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AN ACT relating to the limited liability entity tax. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
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 24 RS BR 479
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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, 12
retailing, or wholesaling, no costs shall be included in cost of goods 13
sold. 14
As used in this paragraph, "guidelines issued by the Internal Revenue Service" 15
includes regulations, private letter rulings, or any other guidance issued by the 16
Internal Revenue Service that may be relied upon by taxpayers under reliance 17
standards established by the Internal Revenue Service; 18
(e) 1. "Kentucky gross profits" means Kentucky gross receipts reduced by 19
returns and allowances attributable to Kentucky gross receipts, less the 20
cost of goods sold attributable to Kentucky gross receipts. If the amount 21
of returns and allowances attributable to Kentucky gross receipts and the 22
cost of goods sold attributable to Kentucky gross receipts is zero, then 23
"Kentucky gross profits" means Kentucky gross receipts; and 24
2. "Gross profits from all sources" means gross receipts from all sources 25
reduced by returns and allowances attributable to gross receipts from all 26
sources, less the cost of goods sold attributable to gross receipts from all 27 UNOFFICIAL COPY 24 RS BR 479
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sources. If the amount of returns and allowances attributable to gross 1
receipts from all sources and the cost of goods sold attributable to gross 2
receipts from all sources is zero, then gross profits from all sources 3
means gross receipts from all sources; 4
(f) "Direct labor" means labor that is incorporated into the tangible product sold 5
or is an integral part of the manufacturing process; 6
(g) "Bulk delivery costs" means the cost of delivering the product to the 7
consumer if: 8
1. The tangible product is delivered in bulk and requires specialized 9
equipment that generally precludes commercial shipping; and 10
2. The tangible product is taxable under KRS 138.220; 11
(h) "Manufacturing" and "producing" means: 12
1. Manufacturing, producing, constructing, or assembling components to 13
produce a significantly different or enhanced end tangible product; 14
2. Mining or severing natural resources from the earth; or 15
3. Growing or raising agricultural or horticultural products or animals; 16
(i) "Real property" means land and anything growing on, attached to, or erected 17
on it, excluding anything that may be severed without injury to the land; 18
(j) "Reselling," "retailing," and "wholesaling" mean the sale of a tangible 19
product; 20
(k) "Tangible personal property" means property, other than real property, that 21
has physical form and characteristics; and 22
(l) "Tangible product" means real property and tangible personal property; 23
(2) (a) For taxable years beginning on or after January 1, 2007, but prior to January 24
1, 2025, an annual limited liability entity tax shall be paid by every 25
corporation and every limited liability pass-through entity doing business in 26
Kentucky on all Kentucky gross receipts or Kentucky gross profits except as 27 UNOFFICIAL COPY 24 RS BR 479
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provided in this subsection. A small business exclusion from this tax shall be 1
provided based on the reduction contained in this subsection. The tax shall be 2
the greater of the amount computed under paragraph (b) of this subsection or 3
one hundred seventy-five dollars ($175), regardless of the application of any 4
tax credits provided under this chapter or any other provisions of the 5
Kentucky Revised Statutes for which the business entity may qualify. 6
(b) The limited liability entity tax shall be the lesser of subparagraph 1. or 2. of 7
this paragraph: 8
1. a. If the corporation's or limited liability pass-through entity's gross 9
receipts from all sources are three million dollars ($3,000,000) or 10
less, the limited liability entity tax shall be one hundred seventy-11
five dollars ($175); 12
b. If the corporation's or limited liability pass-through entity's gross 13
receipts from all sources are greater than three million dollars 14
