UNOFFICIAL COPY 22 RS BR 2304
Page 1 of 12
XXXX Jacketed
AN ACT relating to the limited liability entity tax. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
ď˘Section 1. KRS 141.0401 is amended to read as follows: 3
(1) As used in this section: 4
(a) "Kentucky gross receipts" means an amount equal to the computation of the 5
numerator of the apportionment fraction under KRS 141.120, any 6
administrative regulations related to the computation of the sales factor, and 7
KRS 141.121 and includes the proportionate share of Kentucky gross receipts 8
of all wholly or partially owned limited liability pass-through entities, 9
including all layers of a multi-layered pass-through structure; 10
(b) "Gross receipts from all sources" means an amount equal to the computation 11
of the denominator of the apportionment fraction under KRS 141.120, any 12
administrative regulations related to the computation of the sales factor, and 13
KRS 141.121 and includes the proportionate share of gross receipts from all 14
sources of all wholly or partially owned limited liability pass-through entities, 15
including all layers of a multi-layered pass-through structure; 16
(c) "Affiliated group" has the same meaning as in KRS 141.201; 17
(d) "Cost of goods sold" means: 18
1. Amounts that are: 19
a. Allowable as cost of goods sold pursuant to the Internal Revenue 20
Code and any guidelines issued by the Internal Revenue Service 21
relating to cost of goods sold, unless modified by this paragraph; 22
and 23
b. Incurred in acquiring or producing the tangible product generating 24
the Kentucky gross receipts. 25
2. For manufacturing, producing, reselling, retailing, or wholesaling 26
activities, cost of goods sold shall only include costs directly incurred in 27 UNOFFICIAL COPY 22 RS BR 2304
Page 2 of 12
XXXX Jacketed
acquiring or producing the tangible product. In determining cost of 1
goods sold: 2
a. Labor costs shall be limited to direct labor costs as defined in 3
paragraph (f) of this subsection; 4
b. Bulk delivery costs as defined in paragraph (g) of this subsection 5
may be included; and 6
c. Costs allowable under Section 263A of the Internal Revenue Code 7
may be included only to the extent the costs are incurred in 8
acquiring or producing the tangible product generating the 9
Kentucky gross receipts. Notwithstanding the foregoing, indirect 10
labor costs allowable under Section 263A shall not be included; 11
3. For any activity other than manufacturing, producing, reselling, retailing, 12
or wholesaling, no costs shall be included in cost of goods sold. 13
As used in this paragraph, "guidelines issued by the Internal Revenue Service" 14
includes regulations, private letter rulings, or any other guidance issued by the 15
Internal Revenue Service that may be relied upon by taxpayers under reliance 16
standards established by the Internal Revenue Service; 17
(e) 1. "Kentucky gross profits" means Kentucky gross receipts reduced by 18
returns and allowances attributable to Kentucky gross receipts, less the 19
cost of goods sold attributable to Kentucky gross receipts. If the amount 20
of returns and allowances attributable to Kentucky gross receipts and the 21
cost of goods sold attributable to Kentucky gross receipts is zero, then 22
"Kentucky gross profits" means Kentucky gross receipts; and 23
2. "Gross profits from all sources" means gross receipts from all sources 24
reduced by returns and allowances attributable to gross receipts from all 25
sources, less the cost of goods sold attributable to gross receipts from all 26
sources. If the amount of returns and allowances attributable to gross 27 UNOFFICIAL COPY 22 RS BR 2304
Page 3 of 12
XXXX Jacketed
receipts from all sources and the cost of goods sold attributable to gross 1
receipts from all sources is zero, then gross profits from all sources 2
means gross receipts from all sources; 3
(f) "Direct labor" means labor that is incorporated into the tangible product sold 4
or is an integral part of the manufacturing process; 5
(g) "Bulk delivery costs" means the cost of delivering the product to the consumer 6
if: 7
1. The tangible product is delivered in bulk and requires specialized 8
equipment that generally precludes commercial shipping; and 9
2. The tangible product is taxable under KRS 138.220; 10
(h) "Manufacturing" and "producing" means: 11
1. Manufacturing, producing, constructing, or assembling components to 12
produce a significantly different or enhanced end tangible product; 13
2. Mining or severing natural resources from the earth; or 14
3. Growing or raising agricultural or horticultural products or animals; 15
(i) "Real property" means land and anything growing on, attached to, or erected 16
on it, excluding anything that may be severed without injury to the land; 17
(j) "Reselling," "retailing," and "wholesaling" mean the sale of a tangible 18
product; 19
(k) "Tangible personal property" means property, other than real property, that has 20
physical form and characteristics; and 21
(l) "Tangible product" means real property and tangible personal property; 22
(2) (a) For taxable years beginning on or after January 1, 2007, an annual limited 23
