pursuant to KRS 65.760; 26
(b) The charge imposed by KRS 65.7629(3); 27 UNOFFICIAL COPY 22 RS BR 337
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(c) The fee imposed by KRS 65.7634; and 1
(d) The service charge imposed by KRS 65.7636; 2
(22) Gross receipts derived from charges for labor or services to apply, install, repair, or 3
maintain tangible personal property directly used in manufacturing or industrial 4
processing process of: 5
(a) Tangible personal property at a plant facility; 6
(b) Distilled spirits or wine at a plant facility or on the premises of a distiller, 7
rectifier, winery, or small farm winery licensed under KRS 243.030; or 8
(c) Malt beverages at a plant facility or on the premises of a brewer or 9
microbrewery licensed under KRS 243.040 10
that is not otherwise exempt under subsection (9) of this section or KRS 11
139.480(10), if the charges for labor or services are separately stated on the invoice, 12
bill of sale, or similar document given to purchaser; 13
(23) (a) For persons selling services included in KRS 139.200(2)(g) to (q) prior to 14
January 1, 2019, gross receipts derived from the sale of those services if the 15
gross receipts were less than six thousand dollars ($6,000) during calendar 16
year 2018. When gross receipts from these services exceed six thousand 17
dollars ($6,000) in a calendar year: 18
1. All gross receipts over six thousand dollars ($6,000) are taxable in that 19
calendar year; and 20
2. All gross receipts are subject to tax in subsequent calendar years for as 21
long as the service is taxable. 22
(b) For persons selling services included in subsections (2)(r) to (z) of Section 23
16 of this Act prior to January 1, 2022, gross receipts derived from the sale 24
of those services if the gross receipts were less than six thousand dollars 25
($6,000) during calendar year 2021. When gross receipts from these services 26
exceed six thousand dollars ($6,000) in a calendar year: 27 UNOFFICIAL COPY 22 RS BR 337
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1. All gross receipts over six thousand dollars ($6,000) are taxable in that 1
calendar year; and 2
2 All gross receipts are subject to tax in subsequent calendar years for 3
as long as the service is taxable. 4
(c)[(b)] The exemption provided in this subsection shall not apply to a person 5
also engaged in the business of selling tangible personal property, digital 6
property, or services included in KRS 139.200(2)(a) to (f); and 7
(24) (a) For persons that first begin making sales of services included in KRS 8
139.200(2)(g) to (q) on or after January 1, 2019, gross receipts derived from 9
the sale of those services if the gross receipts are less than six thousand dollars 10
($6,000) within the first calendar year of operation. When gross receipts from 11
these services exceed six thousand dollars ($6,000) in a calendar year: 12
1. All gross receipts over six thousand dollars ($6,000) are taxable in that 13
calendar year; and 14
2. All gross receipts are subject to tax in subsequent calendar years for as 15
long as the service is taxable. 16
(b) For persons that first begin making sales of services included in subsections 17
(2)(r) to (z) of Section 16 of this Act on or after January 1, 2022, gross 18
receipts derived from the sale of those services if the gross receipts are less 19
than six thousand dollars ($6,000) within the first calendar year of 20
operation. When gross receipts from these services exceed six thousand 21
dollars ($6,000) in a calendar year: 22
1. All gross receipts over six thousand dollars ($6,000) are taxable in that 23
calendar year; and 24
2. All gross receipts are subject to tax in subsequent years for as long as 25
the service is taxable. 26
(c) The exemption provided in this subsection shall not apply to a person that is 27 UNOFFICIAL COPY 22 RS BR 337
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also engaged in the business of selling tangible personal property, digital 1
property, or services included in KRS 139.200(2)(a) to (f). 2
Section 19. KRS 139.480 is amended to read as follows: 3
Any other provision of this chapter to the contrary notwithstanding, the terms "sale at 4
retail," "retail sale," "use," "storage," and "consumption," as used in this chapter, shall not 5
include the sale, use, storage, or other consumption of: 6
(1) Locomotives or rolling stock, including materials for the construction, repair, or 7
modification thereof, or fuel or supplies for the direct operation of locomotives and 8
trains, used or to be used in interstate commerce; 9
(2) Coal for the manufacture of electricity; 10
(3) (a) All energy or energy-producing fuels used in the course of manufacturing, 11
processing, mining, or refining and any related distribution, transmission, and 12
transportation services for this energy that are billed to the user, to the extent 13
that the cost of the energy or energy-producing fuels used, and related 14
distribution, transmission, and transportation services for this energy that are 15
billed to the user exceed three percent (3%) of the cost of production. 16
(b) Cost of production shall be computed on the basis of a plant facility, which 17
shall include all operations within the continuous, unbroken, integrated 18
manufacturing or industrial processing process that ends with a product 19
packaged and ready for sale. 20
(c) A person who performs a manufacturing or industrial processing activity for a 21
fee and does not take ownership of the tangible personal property that is 22
incorporated into, or becomes the product of, the manufacturing or industrial 23
processing activity is a toller. For periods on or after July 1, 2018, the costs of 24
the tangible personal property shall be excluded from the toller's cost of 25
production at a plant facility with tolling operations in place as of July 1, 26
2018. 27 UNOFFICIAL COPY 22 RS BR 337
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(d) For plant facilities that begin tolling operations after July 1, 2018, the costs of 1
tangible personal property shall be excluded from the toller's cost of 2
production if the toller: 3
1. Maintains a binding contract for periods after July 1, 2018, that governs 4
the terms, conditions, and responsibilities with a separate legal entity, 5
which holds title to the tangible personal property that is incorporated 6
into, or becomes the product of, the manufacturing or industrial 7
processing activity; 8
2. Maintains accounting records that show the expenses it incurs to fulfill 9
the binding contract that include but are not limited to energy or energy-10
producing fuels, materials, labor, procurement, depreciation, 11
maintenance, taxes, administration, and office expenses; 12
3. Maintains separate payroll, bank accounts, tax returns, and other records 13
that demonstrate its independent operations in the performance of its 14
tolling responsibilities; 15
4. Demonstrates one (1) or more substantial business purposes for the 16
tolling operations germane to the overall manufacturing, industrial 17
processing activities, or corporate structure at the plant facility. A 18
business purpose is a purpose other than the reduction of sales tax 19
liability for the purchases of energy and energy-producing fuels; and 20
5. Provides information to the department upon request that documents 21
fulfillment of the requirements in subparagraphs 1. to 4. of this 22
paragraph and gives an overview of its tolling operations with an 23
explanation of how the tolling operations relate and connect with all 24
other manufacturing or industrial processing activities occurring at the 25
plant facility. 26
(4) Livestock of a kind the products of which ordinarily constitute food for human 27 UNOFFICIAL COPY 22 RS BR 337
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consumption, provided the sales are made for breeding or dairy purposes and by or 1
to a person regularly engaged in the business of farming; 2
(5) Poultry for use in breeding or egg production; 3
(6) Farm work stock for use in farming operations; 4
(7) Seeds, the products of which ordinarily constitute food for human consumption or 5
are to be sold in the regular course of business, and commercial fertilizer to be 6
applied on land, the products from which are to be used for food for human 7
consumption or are to be sold in the regular course of business; provided such sales 8
are made to farmers who are regularly engaged in the occupation of tilling and 9
cultivating the soil for the production of crops as a business, or who are regularly 10
engaged in the occupation of raising and feeding livestock or poultry or producing 11
milk for sale; and provided further that tangible personal property so sold is to be 12
used only by those persons designated above who are so purchasing; 13
(8) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals to be 14
used in the production of crops as a business, or in the raising and feeding of 15
livestock or poultry, the products of which ordinarily constitute food for human 16
consumption; 17
(9) Feed, including pre-mixes and feed additives, for livestock or poultry of a kind the 18
products of which ordinarily constitute food for human consumption; 19
(10) Machinery for new and expanded industry; 20
(11) Farm machinery. As used in this section, the term "farm machinery": 21
(a) Means machinery used exclusively and directly in the occupation of: 22
1. Tilling the soil for the production of crops as a business; 23
2. Raising and feeding livestock or poultry for sale; or 24
3. Producing milk for sale; 25
(b) Includes machinery, attachments, and replacements therefor, repair parts, and 26
replacement parts which are used or manufactured for use on, or in the 27 UNOFFICIAL COPY 22 RS BR 337
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operation of farm machinery and which are necessary to the operation of the 1
machinery, and are customarily so used, including but not limited to combine 2
header wagons, combine header trailers, or any other implements specifically 3
designed and used to move or transport a combine head; and 4
(c) Does not include: 5
1. Automobiles; 6
2. Trucks; 7
3. Trailers, except combine header trailers; or 8
4. Truck-trailer combinations; 9
(12) Tombstones and other memorial grave markers; 10
(13) On-farm facilities used exclusively for grain or soybean storing, drying, processing, 11
or handling. The exemption applies to the equipment, machinery, attachments, 12
repair and replacement parts, and any materials incorporated into the construction, 13
renovation, or repair of the facilities; 14
(14) On-farm facilities used exclusively for raising poultry or livestock. The exemption 15
shall apply to the equipment, machinery, attachments, repair and replacement parts, 16
and any materials incorporated into the construction, renovation, or repair of the 17
facilities. The exemption shall apply but not be limited to vent board equipment, 18
waterer and feeding systems, brooding systems, ventilation systems, alarm systems, 19
and curtain systems. In addition, the exemption shall apply whether or not the seller 20
is under contract to deliver, assemble, and incorporate into real estate the 21
equipment, machinery, attachments, repair and replacement parts, and any materials 22
incorporated into the construction, renovation, or repair of the facilities; 23
(15) Gasoline, special fuels, liquefied petroleum gas, and natural gas used exclusively 24
and directly to: 25
(a) Operate farm machinery as defined in subsection (11) of this section; 26
(b) Operate on-farm grain or soybean drying facilities as defined in subsection 27 UNOFFICIAL COPY 22 RS BR 337
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(13) of this section; 1
(c) Operate on-farm poultry or livestock facilities defined in subsection (14) of 2
this section; 3
(d) Operate on-farm ratite facilities defined in subsection (23) of this section; 4
(e) Operate on-farm llama or alpaca facilities as defined in subsection (25) of this 5
section; or 6
(f) Operate on-farm dairy facilities; 7
(16) Textbooks, including related workbooks and other course materials, purchased for 8
use in a course of study conducted by an institution which qualifies as a nonprofit 9
educational institution under KRS 139.495. The term "course materials" means only 10
those items specifically required of all students for a particular course but shall not 11
include notebooks, paper, pencils, calculators, tape recorders, or similar student 12
aids; 13
(17) Prior to October 1, 2022, any property which has been certified as an alcohol 14
production facility as defined in KRS 247.910; 15
(18) Prior to October 1, 2022, aircraft, repair and replacement parts therefor, and 16
supplies, except fuel, for the direct operation of aircraft in interstate commerce and 17
used exclusively for the conveyance of property or passengers for hire. Nominal 18
intrastate use shall not subject the property to the taxes imposed by this chapter; 19
(19) Prior to October 1, 2022, any property which has been certified as a fluidized bed 20
energy production facility as defined in KRS 211.390; 21
(20) (a) 1. Any property to be incorporated into the construction, rebuilding, 22
modification, or expansion of a blast furnace or any of its components or 23
appurtenant equipment or structures as part of an approved supplemental 24
project, as defined by KRS 154.26-010; and 25
2. Materials, supplies, and repair or replacement parts purchased for use in 26
the operation and maintenance of a blast furnace and related carbon 27 UNOFFICIAL COPY 22 RS BR 337
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steel-making operations as part of an approved supplemental project, as 1
defined by KRS 154.26-010. 2
(b) The exemptions provided in this subsection shall be effective for sales made: 3
1. On and after July 1, 2018; and 4
2. During the term of a supplemental project agreement entered into 5
pursuant to KRS 154.26-090; 6
(21) Beginning on October 1, 1986, food or food products purchased for human 7
consumption with food coupons issued by the United States Department of 8
Agriculture pursuant to the Food Stamp Act of 1977, as amended, and required to 9
be exempted by the Food Security Act of 1985 in order for the Commonwealth to 10
continue participation in the federal food stamp program; 11
(22) Machinery or equipment purchased or leased by a business, industry, or 12
organization in order to collect, source separate, compress, bale, shred, or otherwise 13
handle waste materials if the machinery or equipment is primarily used for recycling 14
purposes; 15
(23) Ratite birds and eggs to be used in an agricultural pursuit for the breeding and 16
production of ratite birds, feathers, hides, breeding stock, eggs, meat, and ratite by-17
products, and the following items used in this agricultural pursuit: 18
(a) Feed and feed additives; 19
(b) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals; 20
(c) On-farm facilities, including equipment, machinery, attachments, repair and 21
replacement parts, and any materials incorporated into the construction, 22
renovation, or repair of the facilities. The exemption shall apply to incubation 23
systems, egg processing equipment, waterer and feeding systems, brooding 24
systems, ventilation systems, alarm systems, and curtain systems. In addition, 25
the exemption shall apply whether or not the seller is under contract to deliver, 26
assemble, and incorporate into real estate the equipment, machinery, 27 UNOFFICIAL COPY 22 RS BR 337
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attachments, repair and replacement parts, and any materials incorporated into 1
the construction, renovation, or repair of the facilities; 2
(24) Embryos and semen that are used in the reproduction of livestock, if the products of 3
these embryos and semen ordinarily constitute food for human consumption, and if 4
the sale is made to a person engaged in the business of farming; 5
(25) Llamas and alpacas to be used as beasts of burden or in an agricultural pursuit for 6
the breeding and production of hides, breeding stock, fiber and wool products, meat, 7
and llama and alpaca by-products, and the following items used in this pursuit: 8
(a) Feed and feed additives; 9
(b) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals; 10
and 11
(c) On-farm facilities, including equipment, machinery, attachments, repair and 12
replacement parts, and any materials incorporated into the construction, 13
renovation, or repair of the facilities. The exemption shall apply to waterer 14
and feeding systems, ventilation systems, and alarm systems. In addition, the 15
exemption shall apply whether or not the seller is under contract to deliver, 16
assemble, and incorporate into real estate the equipment, machinery, 17
attachments, repair and replacement parts, and any materials incorporated into 18
the construction, renovation, or repair of the facilities; 19
(26) Baling twine and baling wire for the baling of hay and straw; 20
(27) Water sold to a person regularly engaged in the business of farming and used in the: 21
(a) Production of crops; 22
(b) Production of milk for sale; or 23
(c) Raising and feeding of: 24
1. Livestock or poultry, the products of which ordinarily constitute food for 25
human consumption; or 26
2. Ratites, llamas, alpacas, buffalo, cervids or aquatic organisms; 27 UNOFFICIAL COPY 22 RS BR 337
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(28) Buffalos to be used as beasts of burden or in an agricultural pursuit for the 1
production of hides, breeding stock, meat, and buffalo by-products, and the 2
following items used in this pursuit: 3
(a) Feed and feed additives; 4
(b) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals; 5
(c) On-farm facilities, including equipment, machinery, attachments, repair and 6
replacement parts, and any materials incorporated into the construction, 7
renovation, or repair of the facilities. The exemption shall apply to waterer 8
and feeding systems, ventilation systems, and alarm systems. In addition, the 9
exemption shall apply whether or not the seller is under contract to deliver, 10
assemble, and incorporate into real estate the equipment, machinery, 11
attachments, repair and replacement parts, and any materials incorporated into 12
the construction, renovation, or repair of the facilities; 13
(29) Aquatic organisms sold directly to or raised by a person regularly engaged in the 14
business of producing products of aquaculture, as defined in KRS 260.960, for sale, 15
and the following items used in this pursuit: 16
(a) Feed and feed additives; 17
(b) Water; 18
(c) Insecticides, fungicides, herbicides, rodenticides, and other farm chemicals; 19
and 20
(d) On-farm facilities, including equipment, machinery, attachments, repair and 21
replacement parts, and any materials incorporated into the construction, 22
renovation, or repair of the facilities and, any gasoline, special fuels, liquefied 23
petroleum gas, or natural gas used to operate the facilities. The exemption 24
shall apply, but not be limited to: waterer and feeding systems; ventilation, 25
aeration, and heating systems; processing and storage systems; production 26
systems such as ponds, tanks, and raceways; harvest and transport equipment 27 UNOFFICIAL COPY 22 RS BR 337
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and systems; and alarm systems. In addition, the exemption shall apply 1
whether or not the seller is under contract to deliver, assemble, and 2
incorporate into real estate the equipment, machinery, attachments, repair and 3
replacement parts, and any materials incorporated into the construction, 4
renovation, or repair of the facilities; 5
(30) Members of the genus cervidae permitted by KRS Chapter 150 that are used for the 6
production of hides, breeding stock, meat, and cervid by-products, and the 7
following items used in this pursuit: 8
(a) Feed and feed additives; 9
(b) Insecticides, fungicides, herbicides, rodenticides, and other chemicals; and 10
(c) On-site facilities, including equipment, machinery, attachments, repair and 11
replacement parts, and any materials incorporated into the construction, 12
renovation, or repair of the facilities. In addition, the exemption shall apply 13
whether or not the seller is under contract to deliver, assemble, and 14
incorporate into real estate the equipment, machinery, attachments, repair and 15
replacement parts, and any materials incorporated into the construction, 16
renovation, or repair of the facilities; 17
(31) Prior to October 1, 2022: 18
(a) Repair or replacement parts for the direct operation or maintenance of a motor 19
vehicle, including any towed unit, used exclusively in interstate commerce for 20
the conveyance of property or passengers for hire, provided the motor vehicle 21
is licensed for use on the highway and its declared gross vehicle weight with 22
any towed unit is forty-four thousand and one (44,001) pounds or greater. 23
Nominal intrastate use shall not subject the property to the taxes imposed by 24
this chapter; 25
(b) Repair or replacement parts for the direct operation and maintenance of a 26
motor vehicle operating under a charter bus certificate issued by the 27 UNOFFICIAL COPY 22 RS BR 337
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Transportation Cabinet under KRS Chapter 281, or under similar authority 1
granted by the United States Department of Transportation; and 2
(c) For the purposes of this subsection, "repair or replacement parts" means tires, 3
brakes, engines, transmissions, drive trains, chassis, body parts, and their 4
components. "Repair or replacement parts" shall not include fuel, machine 5
oils, hydraulic fluid, brake fluid, grease, supplies, or accessories not essential 6
to the operation of the motor vehicle itself, except when sold as part of the 7
assembled unit, such as cigarette lighters, radios, lighting fixtures not 8
otherwise required by the manufacturer for operation of the vehicle, or tool or 9
utility boxes; and 10
(32) Food donated by a retail food establishment or any other entity regulated under KRS 11
217.127 to a nonprofit organization for distribution to the needy. 12
Section 20. KRS 140.130 is amended to read as follows: 13
(1) In addition to the inheritance tax levied under KRS 140.010[hereinbefore imposed], 14
an estate tax is hereby levied on all estates equal to the amount by which the credits 15
for state death taxes allowable under the federal tax law as it was in effect on 16
January 1, 2003, and without any scheduled increases in the unified credit 17
provided in 26 U.S.C. sec. 2010, in effect on January 2, 2001, or thereafter, 18
exceeds the tax levied under KRS 140.010, less the discount allowed under KRS 19
140.210, if taken by the taxpayer. The estate[Said] tax shall be payable at the same 20
time and in the same manner as the inheritance taxes levied by this chapter. 21
(2) In the case of resident decedents and nonresident decedents over part of whose 22
estates Kentucky has tax jurisdiction the estate tax shall be computed as follows: 23
(a) The ratio which that part of the net estate over which Kentucky has 24
jurisdiction for estate tax purposes bears to the total net estate wherever 25
located shall be ascertained. 26
(b) The total maximum offset for state succession taxes allowed under the 27 UNOFFICIAL COPY 22 RS BR 337
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provisions of the federal estate tax law shall be multiplied by the ascertained 1
ratio to determine the offset allocable to this state. 2
(c) The estate tax levied by this section shall equal the amount, if any, by which 3
the offset allocable to this state shall exceed the inheritance taxes under KRS 4
140.010, less the discount allowed under KRS 140.210, if taken by the 5
taxpayer. 6
(3) All administrative provisions of this chapter, to the extent that they are applicable, 7
shall be available for the enforcement of this section and KRS 140.140. 8
Section 21. KRS 141.010 is amended to read as follows: 9
As used in this chapter, for taxable years beginning on or after January 1, 2018: 10
(1) "Adjusted gross income," in the case of taxpayers other than corporations, means 11
