The definitions in this section are the same as the definitions appearing in KRS § 141.010 prior to its repeal and reenactment in Section 53 of 2018 Ky. Acts chs. 171 and 207. For taxable years beginning prior to January 1, 2018, as used in this chapter, unless the context requires otherwise:
(1) “Commissioner” means the commissioner of the department; (2) “Department” means the Department of Revenue;
(3) “Internal Revenue Code” means the Internal Revenue Code in effect on December
31, 2015, exclusive of any amendments made subsequent to that date, other than amendments that extend provisions in effect on December 31, 2015, that would otherwise terminate, and as modified by KRS § 141.0101;
(4) “Dependent” means those persons defined as dependents in the Internal Revenue
Code;
(5) “Fiduciary” means “fiduciary” as defined in Section 7701(a)(6) of the Internal
Revenue Code;
(6) “Fiscal year” means “fiscal year” as defined in Section 7701(a)(24) of the Internal
Revenue Code;
(7) “Individual” means a natural person;
(8) “Modified gross income” means the greater of:
(a) Adjusted gross income as defined in Section 62 of the Internal Revenue Code of 1986, including any subsequent amendments in effect on December 31 of the taxable year, and adjusted as follows:
1. Include interest income derived from obligations of sister states and political subdivisions thereof; and
2. Include lump-sum pension distributions taxed under the special transition rules of Pub. L. No. 104-188, sec. 1401(c)(2); or
(b) Adjusted gross income as defined in subsection (10) of this section and adjusted to include lump-sum pension distributions taxed under the special transition rules of Pub. L. No. 104-188, sec. 1401(c)(2);
(9) “Gross income,” in the case of taxpayers other than corporations, means “gross income” as defined in Section 61 of the Internal Revenue Code;
(10) “Adjusted gross income,” in the case of taxpayers other than corporations, means gross income as defined in subsection (9) of this section minus the deductions allowed individuals by Section 62 of the Internal Revenue Code and as modified by KRS § 141.0101 and adjusted as follows, except that deductions shall be limited to amounts allocable to income subject to taxation under the provisions of this chapter, and except that nothing in this chapter shall be construed to permit the same item to be deducted more than once:
(a) Exclude income that is exempt from state taxation by the Kentucky Constitution and the Constitution and statutory laws of the United States and Kentucky;
(b) Exclude income from supplemental annuities provided by the Railroad Retirement Act of 1937 as amended and which are subject to federal income tax by Public Law 89-699;
(c) Include interest income derived from obligations of sister states and political subdivisions thereof;
(d) Exclude employee pension contributions picked up as provided for in KRS
6.505, 16.545, 21.360, 61.523, 61.560, 65.155, 67A.320, 67A.510, 78.610, and 161.540 upon a ruling by the Internal Revenue Service or the federal courts that these contributions shall not be included as gross income until such time as the contributions are distributed or made available to the employee;
(e) Exclude Social Security and railroad retirement benefits subject to federal income tax;
(f) Include, for taxable years ending before January 1, 1991, all overpayments of federal income tax refunded or credited for taxable years;
(g) Deduct, for taxable years ending before January 1, 1991, federal income tax paid for taxable years ending before January 1, 1990;
(h) Exclude any money received because of a settlement or judgment in a lawsuit brought against a manufacturer or distributor of “Agent Orange” for damages resulting from exposure to Agent Orange by a member or veteran of the Armed Forces of the United States or any dependent of such person who served in Vietnam;
(i) 1. For taxable years ending prior to December 31, 2005, exclude the applicable amount of total distributions from pension plans, annuity contracts, profit-sharing plans, retirement plans, or employee savings plans. The “applicable amount” shall be:
a. Twenty-five percent (25%), but not more than six thousand two hundred fifty dollars ($6,250), for taxable years beginning after December 31, 1994, and before January 1, 1996;
b. Fifty percent (50%), but not more than twelve thousand five hundred dollars ($12,500), for taxable years beginning after December 31, 1995, and before January 1, 1997;
c. Seventy-five percent (75%), but not more than eighteen thousand seven hundred fifty dollars ($18,750), for taxable years beginning after December 31, 1996, and before January 1, 1998; and
d. One hundred percent (100%), but not more than thirty-five thousand dollars ($35,000), for taxable years beginning after December 31, 1997.
