KRS 141.0401 — Limited liability entity tax -- Exemptions -- Rate

(1) As used in this section:
(a) "Kentucky gross receipts" means an amount equal to the computation of the
numerator of the apportionment fraction under KRS 141.120, any
administrative regulations related to the computation of the sales factor, and
KRS 141.121 and includes the proportionate share of Kentucky gross receipts
of all wholly or partially owned limited liability pass -through entities,
including all layers of a multi-layered pass-through structure;
(b) "Gross receipts from all sources" means an amount equal to the computation
of the denominator of the apportionment fraction under KRS 141.120, any
administrative regulations related to the computation of the sales factor, and
KRS 141.121 and includes the proportionate share of gross receipts from all
sources of all wholly or partially owned limited liability pass -through entities,
including all layers of a multi-layered pass-through structure;
(c) "Affiliated group" has the same meaning as in KRS 141.201;
(d) "Cost of goods sold" means:
1. Amounts that are:
a. Allowable as cost of goods sold pursuant to the Internal Revenue
Code and any guidelines issued by the Internal Revenue Service
relating to cost of goods sold, unless modified by this paragraph;
and
b. Incurred in acquiring or producing the tangible product generating
the Kentucky gross receipts.
2. For manufacturing, producing, reselling, retailing, or wholesaling
activities, cost of goods sold shall only include costs directly incurred in
acquiring or producing the tangible product. In determining c ost of
goods sold:
a. Labor costs shall be limited to direct labor costs as defined in
paragraph (f) of this subsection;
b. Bulk delivery costs as defined in paragraph (g) of this subsection
may be included; and
c. Costs allowable under Section 263A of the Internal Revenue Code
may be included only to the extent the costs are incurred in
acquiring or producing the tangible product generating the
Kentucky gross receipts. Notwithstanding the foregoing, indirect
labor costs allowable under Section 263A shall not be included;
3. For any activity other than manufacturing, producing, reselling, retailing,
or wholesaling, no costs shall be included in cost of goods sold.
As used in this paragraph, "guidelines issued by the Internal Revenue Service"
includes regulations, private letter rulings, or any other guidance issued by the
Internal Revenue Service that may be relied upon by taxpayers under reliance
standards established by the Internal Revenue Service;
(e) 1. "Kentucky gross profits" means Kentucky gross receipts reduced by
returns and allowances attributable to Kentucky gross receipts, less the
cost of goods sold attributable to Kentucky gross receipts. If the amount
of returns and allowances attributable to Kentucky gross receipts and the
cost of goods sold attributable to Kentucky gross receipts is zero, then
"Kentucky gross profits" means Kentucky gross receipts; and
2. "Gross profits from all sources" means gross receipts from all sources
reduced by returns and allowances attributable to gross receipts from all
sources, less the cost of goods sold attributable to gross receipts from all
sources. If the amount of returns and allowances attributable to gross
receipts from all sources and the cost of goods sold attributable to gross
receipts from all sources is zero, then gross profits from all sources
means gross receipts from all sources;
(f) "Direct labor" means labor that is incorporated into the tangible product s old
or is an integral part of the manufacturing process;
(g) "Bulk delivery costs" means the cost of delivering the product to the consumer
if:
1. The tangible product is delivered in bulk and requires specialized
equipment that generally precludes commercial shipping; and
2. The tangible product is taxable under KRS 138.220;
(h) "Manufacturing" and "producing" means:
1. Manufacturing, producing, constructing, or assembling components to
produce a significantly different or enhanced end tangible product;
2. Mining or severing natural resources from the earth; or
3. Growing or raising agricultural or horticultural products or animals;
(i) "Real property" means land and anything growing on, attached to, or erected
on it, excluding anything that may be severed without injury to the land;
(j) "Reselling," "retailing," and "wholesaling" mean the sale of a tangible
product;
(k) "Tangible personal property" means property, other than real property, that has
physical form and characteristics; and
(l) "Tangible product" means real property and tangible personal property;
(2) (a) For taxable years beginning on or after January 1, 2007, an annual limited
liability entity tax shall be paid by every corporation and every limited liability
pass-through entity doing business in Kentucky on all Kentucky gross receipts
or Kentucky gross profits except as provided in this subsection. A small
business exclusion from this tax shall be provided based on the reduction
contained in this subsection. The tax shall be the greater of the amount
computed under paragraph (b) of this subsection or one hundred seventy -five
dollars ($175), regardless of the application of any tax credits provided under
this chapter or any other provisions of the Kentucky Revised Statutes for
which the business entity may qualify.
