KRS 141.039 — Calculation of gross income and net income for corporations

In the case of corporations:
(1) Gross income shall be calculated by adjusting federal gross income as defined in
Section 61 of the Internal Revenue Code as follows:
(a) Exclude inc ome that is exempt from state taxation by the Kentucky
Constitution and the Constitution and statutory laws of the United States;
(b) Exclude all dividend income;
(c) Include interest income derived from obligations of sister states and political
subdivisions thereof;
(d) Exclude fifty percent (50%) of gross income derived from any disposal of
coal covered by Section 631(c) of the Internal Revenue Code if the
corporation does not claim any deduction for percentage depletion, or for
expenditures attributable to the making and administering of the contract
under which such disposition occurs or to the preservation of the economic
interests retained under such contract;
(e) Include the amount calculated under KRS 141.205;
(f) Ignore the provisions of Section 28 1 of the Internal Revenue Code in
computing gross income;
(g) Include the amount of deprecation deduction calculated under 26 U.S.C. sec.
167 or 168;
(h) Allow the same treatment allowed under Pub. L. No. 116 -260, secs. 276 and
278, related to the tax trea tment of forgiven covered loans, deductions
attributable to those loans, and tax attributes associated with those loans for
taxable years ending on or after March 27, 2020, but before January 1, 2022;
and
(i) For taxable years beginning on or after January 1, 2020, but before March 11,
2023, allow the same treatment of restaurant revitalization grants in
accordance with Pub. L. No. 117 -2, sec. 9673 and 15 U.S.C. sec. 9009c,
related to the tax treatment of the g rants, deductions attributable to those
grants, and tax attributes associated with those grants; and
(2) Net income shall be calculated by subtracting from gross income:
(a) The deduction for depreciation allowed by KRS 141.0101;
(b) Any amount paid for vo uchers or similar instruments that provide health
insurance coverage to employees or their families;
(c) All the deductions from gross income allowed corporations by Chapter 1 of
the Internal Revenue Code, as modified by KRS 141.0101, except:
1. Any deduction for a state tax which is computed, in whole or in part, by
reference to gross or net income and which is paid or accrued to any
state of the United States, the District of Columbia, the Commonwealth
of Puerto Rico, any territory or possession of the United States, or to any
foreign country or political subdivision thereof;
2. The deductions contained in Sections 243, 245, and 247 of the Internal
Revenue Code;
3. The provisions of Section 281 of the Internal Revenue Code shall be
ignored in computing net income;
4. Any deduction directly or indirectly allocable to income which is either
exempt from taxation or otherwise not taxed under the provisions of this
chapter, except for deductions allowed under Pub. L. No. 116 -260, secs.
276 and 278, related to th e tax treatment of forgiven covered loans and
deductions attributable to those loans for taxable years ending on or
after March 27, 2020, but before January 1, 2022; and deductions
allowed under Pub. L. No. 117 -2, sec. 9673 and 15 U.S.C. sec. 9009c,
related to the tax treatment of restaurant revitalization grants and
deductions attributable to those grants for taxable years beginning on or
after January 1, 2020, but before March 11, 2023. Nothing in this
chapter shall be construed to permit the same item to be deducted more
than once;
5. Any deduction for amounts paid to any club, organization, or
establishment which has been determined by the courts or an agency
established by the General Assembly and charged with enforcing the
civil rights laws of the Comm onwealth, not to afford full and equal
membership and full and equal enjoyment of its goods, services,
facilities, privileges, advantages, or accommodations to any person
because of race, color, religion, national origin, or sex, except nothing
shall be construed to deny a deduction for amounts paid to any religious
or denominational club, group, or establishment or any organization
operated solely for charitable or educational purposes which restricts
membership to persons of the same religion or denominat ion in order to
promote the religious principles for which it is established and
maintained;
6. Any deduction prohibited by KRS 141.205; and
7. Any dividends -paid deduction of any captive real estate investment
trust; and
(d) 1. A deferred tax deduction in an amount computed in accordance with this
paragraph.
2. For purposes of this paragraph:
a. "Net deferred tax asset" means that deferred tax assets exceed the
deferred tax liabilities of the combined group, as computed in
accordance with accounting princi ples generally accepted in the
United States of America; and
b. "Net deferred tax liability" means deferred tax liabilities that
exceed the deferred tax assets of a combined group as defined in
KRS 141.202, as computed in accordance with accounting
principles generally accepted in the United States of America.
3. Only publicly traded companies, including affiliated corporations
participating in the filing of a publicly traded company's financial
statements prepared in accordance with accounting principles g enerally
accepted in the United States of America, as of January 1, 2019, shall be
eligible for this deduction.
4. If the provisions of KRS 141.202 result in an aggregate increase to the
member's net deferred tax liability, an aggregate decrease to the
member's net deferred tax asset, or an aggregate change from a net
deferred tax asset to a net deferred tax liability, the combined group
shall be entitled to a deduction, as determined in this paragraph.
5. For ten (10) years beginning with the combined grou p's first taxable
year beginning on or after January 1, 2026, a combined group shall be
entitled to a deduction from the combined group's entire net income
equal to one -tenth (1/10) of the amount necessary to offset the increase
in the net deferred tax lia bility, decrease in the net deferred tax asset, or
aggregate change from a net deferred tax asset to a net deferred tax
liability. The increase in the net deferred tax liability, decrease in the net
deferred tax asset, or the aggregate change from a net de ferred tax asset
to a net deferred tax liability shall be computed based on the change that
would result from the imposition of the combined reporting requirement
under KRS 141.202, but for the deduction provided under this paragraph
as of June 27, 2019.
6. The deferred tax impact determined in subparagraph 5. of this paragraph
shall be converted to the annual deferred tax deduction amount, as
follows:
a. The deferred tax impact determined in subparagraph 5. of this
paragraph shall be divided by the tax rat e determined under KRS
141.040;
b. The resulting amount shall be further divided by the
apportionment factor determined by KRS 141.120 or 141.121 that
was used by the combined group in the calculation of the deferred
tax assets and deferred tax liabilities as described in subparagraph
5. of this paragraph; and
c. The resulting amount represents the total net deferred tax
deduction available over the ten (10) year period as described in
subparagraph 5. of this paragraph.
7. The deduction calculated under thi s paragraph shall not be adjusted as a
result of any events happening subsequent to the calculation, including
but not limited to any disposition or abandonment of assets. The
deduction shall be calculated without regard to the federal tax effect and
shall not alter the tax basis of any asset. If the deduction under this
section is greater than the combined group's entire Kentucky net income,
any excess deduction shall be carried forward and applied as a deduction
to the combined group's entire net income i n future taxable years until
fully utilized.
8. Any combined group intending to claim a deduction under this
paragraph shall file a statement with the department on or before July 1,
2019. The statement shall specify the total amount of the deduction
which the combined group claims on the form, including calculations
and other information supporting the total amounts of the deduction as
required by the department. No deduction shall be allowed under this
paragraph for any taxable year, except to the extent claimed on the
timely filed statement in accordance with this paragraph.