($3,000,000) but less than six million dollars ($6,000,000), the 15
limited liability entity tax shall be nine and one-half cents ($0.095) 16
per one hundred dollars ($100) of the corporation's or limited 17
liability pass-through entity's Kentucky gross receipts reduced by 18
an amount equal to two thousand eight hundred fifty dollars 19
($2,850) multiplied by a fraction, the numerator of which is six 20
million dollars ($6,000,000) less the amount of the corporation's or 21
limited liability pass-through entity's Kentucky gross receipts for 22
the taxable year, and the denominator of which is three million 23
dollars ($3,000,000), but in no case shall the result be less than one 24
hundred seventy-five dollars ($175); 25
c. If the corporation's or limited liability pass-through entity's gross 26
receipts from all sources are equal to or greater than six million 27 UNOFFICIAL COPY 24 RS BR 479
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dollars ($6,000,000), the limited liability entity tax shall be nine 1
and one-half cents ($0.095) per one hundred dollars ($100) of the 2
corporation's or limited liability pass-through entity's Kentucky 3
gross receipts. 4
2. a. If the corporation's or limited liability pass-through entity's gross 5
profits 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
profits from all sources are at least three million dollars 10
($3,000,000) but less than six million dollars ($6,000,000), the 11
limited liability entity tax shall be seventy-five cents ($0.75) per 12
one hundred dollars ($100) of the corporation's or limited liability 13
pass-through entity's Kentucky gross profits, reduced by an 14
amount equal to twenty-two thousand five hundred dollars 15
($22,500) 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 profits, and 18
the denominator of which is three million dollars ($3,000,000), but 19
in no case shall the result be less than one hundred seventy-five 20
dollars ($175); 21
c. If the corporation's or limited liability pass-through entity's gross 22
profits from all sources are equal to or greater than six million 23
dollars ($6,000,000), the limited liability entity tax shall be 24
seventy-five cents ($0.75) per one hundred dollars ($100) of all of 25
the corporation's or limited liability pass-through entity's Kentucky 26
gross profits. 27 UNOFFICIAL COPY 24 RS BR 479
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In determining eligibility for the reductions contained in this paragraph, a 1
member of an affiliated group shall consider the total gross receipts and the 2
total gross profits from all sources of the entire affiliated group, including 3
eliminating entries for transactions among the group. 4
(c) A credit shall be allowed against the tax imposed under paragraph (a) of this 5
subsection for the current year to a corporation or limited liability pass-6
through entity that owns an interest in a limited liability pass-through entity. 7
The credit shall be the proportionate share of tax calculated under this 8
subsection by the lower-level pass-through entity, as determined after the 9
amount of tax calculated by the pass-through entity has been reduced by the 10
minimum tax of one hundred seventy-five dollars ($175). The credit shall 11
apply across multiple layers of a multi-layered pass-through entity structure. 12
The credit at each layer shall include the credit from each lower layer, after 13
reduction for the minimum tax of one hundred seventy-five dollars ($175) at 14
each layer. 15
(d) The department may promulgate administrative regulations to establish a 16
method for calculating the cost of goods sold attributable to Kentucky. 17
(3) A nonrefundable credit based on the tax calculated under subsection (2) of this 18
section shall be allowed against the tax imposed by KRS 141.020 or 141.040 for 19
taxable years beginning on or after January 1, 2007, but prior to January 1, 20
2025. The credit amount shall be determined as follows: 21
(a) The credit allowed a corporation subject to the tax imposed by KRS 141.040 22
shall be equal to the amount of tax calculated under subsection (2) of this 23
section for the current year after subtraction of any credits identified in KRS 24
141.0205, reduced by the minimum tax of one hundred seventy-five dollars 25