2. For taxable years beginning after December 31, 2005, exclude up to forty-one thousand one hundred ten dollars ($41,110) of total distributions from pension plans, annuity contracts, profit-sharing plans, retirement plans, or employee savings plans.
3. As used in this paragraph:
a. “Distributions” includes but is not limited to any lump-sum distribution from pension or profit-sharing plans qualifying for the income tax averaging provisions of Section 402 of the Internal Revenue Code; any distribution from an individual retirement account as defined in Section 408 of the Internal Revenue Code; and any disability pension distribution;
b. “Annuity contract” has the same meaning as set forth in Section
1035 of the Internal Revenue Code; and
c. “Pension plans, profit-sharing plans, retirement plans, or employee savings plans” means any trust or other entity created or organized under a written retirement plan and forming part of a stock bonus, pension, or profit-sharing plan of a public or private employer for the exclusive benefit of employees or their beneficiaries and includes plans qualified or unqualified under Section 401 of the Internal Revenue Code and individual retirement accounts as defined in Section 408 of the Internal Revenue Code;
(j) 1. a. Exclude the portion of the distributive share of a shareholder’s net income from an S corporation subject to the franchise tax imposed under KRS § 136.505 or the capital stock tax imposed under KRS
136.300; and
b. Exclude the portion of the distributive share of a shareholder’s net income from an S corporation related to a qualified subchapter S subsidiary subject to the franchise tax imposed under KRS
136.505 or the capital stock tax imposed under KRS § 136.300.
2. The shareholder’s basis of stock held in a S corporation where the S corporation or its qualified subchapter S subsidiary is subject to the franchise tax imposed under KRS § 136.505 or the capital stock tax imposed under KRS § 136.300 shall be the same as the basis for federal income tax purposes;
(k) Exclude, to the extent not already excluded from gross income, any amounts paid for health insurance, or the value of any voucher or similar instrument used to provide health insurance, which constitutes medical care coverage for the taxpayer, the taxpayer’s spouse, and dependents, or for any person authorized to be provided excludable coverage by the taxpayer pursuant to the federal Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-
148, or the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, during the taxable year. Any amounts paid by the taxpayer for health insurance that are excluded pursuant to this paragraph shall not be allowed as a deduction in computing the taxpayer’s net income under subsection (11) of this section;
(l) Exclude income received for services performed as a precinct worker for election training or for working at election booths in state, county, and local primary, regular, or special elections;
(m) Exclude any amount paid during the taxable year for insurance for long-term
care as defined in KRS § 304.14-600;
(n) Exclude any capital gains income attributable to property taken by eminent domain;
(o) Exclude any amount received by a producer of tobacco or a tobacco quota owner from the multistate settlement with the tobacco industry, known as the Master Settlement Agreement, signed on November 22, 1998;
(p) Exclude any amount received from the secondary settlement fund, referred to as “Phase II,” established by tobacco companies to compensate tobacco farmers and quota owners for anticipated financial losses caused by the national tobacco settlement;
(q) Exclude any amount received from funds of the Commodity Credit Corporation for the Tobacco Loss Assistance Program as a result of a reduction in the quantity of tobacco quota allotted;
(r) Exclude any amount received as a result of a tobacco quota buydown program that all quota owners and growers are eligible to participate in;
(s) Exclude state Phase II payments received by a producer of tobacco or a tobacco quota owner;
(t) Exclude all income from all sources for active duty and reserve members and officers of the Armed Forces of the United States or National Guard who are killed in the line of duty, for the year during which the death occurred and the year prior to the year during which the death occurred. For the purposes of this paragraph, “all income from all sources” shall include all federal and state death benefits payable to the estate or any beneficiaries; and