liability entity tax shall be paid by every corporation and every limited liability 24
pass-through entity doing business in Kentucky on all Kentucky gross receipts 25
or Kentucky gross profits except as provided in this subsection. A small 26
business exclusion from this tax shall be provided based on the reduction 27 UNOFFICIAL COPY 22 RS BR 2304
Page 4 of 12
XXXX Jacketed
contained in this subsection. The tax shall be the greater of the amount 1
computed under paragraph (c)[(b)] of this subsection or one hundred seventy-2
five dollars ($175), except as provided in paragraph (b) of this section, 3
regardless of the application of any tax credits provided under this chapter or 4
any other provisions of the Kentucky Revised Statutes for which the business 5
entity may qualify. 6
(b) For taxable years beginning on or after January 1, 2023, the limited 7
liability entity tax shall not be assessed on a corporation or limited liability 8
pass-through entity doing business in Kentucky if the corporation's or 9
entity's Kentucky gross receipts are less than one hundred thousand dollars 10
($100,000). 11
(c)[(b)] The limited liability entity tax shall be the lesser of subparagraph 1. or 2. 12
of this paragraph: 13
1. a. If the corporation's or limited liability pass-through entity's gross 14
receipts from all sources are three million dollars ($3,000,000) or 15
less, the limited liability entity tax shall be one hundred seventy-16
five dollars ($175), except as provided in paragraph (b) of this 17
subsection; 18
b. If the corporation's or limited liability pass-through entity's gross 19
receipts from all sources are greater than three million dollars 20
($3,000,000) but less than six million dollars ($6,000,000), the 21
limited liability entity tax shall be nine and one-half cents ($0.095) 22
per one hundred dollars ($100) of the corporation's or limited 23
liability pass-through entity's Kentucky gross receipts reduced by 24
an amount equal to two thousand eight hundred fifty dollars 25
($2,850) multiplied by a fraction, the numerator of which is six 26
million dollars ($6,000,000) less the amount of the corporation's or 27 UNOFFICIAL COPY 22 RS BR 2304
Page 5 of 12
XXXX Jacketed
limited liability pass-through entity's Kentucky gross receipts for 1
the taxable year, and the denominator of which is three million 2
dollars ($3,000,000), but in no case shall the result be less than one 3
hundred seventy-five dollars ($175); 4
c. If the corporation's or limited liability pass-through entity's gross 5
receipts from all sources are equal to or greater than six million 6
dollars ($6,000,000), the limited liability entity tax shall be nine 7
and one-half cents ($0.095) per one hundred dollars ($100) of the 8
corporation's or limited liability pass-through entity's Kentucky 9
gross receipts. 10
2. a. If the corporation's or limited liability pass-through entity's gross 11
profits from all sources are three million dollars ($3,000,000) or 12
less, the limited liability entity tax shall be one hundred seventy-13
five dollars ($175), except as provided in paragraph (b) of this 14
subsection; 15
b. If the corporation's or limited liability pass-through entity's gross 16
profits from all sources are at least three million dollars 17
($3,000,000) but less than six million dollars ($6,000,000), the 18
limited liability entity tax shall be seventy-five cents ($0.75) per 19
one hundred dollars ($100) of the corporation's or limited liability 20
pass-through entity's Kentucky gross profits, reduced by an amount 21
equal to twenty-two thousand five hundred dollars ($22,500) 22
multiplied by a fraction, the numerator of which is six million 23
dollars ($6,000,000) less the amount of the corporation's or limited 24
liability pass-through entity's Kentucky gross profits, and the 25
denominator of which is three million dollars ($3,000,000), but in 26
no case shall the result be less than one hundred seventy-five 27 UNOFFICIAL COPY 22 RS BR 2304
Page 6 of 12
XXXX Jacketed
dollars ($175); 1
c. If the corporation's or limited liability pass-through entity's gross 2
profits from all sources are equal to or greater than six million 3
dollars ($6,000,000), the limited liability entity tax shall be 4
seventy-five cents ($0.75) per one hundred dollars ($100) of all of 5
the corporation's or limited liability pass-through entity's Kentucky 6
gross profits. 7
In determining eligibility for the reductions contained in this paragraph, a 8
member of an affiliated group shall consider the total gross receipts and the 9
total gross profits from all sources of the entire affiliated group, including 10
eliminating entries for transactions among the group. 11
(c) A credit shall be allowed against the tax imposed under paragraph (a) of this 12
subsection for the current year to a corporation or limited liability pass-13
through entity that owns an interest in a limited liability pass-through entity. 14
The credit shall be the proportionate share of tax calculated under this 15
subsection by the lower-level pass-through entity, as determined after the 16
amount of tax calculated by the pass-through entity has been reduced by the 17
minimum tax of one hundred seventy-five dollars ($175). The credit shall 18