the amount calculated in KRS 141.019; 12
(2) "Captive real estate investment trust" means a real estate investment trust as defined 13
in Section 856 of the Internal Revenue Code that meets the following requirements: 14
(a) 1. The shares or other ownership interests of the real estate investment trust 15
are not regularly traded on an established securities market; or 16
2. The real estate investment trust does not have enough shareholders or 17
owners to be required to register with the Securities and Exchange 18
Commission; 19
(b) 1. The maximum amount of stock or other ownership interest that is owned 20
or constructively owned by a corporation equals or exceeds: 21
a. Twenty-five percent (25%), if the corporation does not occupy 22
property owned, constructively owned, or controlled by the real 23
estate investment trust; or 24
b. Ten percent (10%), if the corporation occupies property owned, 25
constructively owned, or controlled by the real estate investment 26
trust. 27 UNOFFICIAL COPY 22 RS BR 337
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The total ownership interest of a corporation shall be determined by 1
aggregating all interests owned or constructively owned by a 2
corporation; and 3
2. For the purposes of this paragraph: 4
a. "Corporation" means a corporation taxable under KRS 141.040, 5
and includes an affiliated group as defined in KRS 141.200, that is 6
required to file a consolidated return pursuant to KRS 141.200; 7
and 8
b. "Owned or constructively owned" means owning shares or having 9
an ownership interest in the real estate investment trust, or owning 10
an interest in an entity that owns shares or has an ownership 11
interest in the real estate investment trust. Constructive ownership 12
shall be determined by looking across multiple layers of a 13
multilayer pass-through structure; and 14
(c) The real estate investment trust is not owned by another real estate investment 15
trust; 16
(3) "Commissioner" means the commissioner of the department; 17
(4) "Corporation" has the same meaning as in Section 7701(a)(3) of the Internal 18
Revenue Code; 19
(5) "Critical infrastructure" means property and equipment owned or used by 20
communications networks, electric generation, transmission or distribution systems, 21
gas distribution systems, or water or wastewater pipelines that service multiple 22
customers or citizens, including but not limited to real and personal property such as 23
buildings, offices, lines, poles, pipes, structures, or equipment; 24
(6) "Declared state disaster or emergency" means a disaster or emergency event for 25
which: 26
(a) The Governor has declared a state of emergency pursuant to KRS 39A.100; or 27 UNOFFICIAL COPY 22 RS BR 337
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(b) A presidential declaration of a federal major disaster or emergency has been 1
issued; 2
(7) "Department" means the Department of Revenue; 3
(8) "Dependent" means those persons defined as dependents in the Internal Revenue 4
Code; 5
(9) "Disaster or emergency-related work" means repairing, renovating, installing, 6
building, or rendering services that are essential to the restoration of critical 7
infrastructure that has been damaged, impaired, or destroyed by a declared state 8
disaster or emergency; 9
(10) "Disaster response business" means any entity: 10
(a) That has no presence in the state and conducts no business in the state, except 11
for disaster or emergency-related work during a disaster response period; 12
(b) Whose services are requested by a registered business or by a state or local 13
government for purposes of performing disaster or emergency-related work in 14
the state during a disaster response period; and 15
(c) That has no registrations, tax filings, or nexus in this state other than disaster 16
or emergency-related work during the calendar year immediately preceding 17
the declared state disaster or emergency; 18
(11) "Disaster response employee" means an employee who does not work or reside in 19
the state, except for disaster or emergency-related work during the disaster response 20
period; 21
(12) "Disaster response period" means a period that begins ten (10) days prior to the first 22
day of the Governor's declaration under KRS 39A.100, or the President's declaration 23
of a federal major disaster or emergency, whichever occurs first, and that extends 24
thirty (30) calendar days after the declared state disaster or emergency; 25
(13) "Doing business in this state" includes but is not limited to: 26
(a) Being organized under the laws of this state; 27 UNOFFICIAL COPY 22 RS BR 337
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(b) Having a commercial domicile in this state; 1
(c) Owning or leasing property in this state; 2
(d) Having one (1) or more individuals performing services in this state; 3
(e) Maintaining an interest in a pass-through entity doing business in this state; 4
(f) Deriving income from or attributable to sources within this state, including 5
deriving income directly or indirectly from a trust doing business in this state, 6
or deriving income directly or indirectly from a single-member limited 7
liability company that is doing business in this state and is disregarded as an 8
entity separate from its single member for federal income tax purposes; or 9
(g) Directing activities at Kentucky customers for the purpose of selling them 10
goods or services. 11
Nothing in this subsection shall be interpreted in a manner that goes beyond the 12
limitations imposed and protections provided by the United States Constitution or 13
Pub. L. No. 86-272; 14
(14) "Employee" has the same meaning as in Section 3401(c) of the Internal Revenue 15
Code; 16
(15) "Employer" has the same meaning as in Section 3401(d) of the Internal Revenue 17
Code; 18
(16) "Fiduciary" has the same meaning as in Section 7701(a)(6) of the Internal Revenue 19
Code; 20
(17) "Financial institution" means: 21
(a) A national bank organized as a body corporate and existing or in the process 22
of organizing as a national bank association pursuant to the provisions of the 23
National Bank Act, 12 U.S.C. secs. 21 et seq., in effect on December 31, 24
1997, exclusive of any amendments made subsequent to that date; 25
(b) Any bank or trust company incorporated or organized under the laws of any 26
state, except a banker's bank organized under KRS 286.3-135; 27 UNOFFICIAL COPY 22 RS BR 337
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(c) Any corporation organized under the provisions of 12 U.S.C. secs. 611 to 631, 1
in effect on December 31, 1997, exclusive of any amendments made 2
subsequent to that date, or any corporation organized after December 31, 3
1997, that meets the requirements of 12 U.S.C. secs. 611 to 631, in effect on 4
December 31, 1997; or 5
(d) Any agency or branch of a foreign depository as defined in 12 U.S.C. sec. 6
3101, in effect on December 31, 1997, exclusive of any amendments made 7
subsequent to that date, or any agency or branch of a foreign depository 8
established after December 31, 1997, that meets the requirements of 12 U.S.C. 9
sec. 3101 in effect on December 31, 1997; 10
(18) "Fiscal year" has the same meaning as in Section 7701(a)(24) of the Internal 11
Revenue Code; 12
(19) "Gross income": 13
(a) In the case of taxpayers other than corporations, has the same meaning as in 14
Section 61 of the Internal Revenue Code; and 15
(b) In the case of corporations, means the amount calculated in KRS 141.039; 16
(20) "Individual" means a natural person; 17
(21) "Internal Revenue Code" means: 18
(a) For taxable years beginning on or after January 1, 2018, but before January 1, 19
2019, the Internal Revenue Code in effect on December 31, 2017, including 20
the provisions contained in Pub. L. No. 115-97 apply to the same taxable year 21
as the provisions apply for federal purposes, exclusive of any amendments 22
made subsequent to that date, other than amendments that extend provisions 23
in effect on December 31, 2017, that would otherwise terminate; and 24
(b) For taxable years beginning on or after January 1, 2019, the Internal Revenue 25
Code in effect on December 31, 2018, exclusive of any amendments made 26
subsequent to that date, other than amendments that extend provisions in 27 UNOFFICIAL COPY 22 RS BR 337
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effect on December 31, 2018, that would otherwise terminate; 1
(22) "Limited liability pass-through entity" means any pass-through entity that affords 2
any of its partners, members, shareholders, or owners, through function of the laws 3
of this state or laws recognized by this state, protection from general liability for 4
actions of the entity; 5
(23) "Married individual" shall be determined under Section 7703 of the Internal 6
Revenue Code; 7
(24) "Modified gross income" means the greater of: 8
(a) Adjusted gross income as defined in 26 U.S.C. sec. 62, including any 9
amendments in effect on December 31 of the taxable year, and adjusted as 10
follows: 11
1. Include interest income derived from obligations of sister states and 12
political subdivisions thereof; and 13
2. Include lump-sum pension distributions taxed under the special 14
transition rules of Pub. L. No. 104-188, sec. 1401(c)(2); or 15
(b) Adjusted gross income as defined in subsection (1) of this section and 16
adjusted to include lump-sum pension distributions taxed under the special 17
transition rules of Pub. L. No. 104-188, sec. 1401(c)(2); 18
(25)[(24)] "Net income": 19
(a) In the case of taxpayers other than corporations, means the amount calculated 20
in KRS 141.019; and 21
(b) In the case of corporations, means the amount calculated in KRS 141.039; 22
(26)[(25)] "Nonresident" means any individual not a resident of this state; 23
(27)[(26)] "Number of withholding exemptions claimed" means the number of 24
withholding exemptions claimed in a withholding exemption certificate in effect 25
under KRS 141.325, except that if no such certificate is in effect, the number of 26
withholding exemptions claimed shall be considered to be zero; 27 UNOFFICIAL COPY 22 RS BR 337
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(28)[(27)] "Part-year resident" means any individual that has established or abandoned 1
Kentucky residency during the calendar year; 2
(29)[(28)] "Pass-through entity" means any partnership, S corporation, limited liability 3
company, limited liability partnership, limited partnership, or similar entity 4
recognized by the laws of this state that is not taxed for federal purposes at the 5
entity level, but instead passes to each partner, member, shareholder, or owner their 6
proportionate share of income, deductions, gains, losses, credits, and any other 7
similar attributes; 8
(30)[(29)] "Payroll period" has the same meaning as in Section 3401(b) of the Internal 9
Revenue Code; 10
(31)[(30)] "Person" has the same meaning as in Section 7701(a)(1) of the Internal 11
Revenue Code; 12
(32)[(31)] "Registered business" means a business entity that owns or otherwise 13
possesses critical infrastructure and that is registered to do business in the state prior 14
to the declared state disaster or emergency; 15
(33)[(32)] "Resident" means an individual domiciled within this state or an individual 16
who is not domiciled in this state, but maintains a place of abode in this state and 17
spends in the aggregate more than one hundred eighty-three (183) days of the 18
taxable year in this state; 19
(34)[(33)] "S corporation" has the same meaning as in Section 1361(a) of the Internal 20
Revenue Code; 21
(35)[(34)] "State" means a state of the United States, the District of Columbia, the 22
Commonwealth of Puerto Rico, or any territory or possession of the United States; 23
(36)[(35)] "Taxable net income": 24
(a) In the case of corporations that are taxable in this state, means "net income" as 25
defined in subsection (25)[(24)] of this section; 26
(b) In the case of corporations that are taxable in this state and taxable in another 27 UNOFFICIAL COPY 22 RS BR 337
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state, means "net income" as defined in subsection (25)[(24)] of this section 1
and as allocated and apportioned under KRS 141.120; 2
(c) For homeowners' associations as defined in Section 528(c) of the Internal 3
Revenue Code, means "taxable income" as defined in Section 528(d) of the 4
Internal Revenue Code. Notwithstanding the provisions of subsection (21) of 5
this section, the Internal Revenue Code sections referred to in this paragraph 6
shall be those code sections in effect for the applicable tax year; and 7
(d) For a corporation that meets the requirements established under Section 856 8
of the Internal Revenue Code to be a real estate investment trust, means "real 9
estate investment trust taxable income" as defined in Section 857(b)(2) of the 10
Internal Revenue Code, except that a captive real estate investment trust shall 11
not be allowed any deduction for dividends paid; 12
(37)[(36)] "Taxable year" means the calendar year or fiscal year ending during such 13
calendar year, upon the basis of which net income is computed, and in the case of a 14
return made for a fractional part of a year under the provisions of this chapter or 15
under administrative regulations prescribed by the commissioner, "taxable year" 16
means the period for which the return is made;[ and] 17
(38) "Unmarried individual" means any person who is not a married individual; and 18
(39)[(37)] "Wages" has the same meaning as in Section 3401(a) of the Internal Revenue 19
Code and includes other income subject to withholding as provided in Section 20
3401(f) and Section 3402(k), (o), (p), (q), and (s) of the Internal Revenue Code. 21
Section 22. KRS 141.019 is amended to read as follows: 22
In the case of taxpayers other than corporations: 23
(1) Adjusted gross income shall be calculated by subtracting from the gross income of 24
those taxpayers the deductions allowed individuals by Section 62 of the Internal 25
Revenue Code and adjusting as follows: 26
(a) Exclude income that is exempt from state taxation by the Kentucky 27 UNOFFICIAL COPY 22 RS BR 337
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Constitution and the Constitution and statutory laws of the United States; 1
(b) Exclude income from supplemental annuities provided by the Railroad 2
Retirement Act of 1937 as amended and which are subject to federal income 3
tax by Pub. L. No. 89-699; 4
(c) Include interest income derived from obligations of sister states and political 5
subdivisions thereof; 6
(d) Exclude employee pension contributions picked up as provided for in KRS 7
6.505, 16.545, 21.360, 61.523, 61.560, 65.155, 67A.320, 67A.510, 78.610, 8
and 161.540 upon a ruling by the Internal Revenue Service or the federal 9
courts that these contributions shall not be included as gross income until such 10
time as the contributions are distributed or made available to the employee; 11
(e) Exclude Social Security and railroad retirement benefits subject to federal 12
income tax; 13
(f) Exclude any money received because of a settlement or judgment in a lawsuit 14
brought against a manufacturer or distributor of "Agent Orange" for damages 15
resulting from exposure to Agent Orange by a member or veteran of the 16
Armed Forces of the United States or any dependent of such person who 17
served in Vietnam; 18
(g) 1. a. For taxable years beginning after December 31, 2005, but before 19
January 1, 2018, exclude up to forty-one thousand one hundred ten 20
dollars ($41,110) of total distributions from pension plans, annuity 21
contracts, profit-sharing plans, retirement plans, or employee 22
savings plans; and 23
b. For taxable years beginning on or after January 1, 2018, but before 24
January 1, 2022, exclude up to thirty-one thousand one hundred 25
ten dollars ($31,110) of total distributions from pension plans, 26
annuity contracts, profit-sharing plans, retirement plans, or 27 UNOFFICIAL COPY 22 RS BR 337
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employee savings plans. 1
2. As used in this paragraph and paragraph (h) of this subsection: 2
a. "Annuity contract" has the same meaning as set forth in Section 3
1035 of the Internal Revenue Code; 4
b. "Distributions" includes but is not limited to any lump-sum 5
distribution from pension or profit-sharing plans qualifying for the 6
income tax averaging provisions of Section 402 of the Internal 7
Revenue Code; any distribution from an individual retirement 8
account as defined in Section 408 of the Internal Revenue Code; 9
and any disability pension distribution; and 10
c. "Pension plans, profit-sharing plans, retirement plans, or employee 11
savings plans" means any trust or other entity created or organized 12
under a written retirement plan and forming part of a stock bonus, 13
pension, or profit-sharing plan of a public or private employer for 14
the exclusive benefit of employees or their beneficiaries and 15
includes plans qualified or unqualified under Section 401 of the 16
Internal Revenue Code and individual retirement accounts as 17
defined in Section 408 of the Internal Revenue Code; 18
(h) For taxable years beginning on or after January 1, 2022: 19
1. For married individuals, exclude up to eighty-two thousand two 20
hundred twenty dollars ($82,220) of total distributions from pension 21
plans, annuity contract, profit-sharing plans, retirement plans or 22
employee savings plans as follows: 23
a. If the adjusted gross income is equal to or less than eighty-two 24
thousand two hundred twenty dollars ($82,220), exclude up to 25
eighty-two thousand two hundred twenty dollars ($82,220); 26
b. If the adjusted gross income is greater than eighty-two thousand 27 UNOFFICIAL COPY 22 RS BR 337
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two hundred twenty dollars ($82,220) but less than one hundred 1
sixty-four thousand four hundred forty dollars ($164,440), the 2
exclusion shall be reduced one dollar ($1) for every dollar the 3
adjusted gross income exceeds eighty-two thousand two hundred 4
twenty dollars ($82,220); or 5
c. If the adjusted gross income is one hundred sixty-four thousand 6
four hundred forty dollars ($164,440) or greater, there shall be 7
no exclusion; 8
2. For unmarried individuals, exclude up to forty-one thousand one 9
hundred ten dollars ($41,110) of total distributions from pension 10
plans, annuity contracts, profit-sharing plans, retirement plans, or 11
employee savings plans as follows: 12
a. If the adjusted gross income is equal to or less than forty-one 13
thousand one hundred ten dollars ($41,110) exclude up to forty-14
one thousand one hundred ten dollars ($41,110); 15
b. If the adjusted gross income is greater than forty-one thousand 16
one hundred ten dollars ($41,110) but less than eighty-two 17
thousand two hundred twenty dollars ($82,220), the exclusion 18
shall be reduced one dollar ($1) for every dollar the adjusted 19
gross income exceeds forty-one thousand one hundred ten 20
dollars ($41,110); or 21
c. If the adjusted gross income is eighty-two thousand two hundred 22
twenty dollars ($82,220) or greater, there shall be no exclusion; 23
(i)[(h)] 1. a. Exclude the portion of the distributive share of a 24
shareholder's net income from an S corporation subject to the 25
franchise tax imposed under KRS 136.505 or the capital stock tax 26
imposed under KRS 136.300; and 27 UNOFFICIAL COPY 22 RS BR 337
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b. Exclude the portion of the distributive share of a shareholder's net 1
income from an S corporation related to a qualified subchapter S 2
subsidiary subject to the franchise tax imposed under KRS 3
136.505 or the capital stock tax imposed under KRS 136.300. 4
2. The shareholder's basis of stock held in an S corporation where the S 5
corporation or its qualified subchapter S subsidiary is subject to the 6
franchise tax imposed under KRS 136.505 or the capital stock tax 7
imposed under KRS 136.300 shall be the same as the basis for federal 8
income tax purposes; 9
(j)[(i)] Exclude income received for services performed as a precinct worker for 10
election training or for working at election booths in state, county, and local 11
primaries or regular or special elections; 12
(k)[(j)] Exclude any capital gains income attributable to property taken by 13
eminent domain; 14
(l)[(k)] 1. Exclude all income from all sources for members of the Armed 15
Forces who are on active duty and who are killed in the line of duty, for 16
the year during which the death occurred and the year prior to the year 17
during which the death occurred. 18
2. For the purposes of this paragraph, "all income from all sources" shall 19
include all federal and state death benefits payable to the estate or any 20
beneficiaries; 21
(m)[(l)] Exclude all military pay received by members of the Armed Forces 22
while on active duty; 23
(n)[(m)] 1. Include the amount deducted for depreciation under 26 U.S.C. sec. 24
167 or 168; and 25
2. Exclude the amounts allowed by KRS 141.0101 for depreciation; 26
(o)[(n)] Include the amount deducted under 26 U.S.C. sec. 199A; 27 UNOFFICIAL COPY 22 RS BR 337
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(p)[(o)] Ignore any change in the cost basis of the surviving spouse's share of 1
property owned by a Kentucky community property trust occurring for federal 2
income tax purposes as a result of the death of the predeceasing spouse; [and] 3
(q) Ignore the special rules for capital gains invested in opportunity zones 4
under 26 U.S.C. sec 1400Z-2 for gains received on or after January 1, 2022; 5
and 6
(r)[(p)] Allow the same treatment allowed under Pub. L. No. 116-260, secs. 276 7
and 278, related to the tax treatment of forgiven covered loans, deductions 8
attributable to those loans, and tax attributes associated with those loans for 9
taxable years ending on or after March 27, 2020, but before January 1, 2022; 10
and 11
(2) Net income shall be calculated by subtracting from adjusted gross income all the 12
deductions allowed individuals by Chapter 1 of the Internal Revenue Code, as 13
modified by KRS 141.0101, except: 14
(a) Any deduction allowed by 26 U.S.C. sec. 164 for taxes; 15
(b) Any deduction allowed by 26 U.S.C. sec. 165 for losses[, except wagering 16
losses allowed under Section 165(d) of the Internal Revenue Code]; 17
(c) Any deduction allowed by 26 U.S.C. sec. 213 for medical care expenses; 18
(d) Any deduction allowed by 26 U.S.C. sec. 217 for moving expenses; 19
(e) Any deduction allowed by 26 U.S.C. sec. 67 for any other miscellaneous 20
deduction; 21
(f) Any deduction allowed by the Internal Revenue Code for amounts allowable 22
under KRS 140.090(1)(h) in calculating the value of the distributive shares of 23
the estate of a decedent, unless there is filed with the income return a 24
statement that the deduction has not been claimed under KRS 140.090(1)(h); 25
(g) Any deduction allowed by 26 U.S.C. sec. 151 for personal exemptions and 26
any other deductions in lieu thereof; 27 UNOFFICIAL COPY 22 RS BR 337
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(h) Any deduction allowed for amounts paid to any club, organization, or 1
establishment which has been determined by the courts or an agency 2
established by the General Assembly and charged with enforcing the civil 3
rights laws of the Commonwealth, not to afford full and equal membership 4
and full and equal enjoyment of its goods, services, facilities, privileges, 5
advantages, or accommodations to any person because of race, color, religion, 6
national origin, or sex, except nothing shall be construed to deny a deduction 7
for amounts paid to any religious or denominational club, group, or 8
establishment or any organization operated solely for charitable or educational 9
purposes which restricts membership to persons of the same religion or 10
denomination in order to promote the religious principles for which it is 11
established and maintained;[ and] 12
(i) 1. For taxable years beginning on or after January 1, 2022, no limitation 13
shall be placed on the deduction allowed by Section 170 of the 14
Internal Revenue Code, but all remaining itemized deductions as 15
defined in Section 63 of the Internal Revenue Code and modified by 16
