KRS 141.389 — Nonrefundable and nontransferable distilled spirits ad valorem tax credit -- Election to waive credits -- Credit to be used only for capital improvement at licensed distiller's premises -- Refundable credit for taxpayer investing and creating jobs in area of low and moderate income -- Administrative regulations -- Annual report

(1) (a) There shall be allowed a nonrefundable and nontransferable credit to each
taxpayer paying the distilled spirits ad valorem tax as follows:
1. For taxable years beg inning on or after January 1, 2015, and before
December 31, 2015, the credit shall be equal to twenty percent (20%) of
the tax assessed under KRS 132.160 and paid under KRS 132.180 on a
timely basis;
2. For taxable years beginning on or after January 1, 20 16, and before
December 31, 2016, the credit shall be equal to forty percent (40%) of
the tax assessed under KRS 132.160 and paid under KRS 132.180 on a
timely basis;
3. For taxable years beginning on or after January 1, 2017, and before
December 31, 2017, the credit shall be equal to sixty percent (60%) of
the tax assessed under KRS 132.160 and paid under KRS 132.180 on a
timely basis;
4. For taxable years beginning on or after January 1, 2018, and before
December 31, 2018, the credit shall be equal to eig hty percent (80%) of
the tax assessed under KRS 132.160 and paid under KRS 132.180 on a
timely basis; and
5. For taxable years beginning on or after January 1, 2019, but prior to
January 1, 2024, the credit shall be equal to one hundred percent (100%)
of the tax assessed under KRS 132.160 and paid under KRS 132.180 on
a timely basis.
(b) The credit shall be applied both to the income tax imposed under KRS
141.020 or 141.040 and to the limited liability entity tax imposed under KRS
141.0401, with the ordering of the credits as provided in KRS 141.0205.
(2) (a) For purposes of this section:
1. "Accumulated amount" means the tax credits that have been
accumulated by a taxpayer under subsection (4)(a) of this section;
2. "Base reduction percentage" means the percentage by which the
taxpayer's total number of barrels of distilled spirits stored or aging in
this state as of January 1 of a taxable year does not equal or exceed the
taxpayer's total number of barrels of distilled spirits stored or aging in
this state as of January 1, 2025;
3. "Business-wide reduction" has the same meaning as in KRS 138.208;
4. "Extraordinary event" has the same meaning as in KRS 138.208; and
5. "LMI" means a low and moderate income population where the county
median family income or county median household income is less than
eighty percent (80%) of the state median fami ly income or state median
household income, respectively, as determined by using the most recent
five (5) year American Community Survey published by the United
States Census Bureau. For purposes of this section, once a county has
been identified as an LMI population, the county shall remain an LMI
population without regard to future determinations using the United
States Census Bureau data.
(b) A taxpayer may make an election regarding the distilled spirits tax credit
related to taxable years beginning on or after January 1, 2024, but prior to
January 1, 2040. The election shall be to:
1. a. Waive any accumulated amount of tax credits; and
b. Be allowed a nonrefundable and nontransferable tax credit up to
twenty-five thousand (25,000) barrels of distilled s pirits in a
bonded warehouse or premises for each taxable year. The tax
credit shall be equal to one hundred percent (100%) of the tax
assessed under KRS 132.160 and paid by the taxpayer under KRS
132.180 on a timely basis on those barrels; or
2. a. Waive all future tax credits allowed under this section; and
b. Be allowed a refundable tax credit on multiple taxes as described
in subsection (7) of this section.
(c) Any election made under this subsection shall be made on a form prescribed
by the department and shall be submitted to the department on or before the
due date of the tax return, including an extension of time to file a return under
KRS 141.170, for the taxpayer's first taxable year beginning on or after
January 1, 2024.
(d) Any election made unde r this subsection shall be binding on both the
department and the taxpayer and shall be irrevocable.
(3) The amount of distilled spirits credit allowed under subsection (1) of this section
shall be used only for capital improvements at the premises of the distiller licensed
pursuant to KRS Chapter 243. As used in this subsection, "capital improvement"
means any costs associated with:
(a) Construction, replacement, or remodeling of warehouses or facilities;
(b) Purchases of barrels and pallets used for the s torage and aging of distilled
spirits in maturing warehouses;
(c) Acquisition, construction, or installation of equipment for the use in the
manufacture, bottling, or shipment of distilled spirits;
(d) Addition or replacement of access roads or parking facilities; and
(e) Construction, replacement, or remodeling of facilities to market or promote
tourism, including but not limited to a visitor's center.
