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Kentucky Sales Tax Guide

By Cristina Garza

Kentucky, the Bluegrass state, is famous for many things; the Derby, the fried chicken, and of course the bourbon! Kentucky also has a dark blot on its history as it is the origin of the Happy Birthday song. No place is perfect! :) If you’re one of the many proud small business owners who call Kentucky home, you’ll want to stay in line with Kentucky's sales tax laws. We’ve got your back! We have assembled this all-in-one guide for sales tax so that you can meet the sales tax compliance requirements for a small business in Kentucky. 

After reading this guide, you will have learned:

  • How to be prepared for your call with the Kentucky Department of Revenue.
  • How to contact the Kentucky Department of Revenue.
  • When to charge sales tax in Kentucky.
  • What goods, products, and services are taxable in Kentucky.
  • When you establish a sales tax nexus with the state of Kentucky, and the nuances of various thresholds.
  • How to register for a sales tax license in Kentucky.
  • How to collect sales tax in Kentucky.
  • How to file and pay sales tax in Kentucky.

If, after reading, you still have any questions to help you determine your tax sales obligations in Kentucky and how to fulfill them, we are here for your small business bookkeeping needs! 

 

Kentucky Sales Tax Contacts

Kentucky Sales Tax Contacts

✅  Do you need to get in touch with the Kentucky Department of Revenue?

✅  Are you uncertain about whether to visit, call them, or contact them through their website?  

✅ Do you wonder what information you should have ready before you contact them?

 

If you answered “Yes” to any of these questions, please read onward, as we have just the information you need! :)

The Kentucky Department of Revenue is reachable by phone at (502) 564-5170. 

You can also shoot them a message via their website, or you could drop by one of their service centers. If you are looking for the fastest response, we suggest you give them a call instead of sending a message or visiting in person. 

When you do call the Kentucky Department of Revenue, you will want to have some information on hand. It will save time to have the following information easily accessible before you call: 

  • Taxpayer Name
  • EIN
  • Sales & Use Tax ID Number

If you are calling on behalf of an individual or a business, or having a third party call on your behalf, you must have a Kentucky Declaration of Representation form (20A100, PDF) signed before you call or else you will be wasting your time; they can only assist a third party if they have completed the necessary form. 

If you have any more questions, please feel free to contact us so we can assist you with your sales tax needs.

 

 

Kentucky Sales Tax Registration

Kentucky Sales Tax Registration

Does your business sell tangible property in Kentucky? If yes, you are going to want to register your business with the Kentucky Department of Revenue so that you can pay your sales tax fully and on time. 

This is a relatively simple process and one for which you’re about to be fully prepared. We are going to outline the steps below so you are totally ready to register for your sales tax license.

 

Here we go! Remember...

Preparation is key. 

Let’s get started!

 

 

How do I register to collect sales tax in Kentucky?

You can apply or register for a Kentucky sales tax permit by visiting the Kentucky OneStop Business Portal and following the instructions provided.

For those who for some reason require it, Kentucky also offers old school paper based form (PDF) you can print and mail in. But! This is definitely a slower option; it even says so right in the PDF. So we don’t recommend it, but wanted to make the option available in case it suits the needs of someone out there. 

 

 

What information do I need to register for a Kentucky sales tax permit?

Great question!

Before you sign up for Kentucky sales tax permit you’ll want the following information on hand:

  • Business name
  • Business entity type 
  • Description of business activities
  • Date business activities began or will begin
  • Business address and mailing address
  • Business contact information
  • Associated business entities 
  • NAICS code that best matches the business
  • Federal Employer Identification Number (FEIN)
  • List of business officers, partners, managing members, and/or trustees

Don’t forget! Preparation is key. When you have all this information ready, you can go online and register for your permit at the Kentucky OneStop Business Portal website. 

 

 

How much does it cost to register for a Kentucky sales tax permit?

In Kentucky they’re lucky, as it costs absolutely nothing to register for a sales tax permit in the state. :) 

 

 

Do I need a Federal Tax ID Number or EIN to register for a Kentucky sales tax permit?

Yes, Kentucky requires an EIN to register a sales tax account. You will most assuredly need one, but if you don’t already have one and need to get a new EIN, it’s a painless process. You can register for a Federal EIN right here :). 

 

 

Which agencies in Kentucky do I need to additionally register with?

You may need to apply to some of the following agencies: 

You’ll want to give this some thought and do a little research or investigating; since every business is unique, and there are such different rules, regulations, and laws that may apply. 

We suggest contacting the Kentucky Department of Revenue to verify which additional government agencies you may be required to register with. 

 

*****

 

Yippee!!!

