KRS 136.540 — Calculation of payroll factor

(1) The payroll factor is a fraction the numerator of which is the total amount paid in
this Commonwealth during the taxable year by the financial institution for
compensation and the denominator of which is the total compensation paid both
within and without this Commonwealth during the taxable year.
(2) The compensation of any employee for services or activities which are not
connected with business activities and payments made to any independent
contractor or any other person not properly classifiable as an employee shall be
excluded from both the numerator and denominator of the factor.
(3) Compensation is paid in this Commonwealth if any one of the following tests is
met:
(a) The employee's services are performed entirely within this Commonwealth.
(b) The e mployee's services are performed both within and without the
Commonwealth, but the service performed without the Commonwealth is
incidental to the employee's service within the Commonwealth. The term
"incidental" means any service which is temporary or tra nsitory in nature, or
which is rendered in connection with an isolated transaction.
(c) If the employee's services are performed both within and without this
Commonwealth, the employee's compensation will be attributed to this
Commonwealth if:
1. The emplo yee's principal base of operations is within this
Commonwealth;
2. There is no principal base of operations in any state in which some part
of the services are performed, but the place from which the services are
directed or controlled is in this Commonwealth; or
3. The principal base of operations and the place from which the services
are directed or controlled are not in any state in which some part of the
service is performed but the employee's residence is in this
Commonwealth.