(4) The distilled spirits credit allowed under subsection (1) of this section:
(a) May be accumulated for multiple taxable years;
(b) Shall be claimed on the return of the taxpayer filed for the taxable year during
which the credits were used pursuant to subsection (3) of this section; and
(c) Shall not include:
1. Any delinquent tax paid to the Commonwealth; or
2. Any interest, fees, or penalty paid to the Commonwealth.
(5) (a) Before the distilled spirits credit allowed under subsection (1) of this section
shall be claimed on any return, the capital improvements required by
subsection (3) of this section shall be completed and specifically associated
with the credit allowed on the return.
(b) The amount of distilled spirits credit allowed shall be recaptured if the capital
improvement associated with the credit is sold or otherwise disposed of prior
to the exhaustion of the useful life of the asset for Kentucky depreciation
purposes.
(c) If the allowed credit is associated with multiple capital improvements, and not
all capital improvements are sold or otherwise disposed of, the distilled spirits
credit shall be prorated based on the cost of the capital improvement sold over
the total cost of all improvements associated with the credit.
(6) If the taxpayer is a pass -through entity, the taxpayer may apply the credits allowed
in subsection (1) or (2) of this section against the limited liability entity tax imposed
by KRS 141.0401, an d shall pass the credits through to its members, partners, or
shareholders in the same proportion as the distributive share of income or loss is
passed through.
(7) (a) For taxable years beginning on or after January 1, 2026, a taxpayer making an
election under subsection (2)(b)2. of this section is entitled to a refundable tax
credit if the taxpayer:
1. Makes a capital investment of at least twenty million dollars
($20,000,000) within an LMI; and
2. Creates ten (10) or more new jobs within an LMI.
(b) Upon certification to the department that the capital investment has been
made and the jobs have been created within an LMI, the department shall:
1. Award a refundable credit that is:
a. Equal to no more than fifty percent (50%) of the accumulated
amount;
b. Based on the sales and use tax paid on the purchase of tangible
personal property used in the capital investment within the LMI
and the withholding of tax from wages paid by the taxpayer as an
employer under KRS 141.310 from employees hired to fill the jobs
created within the LMI; and
c. Refunded over a period, the earlier of which is:
a. Fifteen (15) years; or
b. Until the amount determined in subdivision a. of this
subparagraph has been utilized through the sales and use tax
and withholding tax remitted; and
2. Reduce the taxpayer's accumulated amount by the amount refunded.
(c) 1. Any portion of the fifty percent (50%) of the accumulated amount
remaining on or after March 1, 2039, shall lapse.
2. No later than June 15, 2039, the department shall report to the Interim
Joint Committee on Appropriations and Revenue the total of the lapsing
accumulated amounts and the number of taxpayers related to the lapsing
accumulated total.
(d) 1. To qualify for the portion of the refundable credit for sales and use tax
paid under paragraph (b) of this subsection, the taxpayer shall:
a. Collect from the purchasers of tangible personal property used in
the construction, replacement, or remodeling of warehouses or
facilities all documentation relating to the payment of sales or use
tax;
b. Document sales and use tax paid directly by the taxpayer; and
c. File an application for refund of the sales or use tax paid as
reflected in the documentation collected.
2. To qualify for the portion of the refundable credit for tax withhel d from
employees, the taxpayer shall document the amount withheld and file an
application for a refund as prescribed by the department.
(e) Requests for a refund shall be filed annually and shall cover purchases made
or the amount withheld from employees d uring the immediately preceding
year. Requests for a refund shall be filed in the manner directed by the
department.
(f) Interest shall not be allowed or paid on any refund made under this section.
(g) To fulfill the requirements for a sales and use tax refund, the taxpayer shall
execute information -sharing agreements prescribed by the department with
contractors, vendors, a nd other related parties to verify construction material
costs.
(8) (a) Notwithstanding subsection (7) of this section, for taxable years beginning on
or after January 1, 2026, the taxpayer's accumulated amount shall be reduced
by the taxpayer's base reduc tion percentage, including a recapture of any
credits which have previously been refunded.
(b) If a business-wide reduction or extraordinary event occurs, any taxpayer may
apply to the secretary of the Finance and Administration Cabinet for a waiver
of the reduction in the accumulated amount.
(9) The department may promulgate an administrative regulation pursuant to KRS
Chapter 13A to implement the allowable credits under this section, require the
filing of forms designed by the department, and require spec ific information for the
evaluation of the credits taken by any taxpayer.
(10) No later than September 1, 2016, and annually thereafter, the department shall
report to the Interim Joint Committee on Appropriations and Revenue:
(a) The name of each taxpayer taking the credits permitted by subsection (1) or
(2) of this section;
(b) The amount of credits taken by that taxpayer;
(c) The type of capital improvement made for which the credit allowed under
subsection (1) of this section is claimed;
(d) Whether the credits offset tax liability or were refunded to the taxpayer;
(e) The type of tax that was refunded to the taxpayer; and
(f) The amount of tax refunded for each type of tax.