(u) For taxable years beginning on or after January 1, 2010, exclude all military pay received by active duty members of the Armed Forces of the United States, members of reserve components of the Armed Forces of the United States, and members of the National Guard, including compensation for state active duty as described in KRS § 38.205;
(11) “Net income,” in the case of taxpayers other than corporations, means adjusted gross income as defined in subsection (10) of this section, minus:
(a) The deduction allowed by KRS § 141.0202 as it existed prior to January 1,
2018;
(b) Any amount paid for vouchers or similar instruments that provide health insurance coverage to employees or their families;
(c) For taxable years beginning on or after January 1, 2010, the amount of domestic production activities deduction calculated at six percent (6%) as allowed in Section 199(a)(2) of the Internal Revenue Code for taxable years beginning before 2010; and
(d) 1. All the deductions allowed individuals by Chapter 1 of the Internal
Revenue Code as modified by KRS § 141.0101 except:
a. Any deduction allowed by the Internal Revenue Code for state or foreign taxes measured by gross or net income, including state and
local general sales taxes allowed in lieu of state and local income taxes under the provisions of Section 164(b)(5) of the Internal Revenue Code;
b. Any deduction allowed by the Internal Revenue Code for amounts allowable under KRS § 140.090(1)(h) in calculating the value of the distributive shares of the estate of a decedent, unless there is filed with the income return a statement that such deduction has not been claimed under KRS § 140.090(1)(h);
c. The deduction for personal exemptions allowed under Section 151 of the Internal Revenue Code and any other deductions in lieu thereof;
d. For taxable years beginning on or after January 1, 2010, the domestic production activities deduction allowed under Section
199 of the Internal Revenue Code;
e. Any deduction for amounts paid to any club, organization, or establishment which has been determined by the courts or an agency established by the General Assembly and charged with enforcing the civil rights laws of the Commonwealth, not to afford full and equal membership and full and equal enjoyment of its goods, services, facilities, privileges, advantages, or accommodations to any person because of race, color, religion, national origin, or sex, except nothing shall be construed to deny a deduction for amounts paid to any religious or denominational club, group, or establishment or any organization operated solely for charitable or educational purposes which restricts membership to persons of the same religion or denomination in order to promote the religious principles for which it is established and maintained;
f. Any deduction directly or indirectly allocable to income which is either exempt from taxation or otherwise not taxed under this chapter;
g. The itemized deduction limitation established in 26 U.S.C. § 68 shall be determined using the applicable amount from 26 U.S.C. § 68 as it existed on December 31, 2006; and
h. A taxpayer may elect to claim the standard deduction allowed by
KRS § 141.081 instead of itemized deductions allowed pursuant to
26 U.S.C. § 63 and as modified by this section; and
2. Nothing in this chapter shall be construed to permit the same item to be deducted more than once;
(12) “Gross income,” in the case of corporations, means “gross income” as defined in Section 61 of the Internal Revenue Code and as modified by KRS § 141.0101 and adjusted as follows:
(a) Exclude income that is exempt from state taxation by the Kentucky
Constitution and the Constitution and statutory laws of the United States; (b) Exclude all dividend income received after December 31, 1969;
(c) Include interest income derived from obligations of sister states and political subdivisions thereof;
(d) Exclude fifty percent (50%) of gross income derived from any disposal of coal covered by Section 631(c) of the Internal Revenue Code if the corporation does not claim any deduction for percentage depletion, or for expenditures attributable to the making and administering of the contract under which such disposition occurs or to the preservation of the economic interests retained under such contract;