You are now prepared to register for your Kentucky sales tax permit in Kentucky. 

Let’s summarize what we have covered:  

  • Have all the required information easily accessible before registering online.
  • Acquire a tax ID or EIN before registering for a Kentucky sales tax permit.
  • Register online at the Kentucky OneStop Business Portal website.
  • Look into what other agencies you may have to additionally register with.

Registering for your Kentucky sales tax permit will be stress free as long as you are fully prepared. We recommend organizing all the essential information in a folder, preferably using a system like Box.com or Dropbox (something with which we’re happy to help our customers). 

 

 

Kentucky Sales Tax FAQ

Kentucky Sales Tax FAQ 

By now, you may have already contacted the Kentucky Department of Revenue and applied for a Kentucky sales tax permit. 

Once you have a license to collect and remit sales taxes in Kentucky, you may be asking yourself two questions: 

  • When do I charge a sales tax in Kentucky?
  • What goods and services are subject to sales taxes in Kentucky? 

We are going to go over some common questions that our clients ask. We believe the answers to these questions will help you appreciate the nuances of taxable goods so you can be confident in fulfilling your tax obligations. 

Let’s start with the first question…

 

 

What goods and services are considered taxable in Kentucky?

The following items are all taxable in the state of Kentucky: 

  • The sale of tangible personal property and digital property to consumers.
  • Leases or rentals of tangible personal property and digital property to consumers.
  • Sales of admissions. 
  • Hotel and motel rentals to transients for less than 30 consecutive days.
  • Communication services. 
  • Furnishing of sewer services. 
  • Natural gas transmission and distribution services

 

The bottom line is …

Your business must pay taxes on sales of any non-exempt goods, and some taxable services.

 

*****

 

Let’s now review some of our clients’ frequently asked questions:

  • Is Kentucky an Origin or Destination sales tax State?
  • What creates a sales tax nexus in Kentucky?
  • What is the economic threshold in Kentucky?
  • Does Amazon have fulfillment centers in Kentucky?
  • Does Kentucky have a Click-Through Nexus?

To best understand your tax obligations, new businesses need to consider how they are doing business and the type of relationships they have with buyers and any third parties to their transactions. 

 Let’s discuss some questions that will help you understand the nature of your small business and the subsequent tax implications.   

 

Is Kentucky an origin or destination-based sales tax state?

Kentucky is a destination-based sales tax state, which simply means you charge sales tax based on the location of the purchaser rather than that of the seller. Kentucky makes it easy by having no additional taxes at the city or county level, keeping to just one state-wide rate

 

 

What creates a tax nexus with the state of Kentucky?  

Having nexus, also known as "sufficient business presence,” with Kentucky means your business has established a taxing connection with a state. When this happens, you are required to collect and remit sales tax in Kentucky because you created a sales tax Nexus.

Even if your business maintains its main headquarters in another state, you may still have to charge and pay sales tax to the Kentucky Department of Revenue even if you never step foot in Kentucky.   

So, how do you create a sales tax Nexus in Kentucky?

 

 

Sales Tax Nexus

 

A business establishes a nexus in Kentucky by:

  • having a business location in Kentucky;
  • having property stored in Kentucky;
  • employing any person in Kentucky;
  • contracting with a salesperson or other agent in Kentucky;
  • leasing equipment used in Kentucky;
  • performing services in Kentucky;
  • licensing the use of intangible property in Kentucky, or transporting property in Kentucky using the taxpayer’s vehicles.

Let’s talk a bit more specifically about where your goods are stored such as in the instance of an Amazon warehouse.

 

 

Does Amazon have fulfillment centers in Kentucky?

Yes, Kentucky has eleven Amazon distribution centers!   

This information is relevant for our customers who sell products on Amazon or are recognized as Amazon FBA (Fulfillment by Amazon) sellers. When Amazon stores products in one of its fulfillment centers in any state including, it triggers a sales tax requirement. 

We often use A2X + Wherestock to find out where our clients’ inventory is currently being held by Amazon across the country. This helps us determine what our clients need to do to be in compliance with all applicable state tax laws.

 

 

Does Kentucky have economic nexus?

Yes! As of October 1st, 2018, Kentucky now mandates that even businesses with no physical presence that exceed certain sales thresholds register and pay taxes in the state. 

The thresholds for remote sellers to create economic nexus in Kentucky are more than $100,000 in sales or 200 separate transactions.

 

 

Does Kentucky have click-through nexus?

No, at this time third-party or affiliate marketers needn’t worry about paying extra tax in Kentucky.

 

 

Is Kentucky a streamlined sales tax state?

Yes! Since October, 2005 Kentucky has been a full member of Streamlined Sales Tax.