($175), plus any credit determined in paragraph (b) of this subsection for tax 26
paid by wholly or partially owned limited liability pass-through entities. The 27 UNOFFICIAL COPY 24 RS BR 479
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amount of credit allowed to a corporation based on the amount of tax paid 1
under subsection (2) of this section for the current year shall be applied to the 2
income tax due from the corporation's activities in this state. Any remaining 3
credit from the corporation shall be disallowed. 4
(b) The credit allowed members, shareholders, or partners of a limited liability 5
pass-through entity shall be the members', shareholders', or partners' 6
proportionate share of the tax calculated under subsection (2) of this section 7
for the current year after subtraction of any credits identified in KRS 8
141.0205, as determined after the amount of tax paid has been reduced by the 9
minimum tax of one hundred seventy-five dollars ($175). The credit allowed 10
to members, shareholders, or partners of a limited liability pass-through entity 11
shall be applied to income tax assessed on income from the limited liability 12
pass-through entity. Any remaining credit from the limited liability pass-13
through entity shall be disallowed. 14
(4) Each taxpayer subject to the tax imposed in this section shall file a return, on forms 15
prepared by the department, on or before the fifteenth day of the fourth month 16
following the close of the taxpayer's taxable year. Any tax remaining due after 17
making the payments required in KRS 141.044 shall be paid by the original due 18
date of the return. 19
(5) The department shall prescribe forms and promulgate administrative regulations as 20
needed to administer the provisions of this section. 21
(6) The tax imposed by subsection (2) of this section shall not apply to: 22
(a) For taxable years beginning prior to January 1, 2021: 23
1. Financial institutions, as defined in KRS 136.500, except banker's banks 24
organized under KRS 287.135 or 286.3-135; 25
2. Savings and loan associations organized under the laws of this state and 26
under the laws of the United States and making loans to members only; 27 UNOFFICIAL COPY 24 RS BR 479
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3. Banks for cooperatives; 1
4. Production credit associations; 2
5. Insurance companies, including farmers' or other mutual hail, cyclone, 3
windstorm, or fire insurance companies, insurers, and reciprocal 4
underwriters; 5
6. Corporations or other entities exempt under Section 501 of the Internal 6
Revenue Code; 7
7. Religious, educational, charitable, or like corporations not organized or 8
conducted for pecuniary profit; 9
8. Corporations whose only owned or leased property located in this state 10
is located at the premises of a printer with which it has contracted for 11
printing, provided that: 12
a. The property consists of the final printed product, or copy from 13
which the printed product is produced; and 14
b. The corporation has no individuals receiving compensation in this 15
state as provided in KRS 141.901; 16
9. Public service corporations subject to tax under KRS 136.120; 17
10. Open-end registered investment companies organized under the laws of 18
this state and registered under the Investment Company Act of 1940; 19
11. Any property or facility which has been certified as a fluidized bed 20
energy production facility as defined in KRS 211.390; 21
12. An alcohol production facility as defined in KRS 247.910; 22
13. Real estate investment trusts as defined in Section 856 of the Internal 23
Revenue Code; 24
14. Regulated investment companies as defined in Section 851 of the 25
Internal Revenue Code; 26
15. Real estate mortgage investment conduits as defined in Section 860D of 27 UNOFFICIAL COPY 24 RS BR 479
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the Internal Revenue Code; 1
16. Personal service corporations as defined in Section 269A(b)(1) of the 2
Internal Revenue Code; 3
17. Cooperatives described in Sections 521 and 1381 of the Internal 4
Revenue Code, including farmers' agricultural and other cooperatives 5
organized or recognized under KRS Chapter 272, advertising 6
cooperatives, purchasing cooperatives, homeowners associations 7