(e) Include the amount calculated under KRS § 141.205;
(f) Ignore the provisions of Section 281 of the Internal Revenue Code in computing gross income;
(g) Exclude income from “safe harbor leases” (Section 168(f)(8) of the Internal
Revenue Code);
(h) Exclude any amount received by a producer of tobacco or a tobacco quota owner from the multistate settlement with the tobacco industry, known as the Master Settlement Agreement, signed on November 22, 1998;
(i) Exclude any amount received from the secondary settlement fund, referred to as “Phase II,” established by tobacco companies to compensate tobacco farmers and quota owners for anticipated financial losses caused by the national tobacco settlement;
(j) Exclude any amount received from funds of the Commodity Credit Corporation for the Tobacco Loss Assistance Program as a result of a reduction in the quantity of tobacco quota allotted;
(k) Exclude any amount received as a result of a tobacco quota buydown program that all quota owners and growers are eligible to participate in;
(l) For taxable years beginning after December 31, 2004, and before January 1,
2007, exclude the distributive share income or loss received from a corporation defined in subsection (24)(b) of this section whose income has been subject to the tax imposed by KRS § 141.040. The exclusion provided in this paragraph shall also apply to a taxable year that begins prior to January 1,
2005, if the tax imposed by KRS § 141.040 is paid on the distributive share income by a corporation defined in subparagraphs 2. to 8. of subsection (24)(b) of this section with a return filed for a period of less than twelve (12) months that begins on or after January 1, 2005, and ends on or before December 31, 2005. This paragraph shall not be used to delay payment of the tax imposed by KRS § 141.040; and
(m) Exclude state Phase II payments received by a producer of tobacco or a tobacco quota owner;
(13) “Net income,” in the case of corporations, means “gross income” as defined in subsection (12) of this section minus:
(a) The deduction allowed by KRS § 141.0202 as it existed prior to January 1,
2018;
(b) Any amount paid for vouchers or similar instruments that provide health insurance coverage to employees or their families;
(c) For taxable years beginning on or after January 1, 2010, the amount of domestic production activities deduction calculated at six percent (6%) as allowed in Section 199(a)(2) of the Internal Revenue Code for taxable years beginning before 2010; and
(d) All the deductions from gross income allowed corporations by Chapter 1 of the Internal Revenue Code and as modified by KRS § 141.0101, except:
1. Any deduction for a state tax which is computed, in whole or in part, by reference to gross or net income and which is paid or accrued to any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, or to any foreign country or political subdivision thereof;
2. The deductions contained in Sections 243, 245, and 247 of the Internal
Revenue Code;
3. The provisions of Section 281 of the Internal Revenue Code shall be ignored in computing net income;
4. Any deduction directly or indirectly allocable to income which is either exempt from taxation or otherwise not taxed under the provisions of this chapter, and nothing in this chapter shall be construed to permit the same item to be deducted more than once;
5. Exclude expenses related to “safe harbor leases” (Section 168(f)(8) of the Internal Revenue Code);
6. Any deduction for amounts paid to any club, organization, or establishment which has been determined by the courts or an agency established by the General Assembly and charged with enforcing the civil rights laws of the Commonwealth, not to afford full and equal membership and full and equal enjoyment of its goods, services, facilities, privileges, advantages, or accommodations to any person because of race, color, religion, national origin, or sex, except nothing shall be construed to deny a deduction for amounts paid to any religious or denominational club, group, or establishment or any organization operated solely for charitable or educational purposes which restricts membership to persons of the same religion or denomination in order to promote the religious principles for which it is established and maintained;
7. Any deduction prohibited by KRS § 141.205;