If you are planning on taking advantage of the Streamlined Sales Tax as a business, it is recommended you use a Certified Service Provider though businesses may opt to register themselves without a CSP. Ultimately the aim of streamlined sales tax is to simplify payment to multiple different states of sales and use tax. It isn’t required that you utilize them, but it can significantly reduce complexity to do so, especially if your business sells in multiple states.

 

More effectively manage your tax needs by keeping this guide handy. 

You and your business can be better equipped to avoid situations like paying fines, paying back taxes that you did know you had to pay in the first place, or facing an audit by the tax authorities in Kentucky.

 

 

Collecting Sales Tax in Kentucky

Collecting Sales Tax in Kentucky

By now you know if you are a business that has established a nexus with Kentucky. So you have an understanding about whether, or when, you are required to collect sales tax. Knowing this is just half the battle! Now, we are going to help you with the next half of the battle: how to navigate the process of collecting taxes.

Let’s review some common questions our clients have asked regarding their Kentucky Sales Tax obligations. 

  • How do I collect Kentucky Sales Tax?
  • Who is eligible for Kentucky Sales Tax exemptions?
  • What should I do if my customer is exempt from sales tax in Kentucky?
  • What happens if I lose a Kentucky nontaxable transaction certificate? 

After reading this, you will be better equipped to determine when --and when not-- to collect sales tax in Kentucky.

 

 

How do I collect Kentucky sales tax?

Because Kentucky is a destination-based state, you will want to configure your Point-of-Sales software to charge tax based on the location of the purchaser. Kentucky requires that the tax be collected at the time of purchase and plainly stated in the receipt. No funny business, as it were :) 

 

 

What are the current Kentucky sales tax rates?   

Kentucky’s state-wide sales tax rate is 6% at the time of this article’s writing, with no local surtaxes heightening it beyond that. Since sales tax rates may change, we shall refer you to the Kentucky Department of Revenue page. Any future change will be reflected on that page.

It always helps to be accurate and up to date with this type of information! :) 

 

 

What is exempt from Kentucky sales tax?

Sales Tax Exemptions

 

Here is a list of exemptions: 

  • Purchases for resale
  • Medical supplies
  • Groceries 
  • Most services

 

Who are eligible for Kentucky sales tax exemptions?

At this point, you should know what products are exempt from sales tax in Kentucky. You also want to know who may be exempt. 

Under Kentucky law, the type of buyer or the way the goods will be used can qualify can buyer for a sales tax exemption. A good example of this is a merchant purchasing goods for resale, aka a wholesaler.

Other common examples of an exempt buyer may include:

  • Government agencies
  • Non-profit organizations
  • Religious groups
  • Out-of-state buyers (should their business not have nexus in their home state).

Note that a non-profit or contractor status doesn’t necessarily immediately confer tax exempt status.

 

 

What should I do if my customer is exempt from sales tax in Kentucky?

Purchasers who are tax exempt must have completed a valid exemption certificate application (PDF) and must present their completed exemption certificate (PDF example) at the time of purchase. Then the seller must hold on to this exemption certificate. Failure to do so may leave you unable to justify having made tax exempt sales.

Remember, you always want to collect and file a copy of the exempt certificate. Such certificates must be produced upon request in the event of an audit to justify tax-exempt sales.

 

 

What happens if I lose a Kentucky sales tax exemption certificate?

Avoid this outcome by keeping critical documents in a file! Should you discover you cannot produce an exemption certificate for a purchaser you failed to charge sales tax to, the business will be held liable for the tax. This is a bad scenario and can be avoided by taking proper care with your paperwork… which happens to be one of our specialties! :) 

 

 

Does Kentucky have a sales tax holiday?

No, Kentucky has no period of respite for the collection of sales tax. 

 

***** 

We have now covered who you need to collect sales taxes from, how to determine whether goods for sale are deemed taxable, what goods and services fall under tax exemptions, who is eligible for tax exemption certificates, and, finally, the process of collecting sales tax in Kentucky state. 

Now that we’re this far down the rabbit hole there’s only one thing we need to learn about next… how to pay the piper! 

 

 

Filing and Paying Sales Tax in Kentucky 

Filing and Paying Sales Tax in Kentucky

It is time to talk about filing and paying your sales taxes in Kentucky. In this section, We are going to cover the following frequently asked questions from our clients:

  • When is Kentucky Sales Tax due?
  • What are the Kentucky Sales Tax thresholds?
  • What if a Kentucky Sales Tax filing date falls on a weekend or holiday?
  • How do I file a Kentucky Sales Tax Return?
  • How do I correct a Kentucky Sales Tax return?
  • What happens if I don’t collect sales tax?
  • What happens if I file or pay my sales tax return late?
  • Do I need to file a return if I don’t collect any sales tax in Kentucky?
  • If I close my business, do I need to file a final sales tax return?
  • Does the Kentucky Department of Revenue offer a discount for filing on time?