including those described in Section 528 of the Internal Revenue Code, 8
political organizations as defined in Section 527 of the Internal Revenue 9
Code, and rural electric and rural telephone cooperatives; or 10
18. Publicly traded partnerships as defined by Section 7704(b) of the 11
Internal Revenue Code that are treated as partnerships for federal tax 12
purposes under Section 7704(c) of the Internal Revenue Code, or their 13
publicly traded partnership affiliates. "Publicly traded partnership 14
affiliates" shall include any limited liability company or limited 15
partnership for which at least eighty percent (80%) of the limited 16
liability company member interests or limited partner interests are 17
owned directly or indirectly by the publicly traded partnership; and 18
(b) For taxable years beginning on or after January 1, 2021: 19
1. Insurance companies, including farmers' or other mutual hail, cyclone, 20
windstorm, or fire insurance companies, insurers, and reciprocal 21
underwriters; 22
2. Corporations or other entities exempt under Section 501 of the Internal 23
Revenue Code; 24
3. Religious, educational, charitable, or like corporations not organized or 25
conducted for pecuniary profit; 26
4. Corporations whose only owned or leased property located in this state 27 UNOFFICIAL COPY 24 RS BR 479
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is located at the premises of a printer with which it has contracted for 1
printing, provided that: 2
a. The property consists of the final printed product, or copy from 3
which the printed product is produced; and 4
b. The corporation has no individuals receiving compensation in this 5
state as provided in KRS 141.901; 6
5. Public service corporations subject to tax under KRS 136.120; 7
6. Open-end registered investment companies organized under the laws of 8
this state and registered under the Investment Company Act of 1940; 9
7. Any property or facility which has been certified as a fluidized bed 10
energy production facility as defined in KRS 211.390; 11
8. An alcohol production facility as defined in KRS 247.910; 12
9. Real estate investment trusts as defined in Section 856 of the Internal 13
Revenue Code; 14
10. Regulated investment companies as defined in Section 851 of the 15
Internal Revenue Code; 16
11. Real estate mortgage investment conduits as defined in Section 860D of 17
the Internal Revenue Code; 18
12. Personal service corporations as defined in Section 269A(b)(1) of the 19
Internal Revenue Code; 20
13. Cooperatives described in Sections 521 and 1381 of the Internal 21
Revenue Code, including farmers' agricultural and other cooperatives 22
organized or recognized under KRS Chapter 272, advertising 23
cooperatives, purchasing cooperatives, homeowners associations 24
including those described in Section 528 of the Internal Revenue Code, 25
political organizations as defined in Section 527 of the Internal Revenue 26
Code, and rural electric and rural telephone cooperatives; or 27 UNOFFICIAL COPY 24 RS BR 479
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14. Publicly traded partnerships as defined by Section 7704(b) of the 1
Internal Revenue Code that are treated as partnerships for federal tax 2
purposes under Section 7704(c) of the Internal Revenue Code, or their 3
publicly traded partnership affiliates. "Publicly traded partnership 4
affiliates" shall include any limited liability company or limited 5
partnership for which at least eighty percent (80%) of the limited 6
liability company member interests or limited partner interests are 7
owned directly or indirectly by the publicly traded partnership. 8
(7) (a) As used in this subsection, "qualified exempt organization" means an entity 9
listed in subsection (6)(a) and (b) of this section and shall not include any 10
entity whose exempt status has been disallowed by the Internal Revenue 11
Service. 12
(b) Notwithstanding any other provisions of this section, any limited liability 13
pass-through entity that is owned in whole or in part by a qualified exempt 14
organization shall, in calculating its Kentucky gross receipts or Kentucky 15
gross profits, exclude the proportionate share of its Kentucky gross receipts or 16
Kentucky gross profits attributable to the ownership interest of the qualified 17
