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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
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 25 RS BR 1959
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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 25 RS BR 1959
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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, an annual limited 24
liability entity tax shall be paid by every corporation and every limited 25
liability pass-through entity doing business in Kentucky on all Kentucky gross 26
receipts or Kentucky gross profits except as provided in this subsection. A 27 UNOFFICIAL COPY 25 RS BR 1959
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small business exclusion from this tax shall be provided based on the 1
reduction contained in this subsection. The tax shall be the greater of the 2
amount computed under paragraph (c)[(b)] of this subsection or one hundred 3
seventy-five dollars ($175), except as provided in paragraph (b) of this 4
subsection, regardless of the application of any tax credits provided under this 5
chapter or any other provisions of the Kentucky Revised Statutes for which 6
the business entity may qualify. 7
(b) For taxable years beginning on or after January 1, 2026, the limited 8
liability entity tax shall not be assessed on a corporation or limited liability 9
pass-through entity doing business in Kentucky if the corporation's or 10
entity's Kentucky gross receipts are less than one hundred thousand dollars 11
($100,000). 12
(c)[(b)] The limited liability entity tax shall be the lesser of subparagraph 1. or 2. 13
of this paragraph: 14
1. a. If the corporation's or limited liability pass-through entity's gross 15
receipts from all sources are three million dollars ($3,000,000) or 16
less, the limited liability entity tax shall be one hundred seventy-17
five dollars ($175), except as provided in paragraph (b) of this 18
subsection; 19
b. If the corporation's or limited liability pass-through entity's gross 20
receipts from all sources are greater than three million dollars 21
($3,000,000) but less than six million dollars ($6,000,000), the 22
limited liability entity tax shall be nine and one-half cents ($0.095) 23
per one hundred dollars ($100) of the corporation's or limited 24
liability pass-through entity's Kentucky gross receipts reduced by 25
an amount equal to two thousand eight hundred fifty dollars 26
($2,850) multiplied by a fraction, the numerator of which is six 27 UNOFFICIAL COPY 25 RS BR 1959
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million dollars ($6,000,000) less the amount of the corporation's or 1
limited liability pass-through entity's Kentucky gross receipts for 2
the taxable year, and the denominator of which is three million 3
dollars ($3,000,000), but in no case shall the result be less than one 4
hundred seventy-five dollars ($175); 5
c. If the corporation's or limited liability pass-through entity's gross 6
receipts from all sources are equal to or greater than six million 7
dollars ($6,000,000), the limited liability entity tax shall be nine 8
and one-half cents ($0.095) per one hundred dollars ($100) of the 9
corporation's or limited liability pass-through entity's Kentucky 10
gross receipts. 11
2. a. If the corporation's or limited liability pass-through entity's gross 12
profits from all sources are three million dollars ($3,000,000) or 13
less, the limited liability entity tax shall be one hundred seventy-14
five dollars ($175), except as provided in paragraph (b) of this 15
subsection; 16
b. If the corporation's or limited liability pass-through entity's gross 17
profits from all sources are at least three million dollars 18
($3,000,000) but less than six million dollars ($6,000,000), the 19
limited liability entity tax shall be seventy-five cents ($0.75) per 20
one hundred dollars ($100) of the corporation's or limited liability 21
pass-through entity's Kentucky gross profits, reduced by an 22
amount equal to twenty-two thousand five hundred dollars 23
($22,500) multiplied by a fraction, the numerator of which is six 24
million dollars ($6,000,000) less the amount of the corporation's or 25
limited liability pass-through entity's Kentucky gross profits, and 26
the denominator of which is three million dollars ($3,000,000), but 27 UNOFFICIAL COPY 25 RS BR 1959
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in no case shall the result be less than one hundred seventy-five 1
dollars ($175); 2
c. If the corporation's or limited liability pass-through entity's gross 3
profits from all sources are equal to or greater than six million 4
dollars ($6,000,000), the limited liability entity tax shall be 5
seventy-five cents ($0.75) per one hundred dollars ($100) of all of 6
the corporation's or limited liability pass-through entity's Kentucky 7
gross profits. 8
In determining eligibility for the reductions contained in this paragraph, a 9
member of an affiliated group shall consider the total gross receipts and the 10
total gross profits from all sources of the entire affiliated group, including 11
eliminating entries for transactions among the group. 12
(d)[(c)] A credit shall be allowed against the tax imposed under paragraph (a) of 13
this subsection for the current year to a corporation or limited liability pass-14
through entity that owns an interest in a limited liability pass-through entity. 15