(b) The limited liability entity tax shall be the lesser of subparagraph 1. or 2. of
this paragraph:
1. a. If the corporation's or limited liability pass -through entity's gross
receipts from all sources are three million dollars ($3,00 0,000) or
less, the limited liability entity tax shall be one hundred seventy -
five dollars ($175);
b. If the corporation's or limited liability pass -through entity's gross
receipts from all sources are greater than three million dollars
($3,000,000) but le ss than six million dollars ($6,000,000), the
limited liability entity tax shall be nine and one-half cents ($0.095)
per one hundred dollars ($100) of the corporation's or limited
liability pass-through entity's Kentucky gross receipts reduced by
an amount equal to two thousand eight hundred fifty dollars
($2,850) multiplied by a fraction, the numerator of which is six
million dollars ($6,000,000) less the amount of the corporation's or
limited liability pass -through entity's Kentucky gross receipts for
the taxable year, and the denominator of which is three million
dollars ($3,000,000), but in no case shall the result be less than one
hundred seventy-five dollars ($175);
c. If the corporation's or limited liability pass -through entity's gross
receipts from all sources are equal to or greater than six million
dollars ($6,000,000), the limited liability entity tax shall be nine
and one-half cents ($0.095) per one hundred dollars ($100) of the
corporation's or limited liability pass -through entity's Kentucky
gross receipts.
2. a. If the corporation's or limited liability pass -through entity's gross
profits from all sources are three million dollars ($3,000,000) or
less, the limited liability entity tax shall be one hundred seventy -
five dollars ($175);
b. If the corporation's or limited liability pass -through entity's gross
profits from all sources are at least three million dollars
($3,000,000) but less than six million dollars ($6,000,000), the
limited liability entity tax shall be seventy -five cents ($0.75) per
one hundred dollars ($100) of the corporation's or limited liability
pass-through entity's Kentucky gross profits, reduced by an amount
equal to twenty -two thousand five hundred dollars ($22,500)
multiplied by a fraction, the numerator of which is six mil lion
dollars ($6,000,000) less the amount of the corporation's or limited
liability pass -through entity's Kentucky gross profits, and the
denominator of which is three million dollars ($3,000,000), but in
no case shall the result be less than one hundred s eventy-five
dollars ($175);
c. If the corporation's or limited liability pass -through entity's gross
profits from all sources are equal to or greater than six million
dollars ($6,000,000), the limited liability entity tax shall be
seventy-five cents ($0.75) per one hundred dollars ($100 ) of all of
the corporation's or limited liability pass-through entity's Kentucky
gross profits.
In determining eligibility for the reductions contained in this paragraph, a
member of an affiliated group shall consider the total gross receipts and the
total gross profits from all sources of the entire affiliated group, including
eliminating entries for transactions among the group.
(c) A credit shall be allowed against the tax imposed under paragraph (a) of this
subsection for the current year to a corpora tion or limited liability pass -
through entity that owns an interest in a limited liability pass -through entity.
The credit shall be the proportionate share of tax calculated under this
subsection by the lower -level pass -through entity, as determined after the
amount of tax calculated by the pass -through entity has been reduced by the
minimum tax of one hundred seventy -five dollars ($175). The credit shall
apply across multiple layers of a multi -layered pass-through entity structure.
The credit at each layer shall include the credit from each lower layer, after
reduction for the minimum tax of one hundred seventy -five dollars ($175) at
each layer.