apply across multiple layers of a multi-layered pass-through entity structure. 19
The credit at each layer shall include the credit from each lower layer, after 20
reduction for the minimum tax of one hundred seventy-five dollars ($175) at 21
each layer. 22
(d) The department may promulgate administrative regulations to establish a 23
method for calculating the cost of goods sold attributable to Kentucky. 24
(3) A nonrefundable credit based on the tax calculated under subsection (2) of this 25
section shall be allowed against the tax imposed by KRS 141.020 or 141.040. The 26
credit amount shall be determined as follows: 27 UNOFFICIAL COPY 22 RS BR 2304
Page 7 of 12
XXXX Jacketed
(a) The credit allowed a corporation subject to the tax imposed by KRS 141.040 1
shall be equal to the amount of tax calculated under subsection (2) of this 2
section for the current year after subtraction of any credits identified in KRS 3
141.0205, reduced by the minimum tax of one hundred seventy-five dollars 4
($175), plus any credit determined in paragraph (b) of this subsection for tax 5
paid by wholly or partially owned limited liability pass-through entities. The 6
amount of credit allowed to a corporation based on the amount of tax paid 7
under subsection (2) of this section for the current year shall be applied to the 8
income tax due from the corporation's activities in this state. Any remaining 9
credit from the corporation shall be disallowed. 10
(b) The credit allowed members, shareholders, or partners of a limited liability 11
pass-through entity shall be the members', shareholders', or partners' 12
proportionate share of the tax calculated under subsection (2) of this section 13
for the current year after subtraction of any credits identified in KRS 14
141.0205, as determined after the amount of tax paid has been reduced by the 15
minimum tax of one hundred seventy-five dollars ($175). The credit allowed 16
to members, shareholders, or partners of a limited liability pass-through entity 17
shall be applied to income tax assessed on income from the limited liability 18
pass-through entity. Any remaining credit from the limited liability pass-19
through entity shall be disallowed. 20
(4) Each taxpayer subject to the tax imposed in this section shall file a return, on forms 21
prepared by the department, on or before the fifteenth day of the fourth month 22
following the close of the taxpayer's taxable year. Any tax remaining due after 23
making the payments required in KRS 141.044 shall be paid by the original due 24
date of the return. 25
(5) The department shall prescribe forms and promulgate administrative regulations as 26
needed to administer the provisions of this section. 27 UNOFFICIAL COPY 22 RS BR 2304
Page 8 of 12
XXXX Jacketed
(6) The tax imposed by subsection (2) of this section shall not apply to: 1
(a) For taxable years beginning prior to January 1, 2021: 2
1. Financial institutions, as defined in KRS 136.500, except banker's banks 3
organized under KRS 287.135 or 286.3-135; 4
2. Savings and loan associations organized under the laws of this state and 5
under the laws of the United States and making loans to members only; 6
3. Banks for cooperatives; 7
4. Production credit associations; 8
5. Insurance companies, including farmers' or other mutual hail, cyclone, 9
windstorm, or fire insurance companies, insurers, and reciprocal 10
underwriters; 11
6. Corporations or other entities exempt under Section 501 of the Internal 12
Revenue Code; 13
7. Religious, educational, charitable, or like corporations not organized or 14
conducted for pecuniary profit; 15
8. Corporations whose only owned or leased property located in this state 16
is located at the premises of a printer with which it has contracted for 17
printing, provided that: 18
a. The property consists of the final printed product, or copy from 19
which the printed product is produced; and 20
b. The corporation has no individuals receiving compensation in this 21
state as provided in KRS 141.901; 22
9. Public service corporations subject to tax under KRS 136.120; 23
10. Open-end registered investment companies organized under the laws of 24
this state and registered under the Investment Company Act of 1940; 25
11. Any property or facility which has been certified as a fluidized bed 26
energy production facility as defined in KRS 211.390; 27 UNOFFICIAL COPY 22 RS BR 2304
Page 9 of 12
XXXX Jacketed
12. An alcohol production facility as defined in KRS 247.910; 1
13. Real estate investment trusts as defined in Section 856 of the Internal 2
Revenue Code; 3
14. Regulated investment companies as defined in Section 851 of the 4
Internal Revenue Code; 5
15. Real estate mortgage investment conduits as defined in Section 860D of 6
the Internal Revenue Code; 7
16. Personal service corporations as defined in Section 269A(b)(1) of the 8
Internal Revenue Code; 9
17. Cooperatives described in Sections 521 and 1381 of the Internal 10
Revenue Code, including farmers' agricultural and other cooperatives 11
organized or recognized under KRS Chapter 272, advertising 12
cooperatives, purchasing cooperatives, homeowners associations 13
including those described in Section 528 of the Internal Revenue Code, 14