this section shall be limited to a maximum amount of two and one-17
half (2.5) times the standard deduction allowed in Section 24 of this 18
Act. 19
2. For married individuals, if adjusted gross income is: 20
a. Two hundred thousand dollars ($200,000) or less, the deduction 21
calculates in subparagraph 1. of this paragraph shall be allowed; 22
b. Greater than two hundred thousand ($200,000) but does not 23
exceed two hundred twenty thousand dollars ($220,000), the 24
itemized deductions, except for the deduction allowed by Section 25
170 of the Internal Revenue Code, shall be reduced one dollar 26
($1) for every dollar adjusted gross income exceeds two hundred 27 UNOFFICIAL COPY 22 RS BR 337
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thousand dollars ($200,000); and 1
c. Greater than two hundred twenty thousand dollars ($220,000), 2
no itemized deductions under this paragraph or standard 3
deduction under paragraph (j) of this subsection shall be 4
allowed, except for the deduction allowed by Section 170 of the 5
Internal Revenue Code. 6
3. For unmarried individuals, if adjusted gross income is: 7
a. One hundred thousand dollars ($100,000) or less, the deduction 8
calculated in subparagraph 1. of this paragraph shall be 9
allowed; 10
b. Greater than one hundred thousand dollars ($100,000) but does 11
not exceed one hundred ten thousand dollars ($110,000), the 12
itemized deductions, except for the deduction allowed by section 13
170 of the Internal Revenue Code, shall be reduced one dollar 14
($1) for every dollar adjusted gross income exceeds one hundred 15
thousand dollars ($100,000); and 16
c. Greater than one hundred ten thousand dollars ($110,000), no 17
itemized deductions under this paragraph or standard deduction 18
under paragraph (j) of this subsection shall be allowed, except 19
for the deduction allowed by Section 170 of the Internal Revenue 20
Code; and 21
(j) Except as provided in paragraph (i) of this subsection, a taxpayer may elect 22
to claim the standard deduction allowed by KRS 141.081 instead of itemized 23
deductions allowed under paragraph (i) of this subsection[pursuant to 26 24
U.S.C. sec. 63 and as modified by this section]. 25
Section 23. KRS 141.020 is amended to read as follows: 26
(1) An annual tax shall be paid for each taxable year by every resident individual of this 27 UNOFFICIAL COPY 22 RS BR 337
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state upon his entire net income as defined in this chapter. The tax shall be 1
determined by applying the rates in subsection (2) of this section to net income and 2
subtracting allowable tax credits provided in subsection (3) of this section. 3
(2) (a) Except as provided in subsection (7) of this section, for taxable years 4
beginning on or after January 1, 2022: 5
1. For married individuals, the tax shall be determined by applying the 6
following rates to net income: 7
a. Five percent (5%) of the amount of net income up to seventy-five 8
thousand dollars ($75,000); 9
b. Six percent (6%) of the amount of net income over seventy-five 10
thousand dollars ($75,000) and up to one hundred fifty thousand 11
dollars ($150,000); and 12
c. Seven percent (7%) of the amount of net income over one 13
hundred fifty thousand dollars ($150,000); and 14
2. For unmarried individuals, the tax shall be determined by applying 15
the following rates to net income: 16
a. Five percent (5%) of the amount of net income up to thirty-seven 17
thousand five hundred dollars ($37,500); 18
b. Six percent (6%) of the amount of net income over thirty-seven 19
thousand dollars ($37,500) and up to seventy-five thousand 20
dollars ($75,000); and 21
c. Seven percent (7%) of the amount of net income over seventy-22
five thousand dollars ($75,000). 23
(b) For taxable years beginning on or after January 1, 2018, but before January 1, 24
2022, the tax shall be five percent (5%) of net income. 25
(c)[(b)] For taxable years beginning after December 31, 2004, but[and] before 26
January 1, 2018, the tax shall be determined by applying the following rates to 27 UNOFFICIAL COPY 22 RS BR 337
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net income: 1
1. Two percent (2%) of the amount of net income up to three thousand 2
dollars ($3,000); 3
2. Three percent (3%) of the amount of net income over three thousand 4
dollars ($3,000) and up to four thousand dollars ($4,000); 5
3. Four percent (4%) of the amount of net income over four thousand 6
dollars ($4,000) and up to five thousand dollars ($5,000); 7
4. Five percent (5%) of the amount of net income over five thousand 8
dollars ($5,000) and up to eight thousand dollars ($8,000); 9
5. Five and eight-tenths percent (5.8%) of the amount of net income over 10
eight thousand dollars ($8,000) and up to seventy-five thousand dollars 11
($75,000); and 12
6. Six percent (6%) of the amount of net income over seventy-five 13
thousand dollars ($75,000). 14
(3) (a) The following tax credits, when applicable, shall be deducted from the result 15
obtained under subsection (2) of this section to arrive at the annual tax: 16
1. a. For taxable years beginning before January 1, 2014, twenty dollars 17
($20) for an unmarried individual; and 18
b. For taxable years beginning on or after January 1, 2014, and before 19
January 1, 2018, ten dollars ($10) for an unmarried individual; 20
2. a. For taxable years beginning before January 1, 2014, twenty dollars 21
($20) for a married individual filing a separate return and an 22
additional twenty dollars ($20) for the spouse of taxpayer if a 23
separate return is made by the taxpayer and if the spouse, for the 24
calendar year in which the taxable year of the taxpayer begins, had 25
no Kentucky gross income and is not the dependent of another 26
taxpayer; or forty dollars ($40) for married persons filing a joint 27 UNOFFICIAL COPY 22 RS BR 337
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return, provided neither spouse is the dependent of another 1
taxpayer. The determination of marital status for the purpose of 2
this section shall be made in the manner prescribed in Section 153 3
of the Internal Revenue Code; and 4
b. For taxable years beginning on or after January 1, 2014, and before 5
January 1, 2018, ten dollars ($10) for a married individual filing a 6
separate return and an additional ten dollars ($10) for the spouse of 7
a taxpayer if a separate return is made by the taxpayer and if the 8
spouse, for the calendar year in which the taxable year of the 9
taxpayer begins, had no Kentucky gross income and is not the 10
dependent of another taxpayer; or twenty dollars ($20) for married 11
persons filing a joint return, provided neither spouse is the 12
dependent of another taxpayer. The determination of marital status 13
for the purpose of this section shall be made in the manner 14
prescribed in Section 153 of the Internal Revenue Code; 15
3. a. For taxable years beginning before January 1, 2014, twenty dollars 16
($20) credit for each dependent. No credit shall be allowed for any 17
dependent who has made a joint return with his or her spouse; and 18
b. For taxable years beginning on or after January 1, 2014, and before 19
January 1, 2018, ten dollars ($10) credit for each dependent. No 20
credit shall be allowed for any dependent who has made a joint 21
return with his or her spouse; 22
4. An additional forty dollars ($40) credit if the taxpayer has attained the 23
age of sixty-five (65) before the close of the taxable year; 24
5. An additional forty dollars ($40) credit for taxpayer's spouse if a 25
separate return is made by the taxpayer and if the taxpayer's spouse has 26
attained the age of sixty-five (65) before the close of the taxable year, 27 UNOFFICIAL COPY 22 RS BR 337
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and, for the calendar year in which the taxable year of the taxpayer 1
begins, has no Kentucky gross income and is not the dependent of 2
another taxpayer; 3
6. An additional forty dollars ($40) credit if the taxpayer is blind at the 4
close of the taxable year; 5
7. An additional forty dollars ($40) credit for taxpayer's spouse if a 6
separate return is made by the taxpayer and if the taxpayer's spouse is 7
blind, and, for the calendar year in which the taxable year of the taxpayer 8
begins, has no Kentucky gross income and is not the dependent of 9
another taxpayer; 10
8. In the case of a fiduciary, other than an estate, the allowable tax credit 11
shall be two dollars ($2); 12
9. In the case of an estate, the allowable tax credit shall be ten dollars 13
($10); and 14
10. An additional twenty dollars ($20) credit shall be allowed if the taxpayer 15
is a member of the Kentucky National Guard at the close of the taxable 16
year. 17
(b) In the case of nonresidents, the tax credits allowable under this subsection 18
shall be the portion of the credits that are represented by the ratio of the 19
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 20
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 21
Revenue Code. However, in the case of a married nonresident taxpayer with 22
income from Kentucky sources, whose spouse has no income from Kentucky 23
sources, the taxpayer shall determine allowable tax credit(s) by either: 24
1. The method contained above applied to the taxpayer's tax credit(s), 25
excluding credits for a spouse and dependents; or 26
2. Prorating the taxpayer's tax credit(s) plus the tax credits for the 27 UNOFFICIAL COPY 22 RS BR 337
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taxpayer's spouse and dependents by the ratio of the taxpayer's Kentucky 1
adjusted gross income as determined by KRS 141.019 to the total joint 2
federal adjusted gross income of the taxpayer and the taxpayer's spouse. 3
(c) In the case of a part-year resident, the tax credits allowable under this 4
subsection shall be the portion of the credits represented by the ratio of the 5
taxpayer's Kentucky adjusted gross income as determined by KRS 141.019 to 6
the taxpayer's adjusted gross income as defined in Section 62 of the Internal 7
Revenue Code. 8
(4) An annual tax shall be paid for each taxable year as specified in this section upon 9
the entire net income except as herein provided, from all tangible property located 10
in this state, from all intangible property that has acquired a business situs in this 11
state, and from business, trade, profession, occupation, or other activities carried on 12
in this state, by natural persons not residents of this state. A nonresident individual 13
shall be taxable only upon the amount of income received by the individual from 14
labor performed, business done, or from other activities in this state, from tangible 15
property located in this state, and from intangible property which has acquired a 16
business situs in this state; provided, however, that the situs of intangible personal 17
property shall be at the residence of the real or beneficial owner and not at the 18
residence of a trustee having custody or possession thereof. For taxable years 19
beginning on or after January 1, 2021, but before January 1, 2025, the tax imposed 20
by this section shall not apply to a disaster response employee or to a disaster 21
response business. The remainder of the income received by such nonresident shall 22
be deemed nontaxable by this state. 23
(5) Subject to the provisions of KRS 141.081, any individual may elect to pay the 24
annual tax imposed by KRS 141.023 in lieu of the tax levied under this section. 25
(6) A part-year resident is subject to taxation, as prescribed in subsection (1) of this 26
section, during that portion of the taxable year that the individual is a resident and, 27 UNOFFICIAL COPY 22 RS BR 337
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as prescribed in subsection (4) of this section, during that portion of the taxable year 1
when the individual is a nonresident. 2
(7) For taxable years beginning on or after January 1, 2022: 3
(a) For married individuals, if adjusted gross income is: 4
1. Two hundred thousand dollars ($200,000) or less, the rates in 5
subsection (2)(a) of this section shall apply; 6
2. Greater than two hundred thousand dollars ($200,000) but does not 7
exceed three hundred thousand ($300,000), the tax shall be 8
determined by applying the following rates to net income: 9
a. Six percent (6%) of the amount of net income up to one hundred 10
fifty thousand dollars ($150,000); and 11
b. Seven percent (7%) of the amount of net income over one 12
hundred fifty thousand dollars ($150,000); or 13
3. Greater than three hundred thousand dollars ($300,000), the tax shall 14
be seven percent (7%) of net income; and 15
(b) For unmarried individuals, if adjusted gross income is: 16
1. One hundred thousand dollars ($100,000) or less, the rates in 17
subsection (2)(a) of this section shall apply; 18
2. Greater than one hundred thousand dollars ($100,000) but does not 19
exceed two hundred thousand dollars ($200,000), the tax shall be 20
determined by applying the following rates to net income: 21
a. Six percent (6%) of the amount of new income up to seventy-five 22
thousand dollars ($75,000); and 23
b. Seven percent (7%) of the amount of net income over seventy-24
five thousand dollars ($75,000); or 25
3. Greater than two hundred thousand dollars ($200,000), the tax shall 26
be seven percent (7%) of net income. 27 UNOFFICIAL COPY 22 RS BR 337
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Section 24. KRS 141.081 is amended to read as follows: 1
(1) For taxable years beginning on or after January 1, 2022, but before January 1, 2
2023: 3
(a) Married individuals[An individual, at his election,] may deduct from[ his] 4
adjusted gross income a standard deduction of eight thousand dollars 5
($8,000); and 6
(b) Unmarried individuals may deduct from adjusted gross income a standard 7
deduction of four thousand dollars ($4,000)[: 8
(a) Six hundred and fifty dollars ($650) for taxable years beginning before 9
December 31, 1996; 10
(b) Nine hundred dollars ($900) for taxable years beginning after December 31, 11
1996, but before December 31, 1997; 12
(c) One thousand two hundred dollars ($1,200) for taxable years beginning after 13
December 31, 1997, but before December 31, 1998; 14
(d) One thousand five hundred dollars ($1,500) for taxable years beginning after 15
December 31, 1998, but before December 31, 1999; 16
(e) One thousand seven hundred dollars ($1,700) for taxable years beginning after 17
December 31, 1999, but before December 31, 2000; and 18
(f) The amount calculated under subsection (2) of this section for taxable years 19
beginning after December 31, 2000]. 20
(2) (a) For taxable years beginning on or after January 1, 2023[December 31, 2000, 21
and each taxable year thereafter], the standard deduction for the current 22
taxable year shall be equal to the standard deduction for the prior taxable year 23
multiplied by the greater of: 24
1. The average of the monthly CPI-U figures for the twelve (12) 25
consecutive months ending in and including the July six (6) months 26
prior to the January beginning the current tax year, divided by the 27 UNOFFICIAL COPY 22 RS BR 337
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average of the monthly CPI-U figures for the twelve (12) months ending 1
in and including the July eighteen (18) months prior to the January 2
beginning the current tax year; or 3
2. One (1). 4
(b) As used in this subsection, a tax year shall be the twelve (12) month period 5
beginning in January and ending in December. 6
(c) As used in this subsection, "CPI-U" means the nonseasonally adjusted United 7
States city average of the Consumer Price Index for all urban consumers for 8
all items, as released by the federal Bureau of Labor Statistics. 9
(3) The standard deduction provided for in this section shall be in lieu of all deductions 10
and shall not be allowed in the case of a taxable year of less than twelve (12) 11
months on account of a change in the accounting period or in the case of a 12
fiduciary.[ 13
(4) In the case of a husband and wife living together, the standard deduction provided 14
for in this section shall not be allowed to either if the net income of one (1) of the 15
spouses is determined without regard to the standard deduction. The determination 16
of marital status shall be made in the manner prescribed in Section 153 of the 17
Internal Revenue Code.] 18
Section 25. KRS 141.066 is amended to read as follows: 19
(1) As used in this section: 20
(a) "Federal poverty level" means the Health and Human Services poverty 21
guidelines updated periodically in the Federal Register by the United States 22
Department of Health and Human Services under the authority of 42 U.S.C. 23
sec. 9902(2) and available on June 30 of the taxable year; 24
(b) "Qualifying dependent" means a qualifying child as defined in the Internal 25
Revenue Code, Section 152(c), and includes a child who lives in the 26
household but cannot be claimed as a dependent if the provisions of Internal 27 UNOFFICIAL COPY 22 RS BR 337
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Revenue Code Section 152(e)(2) and 152(e)(4) apply; 1
(c) "Qualifying individual" means an individual whose filing status is single or 2
married filing separately if during the taxable year the individual's spouse is 3
not a member of the household; 4
(d) "Qualifying married couple" means a husband and wife living together who 5
file a joint return or separately on a combined return. "Marital status" shall 6
have the same meaning as defined in Section 7703 of the Internal Revenue 7
Code; and 8
(e) "Threshold amount" means: 9
1. For a qualifying individual with no qualifying dependent children, the 10
federal poverty level established for a family unit size of one (1): 11
2. For a qualifying individual with one (1) qualifying dependent child or a 12
qualifying married couple with no qualifying dependent children, the 13
federal poverty level established for a family unit size of two (2); 14
3. For a qualifying individual with two (2) qualifying dependent children or 15
a qualifying married couple with one (1) qualifying dependent child, the 16
federal poverty level established for a family unit size of three (3); 17
4. For a qualifying individual with (3) or more qualifying dependent 18
children or a qualifying married couple with two (2) or more qualifying 19
dependent children, the federal poverty level established for a family 20
unit size of four (4). 21
(2) (a) For taxable years beginning before January 1, 2005, a resident individual 22
whose adjusted gross income does not exceed the amounts set out in 23
paragraph (c) of this subsection shall be eligible for a nonrefundable "low 24
income" tax credit. The credit shall be applied against the taxpayer's tax 25
liability calculated under KRS 141.020, and shall be taken in the order 26
established by KRS 141.0205. 27 UNOFFICIAL COPY 22 RS BR 337
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(b) For a husband and wife filing jointly, the "low income" tax credit shall be 1
computed on the basis of their joint adjusted gross income and shall be 2
applied against their joint tax liability. For a husband and wife living together, 3
whether filing separate returns or filing separately on a combined return, the 4
"low income" credit shall be computed on the basis of their combined adjusted 5
gross income, except that a separately computed gross income of less than 6
zero shall be treated as zero, and shall be applied against their combined tax 7
liability. 8
(c) The "low income" tax credit shall be computed as follows: 9
PERCENT OF TAX 10
AMOUNT OF ADJUSTED LIABILITY ALLOWED AS 11
GROSS INCOME LOW INCOME TAX CREDIT 12
not over $5,000 100% 13
over $ 5,000 but not over $10,000 50% 14
over $10,000 but not over $15,000 25% 15
over $15,000 but not over $20,000 15% 16
over $20,000 but not over $25,000 5% 17
over $25,000 -0- 18
(3) (a) 1. For taxable years beginning after December 31, 2004, but before 19
January 1, 2022, qualifying taxpayers whose modified gross income is 20
below one hundred thirty-three percent (133%) of the threshold amount 21
shall be entitled to a nonrefundable family size tax credit; and 22
2. For taxable years beginning on or after January 1, 2022, qualifying 23
taxpayers whose modified gross income is below one hundred thirty-24
eight percent (138%) of the threshold amount shall be entitled to a 25
nonrefundable family size tax credit. 26
The family size tax credit shall be applied against the taxpayer's tax 27 UNOFFICIAL COPY 22 RS BR 337
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liability calculated under KRS 141.020. The family size tax credit shall 1
not reduce the taxpayer's tax liability below zero. 2
(b) For qualifying taxpayers whose modified gross income is equal to or below 3
one hundred percent (100%) of the threshold amount, the family size tax 4
credit shall be equal to the taxpayer's tax liability. 5
(c) For taxable years beginning after December 31, 2004, but before January 1, 6
2022, qualifying taxpayers whose modified gross income exceeds the 7
threshold amount but is below one hundred thirty-three percent (133%) of the 8
threshold amount, the family size tax credit shall be equal to the amount of the 9
taxpayer's individual income tax liability multiplied by a percentage as 10
follows: 11
1. If modified gross income is above one hundred percent (100%) but less 12
than or equal to one hundred four percent (104%) of the threshold 13
amount, the credit percentage shall be ninety percent (90%); 14
2. If modified gross income is above one hundred four percent (104%) but 15
less than or equal to one hundred eight percent (108%) of the threshold 16
amount, the credit percentage shall be eighty percent (80%); 17
3. If modified gross income is above one hundred eight percent (108%) but 18
less than or equal to one hundred twelve percent (112%) of the threshold 19
amount, the credit percentage shall be seventy percent (70%); 20
4. If modified gross income is above one hundred twelve percent (112%) 21
but less than or equal to one hundred sixteen percent (116%) of the 22
threshold amount, the credit percentage shall be sixty percent (60%); 23
5. If modified gross income is above one hundred sixteen percent (116%) 24
but less than or equal to one hundred twenty percent (120%) of the 25
threshold amount, the credit percentage shall be fifty percent (50%); 26
6. If modified gross income is above one hundred twenty percent (120%) 27 UNOFFICIAL COPY 22 RS BR 337
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but less than or equal to one hundred twenty-four percent (124%) of the 1
threshold amount, the credit percentage shall be forty percent (40%); 2
7. If modified gross income is above one hundred twenty-four percent 3
(124%) but less than or equal to one hundred twenty-seven percent 4
(127%) of the threshold amount, the credit percentage shall be thirty 5
percent (30%); 6
8. If modified gross income is above one hundred twenty-seven percent 7
(127%) but less than or equal to one hundred thirty percent (130%) of 8
the threshold amount, the credit percentage shall be twenty percent 9
(20%); 10
9. If modified gross income is above one hundred thirty percent (130%) but 11
less than or equal to one hundred thirty-three percent (133%) of the 12
threshold amount, the credit percentage shall be ten percent (10%); or 13
10. If modified gross income is above one hundred thirty-three percent 14
(133%) of the threshold amount, the credit percentage shall be zero. 15
(d) For taxable years beginning on or after January 1, 2022, qualifying 16
taxpayers whose modified gross income exceeds the threshold amount but is 17
below one hundred thirty-eight percent (138%) of the threshold amount, the 18
family size tax credit shall be equal to the amount of the taxpayer's 19
individual income tax liability multiplied by a percentage as follows: 20
1. If modified gross income is above one hundred percent (100%) but 21
less than or equal to one hundred five percent (105%) of the threshold 22
amount, the credit percentage shall be ninety percent (90%); 23
2. If modified gross income is above one hundred five percent (105%) 24
but less than or equal to one hundred ten percent (110%) of the 25