8. Any dividends-paid deduction of any captive real estate investment trust;
and
9. For taxable years beginning on or after January 1, 2010, the domestic production activities deduction allowed under Section 199 of the
Internal Revenue Code;
(14) (a) “Taxable net income,” in the case of corporations that are taxable in this state, means “net income” as defined in subsection (13) of this section;
(b) “Taxable net income,” in the case of corporations that are taxable in this state and taxable in another state, means “net income” as defined in subsection (13) of this section and as allocated and apportioned under KRS § 141.901. A corporation is taxable in another state if, in any state other than Kentucky, the corporation is required to file a return for or pay a net income tax, franchise tax measured by net income, franchise tax for the privilege of doing business, or corporate stock tax;
(c) “Taxable net income,” in the case of homeowners’ associations as defined in Section 528(c) of the Internal Revenue Code, means “taxable income” as defined in Section 528(d) of the Internal Revenue Code. Notwithstanding the provisions of subsection (3) of this section, the Internal Revenue Code sections referred to in this paragraph shall be those code sections in effect for the applicable tax year; and
(d) “Taxable net income,” in the case of a corporation that meets the requirements established under Section 856 of the Internal Revenue Code to be a real estate investment trust, means “real estate investment trust taxable income” as defined in Section 857(b)(2) of the Internal Revenue Code, except that a captive real estate investment trust shall not be allowed any deduction for dividends paid;
(15) “Person” means “person” as defined in Section 7701(a)(1) of the Internal Revenue
Code;
(16) “Taxable year” means the calendar year or fiscal year ending during such calendar year, upon the basis of which net income is computed, and in the case of a return made for a fractional part of a year under the provisions of this chapter or under regulations prescribed by the commissioner, “taxable year” means the period for which the return is made;
(17) “Resident” means an individual domiciled within this state or an individual who is not domiciled in this state, but maintains a place of abode in this state and spends in the aggregate more than one hundred eighty-three (183) days of the taxable year in this state;
(18) “Nonresident” means any individual not a resident of this state;
(19) “Employer” means “employer” as defined in Section 3401(d) of the Internal
Revenue Code;
(20) “Employee” means “employee” as defined in Section 3401(c) of the Internal
Revenue Code;
(21) “Number of withholding exemptions claimed” means the number of withholding exemptions claimed in a withholding exemption certificate in effect under KRS
141.325, except that if no such certificate is in effect, the number of withholding exemptions claimed shall be considered to be zero (0);
(22) “Wages” means “wages” as defined in Section 3401(a) of the Internal Revenue
Code and includes other income subject to withholding as provided in Section
3401(f) and Section 3402(k), (o), (p), (q), and (s) of the Internal Revenue Code;
(23) “Payroll period” means “payroll period” as defined in Section 3401(b) of the
Internal Revenue Code;
(24) (a) For taxable years beginning before January 1, 2005, and after December 31,
2006, “corporation” means “corporation” as defined in Section 7701(a)(3) of the Internal Revenue Code; and
(b) For taxable years beginning after December 31, 2004, and before January 1,
2007, “corporations” means:
1. “Corporations” as defined in Section 7701(a)(3) of the Internal Revenue
Code;
2. S corporations as defined in Section 1361(a) of the Internal Revenue
Code;
3. A foreign limited liability company as defined in KRS § 275.015;
4. A limited liability company as defined in KRS § 275.015;
5. A professional limited liability company as defined in KRS § 275.015;
6. A foreign limited partnership as defined in KRS § 362.2-102(9);
7. A limited partnership as defined in KRS § 362.2-102(14);
8. A limited liability partnership as defined in KRS § 362.155(7) or in 362.1-
101(7) or (8);
9. A real estate investment trust as defined in Section 856 of the Internal
Revenue Code;
10. A regulated investment company as defined in Section 851 of the
Internal Revenue Code;
