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Hot Topics

Current Hot Topics for the Kentucky Department of Revenue.

New Motor Vehicle Trade-In Allowance for Motor Vehicle Usage Tax

As part of HB 440 enacted by the 2013 Kentucky General Assembly, a trade-in allowance will be allowed on new vehicles sold on or after July 1, 2014.  New vehicles purchased prior to July 1, but titled/registered after July 1, are not eligible for the trade-in allowance.

New Markets Development Program Tax Credit

During the 2014 Legislative Session, HB 445 was signed into law by the governor.  This bill included provisions that increased the credit cap for the New Markets Tax Credit from $5 million to $10 million.  The bill also added a refundable performance fee that would be required when a New Markets Tax Credit application is submitted.  The Department anticipates accepting applications for the credit beginning July 15, 2014. 

To ensure prompt and proper processing, it is suggested that the following address be used to submit New Markets Tax Credit applications:
 
Department of Revenue
Division of Corporation Tax
Station 52
501 High Street
Frankfort, KY 40601-2103
Attention:  Regina Ritchey

Clarification on Computing Costs of Goods Sold

In the September 2013 Kentucky Tax Alert, the Department released guidance regarding cost of goods sold (COGS) in computing the gross profits component of the Limited Liability Entity Tax (LLET). Subsequently, the Department developed a new schedule (Schedule COGS) to assist taxpayers in calculating Kentucky COGS for LLET purposes.

In completing the Schedule COGS, separate accounting must be utilized in order to calculate and report the amount of Kentucky COGS. However, several taxpayers and tax practitioners have recently contacted the Department to explain why separate accounting is not feasible for them or their clients. For those taxpayers, the Department provides the following additional information for assistance in completing Schedule COGS.

If separate accounting is not possible for the taxpayer, a supporting statement explaining why separate accounting cannot be used to complete Schedule COGS must be attached. In such instances, as an alternative to separate accounting, the taxpayer must then take the following four steps in filling out Schedule COGS:

1. Complete the column titled Federal Form 1125-A Cost of Goods Sold, in its entirety.

2. Complete Column B, Total Costs of Goods Sold, in its entirety. Please note that the beginning and ending inventory may be different from the amounts reported on Federal Form 1125-A because of costs excluded from the COGS calculation. For a discussion of what costs must be excluded, please see the September 2013 Kentucky Tax Alert and the instructions to Schedule COGS.

3. Multiply the Total Cost of Goods Sold in Column B by the taxpayer’s Kentucky sales factor.

4. Enter the result of step 3 on Column A, Cost of Goods Sold, Line 8.

It is critical that such taxpayers comply with these steps. For example, without the supporting statement, the Department will assume that separate accounting was possible and compliance the return on that basis.

Notice to Remote Vendors

Effective July 1, 2013, out-of-state retailers with no legal requirement to collect tax in this state, and who expect more than $100,000 in gross annual sales to Kentucky residents, must notify their Kentucky customers that use tax must be reported and paid directly to the Department of Revenue on applicable purchases in accordance with KRS 139.450. 

The notice must be readily visible and contain the information set forth as follows:

  • The retailer is not required to and does not collect Kentucky sales or use tax;
    The purchase may be subject to Kentucky use tax unless the purchase is exempt from taxation in Kentucky;
  • The purchase is not exempt merely because it is made over the Internet, by catalog, or by other remote means; and
  • The Commonwealth of Kentucky requires Kentucky purchasers to report all purchases of tangible personal property or digital property that are not taxed by the retailer and pay use tax on those purchases unless exempt under Kentucky law.  The tax may be reported and paid on the Kentucky individual income tax return or by filing a consumer use tax return with the Kentucky Department of Revenue.

The referenced forms and corresponding instructions can be found on DOR’s website at http://revenue.ky.gov/individual/usetax.htm.

For recent correspondence on this subject, click here.