threshold amount, the credit percentage shall be eighty percent (80%); 26
3. If modified gross income is above one hundred ten percent (110%) but 27 UNOFFICIAL COPY 22 RS BR 337
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less than or equal to one hundred fourteen percent (114%) of the 1
threshold amount, the credit percentage shall be seventy percent 2
(70%); 3
4. If modified gross income is above one hundred fourteen percent 4
(114%) but less than or equal to one hundred eighteen percent (118%) 5
of the threshold amount, the credit percentage shall be sixty percent 6
(60%); 7
5. If modified gross income is above one hundred eighteen percent 8
(118%) but less than or equal to one hundred twenty-two percent 9
(122%) of the threshold amount, the credit percentage shall be fifty 10
percent (50%); 11
6. If modified gross income is above one hundred twenty-two percent 12
(122%) but less than or equal to one hundred twenty-six percent 13
(126%) of the threshold amount, the credit percentage shall be forty 14
percent (40%); 15
7. If modified gross income is above one hundred twenty-six percent 16
(126%) but less than or equal to one hundred thirty (130%) of the 17
threshold amount, the credit percentage shall be thirty percent (30%); 18
8. If modified gross income is above one hundred thirty percent (130%) 19
but less than or equal to one hundred thirty-four (134%) of the 20
threshold amount, the credit percentage shall be twenty percent 21
(20%); 22
9. If modified gross income is above one hundred thirty-four percent 23
(134%) but less than or equal to one hundred thirty-eight percent 24
(138%) of the threshold amount, the credit percentage shall be ten 25
percent (10%); or 26
10. If modified gross income is above one hundred thirty-eight percent 27 UNOFFICIAL COPY 22 RS BR 337
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(138%) of the threshold amount, there shall be no credit. 1
(e) For taxable years beginning on or after January 1, 2019, but before January 1, 2
2021, in addition to the credit calculated under paragraphs (a), (b), and (c) of 3
this subsection, the income gap credit shall be allowed: 4
1. If modified gross income is above one hundred percent (100%) but less 5
than or equal to one hundred four percent (104%) of the threshold 6
amount, the credit shall be in an amount equal to: 7
a. Eleven dollars ($11) for a family size of one (1); 8
b. Seven dollars ($7) for a family size of two (2); and 9
c. Three dollars ($3) for a family size of three (3); 10
2. If modified gross income is above one hundred four percent (104%) but 11
less than or equal to one hundred eight percent (108%) of the threshold 12
amount, the credit shall be in an amount equal to: 13
a. Twenty dollars ($20) for a family size of one (1); 14
b. Thirteen dollars ($13) for a family size of two (2); and 15
c. Six dollars ($6) for a family size of three (3); 16
3. If modified gross income is above one hundred eight percent (108%) but 17
less than or equal to one hundred twelve percent (112%) of the threshold 18
amount, the credit shall be in an amount equal to: 19
a. Twenty-nine dollars ($29) for a family size of one (1); 20
b. Eighteen dollars ($18) for a family size of two (2); and 21
c. Six dollars ($6) for a family size of three (3); 22
4. If modified gross income is above one hundred twelve percent (112%) 23
but less than or equal to one hundred sixteen percent (116%) of the 24
threshold amount, the credit shall be in an amount equal to: 25
a. Thirty-seven dollars ($37) for a family size of one (1); 26
b. Twenty-two dollars ($22) for a family size of two (2); and 27 UNOFFICIAL COPY 22 RS BR 337
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c. Six dollars ($6) for a family size of three (3); 1
5. If modified gross income is above one hundred sixteen percent (116%) 2
but less than or equal to one hundred twenty percent (120%) of the 3
threshold amount, the credit shall be in an amount equal to: 4
a. Forty-five dollars ($45) for a family size of one (1); 5
b. Twenty-four dollars ($24) for a family size of two (2); and 6
c. Four dollars ($4) for a family size of three (3); 7
6. If modified gross income is above one hundred twenty percent (120%) 8
but less than or equal to one hundred twenty-four percent (124%) of the 9
threshold amount, the credit shall be in an amount equal to: 10
a. Fifty-one dollars ($51) for a family size of one (1); and 11
b. Twenty-six dollars ($26) for a family size of two (2); 12
7. If modified gross income is above one hundred twenty-four percent 13
(124%) but less than or equal to one hundred twenty-seven percent 14
(127%) of the threshold amount, the credit shall be in an amount equal 15
to: 16
a. Fifty-eight dollars ($58) for a family size of one (1); and 17
b. Twenty-seven dollars ($27) for a family size of two (2); 18
8. If modified gross income is above one hundred twenty-seven percent 19
(127%) but less than or equal to one hundred thirty percent (130%) of 20
the threshold amount, the credit shall be in an amount equal to: 21
a. Sixty-four dollars ($64) for a family size of one (1); and 22
b. Twenty-eight dollars ($28) for a family size of two (2); and 23
9. If modified gross income is above one hundred thirty percent (130%) but 24
less than or equal to one hundred thirty-three percent (133%) of the 25
threshold amount, the credit shall be in an amount equal to: 26
a. Sixty-nine dollars ($69) for a family size of one (1); and 27 UNOFFICIAL COPY 22 RS BR 337
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b. Twenty-eight dollars ($28) for a family size of two (2). 1
(4) For a qualifying married couple filing jointly, the family size tax credit shall be 2
computed on the basis of their joint modified gross income and shall be applied 3
against their joint tax liability. For a qualifying married couple living together, 4
whether filing separate returns or filing separately on a combined return, the family 5
size tax credit shall be computed on the basis of their combined modified gross 6
income, except that a separately computed modified gross income of less than zero 7
shall be treated as zero, and shall be applied against their combined tax liability. 8
Section 26. KRS 141.040 is amended to read as follows: 9
(1) Every corporation doing business in this state, except those corporations listed in 10
paragraphs (a) and (b) of this subsection, shall pay for each taxable year a tax to be 11
computed by the taxpayer on taxable net income at the rates specified in this 12
section: 13
(a) For taxable years beginning prior to January 1, 2021, or on or after January 14
1, 2023: 15
1. Financial institutions, as defined in KRS 136.500, except bankers banks 16
organized under KRS 286.3-135; 17
2. Savings and loan associations organized under the laws of this state and 18
under the laws of the United States and making loans to members only; 19
3. Banks for cooperatives; 20
4. Production credit associations; 21
5. Insurance companies, including farmers' or other mutual hail, cyclone, 22
windstorm, or fire insurance companies, insurers, and reciprocal 23
underwriters; 24
6. Corporations or other entities exempt under Section 501 of the Internal 25
Revenue Code; 26
7. Religious, educational, charitable, or like corporations not organized or 27 UNOFFICIAL COPY 22 RS BR 337
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conducted for pecuniary profit; and 1
8. Corporations whose only owned or leased property located in this state 2
is located at the premises of a printer with which it has contracted for 3
printing, provided that: 4
a. The property consists of the final printed product, or copy from 5
which the printed product is produced; and 6
b. The corporation has no individuals receiving compensation in this 7
state as provided in KRS 141.120(8)(b); and 8
(b) For taxable years beginning on or after January 1, 2021, but before January 1, 9
2023: 10
1. Insurance companies, including farmers' or other mutual hail, cyclone, 11
windstorm, or fire insurance companies, insurers, and reciprocal 12
underwriters; 13
2. Corporations or other entities exempt under Section 501 of the Internal 14
Revenue Code; 15
3. Religious, educational, charitable, or like corporations not organized or 16
conducted for pecuniary profit; 17
4. Corporations whose only owned or leased property located in this state 18
is located at the premises of a printer with which it has contracted for 19
printing, provided that: 20
a. The property consists of the final printed product, or copy from 21
which the printed product is produced; and 22
b. The corporation has no individuals receiving compensation in this 23
state as provided in KRS 141.120(8)(b); and 24
5. For taxable years beginning before January 1, 2025, a disaster response 25
business. 26
(2) For taxable years beginning on or after January 1, 2022, the rate of seven 27 UNOFFICIAL COPY 22 RS BR 337
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percent (7%) of taxable net income shall apply. 1
(3) For taxable years beginning on or after January 1, 2018, but before January 1, 2
2022, the rate of five percent (5%) of taxable net income shall apply. 3
(4)[(3)] For taxable years beginning on or after January 1, 2007, and before January 1, 4
2018, the following rates shall apply: 5
(a) Four percent (4%) of the first fifty thousand dollars ($50,000) of taxable net 6
income; 7
(b) Five percent (5%) of taxable net income over fifty thousand dollars ($50,000) 8
up to one hundred thousand dollars ($100,000); and 9
(c) Six percent (6%) of taxable net income over one hundred thousand dollars 10
($100,000). 11
(5)[(4)] (a) An S corporation shall pay income tax on the same items of income and 12
in the same manner as required for federal purposes, except to the extent 13
required by differences between this chapter and the federal income tax law 14
and regulations. 15
(b) 1. If the S corporation is required under Section 1363(d) of the Internal 16
Revenue Code to submit installments of tax on the recapture of LIFO 17
benefits, installments to pay the Kentucky tax due shall be paid on or 18
before the due date of the S corporation's return, as extended, if 19
applicable. 20
2. Notwithstanding KRS 141.170(3), no interest shall be assessed on the 21
installment payment for the period of extension. 22
(c) If the S corporation is required under Section 1374 or 1375 of the Internal 23
Revenue Code to pay tax on built-in gains or on passive investment income, 24
the amount of tax imposed by this subsection shall be computed by applying 25
the highest rate of tax for the taxable year. 26
Section 27. KRS 141.0401 is amended to read as follows: 27 UNOFFICIAL COPY 22 RS BR 337
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(1) As used in this section: 1
(a) "Kentucky gross receipts" means an amount equal to the computation of the 2
numerator of the apportionment fraction under KRS 141.120, any 3
administrative regulations related to the computation of the sales factor, and 4
KRS 141.121 and includes the proportionate share of Kentucky gross receipts 5
of all wholly or partially owned limited liability pass-through entities, 6
including all layers of a multi-layered pass-through structure; 7
(b) "Gross receipts from all sources" means an amount equal to the computation 8
of the denominator of the apportionment fraction under KRS 141.120, any 9
administrative regulations related to the computation of the sales factor, and 10
KRS 141.121 and includes the proportionate share of gross receipts from all 11
sources of all wholly or partially owned limited liability pass-through entities, 12
including all layers of a multi-layered pass-through structure; 13
(c) "Affiliated group" has the same meaning as in KRS 141.201; 14
(d) "Cost of goods sold" means: 15
1. Amounts that are: 16
a. Allowable as cost of goods sold pursuant to the Internal Revenue 17
Code and any guidelines issued by the Internal Revenue Service 18
relating to cost of goods sold, unless modified by this paragraph; 19
and 20
b. Incurred in acquiring or producing the tangible product generating 21
the Kentucky gross receipts. 22
2. For manufacturing, producing, reselling, retailing, or wholesaling 23
activities, cost of goods sold shall only include costs directly incurred in 24
acquiring or producing the tangible product. In determining cost of 25
goods sold: 26
a. Labor costs shall be limited to direct labor costs as defined in 27 UNOFFICIAL COPY 22 RS BR 337
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paragraph (f) of this subsection; 1
b. Bulk delivery costs as defined in paragraph (g) of this subsection 2
may be included; and 3
c. Costs allowable under Section 263A of the Internal Revenue Code 4
may be included only to the extent the costs are incurred in 5
acquiring or producing the tangible product generating the 6
Kentucky gross receipts. Notwithstanding the foregoing, indirect 7
labor costs allowable under Section 263A shall not be included; 8
3. For any activity other than manufacturing, producing, reselling, retailing, 9
or wholesaling, no costs shall be included in cost of goods sold. 10
As used in this paragraph, "guidelines issued by the Internal Revenue Service" 11
includes regulations, private letter rulings, or any other guidance issued by the 12
Internal Revenue Service that may be relied upon by taxpayers under reliance 13
standards established by the Internal Revenue Service; 14
(e) 1. "Kentucky gross profits" means Kentucky gross receipts reduced by 15
returns and allowances attributable to Kentucky gross receipts, less the 16
cost of goods sold attributable to Kentucky gross receipts. If the amount 17
of returns and allowances attributable to Kentucky gross receipts and the 18
cost of goods sold attributable to Kentucky gross receipts is zero, then 19
"Kentucky gross profits" means Kentucky gross receipts; and 20
2. "Gross profits from all sources" means gross receipts from all sources 21
reduced by returns and allowances attributable to gross receipts from all 22
sources, less the cost of goods sold attributable to gross receipts from all 23
sources. If the amount of returns and allowances attributable to gross 24
receipts from all sources and the cost of goods sold attributable to gross 25
receipts from all sources is zero, then gross profits from all sources 26
means gross receipts from all sources; 27 UNOFFICIAL COPY 22 RS BR 337
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(f) "Direct labor" means labor that is incorporated into the tangible product sold 1
or is an integral part of the manufacturing process; 2
(g) "Bulk delivery costs" means the cost of delivering the product to the consumer 3
if: 4
1. The tangible product is delivered in bulk and requires specialized 5
equipment that generally precludes commercial shipping; and 6
2. The tangible product is taxable under KRS 138.220; 7
(h) "Manufacturing" and "producing" means: 8
1. Manufacturing, producing, constructing, or assembling components to 9
produce a significantly different or enhanced end tangible product; 10
2. Mining or severing natural resources from the earth; or 11
3. Growing or raising agricultural or horticultural products or animals; 12
(i) "Real property" means land and anything growing on, attached to, or erected 13
on it, excluding anything that may be severed without injury to the land; 14
(j) "Reselling," "retailing," and "wholesaling" mean the sale of a tangible 15
product; 16
(k) "Tangible personal property" means property, other than real property, that has 17
physical form and characteristics; and 18
(l) "Tangible product" means real property and tangible personal property; 19
(2) (a) For taxable years beginning on or after January 1, 2007, an annual limited 20
liability entity tax shall be paid by every corporation and every limited liability 21
pass-through entity doing business in Kentucky on all Kentucky gross receipts 22
or Kentucky gross profits except as provided in this subsection. A small 23
business exclusion from this tax shall be provided based on the reduction 24
contained in this subsection. The tax shall be the greater of the amount 25
computed under paragraph (b) or (c) of this subsection or one hundred 26
seventy-five dollars ($175), regardless of the application of any tax credits 27 UNOFFICIAL COPY 22 RS BR 337
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provided under this chapter or any other provisions of the Kentucky Revised 1
Statutes for which the business entity may qualify. 2
(b) For taxable years beginning before January 1, 2022, the limited liability 3
entity tax shall be the lesser of subparagraph 1. or 2. of this paragraph: 4
1. a. If the corporation's or limited liability pass-through entity's gross 5
receipts from all sources are three million dollars ($3,000,000) or 6
less, the limited liability entity tax shall be one hundred seventy-7
five dollars ($175); 8
b. If the corporation's or limited liability pass-through entity's gross 9
receipts from all sources are greater than three million dollars 10
($3,000,000) but less than six million dollars ($6,000,000), the 11
limited liability entity tax shall be nine and one-half cents ($0.095) 12
per one hundred dollars ($100) of the corporation's or limited 13
liability pass-through entity's Kentucky gross receipts reduced by 14
an amount equal to two thousand eight hundred fifty dollars 15
($2,850) multiplied by a fraction, the numerator of which is six 16
million dollars ($6,000,000) less the amount of the corporation's or 17
limited liability pass-through entity's Kentucky gross receipts for 18
the taxable year, and the denominator of which is three million 19
dollars ($3,000,000), but in no case shall the result be less than one 20
hundred seventy-five dollars ($175); 21
c. If the corporation's or limited liability pass-through entity's gross 22
receipts from all sources are equal to or greater than six million 23
dollars ($6,000,000), the limited liability entity tax shall be nine 24
and one-half cents ($0.095) per one hundred dollars ($100) of the 25
corporation's or limited liability pass-through entity's Kentucky 26
gross receipts. 27 UNOFFICIAL COPY 22 RS BR 337
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2. a. If the corporation's or limited liability pass-through entity's gross 1
profits from all sources are three million dollars ($3,000,000) or 2
less, the limited liability entity tax shall be one hundred seventy-3
five dollars ($175); 4
b. If the corporation's or limited liability pass-through entity's gross 5
profits from all sources are at least three million dollars 6
($3,000,000) but less than six million dollars ($6,000,000), the 7
limited liability entity tax shall be seventy-five cents ($0.75) per 8
one hundred dollars ($100) of the corporation's or limited liability 9
pass-through entity's Kentucky gross profits, reduced by an amount 10
equal to twenty-two thousand five hundred dollars ($22,500) 11
multiplied by a fraction, the numerator of which is six million 12
dollars ($6,000,000) less the amount of the corporation's or limited 13
liability pass-through entity's Kentucky gross profits, and the 14
denominator of which is three million dollars ($3,000,000), but in 15
no case shall the result be less than one hundred seventy-five 16
dollars ($175); 17
c. If the corporation's or limited liability pass-through entity's gross 18
profits from all sources are equal to or greater than six million 19
dollars ($6,000,000), the limited liability entity tax shall be 20
seventy-five cents ($0.75) per one hundred dollars ($100) of all of 21
the corporation's or limited liability pass-through entity's Kentucky 22
gross profits. 23
In determining eligibility for the reductions contained in this paragraph, a 24
member of an affiliated group shall consider the total gross receipts and the 25
total gross profits from all sources of the entire affiliated group, including 26
eliminating entries for transactions among the group. 27 UNOFFICIAL COPY 22 RS BR 337
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(c) For taxable years beginning on or after January 1, 2022, the limited 1
liability entity tax shall be the lesser of subparagraph 1. or 2. of this 2
paragraph: 3
1. a. If the corporation's or limited liability pass-through entity's 4
gross receipts from all sources are one million dollars 5
($1,000,000) or less, the limited liability entity tax shall be one 6
hundred seventy-five dollars ($175); 7
b. If the corporation's or limited liability pass-through entity's 8
gross receipts from all sources are greater than one million 9
dollars ($1,000,000) but less than two million dollars 10
($2,000,000), the limited liability entity tax shall be nine and 11
one-half cents ($0.095) per one hundred dollars ($100) of the 12
corporation's or limited liability pass-through entity's Kentucky 13
gross receipts reduced by an amount equal to nine hundred fifty 14
dollars ($950) multiplied by a fraction, the numerator of which is 15
two million dollars ($2,000,000) less the amount of the 16
corporation's or limited liability pass-through entity's Kentucky 17
gross receipts for the taxable year, and the denominator of which 18
is one million dollars ($1,000,000), but in no case shall the result 19
be less than one hundred seventy-five dollars ($175); or 20
c. If the corporation's or limited liability pass-through entity's 21
gross receipts from all sources are equal to or greater than two 22
million dollars ($2,000,000), the limited liability entity tax shall 23
be nine and one-half cents ($0.095) per one hundred dollars 24
($100) of the corporation's or limited liability pass-through 25
entity's Kentucky gross receipts; or 26
2. a. If the corporation's or limited liability pass-through entity's 27 UNOFFICIAL COPY 22 RS BR 337
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gross profits from all sources are one million dollars 1
($1,000,000) or less, the limited entity tax shall be one hundred 2
seventy-five dollars ($175); 3
b. If the corporation's or limited liability pass-through entity's 4
gross profits from all sources are greater than one million 5
dollars ($1,000,000) but less than two million dollars 6
($2,000,000), the limited liability entity tax shall be seventy-five 7
cents ($0.75) per one hundred dollars ($100) of the corporation's 8
or limited liability pass-through entity's Kentucky gross profits, 9
reduced by an amount equal to seven thousand five hundred 10
dollars ($7,500) multiplied by a fraction, the numerator of which 11
is two million dollars ($2,000,000) less the amount of the 12
corporation's or limited liability pass-through entity's Kentucky 13
gross profits, and the denominator of which in one million 14
dollars ($1,000,000), but in no case shall the result be less than 15
one hundred seventy-five dollars ($175); or 16
c. If the corporation's or limited liability pass-through entity's 17
gross profits from all sources are equal to or greater than two 18
million dollars ($2,000,000), the limited liability entity tax shall 19
be seventy-five cents ($0.75) per one hundred dollars ($100) of 20
all of the corporations' or limited liability pass-through entity's 21
Kentucky gross profits. 22
In determining eligibility for the reductions contained in this paragraph, a 23
member of a combined group shall consider the combined gross receipts 24
and the combined gross profits from all sources of the entire combined 25
group, including eliminating entries for transactions among the group. 26
(d) A credit shall be allowed against the tax imposed under paragraph (a) of this 27 UNOFFICIAL COPY 22 RS BR 337
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subsection for the current year to a corporation or limited liability pass-1
through entity that owns an interest in a limited liability pass-through entity. 2
The credit shall be the proportionate share of tax calculated under this 3
subsection by the lower-level pass-through entity, as determined after the 4
amount of tax calculated by the pass-through entity has been reduced by the 5
minimum tax of one hundred seventy-five dollars ($175). The credit shall 6
apply across multiple layers of a multi-layered pass-through entity structure. 7
The credit at each layer shall include the credit from each lower layer, after 8