political organizations as defined in Section 527 of the Internal Revenue 15
Code, and rural electric and rural telephone cooperatives; or 16
18. Publicly traded partnerships as defined by Section 7704(b) of the 17
Internal Revenue Code that are treated as partnerships for federal tax 18
purposes under Section 7704(c) of the Internal Revenue Code, or their 19
publicly traded partnership affiliates. "Publicly traded partnership 20
affiliates" shall include any limited liability company or limited 21
partnership for which at least eighty percent (80%) of the limited 22
liability company member interests or limited partner interests are 23
owned directly or indirectly by the publicly traded partnership; and 24
(b) For taxable years beginning on or after January 1, 2021: 25
1. Insurance companies, including farmers' or other mutual hail, cyclone, 26
windstorm, or fire insurance companies, insurers, and reciprocal 27 UNOFFICIAL COPY 22 RS BR 2304
Page 10 of 12
XXXX Jacketed
underwriters; 1
2. Corporations or other entities exempt under Section 501 of the Internal 2
Revenue Code; 3
3. Religious, educational, charitable, or like corporations not organized or 4
conducted for pecuniary profit; 5
4. Corporations whose only owned or leased property located in this state 6
is located at the premises of a printer with which it has contracted for 7
printing, provided that: 8
a. The property consists of the final printed product, or copy from 9
which the printed product is produced; and 10
b. The corporation has no individuals receiving compensation in this 11
state as provided in KRS 141.901; 12
5. Public service corporations subject to tax under KRS 136.120; 13
6. Open-end registered investment companies organized under the laws of 14
this state and registered under the Investment Company Act of 1940; 15
7. Any property or facility which has been certified as a fluidized bed 16
energy production facility as defined in KRS 211.390; 17
8. An alcohol production facility as defined in KRS 247.910; 18
9. Real estate investment trusts as defined in Section 856 of the Internal 19
Revenue Code; 20
10. Regulated investment companies as defined in Section 851 of the 21
Internal Revenue Code; 22
11. Real estate mortgage investment conduits as defined in Section 860D of 23
the Internal Revenue Code; 24
12. Personal service corporations as defined in Section 269A(b)(1) of the 25
Internal Revenue Code; 26
13. Cooperatives described in Sections 521 and 1381 of the Internal 27 UNOFFICIAL COPY 22 RS BR 2304
Page 11 of 12
XXXX Jacketed
Revenue Code, including farmers' agricultural and other cooperatives 1
organized or recognized under KRS Chapter 272, advertising 2
cooperatives, purchasing cooperatives, homeowners associations 3
including those described in Section 528 of the Internal Revenue Code, 4
political organizations as defined in Section 527 of the Internal Revenue 5
Code, and rural electric and rural telephone cooperatives; or 6
14. Publicly traded partnerships as defined by Section 7704(b) of the 7
Internal Revenue Code that are treated as partnerships for federal tax 8
purposes under Section 7704(c) of the Internal Revenue Code, or their 9
publicly traded partnership affiliates. "Publicly traded partnership 10
affiliates" shall include any limited liability company or limited 11
partnership for which at least eighty percent (80%) of the limited 12
liability company member interests or limited partner interests are 13
owned directly or indirectly by the publicly traded partnership. 14
(7) (a) As used in this subsection, "qualified exempt organization" means an entity 15
listed in subsection (6)(a) and (b) of this section and shall not include any 16
entity whose exempt status has been disallowed by the Internal Revenue 17
Service. 18
(b) Notwithstanding any other provisions of this section, any limited liability 19
pass-through entity that is owned in whole or in part by a qualified exempt 20
organization shall, in calculating its Kentucky gross receipts or Kentucky 21
gross profits, exclude the proportionate share of its Kentucky gross receipts or 22
Kentucky gross profits attributable to the ownership interest of the qualified 23
exempt organization. 24
(c) Any limited liability pass-through entity that reduces Kentucky gross receipts 25
or Kentucky gross profits in accordance with paragraph (b) of this subsection 26
shall disregard the ownership interest of the qualified exempt organization in 27 UNOFFICIAL COPY 22 RS BR 2304
Page 12 of 12
XXXX Jacketed
determining the amount of credit available under subsection (3) of this 1
section. 2
(d) The Department of Revenue may promulgate an administrative regulation to 3
further define "qualified exempt organization" to include an entity for which 4
exemption is constitutionally or legally required, or to exclude any entity 5
created primarily for tax avoidance purposes with no legitimate business 6
purpose. 7
(8) The credit permitted by subsection (3) of this section shall flow through multiple 8
layers of limited liability pass-through entities and shall be claimed by the taxpayer 9
who ultimately pays the tax on the income of the limited liability pass-through 10
entity. 11