This month we travel to the Bluegrass State of Kentucky. The nickname is based on the bluegrass found in many of its pastures due to its fertile soil. The state’s largest city, Louisville, is home to the Kentucky Derby, the renowned horse race held at Churchill Downs on the first Saturday in May.
The Red River Gorge is a canyon system on the Red River in east-central Kentucky. Geologically, it is part of the Pottsville Escarpment, a resistant sandstone belt of cliffs and steep sided, narrow crested valleys. The prevalence of sandstone allowed the Red River to cut a magnificent gorge through the mountains. It is a rock climber’s paradise and is some of the best natural area around!
Kentucky is a land with diverse environments and abundant resources, including the world’s longest cave system, Mammoth Cave National Park, the longest of navigable waterways and streams in the contiguous United States, and the two largest man-made lakes east of the Mississippi River.
Kentucky is also known for horse racing, bourbon distilleries, moonshine, coal, the historic site ‘My Old Kentucky Home’, automobile manufacturing, tobacco, bluegrass music, college basketball, and of course Kentucky Fried Chicken- that we all know and love.
Business Climate
Early in its history, Kentucky gained recognition for its excellent farming conditions. It was the site of the first commercial winery in the United States (started in present-day Jessamine County in 1799) and due to the high calcium content of the soil in the Bluegrass Region, it quickly became a major horse breeding (and later racing) area. Today Kentucky ranks 5th nationally in goat farming, 8th in beef cattle production, and 14th in corn production. Kentucky has also been a long-standing major center of the tobacco industry- both as a center of business and tobacco farming.
Today, Kentucky’s economy has expanded to nonagricultural areas as well, especially in auto manufacturing, energy and fuel production, and medical facilities. Kentucky ranks 4th among U.S. states in the number of automobiles and trucks assembled. Several vehicles ranging from the Chevrolet Corvette to the Ford Exhibition are assembled in the state.
As of 2010, 24% of electricity produced in the U.S. depended on either enriched uranium rods coming from the Paducah Gaseous Diffusion Plant (the only domestic site of low grade uranium enrichment), or from the 107,336 tons of coal extracted from the state’s two coal fields (which combined produce 4% of the electricity in the United States).
Kentucky produces 95% of the world’s supply of bourbon whiskey, and the number of barrels of bourbon being aged in Kentucky (more than 5.7 million) exceeds the state’s population. Bourbon has been a growing market- with production of Kentucky bourbon rising 170% between 1999 and 2015.
Kentucky exports reached a record $22.1 billion in 2012, with products and services going to 199 countries. Some products that the state exports include motor vehicles and parts, pharmaceuticals and medicines, resin, rubber, fibers, filaments and basic chemicals.
Tax Climate
There are six income tax brackets, ranging from 2% to 6% of personal income. The top corporate income tax rate is also 6%. The state sales tax rate in Kentucky is 6%. As a comparison, California’s state sales tax rate is 7.25%, plus municipal taxes often at 1-2%.
Other taxes that are of interest to consumers are the gasoline tax and cigarette tax. Kentucky’s gasoline tax is $0.26 per gallon and ranks 31st in the nation. The state cigarette tax rate per 20-pack is $0.60, which ranks 42nd in the nation.
Kentucky has a broadly based classified property tax system. All classes of property, unless exempted by the constitution, are taxed by the state, at widely varying rates. Many of these classes are exempted from taxation by local governments. Once the primary source of state and local government revenue, property taxes now only account for only about 6% of Kentucky’s annual General Fund revenues.
Kentucky is moderate in its approach to taxation of technology products for sales tax purposes. Digital books, audio works, magazines and newspapers are subject to sales tax in Kentucky. However, digital audio visual works are exempt from sales tax. Prewritten computer software that is downloaded electronically is taxable while custom computer software that is downloaded electronically is exempt from tax. Software-as-a-Service is also exempt from taxation. How products are produced, sold and delivered is critical to determining its tax status.
Tax Incentives and Credits
Businesses in Kentucky, and those considering moving to Kentucky, may be able to take advantage of several tax credits. Some of these include:
Kentucky Business Investment (KBI) Program- This program provides income tax credits to new and existing agribusinesses, regional and national headquarters, manufacturing companies, and non-retail service or technology related companies that locate or expand operations in Kentucky. Projects locating in certain counties may qualify for enhanced incentives. More information on this program can be found here.
Kentucky Reinvestment Act (KRA)- This act provides tax credits to an existing Kentucky company engaged in manufacturing and related functions on a permanent basis for a reasonable period of time that will be investing in eligible equipment and related costs of at least $2,500,000. For more information on this act, click here.
Kentucky Enterprise Fund- The Kentucky Enterprise Fund provides seed-stage capital to Kentucky based companies that are commercializing a technology-based product or process. The funds exist to stimulate private investment in Kentucky-based technology companies with high growth potential. The Kentucky Science and Technology Corporation administers the funds under contract with the Council on Postsecondary Education. For more information on this fund, click here.
Kentucky has an interesting myriad business and tax opportunities that may interest you. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Kentucky or other states, we can help you navigate the complex tax structures arising from your multistate operations. Call us to help you achieve the best tax efficiencies.
Random Facts
- Chevrolet Corvettes are manufactured in Bowling Green, which is the site of the Corvette Museum.
- The town of Murray is home to the Boy Scouts of America Scouting Museum located on the campus of Murray State University.
- Teacher Mary S. Wilson held the first observance of Mother’s Day in Henderson in 1887. It was made a national holiday in 1916.
- Lake Cumberland is the largest artificial American Lake east of the Mississippi River by volume.
- Kentucky has a non-contiguous part known as Kentucky Bend, at the far west corner of the state. It exists as an exclave surrounded completely by Missouri and Tennessee, and is included in the boundaries of Fulton County.