reduction for the minimum tax of one hundred seventy-five dollars ($175) at 9
each layer. 10
(e)[(d)] The department may promulgate administrative regulations to establish a 11
method for calculating the cost of goods sold attributable to Kentucky. 12
(3) A nonrefundable credit based on the tax calculated under subsection (2) of this 13
section shall be allowed against the tax imposed by KRS 141.020 or 141.040. The 14
credit amount shall be determined as follows: 15
(a) The credit allowed a corporation subject to the tax imposed by KRS 141.040 16
shall be equal to the amount of tax calculated under subsection (2) of this 17
section for the current year after subtraction of any credits identified in KRS 18
141.0205, reduced by the minimum tax of one hundred seventy-five dollars 19
($175), plus any credit determined in paragraph (b) of this subsection for tax 20
paid by wholly or partially owned limited liability pass-through entities. The 21
amount of credit allowed to a corporation based on the amount of tax paid 22
under subsection (2) of this section for the current year shall be applied to the 23
income tax due from the corporation's activities in this state. Any remaining 24
credit from the corporation shall be disallowed. 25
(b) The credit allowed members, shareholders, or partners of a limited liability 26
pass-through entity shall be the members', shareholders', or partners' 27 UNOFFICIAL COPY 22 RS BR 337
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proportionate share of the tax calculated under subsection (2) of this section 1
for the current year after subtraction of any credits identified in KRS 2
141.0205, as determined after the amount of tax paid has been reduced by the 3
minimum tax of one hundred seventy-five dollars ($175). The credit allowed 4
to members, shareholders, or partners of a limited liability pass-through entity 5
shall be applied to income tax assessed on income from the limited liability 6
pass-through entity. Any remaining credit from the limited liability pass-7
through entity shall be disallowed. 8
(4) Each taxpayer subject to the tax imposed in this section shall file a return, on forms 9
prepared by the department, on or before the fifteenth day of the fourth month 10
following the close of the taxpayer's taxable year. Any tax remaining due after 11
making the payments required in KRS 141.044 shall be paid by the original due 12
date of the return. 13
(5) The department shall prescribe forms and promulgate administrative regulations as 14
needed to administer the provisions of this section. 15
(6) The tax imposed by subsection (2) of this section shall not apply to: 16
(a) For taxable years beginning prior to January 1, 2021, or on or after January 17
1, 2023: 18
1. Financial institutions, as defined in KRS 136.500, except banker's banks 19
organized under KRS 287.135 or 286.3-135; 20
2. Savings and loan associations organized under the laws of this state and 21
under the laws of the United States and making loans to members only; 22
3. Banks for cooperatives; 23
4. Production credit associations; 24
5. Insurance companies, including farmers' or other mutual hail, cyclone, 25
windstorm, or fire insurance companies, insurers, and reciprocal 26
underwriters; 27 UNOFFICIAL COPY 22 RS BR 337
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6. Corporations or other entities exempt under Section 501 of the Internal 1
Revenue Code; 2
7. Religious, educational, charitable, or like corporations not organized or 3
conducted for pecuniary profit; 4
8. Corporations whose only owned or leased property located in this state 5
is located at the premises of a printer with which it has contracted for 6
printing, provided that: 7
a. The property consists of the final printed product, or copy from 8
which the printed product is produced; and 9
b. The corporation has no individuals receiving compensation in this 10
state as provided in KRS 141.901; 11
9. Public service corporations subject to tax under KRS 136.120; 12
10. Open-end registered investment companies organized under the laws of 13
this state and registered under the Investment Company Act of 1940; 14
11. Any property or facility which has been certified as a fluidized bed 15
energy production facility as defined in KRS 211.390; 16
12. An alcohol production facility as defined in KRS 247.910; 17
13. Real estate investment trusts as defined in Section 856 of the Internal 18
Revenue Code; 19
14. Regulated investment companies as defined in Section 851 of the 20
Internal Revenue Code; 21
15. Real estate mortgage investment conduits as defined in Section 860D of 22
the Internal Revenue Code; 23
16. Personal service corporations as defined in Section 269A(b)(1) of the 24
Internal Revenue Code; 25
17. Cooperatives described in Sections 521 and 1381 of the Internal 26
Revenue Code, including farmers' agricultural and other cooperatives 27 UNOFFICIAL COPY 22 RS BR 337
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organized or recognized under KRS Chapter 272, advertising 1
cooperatives, purchasing cooperatives, homeowners associations 2
including those described in Section 528 of the Internal Revenue Code, 3
political organizations as defined in Section 527 of the Internal Revenue 4
Code, and rural electric and rural telephone cooperatives; or 5
18. Publicly traded partnerships as defined by Section 7704(b) of the 6
Internal Revenue Code that are treated as partnerships for federal tax 7
purposes under Section 7704(c) of the Internal Revenue Code, or their 8
publicly traded partnership affiliates. "Publicly traded partnership 9
affiliates" shall include any limited liability company or limited 10
partnership for which at least eighty percent (80%) of the limited 11
liability company member interests or limited partner interests are 12
owned directly or indirectly by the publicly traded partnership; and 13
(b) For taxable years beginning on or after January 1, 2021, but before January 1, 14
2023: 15
1. Insurance companies, including farmers' or other mutual hail, cyclone, 16
windstorm, or fire insurance companies, insurers, and reciprocal 17
underwriters; 18
2. Corporations or other entities exempt under Section 501 of the Internal 19
Revenue Code; 20
3. Religious, educational, charitable, or like corporations not organized or 21
conducted for pecuniary profit; 22
4. Corporations whose only owned or leased property located in this state 23
is located at the premises of a printer with which it has contracted for 24
printing, provided that: 25
a. The property consists of the final printed product, or copy from 26
which the printed product is produced; and 27 UNOFFICIAL COPY 22 RS BR 337
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b. The corporation has no individuals receiving compensation in this 1
state as provided in KRS 141.901; 2
5. Public service corporations subject to tax under KRS 136.120; 3
6. Open-end registered investment companies organized under the laws of 4
this state and registered under the Investment Company Act of 1940; 5
7. Any property or facility which has been certified as a fluidized bed 6
energy production facility as defined in KRS 211.390; 7
8. An alcohol production facility as defined in KRS 247.910; 8
9. Real estate investment trusts as defined in Section 856 of the Internal 9
Revenue Code; 10
10. Regulated investment companies as defined in Section 851 of the 11
Internal Revenue Code; 12
11. Real estate mortgage investment conduits as defined in Section 860D of 13
the Internal Revenue Code; 14
12. Personal service corporations as defined in Section 269A(b)(1) of the 15
Internal Revenue Code; 16
13. Cooperatives described in Sections 521 and 1381 of the Internal 17
Revenue Code, including farmers' agricultural and other cooperatives 18
organized or recognized under KRS Chapter 272, advertising 19
cooperatives, purchasing cooperatives, homeowners associations 20
including those described in Section 528 of the Internal Revenue Code, 21
political organizations as defined in Section 527 of the Internal Revenue 22
Code, and rural electric and rural telephone cooperatives; or 23
14. Publicly traded partnerships as defined by Section 7704(b) of the 24
Internal Revenue Code that are treated as partnerships for federal tax 25
purposes under Section 7704(c) of the Internal Revenue Code, or their 26
publicly traded partnership affiliates. "Publicly traded partnership 27 UNOFFICIAL COPY 22 RS BR 337
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affiliates" shall include any limited liability company or limited 1
partnership for which at least eighty percent (80%) of the limited 2
liability company member interests or limited partner interests are 3
owned directly or indirectly by the publicly traded partnership. 4
(7) (a) As used in this subsection, "qualified exempt organization" means an entity 5
listed in subsection (6)(a) and (b) of this section and shall not include any 6
entity whose exempt status has been disallowed by the Internal Revenue 7
Service. 8
(b) Notwithstanding any other provisions of this section, any limited liability 9
pass-through entity that is owned in whole or in part by a qualified exempt 10
organization shall, in calculating its Kentucky gross receipts or Kentucky 11
gross profits, exclude the proportionate share of its Kentucky gross receipts or 12
Kentucky gross profits attributable to the ownership interest of the qualified 13
exempt organization. 14
(c) Any limited liability pass-through entity that reduces Kentucky gross receipts 15
or Kentucky gross profits in accordance with paragraph (b) of this subsection 16
shall disregard the ownership interest of the qualified exempt organization in 17
determining the amount of credit available under subsection (3) of this 18
section. 19
(d) The department[ of Revenue] may promulgate an administrative regulation to 20
further define "qualified exempt organization" to include an entity for which 21
exemption is constitutionally or legally required, or to exclude any entity 22
created primarily for tax avoidance purposes with no legitimate business 23
purpose. 24
(8) The credit permitted by subsection (3) of this section shall flow through multiple 25
layers of limited liability pass-through entities and shall be claimed by the taxpayer 26
who ultimately pays the tax on the income of the limited liability pass-through 27 UNOFFICIAL COPY 22 RS BR 337
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entity. 1
Section 28. KRS 141.120 is amended to read as follows: 2
This section applies to taxable years beginning on or after January 1, 2018. 3
(1) As used in this section: 4
(a) "Apportionable income" means: 5
1. All income that is apportionable under the Constitution of the United 6
States and is not allocated under this section, including: 7
a. Income arising from transactions and activity in the regular course 8
of the taxpayer's trade or business; and 9
b. Income arising from tangible and intangible property if the 10
acquisition, management, employment, development, or 11
disposition of the property is or was related to the operation of the 12
taxpayer's trade or business; and 13
2. Any income that would be allocable to this state under the Constitution 14
of the United States, but that is apportioned rather than allocated 15
pursuant to this section; 16
(b) "Commercial domicile" means the principal place from which the trade or 17
business of the taxpayer is directed or managed; 18
(c) "Financial organization" means any bank, trust company, savings bank, 19
industrial bank, land bank, safe deposit company, private banker, savings and 20
loan association, cooperative bank, small loan company, sales finance 21
company, investment company, or any similar type of entity; 22
(d) "Non-apportionable income" means all income other than apportionable 23
income; 24
(e) "Receipts" means all gross receipts of the taxpayer that are not allocated under 25
this section, and that are received from transactions and activity in the regular 26
course of the taxpayer's trade or business, except that receipts of a taxpayer 27 UNOFFICIAL COPY 22 RS BR 337
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from: 1
1. Hedging transactions; and 2
2. The maturity, redemption, sale, exchange, loan, or other disposition of 3
cash or securities; 4
shall be excluded; and 5
(f) "This state" means the Commonwealth of Kentucky. 6
(2) Any taxpayer having income from business activity which is taxable both within 7
and without this state, other than activity as a provider as defined in KRS 136.602, a 8
financial organization, or a public service company, shall allocate and apportion net 9
income as provided in this section. 10
(3) For purposes of allocation and apportionment of income under this section, a 11
taxpayer is taxable in another state if: 12
(a) In that state the taxpayer is subject to a net income tax, a franchise tax 13
measured by net income, a franchise tax for the privilege of doing business, or 14
a corporate stock tax; or 15
(b) That state has jurisdiction to subject the taxpayer to a net income tax 16
regardless of whether, in fact, the state does or does not do so. 17
(4) Rents and royalties from real or tangible personal property, capital gains, interest, or 18
patent or copyright royalties, to the extent that they constitute nonapportionable 19
income, shall be allocated as provided in subsections (5) to (8) of this section. 20
(5) (a) Net rents and royalties from real property located in this state are allocable to 21
this state. 22
(b) Net rents and royalties from tangible personal property are allocable to this 23
state: 24
1. If and to the extent that the property is utilized in this state; or 25
2. In their entirety if the taxpayer's commercial domicile is in this state and 26
the taxpayer is not organized under the laws of or taxable in the state in 27 UNOFFICIAL COPY 22 RS BR 337
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which the property is utilized. 1
(c) The extent of utilization of tangible personal property in a state is determined 2
by multiplying the rents and royalties by a fraction the numerator of which is 3
the number of days of physical location of the property in this state during the 4
rental or royalty period in the taxable year and the denominator of which is the 5
number of days of physical location of the property everywhere during all 6
rental or royalty periods in the taxable year. If the physical location of the 7
property during all rental or royalty periods is unknown or unascertainable by 8
the taxpayer, tangible personal property is utilized in the state in which the 9
property was located at the time the rental or royalty payer obtained 10
possession. 11
(6) (a) Capital gains and losses from sales of real property located in this state are 12
allocable to this state. 13
(b) Capital gains and losses from sales of tangible personal property are allocable 14
to this state if: 15
1. The property had a situs in this state at the time of the sale; or 16
2. The taxpayer's commercial domicile is in this state and the taxpayer is 17
not taxable in the state in which the property had a situs. 18
(c) Capital gains and losses from sales of intangible personal property are 19
allocable to this state if the taxpayer's commercial domicile is in this state. 20
(7) Interest is allocable to this state if the taxpayer's commercial domicile is in this 21
state. 22
(8) (a) Patent and copyright royalties are allocable to this state: 23
1. If and to the extent that the patent or copyright is utilized by the payer in 24
this state; or 25
2. If and to the extent that the patent or copyright is utilized by the payer in 26
a state in which the taxpayer is not taxable and the taxpayer's 27 UNOFFICIAL COPY 22 RS BR 337
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commercial domicile is in this state. 1
(b) A patent is utilized in a state to the extent that it is employed in production, 2
fabrication, manufacturing, or other processing in the state or to the extent that 3
a patented product is produced in the state. If the basis of receipts from patent 4
royalties does not permit allocation to states or if the accounting procedures 5
do not reflect states of utilization, the patent is utilized in the state in which 6
the taxpayer's commercial domicile is located. 7
(9) All apportionable income shall be apportioned to this state by multiplying the 8
income by a fraction: 9
(a) For taxable years beginning on or after January 1, 2018, but before 10
January 1, 2022, the numerator of which is the total receipts of the taxpayer 11
in this state during the taxable year and the denominator of which is the total 12
receipts of the taxpayer everywhere during the taxable year; and 13
(b) For taxable years beginning on or after January 1, 2022, the numerator of 14
which is the property factor plus the payroll factor plus the receipts factor 15
and the denominator of which is three (3). 16
(10) The property factor is a fraction the numerator of which is the average value of 17
the taxpayer's real and tangible personal property owned or rented and used in 18
this state during the taxable year and the denominator of which is the average 19
value if all of the taxpayer's real and tangible personal property owned or rented 20
and used during the taxable year. 21
(11) Property owned by the taxpayer is valued at its original cost. Property rented by 22
the taxpayer is valued at eight (8) times the net annual rental rate. Net annual 23
rental rate is the annual rental rate paid by the taxpayer less any annual rental 24
rate received by the taxpayer from subrentals. 25
(12) The average value of property shall be determined by averaging the values at the 26
beginning and ending of the taxable year. The department may require the 27 UNOFFICIAL COPY 22 RS BR 337
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averaging of monthly values during the taxable year if reasonably required to 1
reflect properly the average value of the taxpayer's property. 2
(13) The payroll factor is a fraction the numerator of which is the total amount paid 3
in this state during the taxable year by the taxpayer for compensation and the 4
denominator of which is the total compensation paid everywhere during the 5
taxable year. 6
(14) Compensation is paid in this state if: 7
(a) The individual's service is performed entirely within this state; 8
(b) The individual's service is performed both within and without the state, but 9
the service performed without the state is incidental to the individual's 10
service within the state; or 11
(c) Some of the service is performed within this state and the base of operations 12
or, if there is no base of operations, the place from which the service is 13
directed or controlled is in the state; or the base of operations or the place 14
from which the service is directed or controlled is not in any state in which 15
some part of the service is performed, but the individual's residence is in 16
this state. 17
(15) The receipts factor is a fraction the numerator of which is the total receipts of the 18
taxpayer in this state during the taxable year and the denominator of which is the 19
total receipts of the taxpayer everywhere during the taxable year. 20
(16) Receipts from the sale of tangible personal property are in this state if: 21
(a) The property is delivered or shipped to a purchaser, other than the United 22
States government, within this state regardless of the f.o.b. point or other 23
conditions of the sale; or 24
(b) The property is shipped from an office, store, warehouse, factory, or other 25
place of storage in this state and: 26
1. The purchaser is the United States government; or 27 UNOFFICIAL COPY 22 RS BR 337
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2. The taxpayer is not taxable in the state of the purchaser. 1
(17)[(11)] (a) Receipts, other than receipts described in subsection (16)[(10)] of this 2
section, are in this state if the taxpayer's market for the sales is in this state. 3
The taxpayer's market for sales is in this state: 4
1. In the case of sale, rental, lease, or license of real property, if and to the 5
extent the property is located in this state; 6
2. In the case of rental, lease, or license of tangible personal property, if 7
and to the extent the property is located in this state; 8
3. In the case of sale of a service, if and to the extent the service is 9
delivered to a location in this state; and 10
4. In the case of intangible property: 11
a. That is rented, leased, or licensed, if and to the extent the property 12
is used in this state, provided that intangible property utilized in 13
marketing a good or service to a consumer is used in this state if 14
that good or service is purchased by a consumer who is in this 15
state; and 16
b. That is sold, if and to the extent the property is used in this state, 17
provided that: 18
i. A contract right, government license, or similar intangible 19
property that authorizes the holder to conduct a business 20
activity in a specific geographic area is used in this state if 21
the geographic area includes all or part of this state; 22
ii. Receipts from intangible property sales that are contingent on 23
the productivity, use, or disposition of the intangible property 24
shall be treated as receipts from the rental, lease, or licensing 25
of the intangible property under subdivision a. of this 26
subparagraph; and 27 UNOFFICIAL COPY 22 RS BR 337
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iii. All other receipts from a sale of intangible property shall be 1
excluded from the numerator and denominator of the receipts 2
factor. 3
(b) If the state or states of assignment under paragraph (a) of this subsection 4
cannot be determined, the state or states of assignment shall be reasonably 5
approximated. 6
(c) If the taxpayer is not taxable in a state to which a receipt is assigned under 7
paragraph (a) or (b) of this subsection, or if the state of assignment cannot be 8
determined under paragraph (a) of this subsection or reasonably approximated 9
under paragraph (b) of this subsection, the receipt shall be excluded from the 10
denominator of the receipts factor. 11
(d) The department may promulgate administrative regulations necessary to carry 12
out the purposes of this section. 13
(18)[(12)] (a) If the allocation and apportionment provisions of this section do not 14
fairly represent the extent of the taxpayer's business activity in this state, the 15
taxpayer may petition for or the department may require, in respect to all or 16
any part of the taxpayer's business activity, if reasonable: 17
1. Separate accounting; 18
2. The inclusion of one (1) or more additional factors which will fairly 19
represent the taxpayer's business activity in this state; or 20
3. The employment of any other method to effectuate an equitable 21
allocation and apportionment of the taxpayer's income. 22
(b) 1. If the allocation and apportionment provisions of this section do not 23
fairly represent the extent of business activity in this state of taxpayers 24
engaged in a particular industry or in a particular transaction or activity, 25
the department may, in addition to the authority provided in paragraph 26
(a) of this subsection, promulgate administrative regulations for 27 UNOFFICIAL COPY 22 RS BR 337
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determining alternative allocation and apportionment methods for those 1
taxpayers. 2
2. An administrative regulation promulgated pursuant to this paragraph 3
shall be applied uniformly, except that with respect to any taxpayer to 4
whom the administrative regulation applies, the taxpayer may petition 5
for or the department may require adjustment according to paragraph (a) 6
of this subsection. 7
(c) 1. The party petitioning for or the department requiring the use of any 8
method to effectuate an equitable allocation and apportionment of the 9
taxpayer's income pursuant to paragraph (a) of the subsection shall prove 10
by clear and convincing evidence: 11
a. That the allocation and apportionment provisions of this section do 12
not fairly represent the extent of the taxpayer's business activity in 13
this state; and 14
b. That the alternative to the provisions is reasonable. 15