(d) The department may promulgate administrative regulations to establish a
method for calculating the cost of goods sold attributable to Kentucky.
(3) A nonrefundable credit based on the tax calculated under subsection (2) of this
section shall be allowed against the tax imposed by KRS 141.020 or 141.040. The
credit amount shall be determined as follows:
(a) The credit allowed a corporation subject to the tax imposed by KRS 141.040
shall be equal to the amount of tax calculated under subsection (2) of this
section for the current year after subtraction of any credits identified in KRS
141.0205, reduced by the minimum tax of one hundred seventy -five dollars
($175), plus any credit determined in paragraph (b) of this subsection for tax
paid by wholly or partially owned limited liability pass -through entities. The
amount of credit allowed to a corporation based on the am ount of tax paid
under subsection (2) of this section for the current year shall be applied to the
income tax due from the corporation's activities in this state. Any remaining
credit from the corporation shall be disallowed.
(b) The credit allowed members , shareholders, or partners of a limited liability
pass-through entity shall be the members', shareholders', or partners'
proportionate share of the tax calculated under subsection (2) of this section
for the current year after subtraction of any credits i dentified in KRS
141.0205, as determined after the amount of tax paid has been reduced by the
minimum tax of one hundred seventy -five dollars ($175). The credit allowed
to members, shareholders, or partners of a limited liability pass -through entity
shall be applied to income tax assessed on income from the limited liability
pass-through entity. Any remaining credit from the limited liability pass -
through entity shall be disallowed.
(4) Each taxpayer subject to the tax imposed in this section shall file a r eturn, on forms
prepared by the department, on or before the fifteenth day of the fourth month
following the close of the taxpayer's taxable year. Any tax remaining due after
making the payments required in KRS 141.044 shall be paid by the original due
date of the return.
(5) The department shall prescribe forms and promulgate administrative regulations as
needed to administer the provisions of this section.
(6) The tax imposed by subsection (2) of this section shall not apply to:
(a) For taxable years beginning prior to January 1, 2021:
1. Financial institutions, as defined in KRS 136.500, except banker's banks
organized under KRS 287.135 or 286.3-135;
2. Savings and loan associations organized under the laws of this state and
under the laws of the United States and making loans to members only;
3. Banks for cooperatives;
4. Production credit associations;
5. Insurance companies, including farmers' or other mutual hail, cyclone,
windstorm, or fire insurance companies, insurers, and reciprocal
underwriters;
6. Corporations or other entities exempt under Section 501 of the Internal
Revenue Code;
7. Religious, educational, charitable, or like corporations not organized or
conducted for pecuniary profit;
8. Corporations whose only owned or leased property located in this state
is located at the premises of a printer with which it has contracted for
printing, provided that:
a. The property consists of the final printed product, or copy from
which the printed product is produced; and
b. The corporation has no indivi duals receiving compensation in this
state as provided in KRS 141.901;
9. Public service corporations subject to tax under KRS 136.120;
10. Open-end registered investment companies organized under the laws of
this state and registered under the Investment Company Act of 1940;
11. Any property or facility which has been certified as a fluidized bed
energy production facility as defined in KRS 211.390;
12. An alcohol production facility as defined in KRS 247.910;
13. Real estate investment trusts as defined i n Section 856 of the Internal
Revenue Code;
14. Regulated investment companies as defined in Section 851 of the
Internal Revenue Code;
15. Real estate mortgage investment conduits as defined in Section 860D of
the Internal Revenue Code;
16. Personal service corporations as defined in Section 269A(b)(1) of the
Internal Revenue Code;
17. Cooperatives described in Sections 521 and 1381 of the Internal
Revenue Code, including farmers' agricultural and other cooperatives
organized or recognized un der KRS Chapter 272, advertising
cooperatives, purchasing cooperatives, homeowners associations
including those described in Section 528 of the Internal Revenue Code,
political organizations as defined in Section 527 of the Internal Revenue
