KRS 141.121 — Special rules for apportioning business income -- Management of a treasury function -- Passenger airlines -- Qualified air freight forwarders -- Administrative regulations regarding sourcing of receipts

(1) As used in this section:
(a) "Affiliated airline" means an airline:
1. For which a qualified air freight forwarder facilitates air transportation;
and
2. That is in the same affiliated group as a qualified air freight forwarder;
(b) "Affiliated group" has the same meaning as in KRS 141.201;
(c) "Kentucky revenue passenger miles" means the total revenue passenger miles
within the borders of Kentucky for all flight stages that either originate or
terminate in this state;
(d) "Passenger airline" means a person or corporation engaged primarily in t he
carriage by aircraft of passengers in interstate commerce;
(e) "Provider" means any corporation engaged in the business of providing:
1. Communications service as defined in KRS 136.602;
2. Cable service as defined in KRS 136.602; or
3. Internet access as defined in 47 U.S.C. sec. 151;
(f) "Qualified air freight forwarder" means a person that:
1. Is engaged primarily in the facilitation of the transportation of property
by air;
2. Does not itself operate aircraft; and
3. Is in the same affiliated group as an affiliated airline; and
(g) "Revenue passenger miles" means miles calculated in accordance with 14
C.F.R. Part 241.
(2) (a) For purposes of apportioning business income to this state for taxable years
beginning prior to January 1, 2018:
1. Passenger airlines shall determine the property, payroll, and sales factors
as follows:
a. Except as modified by this subdivision, the property factor shall be
determined as provided in KRS 141.901. Aircraft operated by a
passenger ai rline shall be included in both the numerator and
denominator of the property factor. Aircraft shall be included in
the numerator of the property factor by determining the product of:
i. The total average value of the aircraft operated by the
passenger airline; and
ii. A fraction, the numerator of which is the Kentucky revenue
passenger miles of the passenger airline for the taxable year
and the denominator of which is the total revenue passenger
miles of the passenger airline for the taxable year;
b. Except as modified by this subdivision, the payroll factor shall be
determined as provided in KRS 141.901. Compensation paid
during the tax period by a passenger airline to flight personnel
shall be included in the numerator of the payroll factor by
determining the product of:
i. The total amount paid during the taxable year to flight
personnel; and
ii. A fraction, the numerator of which is the Kentucky revenue
passenger miles of the passenger airline for the taxable year
and the denominator of which is the tota l revenue passenger
miles of the passenger airline for the taxable year; and
c. Except as modified by this subdivision, the sales factor shall be
determined as provided in KRS 141.901. Transportation
revenues shall be included in the numerator of the sales
factor by determining the product of:
i. The total transportation revenues of the passenger airline for
the taxable year; and
ii. A fraction, the numerator of which is the Kentucky revenue
passenger miles for the taxable year and the denominator of
which is the total revenue passenger miles for the taxable
year; and
2. Qualified air freight forwarders shall determine the property, payroll,
and sales factors as follows:
a. The property factor shall be determined as provided in KRS
141.901;
b. The payroll fa ctor shall be determined as provided in KRS
141.901; and
c. Except as modified by this subparagraph, the sales factor shall be
determined as provided in KRS 141.901. Freight forwarding
revenues shall be included in the numerator of the sales factor by
determining the product of:
i. The total freight forwarding revenues of the qualified air
freight forwarder for the taxable year; and
ii. A fraction, the numerator of which is miles operated in
Kentucky by the affiliated airline and the denominator of
which is the total miles operated by the affiliated airline.
(b) For purposes of apportioning income to this state for taxable years beginning
on or after January 1, 2018, except as modified by this paragraph, the
apportionment fraction shall be determined as prov ided in KRS 141.120,
except that:
1. Transportation revenues shall be determined to be in this state by
multiplying the total transportation revenues by a fraction, the numerator
of which is the Kentucky revenue passenger miles for the taxable year
and the denominator of which is the total revenue passenger miles for
the taxable year; and
2. Freight forwarding revenues shall be determined to be in this state by
multiplying the total freight forwarding revenues by a fraction, the
numerator of which is miles operated in Kentucky by the affiliated
airline and the denominator of which is the total miles operated by the
affiliated airline.