2. The same burden of proof shall apply whether the taxpayer is petitioning 16
for, or the department is requiring, the use of any reasonable method to 17
effectuate an equitable allocation and apportionment of the taxpayer's 18
income. Notwithstanding the previous sentence, if the department can 19
show that in any two (2) of the prior five (5) taxable years, the taxpayer 20
had used an allocation or apportionment method at variance with its 21
allocation or apportionment method or methods used for the other 22
taxable years, then the department shall not bear the burden of proof in 23
imposing a different method provided by paragraph (a) of this 24
subsection. 25
(d) If the department requires any method to effectuate an equitable allocation and 26
apportionment of the taxpayer's income, the department cannot impose any 27 UNOFFICIAL COPY 22 RS BR 337
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civil or criminal penalty with reference to the tax due that is attributable to the 1
taxpayer's reasonable reliance solely on the allocation and apportionment 2
provisions of this subsection. 3
(e) A taxpayer that has received written permission from the department to use a 4
reasonable method to effectuate an equitable allocation and apportionment of 5
the taxpayer's income shall not have that permission revoked with respect to 6
transactions and activities that have already occurred unless there has been a 7
material change in, or a material misrepresentation of, the facts provided by 8
the taxpayer upon which the department reasonably relied. 9
Section 29. KRS 141.039 is amended to read as follows: 10
In the case of corporations: 11
(1) Gross income shall be calculated by adjusting federal gross income as defined in 12
Section 61 of the Internal Revenue Code as follows: 13
(a) Exclude income that is exempt from state taxation by the Kentucky 14
Constitution and the Constitution and statutory laws of the United States; 15
(b) Exclude all dividend income; 16
(c) Include interest income derived from obligations of sister states and political 17
subdivisions thereof; 18
(d) Exclude fifty percent (50%) of gross income derived from any disposal of coal 19
covered by Section 631(c) of the Internal Revenue Code if the corporation 20
does not claim any deduction for percentage depletion, or for expenditures 21
attributable to the making and administering of the contract under which such 22
disposition occurs or to the preservation of the economic interests retained 23
under such contract; 24
(e) Include the amount calculated under KRS 141.205; 25
(f) Ignore the provisions of Section 281 of the Internal Revenue Code in 26
computing gross income; 27 UNOFFICIAL COPY 22 RS BR 337
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(g) Include the amount of deprecation deduction calculated under 26 U.S.C. sec. 1
167 or 168; and 2
(h) Allow the same treatment allowed under Pub. L. No. 116-260, secs. 276 and 3
278, related to the tax treatment of forgiven covered loans, deductions 4
attributable to those loans, and tax attributes associated with those loans for 5
taxable years ending on or after March 27, 2020, but before January 1, 2022; 6
and 7
(2) Net income shall be calculated by subtracting from gross income: 8
(a) The deduction for depreciation allowed by KRS 141.0101; 9
(b) Any amount paid for vouchers or similar instruments that provide health 10
insurance coverage to employees or their families; and 11
(c) All the deductions from gross income allowed corporations by Chapter 1 of 12
the Internal Revenue Code, as modified by KRS 141.0101, except: 13
1. Any deduction for a state tax which is computed, in whole or in part, by 14
reference to gross or net income and which is paid or accrued to any 15
state of the United States, the District of Columbia, the Commonwealth 16
of Puerto Rico, any territory or possession of the United States, or to any 17
foreign country or political subdivision thereof; 18
2. The deductions contained in Sections 243, 245, and 247 of the Internal 19
Revenue Code; 20
3. The provisions of Section 281 of the Internal Revenue Code shall be 21
ignored in computing net income; 22
4. Any deduction directly or indirectly allocable to income which is either 23
exempt from taxation or otherwise not taxed under the provisions of this 24
chapter, except for deductions allowed under Pub. L. No. 116-260, secs. 25
276 and 278, related to the tax treatment of forgiven covered loans and 26
deductions attributable to those loans for taxable years ending on or after 27 UNOFFICIAL COPY 22 RS BR 337
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March 27, 2020, but before January 1, 2022, and nothing in this chapter 1
shall be construed to permit the same item to be deducted more than 2
once; 3
5. Any deduction for amounts paid to any club, organization, or 4
establishment which has been determined by the courts or an agency 5
established by the General Assembly and charged with enforcing the 6
civil rights laws of the Commonwealth, not to afford full and equal 7
membership and full and equal enjoyment of its goods, services, 8
facilities, privileges, advantages, or accommodations to any person 9
because of race, color, religion, national origin, or sex, except nothing 10
shall be construed to deny a deduction for amounts paid to any religious 11
or denominational club, group, or establishment or any organization 12
operated solely for charitable or educational purposes which restricts 13
membership to persons of the same religion or denomination in order to 14
promote the religious principles for which it is established and 15
maintained; 16
6. Any deduction prohibited by KRS 141.205; and 17
7. Any dividends-paid deduction of any captive real estate investment trust; 18
[and 19
(d) 1. A deferred tax deduction in an amount computed in accordance with this 20
paragraph. 21
2. For purposes of this paragraph: 22
a. "Net deferred tax asset" means that deferred tax assets exceed the 23
deferred tax liabilities of the combined group, as computed in 24
accordance with accounting principles generally accepted in the 25
United States of America; and 26
b. "Net deferred tax liability" means deferred tax liabilities that 27 UNOFFICIAL COPY 22 RS BR 337
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exceed the deferred tax assets of a combined group as defined in 1
KRS 141.202, as computed in accordance with accounting 2
principles generally accepted in the United States of America. 3
3. Only publicly traded companies, including affiliated corporations 4
participating in the filing of a publicly traded company's financial 5
statements prepared in accordance with accounting principles generally 6
accepted in the United States of America, as of January 1, 2019, shall be 7
eligible for this deduction. 8
4. If the provisions of KRS 141.202 result in an aggregate increase to the 9
member's net deferred tax liability, an aggregate decrease to the 10
member's net deferred tax asset, or an aggregate change from a net 11
deferred tax asset to a net deferred tax liability, the combined group 12
shall be entitled to a deduction, as determined in this paragraph. 13
5. For ten (10) years beginning with the combined group's first taxable year 14
beginning on or after January 1, 2024, a combined group shall be 15
entitled to a deduction from the combined group's entire net income 16
equal to one-tenth (1/10) of the amount necessary to offset the increase 17
in the net deferred tax liability, decrease in the net deferred tax asset, or 18
aggregate change from a net deferred tax asset to a net deferred tax 19
liability. The increase in the net deferred tax liability, decrease in the net 20
deferred tax asset, or the aggregate change from a net deferred tax asset 21
to a net deferred tax liability shall be computed based on the change that 22
would result from the imposition of the combined reporting requirement 23
under KRS 141.202, but for the deduction provided under this paragraph 24
as of June 27, 2019. 25
6. The deferred tax impact determined in subparagraph 5. of this paragraph 26
shall be converted to the annual deferred tax deduction amount, as 27 UNOFFICIAL COPY 22 RS BR 337
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follows: 1
a. The deferred tax impact determined in subparagraph 5. of this 2
paragraph shall be divided by the tax rate determined under KRS 3
141.040; 4
b. The resulting amount shall be further divided by the apportionment 5
factor determined by KRS 141.120 or 141.121 that was used by the 6
combined group in the calculation of the deferred tax assets and 7
deferred tax liabilities as described in subparagraph 5. of this 8
paragraph; and 9
c. The resulting amount represents the total net deferred tax 10
deduction available over the ten (10) year period as described in 11
subparagraph 5. of this paragraph. 12
7. The deduction calculated under this paragraph shall not be adjusted as a 13
result of any events happening subsequent to the calculation, including 14
but not limited to any disposition or abandonment of assets. The 15
deduction shall be calculated without regard to the federal tax effect and 16
shall not alter the tax basis of any asset. If the deduction under this 17
section is greater than the combined group's entire Kentucky net income, 18
any excess deduction shall be carried forward and applied as a deduction 19
to the combined group's entire net income in future taxable years until 20
fully utilized. 21
8. Any combined group intending to claim a deduction under this 22
paragraph shall file a statement with the department on or before July 1, 23
2019. The statement shall specify the total amount of the deduction 24
which the combined group claims on the form, including calculations 25
and other information supporting the total amounts of the deduction as 26
required by the department. No deduction shall be allowed under this 27 UNOFFICIAL COPY 22 RS BR 337
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paragraph for any taxable year, except to the extent claimed on the 1
timely filed statement in accordance with this paragraph]. 2
(3) Deferred tax deductions are not eligible to be claimed in any year even if approval 3
had been granted by the department from the filing of the Kentucky Schedule 4
DTD prior to July 1, 2019. 5
Section 30. KRS 141.201 is amended to read as follows: 6
(1) This section shall apply to taxable years beginning on or after January 1, 2019, but 7
before January 1, 2023. 8
(2) As used in this section: 9
(a) "Affiliated group" means affiliated group as defined in Section 1504(a) of the 10
Internal Revenue Code and related regulations; 11
(b) "Consolidated return" means a Kentucky corporation income tax return filed 12
by members of an affiliated group in accordance with this section; 13
(c) "Separate return" means a Kentucky corporation income tax return in which 14
only the transactions and activities of a single corporation are considered in 15
making all determinations and computations necessary to calculate taxable net 16
income, tax due, and credits allowed in accordance with this chapter; 17
(d) "Corporation" means "corporation" as defined in Section 7701(a)(3) of the 18
Internal Revenue Code; and 19
(e) "Election period" means the forty-eight (48) month period provided for in 20
subsection (4)(d) of this section. 21
(3) Every corporation doing business in this state, except those corporations listed as 22
exempt from taxation under KRS 141.040(1)(a) and (b), shall, for each taxable year: 23
(a) 1. File a combined report, if the corporation is a member of unitary 24
business group as provided in KRS 141.202; or 25
2. Make an election to file a consolidated return with all members of the 26
affiliated group as provided in this section; or 27 UNOFFICIAL COPY 22 RS BR 337
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(b) File a separate return, if paragraph (a) of this subsection does not apply. 1
(4) (a) An affiliated group, whether or not filing a federal consolidated return, may 2
elect to file a consolidated return which includes all members of the affiliated 3
group. 4
(b) 1. An affiliated group electing to file a consolidated return under paragraph 5
(a) of this subsection shall be treated for all purposes as a single 6
corporation under this chapter. 7
2. The determinations and computations required by this chapter shall be 8
made in accordance with Section 1502 of the Internal Revenue Code and 9
related regulations, except as required by differences between this 10
chapter and the Internal Revenue Code. 11
3. Corporations listed as exempt from taxation under KRS 141.040(1)(a) 12
and (b) shall not be included in the return. 13
4. All transactions between corporations included in the consolidated 14
return shall be eliminated in computing net income as provided in KRS 15
141.039(2), and determining the apportionment fraction in accordance 16
with KRS 141.120. 17
(c) Any election made in accordance with paragraph (a) of this subsection shall be 18
made on a form prescribed by the department and shall be submitted to the 19
department on or before the due date of the return, including extensions, for 20
the first taxable year for which the election is made. 21
(d) Any election to file a consolidated return pursuant to paragraph (a) of this 22
subsection shall be binding on both the department and the affiliated group for 23
a period beginning with the first month of the first taxable year for which the 24
election is made and ending with the conclusion of the taxable year in which 25
the forty-eighth consecutive calendar month expires. 26
(e) For each taxable year for which an affiliated group has made an election 27 UNOFFICIAL COPY 22 RS BR 337
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provided in paragraph (a) of this subsection, the consolidated return shall 1
include all corporations which are members of the affiliated group. 2
(5) Each corporation included as part of an affiliated group filing a consolidated return 3
shall be jointly and severally liable for the income tax liability computed on the 4
consolidated return, except that any corporation which was not a member of the 5
affiliated group for the entire taxable year shall be jointly and severally liable only 6
for that portion of the Kentucky consolidated income tax liability attributable to that 7
portion of the year that the corporation was a member of the affiliated group. 8
(6) Every corporation return or report required by this chapter shall be executed by one 9
(1) of the following officers of the corporation: the president, vice president, 10
secretary, treasurer, assistant secretary, assistant treasurer, or chief accounting 11
officer. The department may require a further or supplemental report of further 12
information and data necessary for computation of the tax. 13
(7) In the case of a corporation doing business in this state that carries on transactions 14
with stockholders or with other corporations related by stock ownership, by 15
interlocking directorates, or by some other method, the department shall require 16
information necessary to make possible accurate assessment of the income derived 17
by the corporation from sources within this state. To make possible this assessment, 18
the department may require the corporation to file supplementary returns showing 19
information respecting the business of any or all individuals and corporations 20
related by one (1) or more of these methods to the corporation. The department may 21
require the return to show in detail the record of transactions between the 22
corporation and any or all other related corporations or individuals. 23
Section 31. KRS 141.202 is amended to read as follows: 24
(1) [This section shall apply to taxable years beginning on or after January 1, 2019. 25
(2)] As used in this section: 26
(a) "Combined group" means the group of all persons[corporations] whose 27 UNOFFICIAL COPY 22 RS BR 337
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income and apportionment factors are required to be taken into account as 1
provided in[ subsection (3) of] this section in determining the taxpayer's share 2
of the net income or loss apportionable to this state[. A combined group shall 3
include only corporations, the voting stock of which is more than fifty percent 4
(50%) owned, directly or indirectly, by a common owner or owners]; 5
(b) "Corporation" has the same meaning as in KRS 141.010, including an 6
organization of any kind treated as a corporation for tax purposes under KRS 7
141.040, wherever located, which if it were doing business in this state would 8
be a taxpayer, and the business conducted by a pass-through entity which is 9
directly or indirectly held by a corporation shall be considered the business of 10
the corporation to the extent of the corporation's distributive share of the pass-11
through entity income, inclusive of guaranteed payments; 12
(c) "Person" means any: 13
1. Individual; 14
2. Firm; 15
3. Partnership; 16
4. General partner of a partnership; 17
5. Limited liability company; 18
6. Registered limited liability partnership; 19
7. Foreign limited liability partnership; 20
8. Association; 21
9. Corporation, whether or not the corporation is, or would be if doing 22
business in this state, subject to state income tax; 23
10. Company; 24
11. Syndicate; 25
12. Estate; 26
13. Trust; 27 UNOFFICIAL COPY 22 RS BR 337
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14. Business trust; 1
15. Trustee; 2
16. Trustee in bankruptcy; 3
17. Receiver; 4
18. Executor; 5
19. Administrator; 6
20. Assignee; or 7
21. Organization of any kind; 8
["Doing business in a tax haven" means being engaged in activity sufficient 9
for that tax haven jurisdiction to impose a tax under United States 10
constitutional standards; 11
(d) 1. "Tax haven" means a jurisdiction that, during the taxable year has no or 12
nominal effective tax on the relevant income and: 13
a. Has laws or practices that prevent effective exchange of 14
information for tax purposes with other governments on taxpayers 15
benefitting from the tax regime; 16
b. Has a tax regime which lacks transparency. A tax regime lacks 17
transparency if the details of legislative, legal, or administrative 18
provisions are not open and apparent or are not consistently 19
applied among similarly situated taxpayers, or if the information 20
needed by tax authorities to determine a taxpayer's correct tax 21
liability, such as accounting records and underlying 22
documentation, is not adequately available; 23
c. Facilitates the establishment of foreign-owned entities without the 24
need for a local substantive presence or prohibits these entities 25
from having any commercial impact on the local economy; 26
d. Explicitly or implicitly excludes the jurisdiction's resident 27 UNOFFICIAL COPY 22 RS BR 337
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taxpayers from taking advantage of the tax regime's benefits or 1
prohibits enterprises that benefit from the regime from operating in 2
the jurisdiction's domestic market; or 3
e. Has created a tax regime which is favorable for tax avoidance, 4
based upon an overall assessment of relevant factors, including 5
whether the jurisdiction has a significant untaxed offshore 6
financial or other services sector relative to its overall economy. 7
2. "Tax haven" does not include a jurisdiction that has entered into a 8
comprehensive income tax treaty with the United States, which the 9
Secretary of the Treasury has determined is satisfactory for purposes of 10
Section 1(h)(11)(C)(i)(II) of the Internal Revenue Code;] 11
(d)[(e)] "Taxpayer" means any person[corporation] subject to the tax imposed 12
under this chapter; 13
(e)[(f)] "Unitary business" means a single economic enterprise that is made up 14
either of separate parts of a single corporation or of a commonly controlled 15
group of corporations that are sufficiently interdependent, integrated, and 16
interrelated through their activities so as to provide a synergy and mutual 17
benefit that produces a sharing or exchange of value among them and a 18
significant flow of value to the separate parts. For purposes of this section, the 19
term "unitary business" shall be broadly construed, to the extent permitted by 20
the United States Constitution; and 21
(f)[(g)] "United States" means the fifty (50) states of the United States, the 22
District of Columbia, and United States' territories and possessions. 23
(2)[(3)] (a) [Except as provided in KRS 141.201, ]A taxpayer engaged in a unitary 24
business with one (1) or more other corporations shall file a combined report 25
which includes the income, determined under subsection (4)[(5)] of this 26
section, and the apportionment fraction, determined under KRS 141.120 and 27 UNOFFICIAL COPY 22 RS BR 337
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paragraph (d) of this subsection, of all corporations that are members of the 1
unitary business, and any other information as required by the department.[ 2
The combined report shall be filed on a waters-edge basis under subsection (8) 3
of this section.] 4
(b) The department may, by administrative regulation, require that the combined 5
report include the income and associated apportionment factors of any 6
persons[corporations] that are not included as provided by paragraph (a) of 7
this subsection, but that are members of a unitary business, in order to reflect 8
proper apportionment of income of the entire unitary businesses. Authority to 9
require combination by administrative regulation under this paragraph 10
includes authority to require combination of persons[corporations] that are 11
not, or would not be combined, if[ the corporation were] doing business in 12
this state. 13
(c) In addition, if the department determines that the reported income or loss of a 14
taxpayer engaged in a unitary business with any person[corporation] not 15
included as provided by paragraph (a) of this subsection represents an 16
avoidance or evasion of tax by the taxpayer, the department may, on a case-17
by-case basis, require all or any part of the income and associated 18
apportionment factors of the person[corporation] be included in the taxpayer's 19
combined report. 20
(d) With respect to the inclusion of associated apportionment factors as provided 21
in paragraph (a) of this subsection, the department may require the inclusion 22
of any one (1) or more additional factors which will fairly represent the 23
taxpayer's business activity in this state, or the employment of any other 24
method to effectuate a proper reflection of the total amount of income subject 25
to apportionment and an equitable allocation and apportionment of the 26
taxpayer's income. 27 UNOFFICIAL COPY 22 RS BR 337
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[(e) A unitary business shall consider the combined gross receipts and combined 1
income from all sources of all members under subsection (8) of this section, 2
including eliminating entries for transactions among the members under 3
subsection (8)(e) of this section. 4
(f) Notwithstanding paragraphs (a) to (e) of this subsection, a consolidated return 5
may be filed as provided in KRS 141.201 if the taxpayer makes an election 6
according to KRS 141.201.] 7
(3)[(4)] (a) The use of a combined report does not disregard the separate identities 8
of the taxpayer members of the combined group. 9
(b) Each taxpayer member is responsible for tax based on its taxable income or 10
loss apportioned or allocated to this state, which shall include, in addition to 11
the other types of income, the taxpayer member's share of apportionable 12
income of the combined group, where apportionable income of the combined 13
group is calculated as a summation of the individual net incomes of all 14
members of the combined group. 15
(c) A member's net income is determined by removing all but apportionable 16
income, expense, and loss from that member's total income as provided in 17
subsection (4)[(5)] of this section. 18
(4)[(5)] (a) Each taxpayer member is responsible for tax based on its taxable income 19
or loss apportioned or allocated to this state, which shall include: 20
1. Its share of any income apportionable to this state of each of the 21
