Corporation Income Tax and Limited Liability Entity Tax (LLET)
KRS 141.010(24)(a) defines a “corporation” to mean a corporation as defined by Section 7701(a)(3) of the Internal Revenue Code, except a corporation which elects S corporation treatment for federal income tax purposes in accordance with Sections 1361(a) and 1361(b) of the Internal Revenue Code. An S corporation is classified as a pass-through entity as provided by KRS 141.010(26).
KRS 141.010(28) provides that a “limited liability pass-through entity” means any pass-through entity that affords any of its partners, members, shareholders, or owners, through function of the laws of this state or laws recognized by this state, protection from general liability for actions of the entity.
KRS 141.040(1) provides that every corporation doing business in this state, except those corporations specifically exempted by KRS 141.040(1)(a) through (i), shall pay each taxable year a tax on taxable income. For taxable years beginning on or after January 1, 2007, the following rates shall apply: (a) 4 percent of the first $50,000 of taxable income; (2) 5 percent of the next $50,000 of taxable income; and (3) 6 percent of the taxable income over $100,000.
KRS 141.0401 provides that for taxable years beginning on or after January 1, 2007, an annual limited liability entity tax (LLET) shall be paid by every corporation and every limited liability pass-through entity doing business in Kentucky. The LLET is the lesser of $0.095 per $100 of the Kentucky gross receipts; or $0.75 per $100 of the Kentucky gross profits of a corporation or limited liability pass-through entity. A small business exclusion is provided if a corporation’s or limited liability pass-through entity’s gross receipts or gross profits from all sources are $3 million or less; and a partial exclusion is provided if its gross receipts or gross profits from all sources are greater than $3 million but less than $6 million. The tax is a minimum of $175, regardless of the application of the small business exclusion.
KRS 141.0401(2)(c) provides that a credit based on the LLET shall be allowed against the LLET of a corporation or limited liability pass-through entity that is a partner or member of a limited liability pass-through entity. The credit shall be the partner’s or member’s proportionate share of the LLET of the limited liability pass-through entity, after the LLET is reduced by the minimum tax of $175 and by any other credits. The credit shall apply across multiple layers of a multi-layered pass-through entity structures.
KRS 141.0401(3)(a) provides that a credit allowed a corporation subject to the tax imposed by KRS 141.040 shall be equal to its LLET after the LLET is reduced by the minimum tax of $175 and by any other credits. The LLET credit allowed a corporation shall be applied to its corporation income tax. Any remaining credit from the corporation shall be disallowed.
KRS 141.0401(3)(b) provides a credit against the income tax provided by KRS 141.020 or KRS 141.040 of a partner, member, or shareholder of a limited liability pass-through entity. The credit shall be the partner’s, member’s or shareholder’s proportionate share of the LLET of the limited liability pass-through entity, after the LLET is reduced by the minimum tax of $175 and by any other credits. The credit shall apply across multiple layers of a multi-layered pass-through entity structures. The credit allowed a member, partner, or shareholder of a limited liability pass-through entity shall be limited to the income tax assessed on the distributive share income from the limited liability pass-through entity. Any remaining credit from the limited liability pass-through entity shall be disallowed.