11. A real estate mortgage investment conduit as defined in Section 860D of the Internal Revenue Code;
12. A financial asset securitization investment trust as defined in Section
860L of the Internal Revenue Code; and
13. Other similar entities created with limited liability for their partners, members, or shareholders.
For purposes of this paragraph, “corporation” shall not include any publicly traded partnership as defined by Section 7704(b) of the Internal Revenue Code that is treated as a partnership for federal tax purposes under Section 7704(c) of the Internal Revenue Code or its publicly traded partnership affiliates. As used in this paragraph, “publicly traded partnership affiliates” shall include any limited liability company or limited partnership for which at least eighty percent (80%) of the limited liability company member interests or limited partner interests are owned directly or indirectly by the publicly traded partnership;
(25) “Doing business in this state” includes but is not limited to: (a) Being organized under the laws of this state;
(b) Having a commercial domicile in this state; (c) Owning or leasing property in this state;
(d) Having one (1) or more individuals performing services in this state;
(e) Maintaining an interest in a pass-through entity doing business in this state;
(f) Deriving income from or attributable to sources within this state, including deriving income directly or indirectly from a trust doing business in this state, or deriving income directly or indirectly from a single-member limited liability company that is doing business in this state and is disregarded as an entity separate from its single member for federal income tax purposes; or
(g) Directing activities at Kentucky customers for the purpose of selling them goods or services.
Nothing in this subsection shall be interpreted in a manner that goes beyond the limitations imposed and protections provided by the United States Constitution or Pub. L. No. 86-272;
(26) “Pass-through entity” means any partnership, S corporation, limited liability company, limited liability partnership, limited partnership, or similar entity recognized by the laws of this state that is not taxed for federal purposes at the entity level, but instead passes to each partner, member, shareholder, or owner their proportionate share of income, deductions, gains, losses, credits, and any other similar attributes;
(27) “S corporation” means “S corporation” as defined in Section 1361(a) of the Internal
Revenue Code;
(28) “Limited liability pass-through entity” means any pass-through entity that affords any of its partners, members, shareholders, or owners, through function of the laws of this state or laws recognized by this state, protection from general liability for actions of the entity; and
(29) “Captive real estate investment trust” means a real estate investment trust as defined in Section 856 of the Internal Revenue Code that meets the following requirements:
(a) 1. The shares or other ownership interests of the real estate investment trust are not regularly traded on an established securities market; or
2. The real estate investment trust does not have enough shareholders or owners to be required to register with the Securities and Exchange Commission; and
(b) 1. The maximum amount of stock or other ownership interest that is owned or constructively owned by a corporation equals or exceeds:
a. Twenty-five percent (25%), if the corporation does not occupy property owned, constructively owned, or controlled by the real estate investment trust; or
b. Ten percent (10%), if the corporation occupies property owned, constructively owned, or controlled by the real estate investment trust.
The total ownership interest of a corporation shall be determined by
aggregating all interests owned or constructively owned by a corporation;
2. For the purposes of this paragraph:
a. “Corporation” means a corporation taxable under KRS § 141.040, and includes an affiliated group as defined in KRS § 141.200, that is required to file a consolidated return pursuant to the provisions of KRS § 141.200; and
b. “Owned or constructively owned” means owning shares or having an ownership interest in the real estate investment trust, or owning an interest in an entity that owns shares or has an ownership interest in the real estate investment trust. Constructive ownership shall be determined by looking across multiple layers of a multilayer pass-through structure; and
(c) The real estate investment trust is not owned by another real estate investment trust.
Effective: April 15, 2020
History: Amended 2020 Ky. Acts ch. 91, sec. 16, effective April 15, 2020. — Created
2018 Ky. Acts ch. 171, sec. 52, effective April 14, 2018; and ch. 207, sec. 52, effective April 27, 2018.
Legislative Research Commission Note (4/15/2020). 2020 Ky. Acts ch. 91, sec. 76 provides that the changes made to this statute in Section 16 of that Act apply to taxable years beginning on or after January 1, 2019.
Legislative Research Commission Note (4/27/2018). KRS § 141.0202 was repealed in
2018 Ky. Acts chs. 171 and 207, but a conforming amendment was not made to this statute to address the reference it contains to KRS § 141.0202. The Reviser of Statutes has determined that making such a conforming change during the 2018 codification exceeds the permissible correction of manifest clerical or typographical errors under KRS § 7.136(1)(h). Therefore, the reference to KRS § 141.0202 remains unchanged and would have to be changed pursuant to future legislative action.