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