Code, and rural electric and rural telephone cooperatives; or
18. Publicly traded partnerships as defined by Section 7704(b) of the
Internal Revenue Code that are treated as partnerships for federal tax
purposes under Section 7704(c) of the Internal Revenue Code, or thei r
publicly traded partnership affiliates. "Publicly traded partnership
affiliates" shall include any limited liability company or limited
partnership for which at least eighty percent (80%) of the limited
liability company member interests or limited partn er interests are
owned directly or indirectly by the publicly traded partnership; and
(b) For taxable years beginning on or after January 1, 2021:
1. Insurance companies, including farmers' or other mutual hail, cyclone,
windstorm, or fire insurance compan ies, insurers, and reciprocal
underwriters;
2. Corporations or other entities exempt under Section 501 of the Internal
Revenue Code;
3. Religious, educational, charitable, or like corporations not organized or
conducted for pecuniary profit;
4. Corporations whose only owned or leased property located in this state
is located at the premises of a printer with which it has contracted for
printing, provided that:
a. The property consists of the final printed product, or copy from
which the printed product is produced; and
b. The corporation has no individuals receiving compensation in this
state as provided in KRS 141.901;
5. Public service corporations subject to tax under KRS 136.120;
6. Open-end registered investment companies organized under the laws of
this state and registered under the Investment Company Act of 1940;
7. Any property or facility which has been certified as a fluidized bed
energy production facility as defined in KRS 211.390;
8. An alcohol production facility as defined in KRS 247.910;
9. Real estate investment trusts as defined in Section 856 of the Internal
Revenue Code;
10. Regulated investment companies as defined in Section 851 of the
Internal Revenue Code;
11. Real estate mortgage investment conduits as defined in Section 860D of
the Internal Revenue Code;
12. Personal service corporations as defined in Section 269A(b)(1) of the
Internal Revenue Code;
13. Cooperatives described in Sections 521 and 1381 of the Internal
Revenue Code, including farmers' agricultural and other cooperatives
organized or recognized under KRS Chapter 272, advertising
cooperatives, purchasing cooperatives, homeowners associations
including those described in Section 528 of the Internal Revenue Code,
political organizations as defined in Section 527 of the Intern al Revenue
Code, and rural electric and rural telephone cooperatives; or
14. Publicly traded partnerships as defined by Section 7704(b) of the
Internal Revenue Code that are treated as partnerships for federal tax
purposes under Section 7704(c) of the Inte rnal Revenue Code, or their
publicly traded partnership affiliates. "Publicly traded partnership
affiliates" shall include any limited liability company or limited
partnership for which at least eighty percent (80%) of the limited
liability company member interests or limited partner interests are
owned directly or indirectly by the publicly traded partnership.
(7) (a) As used in this subsection, "qualified exempt organization" means an entity
listed in subsection (6)(a) and (b) of this section and shall no t include any
entity whose exempt status has been disallowed by the Internal Revenue
Service.
(b) Notwithstanding any other provisions of this section, any limited liability
pass-through entity that is owned in whole or in part by a qualified exempt
organization shall, in calculating its Kentucky gross receipts or Kentucky
gross profits, exclude the proportionate share of its Kentucky gross receipts or
Kentucky gross profits attributable to the ownership interest of the qualified
exempt organization.
(c) Any limited liability pass -through entity that reduces Kentucky gross receipts
or Kentucky gross profits in accordance with paragraph (b) of this subsection
shall disregard the ownership interest of the qualified exempt organization in
determining the amount of credit available under subsection (3) of this
section.
(d) The Department of Revenue may promulgate an administrative regulation to
further define "qualified exempt organization" to include an entity for which
exemption is constitutionally or legally required, or to exclude any entity
created primarily for tax avo idance purposes with no legitimate business
purpose.
(8) The credit permitted by subsection (3) of this section shall flow through multiple
layers of limited liability pass -through entities and shall be claimed by the taxpayer
who ultimately pays the tax o n the income of the limited liability pass -through
entity.