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 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 areas around!
Kentucky is a land with diverse environments and abundant resources, including the world’s longest cave system, Mammoth Cave National Park and the longest of navigable waterways and streams in the contiguous United States. Lush forests, mighty rivers and quaint towns blanket the landscape of the state.
The Kentucky Derby is a renowned horse race held at Churchill Downs on the first Saturday in May in Louisville. It is preceded by a 2-week festival and is celebrated in the Kentucky Derby Museum year-round.
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.
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.
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.
Tax Climate
The top individual income tax rate is 5% and the top corporate income tax rate is also 5%.
Apportionment: Kentucky taxpayers apportion income using a sales formula.
In Kentucky, receipts from services are sourced based on the destination of the service provided.
Sales Tax Structure
The state sales tax rate is 6% and there is no local sales tax structure in the state.
Generally, sales of digital products in Kentucky are taxable. Kentucky imposes sales and use tax on sales of prewritten computer software delivered electronically. Kentucky does not impose sales and use tax on sales of custom computer software delivered electronically. The state imposes sales and use tax on sales of software as a service (SaaS). How products are produced, sold and delivered is critical to determining the tax status.
Kentucky has an economic nexus law where if an out of state seller sells $100,000 in sales or makes 200 transactions into the state, sellers need to collect and remit sales tax on those transactions. This threshold applies to all transactions in the current or previous calendar year. Transactions that are included in the threshold are gross receipts from sales of tangible personal property delivered or transferred electronically into the commonwealth, digital property delivered or transferred electronically into the commonwealth and exempt sales. Excluded transactions include exempt services and taxable services. This legislation went into effect on October 1, 2018.
Marketplace providers that make or facilitate retail sales of tangible personal property, digital property, or services delivered or transferred electronically in Kentucky and meet the economic threshold of $100,000 in sales or 200 or more separate transactions must register, collect, and remit sales tax on each facilitated taxable sale. This is true regardless of whether the seller would have been required to register and collect sales tax. Marketplace providers that make their own sales must obtain two sales tax permits: one for their own sales, and one for sales facilitated for marketplace sellers. This legislation was enforced on July 1, 2019.
Many states have annual sales tax holidays, during which certain items the state wants to promote the purchase of (i.e., school supplies, emergency preparedness supplies, or energy efficient appliances) can be purchased sales tax free. Presently, Kentucky does not have any sales tax holidays.
Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Kentucky or other U.S. States, and help you navigate the complex tax structures arising from 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.
- The state is home to the Louisville Slugger baseball bat museum, where the renowned baseball bats are made.
- 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 the Kentucky Bend, at the far west corner of the state. It exists as an exclave surrounded completely by Missouri and Tennessee, but is included in the boundaries of Fulton County.
