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Taxes

Local Taxes

Occupational Taxes – Fayette County

Cities, counties and school districts may levy an occupational license tax on the net profits of businesses and/or on the salaries and wages of employees earned in the jurisdiction. Rates can vary between the two types of occupational license taxes. Occupational license taxes may be levied on businesses as either a flat rate schedule or as a percentage of apportioned net profits or gross receipts. Where both the city and county levy an occupational license tax, a credit may be given, at the option of the local governments, for the amount paid to the city against the occupational license tax of the county. (Consult local jurisdictions for further details.)

Fayette County Public School – Tax Rate 0.5% imposed on salaries, wages commissions and other compensation of individuals who are Fayette County residents for activities performed or rendered in Fayette County and on the net profits of all businesses, professions or occupations from activities conducted in Fayette County.

• Questionnaire & Initial Reporting (PDF File / 82KB)

Division of Revenue
Occupational Lexington - Fayette Urban County Government

• Questionnaire & Initial Reporting (PDF File / 163KB)

2006 Kentucky Communities Imposing an Occupational Tax (PDF File / 78KB)

Local Property Tax Rates Per $100 Valuation

State Taxes

If you are starting a new business in Kentucky, you may need to register with the Department of Revenue by completing the Kentucky Tax Registration Application.  The application is designed to allow a business to apply for or update applicable Employer’s Withholding Tax, Sales and Use Tax, Consumer’s Use Tax, as well as Corporation Income Tax.

Kentucky Revenue Cabinet

Kentucky Tax Registration Application (PDF File / 83KB) 

Instructions: (PDF File / 83KB) 

Sales and Use Tax

A state sales tax of 6.0 percent is paid by the consumer at final sale on taxable goods and services and when tangible personal property is leased or rented in Kentucky.  Local sales taxes are not levied in Kentucky. Major exemptions from the state sales tax, important to industry in Kentucky, include:  items purchased for resale; machinery for new and expanded manufacturing, raw materials, industrial supplies, tools; energy and energy producing fuels (to the extent that they exceed 3 percent of the cost of production), certified pollution control equipment; manufacturing and mining machinery sold to out of state customers; containers, packaging, wrapping materials; and, motor fuels for highway use.  Credit is given for sales taxes paid out of state if the other state grants similar credits for taxes paid in Kentucky.

• E-Filing Option
• E-Filing Registration - For New Businesses

State Property Tax

The Kentucky Constitution requires the state to tax all classes of taxable property, and state statutes allow local jurisdictions to tax only a few classes. All locally taxed property is subject to county taxes and school district taxes (either a county school district or an independent school district). Property located inside city limits may also be subject to city property taxes. Property assessments in Kentucky are at 100% fair cash value. Special local taxing jurisdictions (fire protection districts,
watershed districts and sanitation districts) levy taxes within their operating areas (usually a small portion of the community or county).

Property Tax Forms - Current Year

Withholding Taxes

Corporation Income Taxes

The 2005 Kentucky General Assembly enacted legislation that defines “Corporation” to include a C Corporation, S Corporation, Limited Partnership, Limited Liability Partnership (LLP), Limited Liability Company (LLC), Professional Limited Company (PLLC), Real Estate Investment Trust (REIT), Regulated Investment Company (RIC), Real Estate Mortgage Investment Conduit (REMIC), Financial Asset Securitization Investment Trust (FASIT), or similar entities created with limited liability for the partners, members, or shareholders. These entities are subject to the Kentucky Corporation Income Tax for periods beginning on or after January 1, 2005, regardless of how they file with the Internal Revenue Service. – Source: KY Revenue Cabinet

Kentucky corporations and foreign corporations are subject to income tax due to a “doing business” standard that includes being organized under the laws of this state; having a commercial domicile in this state; owning or leasing property in this state; having one (1) or more individuals performing services in this state; maintaining an interest in a general partnership doing business in this state; deriving income from or attributable to sources within this state, including deriving income directly or indirectly from a trust doing business in this state; or directing activities at Kentucky customers for the purpose of selling them goods or services. Exempted are banks and trust companies other than bankers’ banks, savings and loan associations, production credit associations, insurance companies, corporations exempted from federal income tax under section 501 of the U.S. Internal Revenue Code, and other nonprofit religious, educational, and charitable corporations. [KRS 141.040, (25)]

Corporations and general partnerships having business income taxable both in Kentucky and elsewhere pay Kentucky income tax on that portion of business income earned in Kentucky as determined by the state’s apportionment formula. The formula is based upon the Uniform Division of Income for Tax Purpose Act (UDITPA), which has been adopted generally by the majority of states. The Kentucky formula differs from the UDITPA formula in three (3) ways:

1. There is no throwback —sales are not recaptured to Kentucky when the sales are made to a state where the corporation has no tax liability;
2.  Certain qualified pollution control equipment owned or leased in Kentucky is excluded from the property factor; and
3. The sales factor is given fifty (50) percent of the total weight in Kentucky’s formula. (KRS 141.120, KRS 141.206)

Kentucky’s Apportionment Formula (Containing all Factors)

Note: Computed to four (4) decimal places.