combined groups of which it is a member, determined under subsection 22
(5)[(6)] of this section; 23
2. Its share of any income apportionable to this state of a distinct business 24
activity conducted within and without the state wholly by the taxpayer 25
member, determined under KRS 141.120; 26
3. Its income from a business conducted wholly by the taxpayer member 27 UNOFFICIAL COPY 22 RS BR 337
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entirely within the state; 1
4. Its income sourced to this state from the sale or exchange of capital or 2
assets, and from involuntary conversions, as determined under 3
subsection (7)[(8)](g) of this section; 4
5. Its nonapportionable income or loss allocable to this state, determined 5
under KRS 141.120; 6
6. Its income or loss allocated or apportioned in an earlier year, required to 7
be taken into account as state source income during the income year, 8
other than a net operating loss; and 9
7. Its net operating loss carryover. 10
(b) No tax credit or post-apportionment deduction earned by one (1) member of 11
the group, but not fully used by or allowed to that member, may be used in 12
whole or in part by another member of the group or applied in whole or in part 13
against the total income of the combined group, except as provided in 14
paragraph (c) of this subsection. 15
(c) A post-apportionment deduction carried over into a subsequent year as to 16
the member that incurred it, and available as a deduction to that member in 17
a subsequent year, will be considered in the computation of the oncome of 18
that member in the subsequent year, regardless of the composition of that 19
income as apportioned, allocated, or wholly within this state[If the taxable 20
income computed pursuant to KRS 141.039 results in a net loss for a taxpayer 21
member of the combined group, that taxpayer member has a Kentucky net 22
operating loss, subject to the net operating loss limitations and carry forward 23
provisions of KRS 141.011. No prior year net operating loss carryforward 24
shall be available to entities that were not doing business in this state in the 25
year in which the loss was incurred. A Kentucky net operating loss carryover 26
incurred by a taxpayer member of a combined group shall be deducted from 27 UNOFFICIAL COPY 22 RS BR 337
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income or loss apportioned to this state pursuant to this section as follows: 1
1. For taxable years beginning on or after the first day of the initial taxable 2
year for which a combined unitary tax return is required under this 3
section, if the computation of a combined group's Kentucky net income 4
before apportionment to this state results in a net operating loss, a 5
taxpayer member of the group may carry over its share of the net 6
operating loss as apportioned to this state, as calculated under this 7
section and in accordance with KRS 141.120 or 141.121, and it shall be 8
deductible from a taxpayer member's apportioned net income derived 9
from the unitary business in a future tax year to the extent that the 10
carryover and deduction is otherwise consistent with KRS 141.011; 11
2. Where a taxpayer member of a combined group has a Kentucky net 12
operating loss carryover derived from a loss incurred by a combined 13
group in a tax year beginning on or after the first day of the initial tax 14
year for which a combined unitary tax return is required under this 15
section, then the taxpayer member may share the net operating loss 16
carryover with other taxpayer members of the combined group if the 17
other taxpayer members were members of the combined group in the tax 18
year that the loss was incurred. Any amount of net operating loss 19
carryover that is deducted by another taxpayer member of the combined 20
group shall reduce the amount of net operating loss carryover that may 21
be carried over by the taxpayer member that originally incurred the loss; 22
3. Where a taxpayer member of a combined group has a net operating loss 23
carryover derived from a loss incurred in a tax year prior to the initial 24
tax year for which a combined unitary tax return is required under this 25
section, the carryover shall remain available to be deducted by that 26
taxpayer member and any other taxpayer members of the combined 27 UNOFFICIAL COPY 22 RS BR 337
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group, but in no case shall the deduction reduce any taxpayer member's 1
Kentucky apportioned taxable income by more than fifty percent (50%) 2
in any taxable year, other than the taxpayer member that originally 3
incurred the net operating loss, in which case no limitation is provided 4
except as provided by Section 172 of the Internal Revenue Code. Any 5
net operating loss carryover that is not utilized in a particular taxable 6
year shall be carried over by the taxpayer member that generated the loss 7
and utilized in the future consistent with the limitations of this 8
subparagraph; or 9
4. Where a taxpayer member of a combined group has a net operating loss 10
carryover derived from a loss incurred in a tax year during which the 11
taxpayer member was not a taxpayer member of the combined group, the 12
carryover shall remain available to be deducted by that taxpayer member 13
or other taxpayer members, but in no case shall the deduction reduce any 14
taxpayer member's Kentucky apportioned taxable income by more than 15
fifty percent (50%) in any taxable year, other than the taxpayer member 16
that originally incurred the net operating loss, in which case no 17
limitation is provided except as provided by Section 172 of the Internal 18
Revenue Code. Any net operating loss carryover that is not utilized in a 19
particular taxable year, shall be carried over by the taxpayer member that 20
generated the loss and utilized in the future consistent with the 21
limitations of this subparagraph]. 22
(5)[(6)] The taxpayer's share of the business income apportionable to this state of each 23
combined group of which it is a member shall be the product of: 24
(a) The apportionable income of the combined group, determined under 25
subsection (6)[(7)] of this section; and 26
(b) The taxpayer member's apportionment fraction, determined under KRS 27 UNOFFICIAL COPY 22 RS BR 337
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141.120, including in the sales factor numerator the taxpayer's sales associated 1
with the combined group's unitary business in this state, and including in the 2
denominator the sales of all members of the combined group, including the 3
taxpayer, which sales are associated with the combined group's unitary 4
business wherever located. The sales of a pass-through entity shall be included 5
in the determination of the partner's apportionment percentage in proportion to 6
a ratio, the numerator of which is the amount of the partner's distributive share 7
of the pass-through entity's unitary income included in the income of the 8
combined group as provided in subsection (7)[(8)] of this section and the 9
denominator of which is the amount of pass-through entity's total unitary 10
income. 11
(6)[(7)] The apportionable income of a combined group is determined as follows: 12
(a) From the total income of the combined group, subtract any income, and 13
add any expense or loss, other than apportionable income, expense, or loss 14
of the combined group; and 15
(b) Except as otherwise provided, the total income of the combined group is the 16
sum of the income of each member of the combined group determined under 17
federal income tax laws, as adjusted for state purposes, as if the member were 18
not consolidated for federal purposes[; and 19
(b) From the total income of the combined group determined under subsection (8) 20
of this section, subtract any income and add any expense or loss, other than 21
the apportionable income, expense, or loss of the combined group]. 22
(7)[(8)] (a) For any member incorporated in the United States, or included in a 23
consolidated federal corporate income tax return, the income to be included 24
in the total income of the combined group shall be the taxable income for 25
the corporation after making appropriate adjustments under Section 29 of 26
this Act. 27 UNOFFICIAL COPY 22 RS BR 337
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(b) 1. For any member not included in paragraph (a) of this subsection, the 1
income to be included in the total income of the combined group shall 2
be determined as follows: 3
a. A profit and loss statement shall be prepared for each foreign 4
branch or corporation in the currency in which the books of 5
account of the branch or corporation are regularly maintained; 6
b. Adjustments shall be made to the profit and loss statement to 7
conform it to the accounting principles generally accepted in the 8
United States for the preparation of such statements except as 9
modified by this section; 10
c. Adjustments shall be made to the profit and loss statement to 11
conform it to the tax accounting standards required by Section 12
29 of this Act; 13
d. Except as otherwise provided by administrative regulation, the 14
profit and loss statement of each member of the combined group, 15
and the apportionment fraction related thereto, whether United 16
States or foreign, shall be translated into the currency in which 17
the parent company maintains its books and records; and 18
e. Income apportioned to this state shall be expressed in United 19
States dollars. 20
2. a. In lieu of the procedures provided in subparagraph 1. of this 21
paragraph, and subject to the determination of the department 22
that it reasonably approximates income as determined under this 23
chapter, any member not included in paragraph (a) of this 24
subsection may determine its income on the basis of the 25
consolidated profit and loss statement which includes the 26
member and which is prepared for filing with the Securities and 27 UNOFFICIAL COPY 22 RS BR 337
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Exchange Commission by related corporations. 1
b. If the member is not required to file with the Securities and 2
Exchange Commission, the department may allow the use of the 3
consolidated profit and loss statement prepared for reporting to 4
shareholders and subject to review by an independent auditor. 5
c. If the statements provided in subdivisions a. and b. of this 6
subparagraph do not reasonably approximate income as 7
determined under this chapter, the department may accept those 8
statements with appropriate adjustments to approximate that 9
income. 10
(c)[To determine the total income of the combined group, taxpayer members shall 11
take into account all or a portion of the income and apportionment factor of 12
only the following members otherwise included in the combined group as 13
provided in subsection (3) of this section: 14
(a) The entire income and apportionment percentage of any member, incorporated 15
in the United States or formed under the laws of any state, the District of 16
Columbia, or any territory or possession of the United States, that earns less 17
than eighty percent (80%) of its income from sources outside of the United 18
States, the District of Columbia, or any territory or possession of the United 19
States; 20
(b) Any member that earns more than twenty percent (20%) of its income, directly 21
or indirectly, from intangible property or service related activities that are 22
deductible against the apportionable income of other members of the 23
combined group, to the extent of that income and the apportionment factor 24
related to that income. If a non-United States corporation is includible as a 25
member in the combined group, to the extent that the non-United States 26
corporation's income is excluded from United States taxation pursuant to the 27 UNOFFICIAL COPY 22 RS BR 337
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provisions of a comprehensive income tax treaty, the income or loss is not 1
includible in the combined group's net income or loss. The member's expenses 2
or apportionment factors attributable to income that is excluded from United 3
States taxation pursuant to the provisions of a comprehensive income tax 4
treaty are not to be included in the combined report; 5
(c) The entire income and apportionment factor of any member that is doing 6
business in a tax haven. If the member's business activity within a tax haven is 7
entirely outside the scope of the laws, provisions, and practices that cause the 8
jurisdiction to meet the definition established in subsection (2)(d) of this 9
section, the activity of the member shall be treated as not having been 10
conducted in a tax haven; 11
(d)] If a unitary business includes income from a pass-through entity, the income 12
to be included in the total income of the combined group shall be the member 13
of the combined group's direct and indirect distributive share of the pass-14
through entity's unitary income.[;] 15
(d)[(e)] Apportionable income from an intercompany transaction between 16
members of the same combined group shall be deferred in a manner similar to 17
26 C.F.R. 1.1502-13. Upon the occurrence of any of the following events, 18
deferred income resulting from an intercompany transaction between members 19
of a combined group shall be restored to the income of the seller, and shall be 20
apportionable income earned immediately before the event: 21
1. The object of a deferred intercompany transaction is: 22
a. Resold by the buyer to an entity that is not a member of the 23
combined group; 24
b. Resold by the buyer to an entity that is a member of the combined 25
group for use outside the unitary business in which the buyer and 26
seller are engaged; or 27 UNOFFICIAL COPY 22 RS BR 337
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c. Converted by the buyer to a use outside the unitary business in 1
which the buyer and seller are engaged; or 2
2. The buyer and seller are no longer members of the same combined 3
group, regardless of whether the members remain unitary.[;] 4
(e)[(f)] A charitable expense incurred by a member of a combined group shall, 5
to the extent allowable as a deduction provided by Section 170 of the Internal 6
Revenue Code, be subtracted first from the apportionable income of the 7
combined group, subject to the income limitations of that section applied to 8
the entire apportionable income of the group, and any remaining amount shall 9
then be treated as a nonapportionable expense allocable to the member that 10
incurred the expense, subject to the income limitations of that section applied 11
to the nonapportionable income of that specific member. Any charitable 12
deduction disallowed under this paragraph, but allowed as a carryover 13
deduction in a subsequent year, shall be treated as originally incurred in the 14
subsequent year by the same member, and this paragraph shall apply in the 15
subsequent year in determining the allowable deduction in that year.[;] 16
(f)[(g)] Gain or loss from the sale or exchange of capital assets, property 17
described by Section 1231(a)(3) of the Internal Revenue Code, and property 18
subject to an involuntary conversion shall be removed from the total separate 19
net income of each member of a combined group and shall be apportioned and 20
allocated as follows: 21
1. For each class of gain or loss, including short-term capital, long-term 22
capital, Internal Revenue Code Section 1231, and involuntary 23
conversions, all members' gain and loss for the class shall be combined, 24
without netting between the classes, and each class of net gain or loss 25
separately apportioned to each member using the member's 26
apportionment percentage determined under subsection (5)[(6)] of this 27 UNOFFICIAL COPY 22 RS BR 337
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section; 1
2. Each taxpayer member shall then net its apportioned business gain or 2
loss for all classes, including any apportioned gain and loss from other 3
combined groups, against the taxpayer member's nonapportionable gain 4
and loss for all classes allocated to this state, using the rules of Sections 5
1231 and 1222 of the Internal Revenue Code, without regard to any of 6
the taxpayer member's gains or losses from the sale or exchange of 7
capital assets, Internal Revenue Code Section 1231 property, and 8
involuntary conversions which are nonapportionable items allocated to 9
another state; 10
3. Any resulting state source income or loss, if the loss is not subject to the 11
limitations of Section 1211 of the Internal Revenue Code, of a taxpayer 12
member produced by the application of subparagraphs 1. and 2. of this 13
paragraph shall then be applied to all other state source income or loss of 14
that member; and 15
4. Any resulting state source loss of a member that is subject to the 16
limitations of Section 1211 of the Internal Revenue Code shall be 17
carried forward by that member, and shall be treated as state source 18
short-term capital loss incurred by that member for the year for which 19
the carryover applies.[; and] 20
(g)[(h)] Any expense of one (1) member of the unitary group which is directly or 21
indirectly attributable to the nonapportionable or exempt income of another 22
member of the unitary group shall be allocated to that other member as 23
corresponding nonapportionable or exempt expense, as appropriate. 24
(8)[(9)] (a) As a filing convenience, and without changing the respective liability of 25
the group members, members of a combined reporting group shall annually 26
designate one (1) taxpayer member of the combined group to file a single 27 UNOFFICIAL COPY 22 RS BR 337
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return in the form and manner prescribed by the department, in lieu of filing 1
their own respective returns. 2
(b) The taxpayer member designated to file the single return shall consent to act 3
as surety with respect to the tax liability of all other taxpayers properly 4
included in the combined report, and shall agree to act as agent on behalf of 5
those taxpayers for the taxable year for matters relating to the combined 6
report. If for any reason the surety is unwilling or unable to perform its 7
responsibilities, tax liability may be assessed against the taxpayer members. 8
Section 32. KRS 141.383 is amended to read as follows: 9
(1) As used in this section: 10
(a) "Above-the-line production crew" has the same meaning as in KRS 154.61-11
010; 12
(b) "Approved company" has the same meaning as in KRS 154.61-010; 13
(c) "Authority" has the same meaning as in KRS 154.61-010; 14
(d) "Below-the-line production crew" has the same meaning as in KRS 154.61-15
010; 16
(e) "Qualifying expenditure" has the same meaning as in KRS 154.61-010; 17
(f) "Qualifying payroll expenditure" has the same meaning as in KRS 154.61-18
010; 19
(g) "Secretary" has the same meaning as in KRS 154.61-010; and 20
(h) "Tax incentive agreement" has the same meaning as KRS 154.61-010. 21
(2) (a) There is hereby created a tax credit against the tax imposed under KRS 22
141.020 or 141.040 and 141.0401, with the ordering of credits as provided in 23
KRS 141.0205. 24
(b) The incentive available under paragraph (a) of this section is: 25
1. A refundable credit for applications approved prior to April 27, 2018; 26
and 27 UNOFFICIAL COPY 22 RS BR 337
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2. A nonrefundable and nontransferable credit for applications approved on 1
or after April 27, 2018, [but before January 1, 2022; and 2
3. A refundable credit for applications approved on or after January 1, 3
2022,] if the provisions of paragraph (c) of this subsection are met. 4
(c) 1. The total tax incentive approved under KRS 154.61-020 shall be limited 5
to: 6
a. One hundred million dollars ($100,000,000) for calendar year 7
2018 and each calendar year through the calendar year 2021;[ and] 8
b. Seventy-five million dollars ($75,000,000) for the calendar year 9
2022; and 10
c. Ten million dollars ($10,000,000) for the calendar year 2023 and 11
each calendar year thereafter. 12
2. Beginning January 1, 2022, to qualify for the nonrefundable or 13
refundable credit, all applicants shall: 14
a. Begin production within six (6) months of filing an application 15
with the authority; and 16
b. Complete production within two (2) years of their production start 17
date. 18
(3) Beginning January 1, 2022, but before January 1, 2023, an approved company may 19
receive a refundable tax credit, and beginning January 1, 2023, an approved 20
company may receive a nonrefundable tax credit, if: 21
(a) The department has received notification from the authority that the approved 22
company has satisfied all requirements of KRS 154.61-020 and 154.61-030; 23
and 24
(b) The approved company has provided a detailed cost report and sufficient 25
documentation to the authority, which has been forwarded by the authority to 26
the department, that: 27 UNOFFICIAL COPY 22 RS BR 337
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1. The purchases of qualifying expenditures were made after the execution 1
of the tax incentive agreement; and 2
2. The approved company has withheld income tax as required by KRS 3
141.310 on all qualified payroll expenditures. 4
(4) Interest shall not be allowed or paid on any refundable credits provided under this 5
section. 6
(5) The department may promulgate administrative regulations under KRS Chapter 7
13A to administer this section. 8
(6) On or before September 1, 2010, and on or before each September 1 thereafter, for 9
the immediately preceding fiscal year, the department shall report to the authority 10
and the Interim Joint Committee on Appropriations and Revenue the names of the 11
approved companies and the amounts of refundable income tax credit claimed. 12
(7) No later than September 1, 2021, and by September 1 every four (4) years 13
thereafter, the department and the Cabinet for Economic Development shall 14
cooperatively provide historical data related to the tax credit allowed in this section 15
and KRS 154.61-020 and 154.61-030, including data items beginning with tax 16
credits claimed for taxable years beginning on or after January 1, 2018: 17
(a) The name of the taxpayer claiming the tax credit; 18
(b) The date that the application was approved and the date the filming or 19
production was completed; 20
(c) The taxable year in which the taxpayer claimed the tax credit; 21
(d) The total amount of the tax credit, including any amount denied, any amount 22
applied against a tax liability, any amount refunded, and any amount 23
remaining that may be claimed on a return filed in the future; 24
(e) Whether the taxpayer is a Kentucky-based company as defined in KRS 25
154.61-010; 26
(f) Whether the taxpayer films or produces a: 27 UNOFFICIAL COPY 22 RS BR 337
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1. Feature-length film, television program, or industrial film; 1
2. National touring production of a Broadway show; or 2
3. Documentary; 3
(g) Whether the filming or production was performed: 4
1. Entirely in an enhanced county; or 5
2. In whole or in part in any Kentucky county other than in an enhanced 6
incentive county; 7
(h) The amount of qualifying expenditures incurred by the taxpayer; 8
(i) The amount of qualifying payroll expenditures paid to: 9
1. Resident below-the-line crew; and 10
2. Nonresident below-the-line production crew; 11
including the number of crew members in each category; 12
(j) The amount of qualifying payroll expenditures paid to: 13
1. Resident above-the-line crew; and 14
2. Nonresident above-the-line crew; 15
including the number of crew members in each category; and 16
(k) A brief description of the type of motion picture or entertainment production 17
project. 18
(8) The information required to be reported under this section shall not be considered 19
confidential taxpayer information and shall not be subject to KRS Chapter 131 or 20
any other provisions of the Kentucky Revised Statutes prohibiting disclosure or 21
reporting of information. 22
Section 33. KRS 141.433 is amended to read as follows: 23
(1) A qualified community development entity that seeks to have an equity investment 24