exempt organization. 18
(c) Any limited liability pass-through entity that reduces Kentucky gross receipts 19
or Kentucky gross profits in accordance with paragraph (b) of this subsection 20
shall disregard the ownership interest of the qualified exempt organization in 21
determining the amount of credit available under subsection (3) of this 22
section. 23
(d) The Department of Revenue may promulgate an administrative regulation to 24
further define "qualified exempt organization" to include an entity for which 25
exemption is constitutionally or legally required, or to exclude any entity 26
created primarily for tax avoidance purposes with no legitimate business 27 UNOFFICIAL COPY 24 RS BR 479
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purpose. 1
(8) The credit permitted by subsection (3) of this section shall flow through multiple 2
layers of limited liability pass-through entities and shall be claimed by the taxpayer 3
who ultimately pays the tax on the income of the limited liability pass-through 4
entity. 5
Section 2. KRS 141.0205 is amended to read as follows: 6
If a taxpayer is entitled to more than one (1) of the tax credits allowed against the tax 7
imposed by KRS 141.020, 141.040, and 141.0401, the priority of application and use of 8
the credits shall be determined as follows: 9
(1) The nonrefundable business incentive credits against the tax imposed by KRS 10
141.020 shall be taken in the following order: 11
(a) The limited liability entity tax credit permitted by KRS 141.0401 for taxable 12
years beginning on or after January 1, 2007, but prior to January 1, 2025; 13
(b) The economic development credits computed under KRS 141.347, 141.381, 14
141.384, 141.3841, 141.400, 141.403, 141.407, 141.415, 154.12-207, and 15
154.12-2088; 16
(c) The qualified farming operation credit permitted by KRS 141.412; 17
(d) The certified rehabilitation credit permitted by KRS 171.397(1)(a); 18
(e) The health insurance credit permitted by KRS 141.062; 19
(f) The tax paid to other states credit permitted by KRS 141.070; 20
(g) The credit for hiring the unemployed permitted by KRS 141.065; 21
(h) The recycling or composting equipment credit permitted by KRS 141.390; 22
(i) The tax credit for cash contributions in investment funds permitted by KRS 23
154.20-263 in effect prior to July 15, 2002, and the credit permitted by KRS 24
154.20-258; 25
(j) The research facilities credit permitted by KRS 141.395; 26
(k) The employer High School Equivalency Diploma program incentive credit 27 UNOFFICIAL COPY 24 RS BR 479
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permitted under KRS 151B.402; 1
(l) The voluntary environmental remediation credit permitted by KRS 141.418; 2
(m) The biodiesel and renewable diesel credit permitted by KRS 141.423; 3
(n) The clean coal incentive credit permitted by KRS 141.428; 4
(o) The ethanol credit permitted by KRS 141.4242; 5
(p) The cellulosic ethanol credit permitted by KRS 141.4244; 6
(q) The energy efficiency credits permitted by KRS 141.436; 7
(r) The railroad maintenance and improvement credit permitted by KRS 141.385; 8
(s) The Endow Kentucky credit permitted by KRS 141.438; 9
(t) The New Markets Development Program credit permitted by KRS 141.434; 10
(u) The distilled spirits credit permitted by KRS 141.389; 11
(v) The angel investor credit permitted by KRS 141.396; 12
(w) The film industry credit permitted by KRS 141.383 for applications approved 13
on or after April 27, 2018, but before January 1, 2022; 14
(x) The inventory credit permitted by KRS 141.408; and 15
(y) The renewable chemical production credit permitted by KRS 141.4231; 16
(2) After the application of the nonrefundable credits in subsection (1) of this section, 17
the nonrefundable personal tax credits against the tax imposed by KRS 141.020 18
shall be taken in the following order: 19
(a) The individual credits permitted by KRS 141.020(3); 20
(b) The credit permitted by KRS 141.066; 21
(c) The tuition credit permitted by KRS 141.069; 22
(d) The household and dependent care credit permitted by KRS 141.067; 23
(e) The income gap credit permitted by KRS 141.066; and 24
(f) The Education Opportunity Account Program tax credit permitted by KRS 25
141.522; 26