The credit shall be the proportionate share of tax calculated under this 16
subsection by the lower-level pass-through entity, as determined after the 17
amount of tax calculated by the pass-through entity has been reduced by the 18
minimum tax of one hundred seventy-five dollars ($175). The credit shall 19
apply across multiple layers of a multi-layered pass-through entity structure. 20
The credit at each layer shall include the credit from each lower layer, after 21
reduction for the minimum tax of one hundred seventy-five dollars ($175) at 22
each layer. 23
(e)[(d)] The department may promulgate administrative regulations to establish 24
a method for calculating the cost of goods sold attributable to Kentucky. 25
(3) A nonrefundable credit based on the tax calculated under subsection (2) of this 26
section shall be allowed against the tax imposed by KRS 141.020 or 141.040. The 27 UNOFFICIAL COPY 25 RS BR 1959
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credit amount shall be determined as follows: 1
(a) The credit allowed a corporation subject to the tax imposed by KRS 141.040 2
shall be equal to the amount of tax calculated under subsection (2) of this 3
section for the current year after subtraction of any credits identified in KRS 4
141.0205, reduced by the minimum tax of one hundred seventy-five dollars 5
($175), plus any credit determined in paragraph (b) of this subsection for tax 6
paid by wholly or partially owned limited liability pass-through entities. The 7
amount of credit allowed to a corporation based on the amount of tax paid 8
under subsection (2) of this section for the current year shall be applied to the 9
income tax due from the corporation's activities in this state. Any remaining 10
credit from the corporation shall be disallowed. 11
(b) The credit allowed members, shareholders, or partners of a limited liability 12
pass-through entity shall be the members', shareholders', or partners' 13
proportionate share of the tax calculated under subsection (2) of this section 14
for the current year after subtraction of any credits identified in KRS 15
141.0205, as determined after the amount of tax paid has been reduced by the 16
minimum tax of one hundred seventy-five dollars ($175). The credit allowed 17
to members, shareholders, or partners of a limited liability pass-through entity 18
shall be applied to income tax assessed on income from the limited liability 19
pass-through entity. Any remaining credit from the limited liability pass-20
through entity shall be disallowed. 21
(4) Each taxpayer subject to the tax imposed in this section shall file a return, on forms 22
prepared by the department, on or before the fifteenth day of the fourth month 23
following the close of the taxpayer's taxable year. Any tax remaining due after 24
making the payments required in KRS 141.044 shall be paid by the original due 25
date of the return. 26
(5) The department shall prescribe forms and promulgate administrative regulations as 27 UNOFFICIAL COPY 25 RS BR 1959
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needed to administer the provisions of this section. 1
(6) The tax imposed by subsection (2) of this section shall not apply to: 2
(a) For taxable years beginning prior to January 1, 2021: 3
1. Financial institutions, as defined in KRS 136.500, except banker's banks 4
organized under KRS 287.135 or 286.3-135; 5
2. Savings and loan associations organized under the laws of this state and 6
under the laws of the United States and making loans to members only; 7
3. Banks for cooperatives; 8
4. Production credit associations; 9
5. Insurance companies, including farmers' or other mutual hail, cyclone, 10
windstorm, or fire insurance companies, insurers, and reciprocal 11
underwriters; 12
6. Corporations or other entities exempt under Section 501 of the Internal 13
Revenue Code; 14
7. Religious, educational, charitable, or like corporations not organized or 15
conducted for pecuniary profit; 16
8. Corporations whose only owned or leased property located in this state 17
is located at the premises of a printer with which it has contracted for 18
printing, provided that: 19
a. The property consists of the final printed product, or copy from 20
which the printed product is produced; and 21
b. The corporation has no individuals receiving compensation in this 22
state as provided in KRS 141.901; 23
9. Public service corporations subject to tax under KRS 136.120; 24
10. Open-end registered investment companies organized under the laws of 25
this state and registered under the Investment Company Act of 1940; 26
11. Any property or facility which has been certified as a fluidized bed 27 UNOFFICIAL COPY 25 RS BR 1959
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energy production facility as defined in KRS 211.390; 1
12. An alcohol production facility as defined in KRS 247.910; 2
13. Real estate investment trusts as defined in Section 856 of the Internal 3
Revenue Code; 4
14. Regulated investment companies as defined in Section 851 of the 5
Internal Revenue Code; 6
15. Real estate mortgage investment conduits as defined in Section 860D of 7
the Internal Revenue Code; 8
16. Personal service corporations as defined in Section 269A(b)(1) of the 9
Internal Revenue Code; 10
17. Cooperatives described in Sections 521 and 1381 of the Internal 11
Revenue Code, including farmers' agricultural and other cooperatives 12
