Welcome to our handy guide on Kentucky sales tax. We'll walk you through everything you need to know, from the specific sales tax rates in different counties and cities across Kentucky to answering some of the most common questions. Plus, we'll guide you on how to efficiently collect and file your sales tax in Kentucky.
Sales Tax Rate
What Creates Sales Tax Nexus in Kentucky?Nexus is all about having a significant presence or connection in a state, and in Kentucky, there are several ways your business can establish this link. Let’s dive into each type:
Physical Nexus in KentuckyPhysical nexus happens when your business has a real, physical connection to Kentucky, like:
Economic Nexus in KentuckyEconomic nexus is all about your sales figures. Even without a physical presence in Kentucky, you can establish nexus by:
Affiliate Nexus in KentuckyAffiliate nexus comes into play if your business is linked to another company in Kentucky that helps you make sales in the state. This could be through shared ownership, management, or a parent-subsidiary relationship. If this sounds like your business, you might need to collect sales tax in Kentucky because of affiliate nexus.
Click-Through Nexus in KentuckyClick-through nexus happens through online referrals. If you have an agreement with a Kentucky-based entity (like an affiliate marketer) that sends customers to you via a website link, and you have:
Marketplace Nexus in KentuckyMarketplace nexus is for platforms like Amazon, eBay, or Etsy that facilitate sales for other sellers. If these platforms meet the economic nexus thresholds ($100,000 in sales or 200 transactions), they're required to collect and remit sales tax on behalf of their sellers.
Stud fees for thoroughbred horses are tax-free. It’s Kentucky’s way of saying, “Run, horsey, run, tax-free!”
How to Register for Sales Tax in KentuckyYou'll need to fill out an online application via the Kentucky Department of Revenue's One Stop Business Portal. This handy portal simplifies the registration process, making it a one-stop-shop for your business to get all set up with the necessary state agencies, including the Department of Revenue. Here's what you'll need to provide during registration:
Cost of Registering for a Kentucky Sales Tax LicenseHere's some great news: registering for a Kentucky sales tax license is completely free! But keep in mind, depending on your business type, there might be other licensing fees or requirements, so be sure to look into all the rules during your registration process.
Do You Need an EIN to Register?Absolutely! You'll need a Federal Tax ID Number or EIN to register for your Kentucky sales tax license. This special number is given out by the IRS and is your business's unique identifier. If you don’t have one yet, you can easily apply for one on the IRS website.
Other Kentucky Agencies You Might Need to Register WithAlong with registering for a sales tax license, you might need to get in touch with other state agencies, depending on what your business does. Here are a few you might need to know about:
Is Kentucky an Origin or Destination Sales Tax State?Kentucky is a destination-based sales tax state. This means you'll collect sales tax based on where your customer receives the goods or services. For businesses located in Kentucky, this is the rate at your customer's location. For remote sellers, it's all about where the product is delivered or the service is performed.
What Sales are Subject to Sales Tax in Kentucky?In Kentucky, you'll generally be collecting sales tax on:
Is Software as a Service (SaaS) Taxed?Yes, indeed! In Kentucky, SaaS is taxed as if it's tangible personal property. So, you'll need to collect sales tax on the full price, including any extra charges for setup, customization, or related services.
What's Exempt from Kentucky Sales Tax?While many items are taxable, Kentucky also has some sales tax exemptions, like:
Who's Eligible for Kentucky Sales Tax Exemptions?To qualify for an exemption, buyers need to be specific types of organizations or individuals, such as:
Handling Tax-Exempt CustomersGot a customer who's exempt from sales tax in Kentucky? You'll need to grab a valid exemption certificate from them, complete with their name, address, tax ID or exemption number, a description of what they're buying, the reason for the exemption, and their signature with the date. Keep this certificate for at least four years, just in case there's an audit.
Lost an Exemption Certificate?If an exemption certificate goes missing, ask your customer for a new one. Without a valid certificate, you might have to cover any uncollected sales tax.
Coal sold to power plants is exempt from taxes. Kentucky certainly keeps its energy industry fired up.
When to File and Pay Sales Tax in KentuckyYour filing schedule in Kentucky is set by your average monthly tax liability, as determined by the Kentucky Department of Revenue. Here's how it breaks down:
Weekend or Holiday Due DatesIf your Kentucky sales tax filing date lands on a weekend or holiday, fear not! The due date shifts to the next business day. It's a good idea to submit your return and payment early when a due date is close to a weekend or holiday to avoid any late fees.
How to File a Kentucky Sales Tax ReturnFiling your Kentucky sales tax return is a crucial step in your business's tax journey. Here's a simple guide to keep you on track:
Kentucky Sales Tax PenaltiesTo steer clear of penalties, be aware of these common pitfalls:
Kentucky's Sales Tax IncentivesKentucky offers some great sales tax incentives, such as:
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