Important Schedule A Information for Multistate Corporations or Pass-Through Entities

A multistate corporation or pass-through entity must use the statutory formula to apportion income unless the corporation or pass-through entity has been required or granted approval in writing by the Department of Revenue (DOR) to use an alternative method provided by KRS 141.120(9)(a).  A copy of the letter from the DOR must be attached to the return when filed.  Do not check the box on Schedule A, Apportionment and Allocation, indicating the use of an alternative allocation and apportionment formula if the corporation has not received written approval from the DOR.  

Common errors on Corporation Income and Pass Through Entity Income and Limited Liability Entity returns which may result in a delay of processing the return and/or result in the issuance of a tax bill.

Common errors on Corporation Income and Pass Through Entity Income and Limited Liability Entity returns which may result in a delay of processing the return and/or result in the issuance of a tax bill.
Forms & Schedules:

  • Submitting a Schedule CP without the form 725;
  • Submitting a Schedule LLET without the form 720, 720S, 765 or 725;
  • Submitting a return on the wrong year’s form;
  • Submitting an amended return on the wrong form;
  • Attaching the nonresident income tax withholding tax return (forms 740NP-WH and PTE-WH) to an income and limited liability entity tax return when it is a separate tax return.

Payments:

  • Not including payment with a return reflecting tax due;
  • Submitting payment with a return which doesn’t match the amount due on the return;
  • Submitting a payment without documentation or anything written on the check indicating the tax, year or account for which it is intended. The FEIN should be written on the check.
  • Submitting payments with the incorrect account number;
  • Submitting one payment for multiple liabilities, tax types or different period ends;
  • Omitting Form 41A720SL when paying with an extension;
  • Omitting Form 41A720ES when paying an estimated payment
  • Indicating the estimate payment due date instead of the tax year end on EFT payments which results in the payment being posted to the incorrect period end.
  • Failure to record the payment on the correct line when claiming declaration and extension payments.
  • EFT payments are only authorized for estimates and extensions; balance due payments should not be submitted via EFT.

Information on Returns:

  • Omitting beginning and ending dates from the return;
  • Fiscal year end filers omitting their taxable year ending date;
  • Address changes; check the box on the front page of the return to indicate a change of address so department records may be updated;
  • Omitting contact information including a phone number and/or responsible party information;
  • Omitting the business name from the form 725;

1099/W2G Reporting Information

The Kentucky Department of Revenue (DOR) is now accepting 1099Gs, 1099Ms, 1099Rs, 1099-Bs, 1099DIVs, 1099-INTs, 1099-Ks, 1099-OIDs and W2Gs electronically.  Electronic submissions can only be made via CD and are required to be in the federal format found in Pub. 1220 Rev. Proc. 2010-26.  View detailed specifications on the state defined fields.
1099 Forms are only required to be submitted to Kentucky DOR when Kentucky tax is withheld.

Letters of Good Standing

Information regarding Letters of Good Standing.

Individual Income Taxpayer Assistance

This link provides detailed information regarding taxpayer assistance in filing individual income tax.  Click here for additional information.

Employer Health Insurance Notification

Employer Health Insurance Notification [PDF - 67KB] (updated 03-21-11)

2014 Tax Interest Rate

Annual adjustment of tax interest rate set for 2014

Pursuant to KRS 131.183, the 2014 tax interest rate has been set at 4 percent .The rate charged by the Kentucky Department of Revenue on unpaid taxes is 6 percent . When interest is due on a refund, the rate shall be 2 percent.

This rate, effective Jan. 1, 2014, is based on the prime interest rate charged by Kentucky banks during the month of October 2013. A recent survey of Kentucky banks revealed that the average prime interest rate in October was 4 percent.

Official Memo regarding the 2014 Tax Interest Rate 

Additional Hot Topics

Additional Hot Topics include:

  • Military Spouses Residency Relief Act (MSRRA)
  • Military Pay Income Tax Exemption
  • Nexus Consolidated Return Guidelines

Click here for more details.

 

Last Updated 6/30/2014
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