or long-term debt security certified as a qualified equity investment and eligible for 25
the tax credit permitted by KRS 141.434 shall apply to the department. The 26
qualified community development entity shall submit an application on a form that 27 UNOFFICIAL COPY 22 RS BR 337
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the department provides that shall include but not be limited to: 1
(a) The name, address, tax identification number, and evidence of the certification 2
of the entity as a qualified community development entity; 3
(b) A copy of an allocation agreement executed by the entity or its controlling 4
entity and the Community Development Financial Institutions Fund, which 5
includes the Commonwealth of Kentucky in its service area; 6
(c) A certificate executed by an executive officer of the entity attesting that the 7
allocation agreement remains in effect and has not been revoked or canceled 8
by the Community Development Financial Institutions Fund; 9
(d) A description of the proposed amount, structure, and purchaser of the equity 10
investment or long-term debt security; 11
(e) The name and tax identification number of any person or entity eligible to 12
utilize tax credits as a result of the issuance of the qualified equity investment; 13
(f) Information regarding the proposed use of proceeds from the issuance of the 14
qualified equity investment; 15
(g) A nonrefundable application fee in an amount set by the department. This fee 16
shall be paid to the department and shall be required of each application 17
submitted; and 18
(h) In the case of applications submitted on or after January 1, 2014, the 19
refundable performance fee required by subsection (8) of this section. 20
(2) The department shall review applications in the order in which they are received. 21
Within thirty (30) days after receipt of a completed application containing the 22
information necessary for the department to certify a potential qualified equity 23
investment, including the payment of the application fee, the department shall 24
approve or deny the application. If the department intends to deny the application, it 25
shall inform the qualified community development entity, by written notice sent via 26
certified mail and any other such means deemed feasible by the department, of the 27 UNOFFICIAL COPY 22 RS BR 337
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grounds for the denial. Upon receipt of the notice of intended denial by the qualified 1
community development entity: 2
(a) If the qualified community development entity provides any additional 3
information required by the department or otherwise completes its application 4
within fifteen (15) days, the application shall be considered completed as of 5
the original date of submission, however the department shall have an 6
additional thirty (30) days to either approve or deny the application as 7
completed; or 8
(b) If the qualified community development entity fails to provide the information 9
or complete its application within the fifteen (15) day period, the application 10
shall be deemed denied and must be resubmitted in full with a new 11
submission date. 12
(3) If the application is deemed complete, the department shall certify the proposed 13
equity investment or long-term debt security as a qualified equity investment and 14
eligible for tax credits under KRS 141.432 to 141.434, subject to the annual cap 15
limitations contained in KRS 141.434. The department shall provide written notice 16
sent via certified mail and any other means deemed feasible by the department, of 17
the certification to the qualified community development entity. The notice shall 18
include the names of those taxpayers who are eligible to claim the credits and their 19
respective credit amounts. If the names of the persons or entities that are eligible to 20
claim the credits change due to a transfer of a qualified equity investment or a 21
change in an allocation pursuant to KRS 141.434, the qualified community 22
development entity shall notify the department of such change. 23
(4) Within ninety (90) days after receipt of the notice of certification, the qualified 24
community development entity shall issue the qualified equity investment and 25
receive cash in the amount of the certified purchase price. The qualified community 26
development entity shall provide the department with evidence of the receipt of the 27 UNOFFICIAL COPY 22 RS BR 337
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cash investment within ten (10) business days after receipt. If the qualified 1
community development entity does not receive the cash investment and issue the 2
qualified equity investment within ninety (90) days following receipt of the 3
certification notice, the certification shall lapse, and the entity may not issue the 4
qualified equity investment without reapplying to the department for certification. A 5
certification that lapses shall revert back to the department and may be reissued only 6
in accordance with the application process outlined in this section. 7
(5) The department shall certify qualified equity investments in the order applications 8
are received by the department. Applications received on the same day shall be 9
deemed to have been received simultaneously. For applications received on the 10
same day and deemed complete, the department shall certify, consistent with 11
remaining tax credit capacity, qualified equity investments in proportionate 12
percentages based upon the ratio of the amount of qualified equity investment 13
requested in an application to the total amount of qualified equity investments 14
requested in all applications received on the same day. If a pending request cannot 15
be fully certified because of the limitations contained in KRS 141.434, the 16
department shall certify the portion that may be certified unless the qualified 17
community development entity elects to withdraw its request rather than receive 18
partial credit. 19
(6) (a) The department may recapture any portion of a tax credit allowed under this 20
section if: 21
1. Any amount of federal tax credit that might be available with respect to 22
the qualified equity investment that generated the tax credit under this 23
section is recaptured under 26 U.S.C. sec. 45D. In such case, the 24
department's recapture shall be proportionate to the federal recapture 25
with respect to the qualified equity investment; 26
2. The qualified community development entity redeems or makes a 27 UNOFFICIAL COPY 22 RS BR 337
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principal repayment with respect to the qualified equity investment that 1
generated the tax credit prior to the final credit allowance date of the 2
qualified equity investment. In such case, the department's recapture 3
shall be proportionate to the amount of the redemption or repayment 4
with respect to the qualified equity investment; or 5
3. The qualified community development entity fails to invest: 6
a. In the case of a qualified equity investment issued prior to January 7
1, 2014, at least eighty-five percent (85%) of the purchase price of 8
the qualified equity investment in qualified low-income 9
community investments in qualified active low-income community 10
businesses located in the Commonwealth within twenty-four (24) 11
months of the issuance of the qualified equity investment and 12
maintain this level of investment in qualified low-income 13
community investments in qualified active low-income community 14
businesses located in the Commonwealth until the last credit 15
allowance date for the qualified equity investment; and 16
b. In the case of a qualified equity investment issued on or after 17
January 1, 2014, at least one hundred percent (100%) of the 18
purchase price of the qualified equity investment in qualified low-19
income community investments in qualified active low-income 20
community businesses located in the Commonwealth within 21
twelve (12) months of the issuance of the qualified equity 22
investment and maintain this level of investment in qualified low-23
income community investments in qualified active low-income 24
community businesses located in the Commonwealth until the last 25
credit allowance date for the qualified equity investment. In this 26
case, the department's recapture shall be proportionate to the 27 UNOFFICIAL COPY 22 RS BR 337
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amount of the redemption or repayment with respect to the 1
qualified equity investment. 2
For purposes of calculating the amount of qualified low-income 3
community investments held by a qualified community development 4
entity, an investment shall be considered held by the qualified 5
community development entity even if the investment has been sold or 6
repaid; provided that the qualified community development entity 7
reinvests an amount equal to the capital returned to or recovered from 8
the original investment, exclusive of any profits realized, in another 9
qualified active low-income community business in this state within 10
twelve (12) months of the receipt of the capital. A qualified community 11
development entity shall not be required to reinvest capital returned 12
from qualified low-income community investments after the sixth 13
anniversary of the issuance of the qualified equity investment, the 14
proceeds of which were used to make the qualified low-income 15
community investment, and the qualified low-income community 16
investment shall be considered held by the issuer through the qualified 17
equity investment's final credit allowance date. 18
(b) The department shall provide written notice sent via certified mail or other 19
means deemed feasible by the department, to the qualified community 20
development entity of any proposed recapture of tax credits pursuant to this 21
subsection. The entity shall have ninety (90) days to cure any deficiency 22
indicated in the department's original recapture notice and avoid such 23
recapture. If the entity fails or is unable to cure the deficiency within the 24
ninety (90) day period, the department shall provide the entity and the 25
taxpayer from whom the credit is to be recaptured with a final order of 26
recapture. Any tax credit for which a final recapture order has been issued 27 UNOFFICIAL COPY 22 RS BR 337
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shall be recaptured by the department from the taxpayer who claimed the tax 1
credit on a tax return. 2
(7) The department shall through administrative regulations promulgated in accordance 3
with KRS Chapter 13A provide rules to implement the provisions of KRS 141.432 4
to 141.434, and to administer the allocation of tax credits issued for qualified equity 5
investments. 6
(8) (a) On or after January 1, 2014, a qualified community development entity that 7
seeks to have an equity investment or long-term debt security certified as a 8
qualified equity investment and eligible for the tax credit permitted by KRS 9
141.434 shall, as part of the application, pay a refundable performance fee in 10
an amount equal to one-half of one percent (0.5%) of the amount of the equity 11
investment or long-term debt security requested to be certified as a qualified 12
equity investment, not to exceed five hundred thousand dollars ($500,000). 13
(b) This fee shall be in the nature of a security deposit to ensure compliance on 14
the part of a qualified community development entity. The fee shall be paid to 15
the department and deposited in the New Markets performance guarantee 16
account established by this subsection, and retained there as private funds 17
until compliance with the provisions of this subsection has been established or 18
as otherwise provided by this subsection. 19
(c) The fee may be refunded to the qualified community development entity that 20
submitted it as follows: 21
1. In the case of any application that is ultimately denied pursuant to 22
subsection (2) of this section, the department shall refund the full 23
amount of the fee submitted with the denied application; 24
2. In the case of any qualified equity investment that is certified in an 25
amount that is less than the amount requested, due to the limitations 26
contained in KRS 141.434 and pursuant to subsection (5) of this section, 27 UNOFFICIAL COPY 22 RS BR 337
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the department shall refund a portion of the fee so that only an amount 1
equal to one-half of one percent (0.5%) of the actual certified amount, 2
not to exceed five hundred thousand dollars ($500,000), is retained; and 3
3. In the case of any qualified equity investment that is certified as eligible 4
for tax credits, the qualified community development entity may request 5
a refund of the fee no sooner than thirty (30) days after having met all 6
the requirements of this subsection. The refund request shall be made in 7
writing to the department. The department shall review the refund 8
request within thirty (30) days, and shall either comply with the request 9
and issue the refund of the fee, without interest, if the qualified 10
community development entity has met all the requirements of this 11
subsection, or give written notice to the qualified community 12
development entity that it is noncompliant and subject to possible 13
forfeiture of the fee as provided in this subsection. 14
(d) The qualified community development entity shall forfeit the fee to the 15
Commonwealth as follows: 16
1. The entire amount of the fee shall be forfeited if the qualified 17
community development entity and its subsidiary qualified community 18
development entities fail to issue the total amount of qualified equity 19
investment certified by the department and receive cash in exchange 20
therefor within ninety (90) days after receipt of the notice of 21
certification; and 22
2. A portion of the fee shall be forfeited if the qualified community 23
development entity, or any subsidiary qualified community development 24
entity, that issues a qualified equity investment certified by the 25
department fails to meet the percentage investment requirement under 26
subsection (6) of this section by the first credit allowance date of the 27 UNOFFICIAL COPY 22 RS BR 337
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qualified equity investment. The forfeiture shall be proportionate to the 1
amount of the qualified equity investment that is not invested as required 2
by subsection (6) of this section. Forfeiture of the fee under this 3
subparagraph shall be subject to the ninety (90) day cure period allowed 4
under subsection (6) of this section. 5
(e) The amount of the fee that is forfeited pursuant to this subsection shall be 6
transferred from the New Markets performance guarantee account and 7
deposited into the general fund. 8
(f) 1. The New Markets performance guarantee account is hereby established 9
as a fiduciary fund within the State Treasury, to be administered by the 10
department solely for the purposes set out in this subsection. 11
2. Notwithstanding KRS 45.229, moneys in the account shall not lapse but 12
shall be retained in the account at all times except as provided by this 13
subsection. 14
(9) Beginning on January 1, 2022, the department shall not accept any new 15
applications for the New Markets Development Program described in KRS 16
141.432 to 141.434, and these sections shall continue to apply to applications 17
received prior to January 1, 2022. 18
Section 34. KRS 142.303 is amended to read as follows: 19
[(1) ]A tax is hereby imposed at a rate of two and one-half percent (2.5%) on gross 20
revenues received by all providers on or after July 15, 1994, for the provision of 21
hospital services.[ The tax imposed by this section shall not apply to gross revenues 22
received for dispensing outpatient prescription drugs subject to tax under KRS 23
142.311. 24
(2) (a) Notwithstanding any other provision of the Kentucky Revised Statutes to the 25
contrary, beginning in state fiscal year 2008-2009 and continuing annually 26
thereafter, the tax imposed under subsection (1) of this section on providers of 27 UNOFFICIAL COPY 22 RS BR 337
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hospital services who paid taxes in state fiscal year 2005-2006 shall be 1
assessed on gross revenues received by the provider during state fiscal year 2
2005-2006. Notwithstanding KRS 142.301 to 142.363, hospital provider taxes 3
due in state fiscal year 2008 and continuing annually thereafter shall be paid in 4
twelve (12) equal monthly installments, with each payment due no later than 5
twenty (20) days after the last day of each calendar month. At least thirty (30) 6
days prior to the beginning of the state fiscal year, the Department of Revenue 7
shall send written notice to each provider of hospital services of the provider's 8
total tax liability for the year, which shall be the amount the provider paid in 9
taxes in state fiscal year 2005-2006. The provisions of this paragraph also 10
shall apply if the hospital subsequently undergoes a change in ownership. 11
(b) If a hospital was not in operation during state fiscal year 2005-2006, the 12
hospital shall be taxed pursuant to the provisions of subsection (1) of this 13
section, provided that, upon request of the provider, the Department of 14
Revenue may adjust the hospital's annual tax liability in accordance with the 15
gross revenues of a comparable hospital.] 16
Section 35. KRS 154.61-020 is amended to read as follows: 17
(1) The purposes of KRS 141.383 and this subchapter are to encourage: 18
(a) The film and entertainment industry to choose locations in the 19
Commonwealth for the filming and production of motion picture or 20
entertainment productions; 21
(b) The development of a film and entertainment industry in Kentucky; 22
(c) Increased employment opportunities for the citizens of the Commonwealth 23
within the film and entertainment industry; and 24
(d) The development of a production and postproduction infrastructure in the 25
Commonwealth for film production and touring Broadway show production 26
facilities containing state-of-the-art technologies. 27 UNOFFICIAL COPY 22 RS BR 337
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(2) The authority, together with the Department of Revenue, shall administer the tax 1
credit established by KRS 141.383, this section, and KRS 154.61-030. 2
(3) To qualify for the tax incentive provided in subsection (5) of this section, the 3
following requirements shall be met: 4
(a) For an approved company that is also a Kentucky-based company that: 5
1. Films or produces a feature-length film, television program, or industrial 6
film in whole or in part in the Commonwealth, the minimum combined 7
total of qualifying expenditures and qualifying payroll expenditures shall 8
be one hundred twenty-five thousand dollars ($125,000); 9
2. Produces a national touring production of a Broadway show in whole or 10
in part in the Commonwealth, the minimum combined total of 11
qualifying expenditures and qualifying payroll expenditures shall be 12
twenty thousand dollars ($20,000); or 13
3. Films or produces a documentary in whole or in part in the 14
Commonwealth, the minimum combined total of qualifying 15
expenditures and qualifying payroll expenditures shall be ten thousand 16
dollars ($10,000); and 17
(b) For an approved company that is not a Kentucky-based company that: 18
1. Films or produces a feature-length film, television program, or industrial 19
film in whole or in part in the Commonwealth, the minimum combined 20
total of qualifying expenditures and qualifying payroll expenditures shall 21
be two hundred fifty thousand dollars ($250,000); or 22
2. Films or produces a documentary in whole or in part in the 23
Commonwealth or that produces a national touring production of a 24
Broadway show, the minimum combined total of qualifying 25
expenditures and qualifying payroll expenditures shall be twenty 26
thousand dollars ($20,000). 27 UNOFFICIAL COPY 22 RS BR 337
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(4) (a) Beginning on January 1, 2022, but before January 1, 2023, the total tax 1
incentive approved under KRS 141.383 and this subchapter shall be limited to 2
seventy-five million dollars ($75,000,000) for calendar year 2022. 3
(b) Beginning on January 1, 2023, the tax incentive approved under KRS 4
141.383 and this subchapter shall be limited to ten million dollars 5
($10,000,000) for calendar year 2023 and each calendar year thereafter. 6
(5) (a) To qualify for the tax incentive available under KRS 141.383 and this 7
subchapter all applicants shall: 8
1. Begin filming or production within six (6) months of filing an 9
application with the authority; and 10
2. Complete filming or production within two (2) years of the filming or 11
production start date. 12
(b) The tax credit shall be against the Kentucky income tax imposed under KRS 13
141.020 or 141.040, and the limited liability entity tax imposed under KRS 14
141.0401, and shall be refundable as provided in KRS 141.383. 15
(c) 1. For a motion picture or entertainment production filmed or produced in 16
its entirety in an enhanced incentive county, the amount of the incentive 17
shall be equal to thirty-five percent (35%) of the approved company's: 18
a. Qualifying expenditures; 19
b. Qualifying payroll expenditures paid to resident and nonresident 20
below-the-line production crew; and 21
c. Qualifying payroll expenditures paid to resident and nonresident 22
above-the-line production crew not to exceed one million dollars 23
($1,000,000) in payroll expenditures per employee. 24
2. a. To the extent the approved company films or produces a motion 25
picture or entertainment production in part in an enhanced 26
incentive county and in part a Kentucky county that is not an 27 UNOFFICIAL COPY 22 RS BR 337
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enhanced incentive county, the approved company shall be eligible 1
to receive the incentives provided in this paragraph for those 2
expenditures incurred in the enhanced incentive county and all 3
other expenditures shall be subject to the incentives provided in 4
paragraph (d) of this subsection. 5
b. The approved company shall track the requisite expenditures by 6
county. If the approved company can demonstrate to the 7
satisfaction of the cabinet that it is not practical to use a separate 8
accounting method to determine the expenditures by county, the 9
approved company shall determine the correct expenditures by 10
county using an alternative method approved by the cabinet. 11
(d) For a motion picture or entertainment production filmed or produced in whole 12
or in part in any Kentucky county other than in an enhanced incentive county, 13
the amount of the incentive shall be equal to: 14
1. Thirty percent (30%) of the approved company's: 15
a. Qualifying expenditures; 16
b. Qualifying payroll expenditures paid to below-the-line production 17
crew that are not residents; and 18
c. Qualifying payroll expenditures paid to above-the-line production 19
crew that are not residents, not to exceed one million dollars 20
($1,000,000) in payroll expenditures per employee; and 21
2. Thirty-five percent (35%) of the approved company's: 22
a. Qualifying payroll expenditures paid to resident below-the-line 23
production crew; and 24
b. Qualifying payroll expenditures paid to resident above-the-line 25
production crew not to exceed one million dollars ($1,000,000) in 26
payroll expenditures per employee. 27 UNOFFICIAL COPY 22 RS BR 337
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Section 36. The amendments made in Section 1 of this Act apply to property 1
assessed on or after January 1, 2023. 2
Section 37. Sections 6 to 13 of this Act take effect at 11:59 p.m. on July 31, 3
2022. 4
Section 38. Sections 15 to 19 of this Act take effect on October 1, 2022. 5
Section 39. The amendments made in Section 20 of this Act apply to dates of 6
death occurring on or after August 1, 2022. 7
Section 40. The amendments made in Sections 21 to 28 and 31 of this Act apply 8
to taxable years beginning on or after January 1, 2022. 9
Section 41. Section 34 of this Act takes effect on August 1, 2022. 10