(3) For purposes of apportioning income to this state for taxable years beginning on or
after January 1, 2018, the apportionment fraction for a provider shall continue to be
calculated using a three (3) factor formula as provided in KRS 141.901.
(4) (a) A corporation may elect the allocation and apportionment methods for the
corporation's apportionable income pro vided for in paragraphs (b) and (c) of
this subsection. The election, if made, shall be irrevocable for a period of five
(5) years.
(b) All business income derived directly or indirectly from the sale of
management, distribution, or administration services to or on behalf of
regulated investment companies, as defined under the Internal Revenue Code
of 1986, as amended, including trustees, and sponsors or participants of
employee benefit plans which have accounts in a regulated investment
company, shall be apportioned to this state only to the extent that shareholders
of the investment company are domiciled in this state as follows:
1. Total apportionable income shall be multiplied by a fraction, the
numerator of which shall be Kentucky receipts from the serv ices for the
tax period and the denominator of which shall be the total receipts
everywhere from the services for the tax period;
2. For purposes of subparagraph 1. of this paragraph, Kentucky receipts
shall be determined by multiplying total receipts for the taxable year
from each separate investment company for which the services are
performed by a fraction. The numerator of the fraction shall be the
average of the number of shares owned by the investment company's
shareholders domiciled in this state at the beginning of and at the end of
the investment company's taxable year, and the denominator of the
fraction shall be the average of the number of the shares owned by the
investment company shareholders everywhere at the beginning of and at
the end of the investment company's taxable year; and
3. Nonapportionable income shall be allocated to this state as provided in
KRS 141.120.
(c) All apportionable income derived directly or indirectly from the sale of
securities brokerage services by a business which o perates within the
boundaries of any area of the Commonwealth, which on June 30, 1992, was
designated as a Kentucky Enterprise Zone, as described in KRS 154.655(2)
before that statute was renumbered in 1992, shall be apportioned to this state
only to the e xtent that customers of the securities brokerage firm are
domiciled in this state. The portion of business income apportioned to
Kentucky shall be determined by multiplying the total business income from
the sale of these services by a fraction determined in the following manner:
1. The numerator of the fraction shall be the brokerage commissions and
total margin interest paid in respect of brokerage accounts owned by
customers domiciled in Kentucky for the brokerage firm's taxable year;
2. The denominator of the fraction shall be the brokerage commissions and
total margin interest paid in respect of brokerage accounts owned by all
of the brokerage firm's customers for that year; and
3. Nonapportionable income shall be allocated to this state as provided in
KRS 141.120.
(5) Public service companies and financial organizations required by KRS 141.010 to
allocate and apportion net income shall allocate and apportion that income as
follows:
(a) Nonapportionable income shall be allocated to this state as provided in KRS
141.120;
(b) Apportionable income shall be apportioned to this state as provided by KRS
141.120. Receipts shall be determined as provided by administrative
regulations promulgated by the department; and
(c) An affiliated group required to file a co nsolidated return under KRS 141.201
that includes a public service company, a provider of communications services
or multichannel video programming services as defined in KRS 136.602, or a
financial organization shall determine the amount of receipts as pr ovided by
administrative regulations promulgated by the department.
(6) A corporation:
(a) That owns an interest in a limited liability pass-through entity; or
(b) That owns an interest in a general partnership;
shall include the proportionate share of re ceipts of the limited liability pass -through
entity or general partnership when apportioning income. The phrases "an interest in
a limited liability pass -through entity" and "an interest in a general partnership"
shall extend to each level of multiple-tiered pass-through entities.
(7) The department shall promulgate administrative regulations to detail the sourcing of
the following receipts related to financial institutions:
(a) Receipts from the lease of real property;
(b) Receipts from the lease of tangible personal property;
(c) Interest, fees, and penalties imposed in connection with loans secured by real
property;
(d) Interest, fees, and penalties imposed in connection with loans not secured by
real property;
(e) Net gains from the sale of loans;
(f) Receipts from fees, interest, and penalties charged to card holders;
(g) Net gains from the sale of credit card receivables;
(h) Card issuer's reimbursement fees;
(i) Receipts from merchant discount;
(j) Receipts from ATM fees;
(k) Receipts from loan servicing fees;
(l) Receipts from other services;
(m) Receipts from the financial institution's investment assets and activity and
trading assets and activity; and
(n) All other receipts.