Kentucky Sales Tax
Kentucky Sales Tax At a Glance
State rate: 6%
Maximum combined rate: 6%
Sourcing: Destination
Tax Holidays: None
Governing Body: Kentucky Department of Revenue
If you make sales in Kentucky, you may be required to collect sales tax from your customers and remit those payments to the state. Whether or not this applies to you depends on where your business is based and what you’re selling. For small businesses operating in multiple states, overlapping regulations and tax requirements make it particularly difficult to stay in tax compliance. Let’s take a closer look at what that means for sales in Kentucky.
Sales Tax Rates in Kentucky
The state sales tax rate in Kentucky is 6%, and there are no additional state taxes imposed at the county or local level. That means that no matter where your small business is located in the state, and regardless of the final destination of a shipped order, you will charge your customers the same rate. That’s a difference from many states, which often allow cities, counties, and other local tax jurisdictions to impose their own taxes that are then added onto the base state rate to arrive at the effective rate to be charged.
In other states, this can lead to a huge range of rates, and sometimes even the need for multiple registrations. Fortunately, Kentucky eliminates all of those headaches by keeping the sales tax rate, as well as the registration and filing processes, standard and centralized.
Kentucky Sales Tax Nexus Requirements
You only have to collect sales tax from your Kentucky customers if you have a significant business presence, or nexus, there. According to the Kentucky Department of Revenue, that condition is triggered by:
- Owning or leasing tangible or real property that is located or used in the state
- Having an employee or other representative, including an independent contractor, present in the state performing repairs, helping to establish a marketplace, or soliciting orders
- Keeping goods stored in a warehouse in Kentucky
- Performing services in the state
- Authorizing computer software used by a third party in the state
- Participating for 15 days or more per year in festivals, trade shows or craft shows in Kentucky
- Relying on the services of a Kentucky-based financial institution, telecommunications system, radio or television station, cable television station or print media to solicit orders on a regular or systematic basis
If you use fulfillment by Amazon, it’s important to note that Amazon does have multiple fulfillment centers in Kentucky. Even if you sell remotely and have no other connection to the state, the presence of your product in one of those warehouses will trigger a nexus condition for you, requiring you to register for and collect sales tax on all of your sales to customers in Kentucky.
Additionally, Kentucky has an economic nexus tax law that requires all remote retailers that make 200 or more sales or that have $100,000 or more in gross receipts each year to register and collect sales tax in Kentucky. Kentucky is a member of the Streamlined Sales Tax Governing Board (SSUTA), so you can register as part of this program in Kentucky and other member states.
What’s Taxable?
In Kentucky, most sales of tangible personal property are subject to sales tax. Some services are as well, although the majority are not. Examples of taxable services include sewer services, communication services, and services involved in the transmission and distribution of natural gas.
In addition to tangible personal property, Kentucky specifies that digital property is also taxable. Some tax exemptions exist, however, and these include groceries, prescription drugs, and prescribed prosthetic devices. Shipping charges specifically are also not taxable when they are listed separately on the receipt or invoice and delivery is made by a common carrier. However, handling charges are always taxable, and so if shipping and handling are lumped together, the total is taxable as well.
If the seller makes the delivery, or if some installation service is required when delivery is made in order to complete the terms of the sale, then the shipping is also taxable, along with the handling and delivery charges. If a shipment contains both taxable and non-taxable items, handling and delivery charges for the total shipment are taxable.
Registration and Filing
Before you can collect sales tax in Kentucky, you need to register with the state and receive a sales tax permit. This can be done online at Kentucky’s Tax Payment Solution (TPS) website.
Because Kentucky is a member of the Streamlined Sales Tax program, you can also register to collect sales tax in the state through their website. Registering with the SSUTA will allow you to register in multiple member states at once. If you make sales in multiple states or you anticipate expanding your small business sometime soon, this may work out well for you. However, if you’re only interested in doing business in Kentucky at this time, you may wish to simply register with the state.
There is no fee to register, and it typically takes two to three weeks to process an application. When you’re approved and your permit is issued, you’ll also be assigned a filing frequency by the state based on your projected total monthly tax liability. This filing frequency is reevaluated annually at the end of the fiscal year on June 30, and it may be adjusted up or down based on your previous year’s sales. The options for filing are:
- Monthly – you will likely be assigned this frequency if your total monthly tax liability is more than $1,200
- Quarterly – you will likely be assigned this frequency if your total monthly tax liability is between $125 and $1,200
- Annually – you will likely be assigned this frequency if your total monthly tax liability is less than $125
Companies with over $10,000 in average monthly tax liability will have to file monthly as well as pre-pay an estimated portion of the tax that will be due. You can file online or through the mail, and payments are due at the same time as returns. As compensation for reporting and paying your sales tax, you may keep 1.75% of the first $1,000 in taxes owed, and 1.5% of any amount above that.
Due Dates and Penalties
Kentucky sales tax returns and payments are due on the 20th day of the month following the close of the period for which the tax is owed. If this falls on a weekend or a holiday, returns will be considered timely if completed online or postmarked by the next business day.
Monthly Due Dates
| Period | Due Date |
|---|---|
| January | February 20 |
| February | March 20 |
| March | April 20 |
| April | May 20 |
| May | June 20 |
| June | July 20 |
| July | August 20 |
| August | September 20 |
| September | October 20 |
| October | November 20 |
| November | December 20 |
| December | January 20 |
Quarterly Due Dates
| Period | Due Date |
|---|---|
| January – March (Q1) | April 20 |
| April – June (Q2) | July 20 |
| July – September (Q3) | October 20 |
| October – December (Q4) | January 20 |
If you’re filing annually, your returns will be due on January 20th of the following year.
A late sales tax payment will incur a penalty of 2% of the total tax due for every 30-day period or fraction of a period that it remains delinquent. There is a minimum penalty of $10 and a maximum of 20% of the total tax due. Late filing will also incur a minimum fine of $100 on its own, and that includes a failure to file a zero return when you have an active Kentucky sales tax permit but made no taxable sales during the period in question.
Resources
- Kentucky Sales Tax Facts Archive
- Kentucky Department of Revenue Sales and Use Tax Overview
- Kentucky Sales and Use Tax FAQs
Kentucky Sales Tax Software
Even with the simplification of having only one sales tax rate to deal with in Kentucky, tracking your taxable sales to customers within the state, as well as elsewhere, can be a challenge. With slightly different regulations in every state and the possibility that any of the myriad regulations in effect could change at any time, staying in tax compliance can be a full-time job. You don’t want keeping track of sales tax collection and payments to be an impediment to growing your business, however, so it’s great to be able to take advantage of a tax calculator software program like TaxTools.
By centralizing all of your sales tax records and filing, TaxTools enables you to significantly streamline your tracking and reporting processes. It organizes data by location as well as selling period, and it keeps track of due dates so that you don’t have to worry about your returns being late. It also periodically checks for tax changes to rates or other particulars of each state’s tax code that may impact your business, and TaxTools integrates smoothly with all eCommerce platforms.
So, if you’re ready to see how TaxTools can change the way you do business for the better, sign up for a free trial today.
Last Updated March 2024