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The Ultimate Guide To Kentucky Sales Tax

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

6.00%

Local Rate?

No

Website

Kentucky Department of Revenue

Sales Threshold

$100,000

Tax Line

(502) 564-4581

Transactions Threshold

200

What is Nexus?

You'll need to collect sales tax in Kentucky if you have nexus there. There are two main ways that sellers can be tied to a state when it comes to nexus: physical, or economic.

Physical nexus means having enough tangible presence, or activity in a state to merit paying sales tax in that state.

Economic nexus means passing a states' economic threshold, for total revenue, or the number of transactions in that state.

Calculating Nexus in Kentucky

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 Kentucky

Physical nexus happens when your business has a real, physical connection to Kentucky, like:
  • An office, warehouse, or another type of physical location.
  • Employees, agents, or representatives working in the state.
  • Inventory or products stored in a Kentucky fulfillment center.
  • Participating in trade shows, conferences, or events in Kentucky.
If any of these sound like your business, you probably have physical nexus in Kentucky and need to handle sales tax for transactions in the state.

Economic Nexus in Kentucky

Economic nexus is all about your sales figures. Even without a physical presence in Kentucky, you can establish nexus by:
  • Having gross sales over $100,000, or
  • Conducting 200 or more separate transactions in Kentucky during the current or previous calendar year.
If your business hits these numbers, you've got economic nexus and need to collect and remit sales tax in Kentucky.

Affiliate Nexus in Kentucky

Affiliate 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 Kentucky

Click-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:
  • More than $10,000 in sales from these referrals over the past 12 months, and
  • Total gross sales over $100,000 in Kentucky in the last calendar year,
then you've got click-through nexus and need to collect sales tax in Kentucky.

Marketplace Nexus in Kentucky

Marketplace 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.
Did you know logo

Stud fees for thoroughbred horses are tax-free. It’s Kentucky’s way of saying, “Run, horsey, run, tax-free!”

Sales Tax Registration in Kentucky

How to Register for Sales Tax in Kentucky

You'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:
  • Your business name and address
  • Your Federal Tax ID Number (EIN)
  • A description of your products or services
  • Your estimated monthly sales tax liability
  • The date you'll start collecting Kentucky sales tax
  • Once you submit your application, the Kentucky Department of Revenue will check it out. If everything's good to go, they'll issue your sales tax license. Remember to display this license proudly at your business and keep it updated as Kentucky law requires.

Cost of Registering for a Kentucky Sales Tax License

Here'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 With

Along 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:
  • The Kentucky Secretary of State: Especially if your business is a corporation, LLC, or other formal entity.
  • The Kentucky Department of Workers' Claims: If you have employees, this is for workers' compensation insurance.
  • The Kentucky Division of Unemployment Insurance: Also for businesses with employees.

Guide to collecting sales tax in Kentucky

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:
  • Furniture, appliances, and electronics
  • Clothing and accessories
  • Computers, software, and digital goods
  • Meals at restaurants and prepared food
  • Admission to events and activities
Plus, if shipping and handling are part of a taxable sale, Kentucky says you should collect sales tax on those too.

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:
  • Groceries and prescription drugs
  • Certain manufacturing machinery and equipment
  • Sales to nonprofits and government entities
  • Educational materials and services

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:
  • Nonprofits and government entities
  • Farmers buying certain agricultural items
  • Manufacturers purchasing production machinery and equipment

Handling Tax-Exempt Customers

Got 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.
Did you know logo

Coal sold to power plants is exempt from taxes. Kentucky certainly keeps its energy industry fired up.

Steps for Filing a Kentucky Sales Tax Return

When to File and Pay Sales Tax in Kentucky

Your 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:
  • Monthly Filing: If your business racks up more than $1,200 in average monthly tax, you'll be filing and paying monthly. Your due date is the 20th of the month following the reporting period.
  • Quarterly Filing: If your average monthly tax liability is between $100 and $1,200, you're on a quarterly filing schedule. Quarterly returns are due by the 20th of the month after the quarter's end.
  • Annual Filing: If your average monthly tax is less than $100, you'll file and pay annually, with returns due by January 20th of the following year.

Weekend or Holiday Due Dates

If 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 Return

Filing 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:
  1. Prepare Your Records: Gather all your sales data for the reporting period, including total sales, taxable and exempt sales, and taxes collected.
  2. Use The Right Form: You’ll likely need to fill out the Sales and Use Tax Return (Form 51A102).
  3. Consider Online Filing: For a smoother process, register for an account on Kentucky's E-File website. It's convenient and reduces errors, automatically calculating your tax due.
  4. Complete the Form: Fill out the form with details like your business info, reporting period, gross sales, and tax collected. Don't forget to deduct any eligible credits.
  5. Submit Your Return: You can file electronically or mail a paper return. Ensure all information is accurate to avoid penalties.
  6. Make Your Payment: Pay the tax due either online or by mail. Include your tax ID and reporting period on your payment for clarity.
  7. Keep Records: Hold onto your filed returns and related documents for at least four years for audit purposes.

Kentucky Sales Tax Penalties

To steer clear of penalties, be aware of these common pitfalls:
  • Late Filing Penalty: A 2% penalty of the tax due for each 30-day period (or fraction thereof) the return is late, capped at 20%.
  • Late Payment Penalty: A 10% penalty on unpaid tax if it's not paid by the due date.
  • Interest: Charged on unpaid tax from the due date until full payment. The rate is set annually by the Kentucky Department of Revenue.

Kentucky's Sales Tax Incentives

Kentucky offers some great sales tax incentives, such as:
  • Enterprise Zone Program: Sales tax exemptions on certain materials and equipment in designated zones.
  • Kentucky Industrial Revitalization Act: Rebates on costs for rehabilitating or expanding manufacturing facilities.
  • Kentucky Investment Fund Act: Tax credits for investing in small businesses in the state.
To benefit from these incentives, make sure you meet the eligibility criteria and apply through the appropriate state agency.

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Top 5 Tips for Filing Sales Tax in Kentucky

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