Kentucky 2022 2022 Regular Session

Kentucky House Bill HB445 Introduced / Fiscal Note

                    Page 1 of 2  	LRC 2022-BR897-HB445 
COMMONWEALTH OF KENTUCKY FISCAL NOTE STATEMENT 
LEGISLATIVE RESEARCH COMMISSION 
2022 R EGULAR SESSION 
 
MEASURE 
 
2022 BR NUMBER 897    HOUSE BILL NUMBER 445 
 
TITLE AN ACT relating to limited liability entity tax.  
 
SPONSOR Representative David Hale 
 
FISCAL SUMMARY 
 
STATE FISCAL IMPACT:    YES   NO  UNCERTAIN 
 
OTHER FISCAL STATEMENT (S) THAT MAY APPLY:  ACTUARIAL ANALYSIS  
 LOCAL MANDATE CORRECTIONS IMPACT HEALTH BENEFIT MANDATE  
 
APPROPRIATION UNIT(S) IMPACTED:       
 
FUND(S) IMPACTED:  GENERAL ROAD  FEDERAL  RESTRICTED        
 
FISCAL 
ESTIMATES 
2021-2022 2022-2023 2023-2024 ANNUAL IMPACT AT 
FULL IMPLEMENTATION 
REVENUES (indeterminable) (indeterminable) (indeterminable) 
EXPENDITURES   
NET EFFECT (indeterminable) (indeterminable) (indeterminable) 
            (   ) indicates a decrease/negative 
 
PURPOSE OF MEASURE: This proposed legislation allows the deduction of cost of goods 
sold to be taken for all entities for purposes of the Limited Liability Entity Tax (LLET). 
Currently, LLET has two formulas for computing the tax due which are based on either gross 
receipts or gross profits, which allows as a deduction against gross receipts the cost of goods 
sold. Only taxpayers in the manufacturing, producing, reselling, retailing, or wholesaling 
industries may deduct cost of goods sold. By updating the definition and removing the specific 
industries that can currently deduct cost of goods sold, all businesses will be allowed to take the 
deduction. By amending KRS 141.0401, Kentucky’s LLET cost of goods sold definition will 
align with the Internal Revenue Service definition.  
 
FISCAL EXPLANATION : The fiscal impact of this legislation is indeterminable; however, 
there will be a negative impact to the General Fund. It is impossible to estimate an overall 
amount. Data is not available to determine: (1) The impact on taxpayers that are currently using 
the gross profits calculation or (2) The impact on businesses that will switch from the gross 
receipts to the gross profits calculation. It could be assumed that all businesses will now opt to 
compute their LLET via the gross profits method and not the gross receipts method. Also, this 
change could potentially decrease the amount of LLET credit that is taken on the individual and 
corporate tax returns. There is allowed a nonrefundable LLET credit based on the amount of 
LLET due in excess of the minimum amount of $175.00. To determine the impact on the income  Page 2 of 2  	LRC 2022-BR897-HB445 
taxes, specific taxpayer data related to income tax liability is required. LRC does not have that 
specific data. A lower income tax credit would result in a positive impact on revenue. Due to 
these unknown factors, a determination cannot be made on the total fiscal impact.  
 
 
DATA SOURCE(S): LRC Staff 
PREPARER: Sarah Watts NOTE NUMBER: 54 REVIEW: JAB DATE:  2/14/2022