organized or recognized under KRS Chapter 272, advertising 13
cooperatives, purchasing cooperatives, homeowners associations 14
including those described in Section 528 of the Internal Revenue Code, 15
political organizations as defined in Section 527 of the Internal Revenue 16
Code, and rural electric and rural telephone cooperatives; or 17
18. Publicly traded partnerships as defined by Section 7704(b) of the 18
Internal Revenue Code that are treated as partnerships for federal tax 19
purposes under Section 7704(c) of the Internal Revenue Code, or their 20
publicly traded partnership affiliates. "Publicly traded partnership 21
affiliates" shall include any limited liability company or limited 22
partnership for which at least eighty percent (80%) of the limited 23
liability company member interests or limited partner interests are 24
owned directly or indirectly by the publicly traded partnership; and 25
(b) For taxable years beginning on or after January 1, 2021: 26
1. Insurance companies, including farmers' or other mutual hail, cyclone, 27 UNOFFICIAL COPY 25 RS BR 1959
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windstorm, or fire insurance companies, insurers, and reciprocal 1
underwriters; 2
2. Corporations or other entities exempt under Section 501 of the Internal 3
Revenue Code; 4
3. Religious, educational, charitable, or like corporations not organized or 5
conducted for pecuniary profit; 6
4. Corporations whose only owned or leased property located in this state 7
is located at the premises of a printer with which it has contracted for 8
printing, provided that: 9
a. The property consists of the final printed product, or copy from 10
which the printed product is produced; and 11
b. The corporation has no individuals receiving compensation in this 12
state as provided in KRS 141.901; 13
5. Public service corporations subject to tax under KRS 136.120; 14
6. Open-end registered investment companies organized under the laws of 15
this state and registered under the Investment Company Act of 1940; 16
7. Any property or facility which has been certified as a fluidized bed 17
energy production facility as defined in KRS 211.390; 18
8. An alcohol production facility as defined in KRS 247.910; 19
9. Real estate investment trusts as defined in Section 856 of the Internal 20
Revenue Code; 21
10. Regulated investment companies as defined in Section 851 of the 22
Internal Revenue Code; 23
11. Real estate mortgage investment conduits as defined in Section 860D of 24
the Internal Revenue Code; 25
12. Personal service corporations as defined in Section 269A(b)(1) of the 26
Internal Revenue Code; 27 UNOFFICIAL COPY 25 RS BR 1959
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13. Cooperatives described in Sections 521 and 1381 of the Internal 1
Revenue Code, including farmers' agricultural and other cooperatives 2
organized or recognized under KRS Chapter 272, advertising 3
cooperatives, purchasing cooperatives, homeowners associations 4
including those described in Section 528 of the Internal Revenue Code, 5
political organizations as defined in Section 527 of the Internal Revenue 6
Code, and rural electric and rural telephone cooperatives; or 7
14. Publicly traded partnerships as defined by Section 7704(b) of the 8
Internal Revenue Code that are treated as partnerships for federal tax 9
purposes under Section 7704(c) of the Internal Revenue Code, or their 10
publicly traded partnership affiliates. "Publicly traded partnership 11
affiliates" shall include any limited liability company or limited 12
partnership for which at least eighty percent (80%) of the limited 13
liability company member interests or limited partner interests are 14
owned directly or indirectly by the publicly traded partnership. 15
(7) (a) As used in this subsection, "qualified exempt organization" means an entity 16
listed in subsection (6)(a) and (b) of this section and shall not include any 17
entity whose exempt status has been disallowed by the Internal Revenue 18
Service. 19
(b) Notwithstanding any other provisions of this section, any limited liability 20
pass-through entity that is owned in whole or in part by a qualified exempt 21
organization shall, in calculating its Kentucky gross receipts or Kentucky 22
gross profits, exclude the proportionate share of its Kentucky gross receipts or 23
Kentucky gross profits attributable to the ownership interest of the qualified 24
exempt organization. 25
(c) Any limited liability pass-through entity that reduces Kentucky gross receipts 26
or Kentucky gross profits in accordance with paragraph (b) of this subsection 27 UNOFFICIAL COPY 25 RS BR 1959
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shall disregard the ownership interest of the qualified exempt organization in 1
determining the amount of credit available under subsection (3) of this 2
section. 3
(d) The Department of Revenue may promulgate an administrative regulation to 4
further define "qualified exempt organization" to include an entity for which 5
exemption is constitutionally or legally required, or to exclude any entity 6
created primarily for tax avoidance purposes with no legitimate business 7
purpose. 8
(8) The credit permitted by subsection (3) of this section shall flow through multiple 9
layers of limited liability pass-through entities and shall be claimed by the taxpayer 10
who ultimately pays the tax on the income of the limited liability pass-through 11
entity. 12