Gross Income

Gross income of corporations subject to Kentucky income tax is similar to income reported for federal income tax purposes.

Excluded from Kentucky gross income is income exempt from taxation by the Kentucky Constitution and the Constitution and statutory laws of the U.S.; all dividend income; income from safe harbor leases; any amount received by a tobacco producer or quota owner from the master settlement agreement, secondary settlement fund, or commodity credit corporation; and fifty (50) percent of the gross income from any disposal of coal covered by Section 631(c) of the Internal Revenue Code, if no deduction is taken for percentage depletion; exclude any amounts received as a result of a tobacco quota buydown program; exclude the distributive share income or loss received from a corporation subject to the tax imposed by KRS 141.040; and exclude Phase II payments received by a producer of tobacco or a tobacco quota owner.

Included in Kentucky gross income is interest income from obligations of other states and their political subdivisions (bonds, notes, mortgages, etc.,), include in the gross income of lessors income tax payments made by the lessees to lessors, under the provisions of Section 110 of the IRC and exclude payments from the gross income of lessees; and income from intercorporate transactions adjusted to an arm’s length basis, when required by the Kentucky Revenue Cabinet to prevent the avoidance of taxes.

Net Income

Net income for corporations subject to Kentucky income taxes is gross income minus essentially the same deductions from gross income as allowed for federal income taxes, except for the following which are not deductible when computing Kentucky net income:

(a) income taxes paid to other states that are computed in whole or in part, by reference to gross or net income, U.S. territories or possessions, or any foreign country or its political subdivisions;

(b) any deduction directly or indirectly allocable to net income which is either exempt from taxation or otherwise not taxed by Kentucky, or the same item to be deducted more than once;

(c) certain dividends received deduction by the corporation (as defined by Sections 243, 244, 245, and 247 of the U.S. Internal Revenue Code); and

(d) amounts paid to any club, organization, or establishment that has been found by the courts or a government body to discriminate in its membership, privileges, or services on the basis of race, color, religion, national origin, or sex.

Depreciable property placed in service after December 31, 1989, is depreciated in the same way as allowed by federal depreciation rules in effect prior to September 11, 2001. Property placed in service during the 1980s is adjusted to the value used for federal income taxes, beginning in 1994. Kentucky has not adopted the thirty percent (30%) federal bonus depreciation enacted by the Job Creation and Worker Assistance Act of 2002, or the fifty (50%) bonus depreciation enacted by the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Current Year Corporation Income Tax Forms

Unemployment Insurance (U.I.)

The taxable wage base for U.I. taxes in the state is the first $8,000 of each worker’s annual wages.  An individual working 40 hours per week at the federal and state minimum wage exceeds the taxable wage within a calendar year.  U.I. tax rates for Kentucky’s employers are set annually from statutory tables of rates.  An individual employer’s contribution rate within the table is determined by its reserve account balance ratio (reserve account balance divided by taxable wages for the previous three years).  A new employer pays at a rate of 2.7 percent of the first $8,000 of wages during the first three years of operation to establish a reserve account with the state U.I. system.  Thereafter it is experience rated, with a contribution rate based on its reserve ratio.  Businesses become liable for paying state unemployment insurance taxes by paying at least $1,500 in wages in a calendar quarter, or by employing at least one (1) worker in each of twenty (20) weeks during a calendar year, or by acquiring an existing liable business.  Different rules apply for agricultural, domestic and nonprofit employment.

Federal Taxes

Selecting a Business Structure

Business Taxes

Sole Proprietorship

Partnership

Limited Liability Company

• Article One
• Article Two

LLC – One Member – Default Treatment Taxed as Sole Proprietorship – Schedule C
LLC – Multi-Member – Default Treatment Taxed as Partnership – Form 1065
LLC – Multi-Member – S-Corporation Election – Form 1120S
LLC – Multi-Member – C-Corporation Election – Form 1120

S-Corporation

C-Corporation

Other Taxes:

Self-Employment Taxes - Schedule SE (PDF File / 269KB)

Estimated Taxes - 1040 ES (PDF File / 376KB)