By the time you finish reading this, you will feel confident enough to file and pay your Kentucky Sales Tax.

 

 

When is Kentucky sales tax due?

Kentucky sales tax payments are due based on the filing interval. Filing intervals are based on the company’s tax liability [detailed just ahead, do be patient! :p] 

 

Filing Interval

Due day

Annually

January 20th of the following year.

Quarterly

Q1 April 20th, Q2 July 20th, Q3 October 20th, Q4 January 20th

Monthly

The 20th of the following month

 

 

 

What are the Kentucky sales Tax filing interval thresholds?

The thresholds for filing intervals are based on the expected or actual tax liability owed:

 

Amount Monthly Tax Owed*

Filing interval

$0-$125.00

Annual 

$125.01-$1,199.99

Quarterly

$1,200-$9,999.99

Monthly

$10,000 or more

Pre-paid monthly

 

*anticipated if new business, actual if existing company

 

Not sure how to determine your tax filing frequency?

You can review your eCommerce or Point-of-Sale Software to see the volume of sales you have generated. 

Don't worry though! The state will let you know when your due dates change. :) 

Keep an eye out for notices in your mail from the State of Kentucky so that you don't miss any shift in deadlines.

 

 

What if a Kentucky sales tax filing date falls on a weekend or holiday?

The deadline is moved to the next business day, typically the Monday following the weekend or the day after the holiday. Where possible, we always suggest filing well before the holiday, of course ;). 

 

 

How do I file a Kentucky sales tax return?

Paper: Individualized forms are mailed out to businesses who prefer paper filing.

Electronic: File online via Kentucky OneStopPortal site and submit payment via EFT.

 

 

How do I correct a Kentucky sales tax return?

Paper: If you made a copy of the original you may amend that, or you can even submit the changes separately to the Kentucky Department of Revenue. 

Electronic: Amend your original return online. Click into your filing history and use the Amend return option from there.

 

 

What happens if I don’t collect sales tax?

If you were required to collect sales taxes and failed to do so for whatever reason, that’s a big no-no! Ultimately the business will be held liable for the due tax. Always be sure to collect sales tax at the point of sale. Attempting to collect after the fact will be time consuming and most likely unsuccessful. 

 

Protip: You are still responsible for remitting sales taxes even if you failed to collect them. 

 

 

What happens if I file or pay my sales tax return late?

This isn’t a problem we let our customers run into! But, for those who need to know: 

 

There is a 2% penalty for each 30 day period the amount is due but unpaid, up to a maximum of 20% of the due amount. The minimum penalty is $10 unless a jeopardy assessment has been applied in which case it is a minimum of $100. 

 

 

Do I need to file a return if I don’t collect any sales tax in Kentucky?

Yes, Kentucky requires businesses file a “Zero-Tax” return even when they have no sales during a taxing period, and will penalize a business for failure to file one.

 

 

If I close my business, do I need to file a final sales tax return?

Yes, Kentucky requires businesses to file a “Final sales tax” return when closing their doors (PDF).

 

 

Does the Kentucky Department of Revenue offer a discount for filing on time?

Yes! Kentucky will shave off 1.75% of the first $1,000 and 1.5% of what remains up to a maximum of $50 dollar per reporting period.

 

*****

 

Now that we covered all our bases for filing and paying sales taxes in the state of Kentucky, you should feel more at ease about the process.

 

Some things to remember:

  • Due dates are important. If anything, file and pay your taxes early.
  • There are three payment plans for filing and paying your sales taxes depending on how much you collect in sales tax on average in a month.
  • You can file and pay your taxes electronically or by mail
  • If you need to amend a return, you may do so electronically or by paper.
  • If you don’t collect sales tax and you were supposed to, you (not the buyer) is liable to pay the sales tax to the state of Kentucky.
  • You will have to pay late fees if you fail to file your tax return on time and/or if you fail to make your tax payment on time.
  • Even if you collect no sales tax, you still need to file a return.
  • You need to file a “Final sales tax report” when you close your business.

 

Now, you are ready to file and pay your sales tax in Kentucky. If you have any more questions, feel free to contact us.

  

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Please note: This blog is for informational purposes only and the information is accurate as of 7/23/2019. If you want legal advice on sales tax law for your business, please contact a Sales Tax professional. Keep in mind that sales tax regulations and laws are subject to change at any time. While we strive to keep our blog current, this blog possibly may be out of date by the time you review it.