(3) After the application of the nonrefundable credits provided for in subsection (2) of 27 UNOFFICIAL COPY 24 RS BR 479
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this section, the refundable credits against the tax imposed by KRS 141.020 shall be 1
taken in the following order: 2
(a) The individual withholding tax credit permitted by KRS 141.350; 3
(b) The individual estimated tax payment credit permitted by KRS 141.305; 4
(c) The certified rehabilitation credit permitted by KRS 171.3961, 171.3963, and 5
171.397(1)(b); 6
(d) The film industry tax credit permitted by KRS 141.383 for applications 7
approved prior to April 27, 2018, or on or after January 1, 2022; 8
(e) The development area tax credit permitted by KRS 141.398; 9
(f) The decontamination tax credit permitted by KRS 141.419; and 10
(g) The pass-through entity tax credit permitted by KRS 141.209; 11
(4) The nonrefundable credit permitted by KRS 141.0401 shall be applied against the 12
tax imposed by KRS 141.040 for taxable years beginning on or after January 1, 13
2007, but prior to January 1, 2025; 14
(5) The following nonrefundable credits shall be applied against the sum of the tax 15
imposed by KRS 141.040 after subtracting the credit provided for in subsection (4) 16
of this section, and the tax imposed by KRS 141.0401 in the following order: 17
(a) The economic development credits computed under KRS 141.347, 141.381, 18
141.384, 141.3841, 141.400, 141.403, 141.407, 141.415, 154.12-207, and 19
154.12-2088; 20
(b) The qualified farming operation credit permitted by KRS 141.412; 21
(c) The certified rehabilitation credit permitted by KRS 171.397(1)(a); 22
(d) The health insurance credit permitted by KRS 141.062; 23
(e) The unemployment credit permitted by KRS 141.065; 24
(f) The recycling or composting equipment credit permitted by KRS 141.390; 25
(g) The coal conversion credit permitted by KRS 141.041; 26
(h) The enterprise zone credit permitted by KRS 154.45-090, for taxable periods 27 UNOFFICIAL COPY 24 RS BR 479
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ending prior to January 1, 2008; 1
(i) The tax credit for cash contributions to investment funds permitted by KRS 2
154.20-263 in effect prior to July 15, 2002, and the credit permitted by KRS 3
154.20-258; 4
(j) The research facilities credit permitted by KRS 141.395; 5
(k) The employer High School Equivalency Diploma program incentive credit 6
permitted by KRS 151B.402; 7
(l) The voluntary environmental remediation credit permitted by KRS 141.418; 8
(m) The biodiesel and renewable diesel credit permitted by KRS 141.423; 9
(n) The clean coal incentive credit permitted by KRS 141.428; 10
(o) The ethanol credit permitted by KRS 141.4242; 11
(p) The cellulosic ethanol credit permitted by KRS 141.4244; 12
(q) The energy efficiency credits permitted by KRS 141.436; 13
(r) The ENERGY STAR home or ENERGY STAR manufactured home credit 14
permitted by KRS 141.437; 15
(s) The railroad maintenance and improvement credit permitted by KRS 141.385; 16
(t) The railroad expansion credit permitted by KRS 141.386; 17
(u) The Endow Kentucky credit permitted by KRS 141.438; 18
(v) The New Markets Development Program credit permitted by KRS 141.434; 19
(w) The distilled spirits credit permitted by KRS 141.389; 20
(x) The film industry credit permitted by KRS 141.383 for applications approved 21
on or after April 27, 2018, but before January 1, 2022; 22
(y) The inventory credit permitted by KRS 141.408; 23
(z) The renewable chemical production tax credit permitted by KRS 141.4231; 24
and 25
(aa) The Education Opportunity Account Program tax credit permitted by KRS 26
141.522; and 27 UNOFFICIAL COPY 24 RS BR 479
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(6) After the application of the nonrefundable credits in subsection (5) of this section, 1
the refundable credits shall be taken in the following order: 2
(a) The corporation estimated tax payment credit permitted by KRS 141.044; 3
(b) The certified rehabilitation credit permitted by KRS 171.3961, 171.3963, and 4
171.397(1)(b); 5
(c) The film industry tax credit permitted by KRS 141.383 for applications 6
approved prior to April 27, 2018, or on or after January 1, 2022; 7
(d) The decontamination tax credit permitted by KRS 141.419; and 8
(e) The pass-through entity tax credit permitted by KRS 141.209. 9