The Kentucky statewide sales tax is 6 percent. Unlike in many states, there are are no local sales and use taxes in Kentucky. You are generally allowed a credit for sales or use tax paid in another state for tangible personal property used in Kentucky. The amount of the credit may not exceed the amount of the Kentucky tax.
In Kentucky, although the sales tax is generally imposed on a retailer's gross receipts, shifting of the tax to the purchaser is mandatory. Sales tax must be separately stated and the tax becomes a debt from the retailer to the state of Kentucky.
Absorbing the tax is not permitted. In Kentucky it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
The sales tax is a general privilege tax levied on the gross receipts from sales at retail of tangible personal property or on its lease or rental. Kentucky also charges sales tax on the furnishing of specified services. The services that are subject to the sales tax are the rental of transient accommodations, the furnishing of sewer services and intrastate telephone and telegraph services, and the sale of admissions.
In general, leases and rentals of all kinds of tangible personal property (except motor vehicles and property qualifying for exemptions) are subject to the sales and use taxes. Lease or rental means granting to another person a right to use or possess tangible personal property for a period of time for consideration.
Sales Tax Permits Are Required
In Kentucky persons engaged in the business of making sales at retail are required to obtain a permit. A permit is required for each place of business and is obtained by filing an application with the Kentucky Revenue Cabinet.
Many Items Are Exempt from Tax
Kentucky Exempts Purchases for Resale from Tax
Requirements for resale exemption certificates.
- the purchaser's signature;
- the purchaser's name and address;
- the number of the retail sales permit issued to the purchaser and
- a description of the general character of the tangible personal property sold by the purchaser in the regular course of business
- Kentucky Allows Blanket Resale Certificates
A blanket resale certificate is a resale certificate that the purchaser provides to a seller from whom the purchaser makes numerous exempt resale purchases. The idea is that by providing a blanket resale certificate, both the purchaser and the seller can avoid the hassle of having to deal with a new certificate every time there is a purchase.
The blanket certificate requires the buyer to generally describe the kind of property to be purchased for resale in the regular course of your business. If you have executed a blanket certificate, the buyer is not required to execute additional certificates of resale for individual purchases. However, a new blanket certificate must be prepared when there is a change in the character of the operation.
Physical Presence Triggers Tax Liability
- Do I have retail facilities, a warehouse, or any office space in Kentucky? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Kentucky for purposes of taking and transmitting orders from Kentucky? If your employee or independent contractor goes into Kentucky to take or transmit orders, your business may have physical presence in Kentucky. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Kentucky for purposes of delivering property? Frequent deliveries in Kentucky by your trucks will give you physical presence in Kentucky.
- Kentucky Allows Use of Sales Tax "Bracket System"
The following bracket system may be followed by sellers in computing the sales tax. On each sale above $1.08 the tax is to be computed by applying the 6 percent tax rate to the sales price.
Amount of Sales Tax ($1.00)
Claim Required to Obtain Refund of Overpayments
Any claim for refund or credit must be made by the taxpayer within four years of the due date of the return or the date the taxes were paid, whichever date is later. As a seller, you're not entitled to a refund or credit of the sales or use taxes that have been collected from a purchaser, unless the collected amount is refunded to the purchaser by you.
Kentucky Imposes Use Tax on Out-of-State Purchases
The use tax on the storage, use, or other consumption of tangible personal property in Kentucky is a complementary tax to the sales tax and most often is triggered by out of state purchases. In other words, if you have collected or paid the sales tax, then the use tax doesn't apply.
The incidence of the use tax is on the purchaser or consumer. The liability remains a debt to Kentucky until paid except when the tax has been paid to a retailer doing business in the state who has furnished a receipt confirming payment.
FAQ Kentucky Sales and Use Tax
Date of Issuance: June 14, 2013
1.) Where do I get an application (Form 10A100) for a sales tax account?
An application may be obtained by mail, or from the DOR’s website at Department of Revenue. Applications must be signed, dated and mailed to the address on the bottom of the application. Applications may also be taken to a DOR Taxpayer Service Center for immediate processing.
2.) I applied for a sales tax account number. How long does it take to receive it?
An application is usually processed in 2 to 3 weeks.
3.) I don’t have my return or I don’t have an account set up yet. Can I go ahead and send my money anyway?
It is not recommended that money be sent in separately from the return; however, it will be accepted. It is suggested that the taxpayer reference their account number, the period and type tax (sales and use) for which the payment is being made on their check.
No payment should be made for a taxpayer without an account. In order to properly credit a payment, please wait until an account number has been assigned.
4.) I am looking for a sales tax rate table by city and county. Can anyone assist with this?
Kentucky’s sales and use tax rate is six percent (6%). Kentucky does not have additional sales taxes imposed by a city or county.
5.) I am a Kentucky retailer and I sell to an out-of-state retailer who is not registered in Kentucky. This retailer has me drop ship the item purchased to a Kentucky customer. Do I charge the out-of-state retailer sales tax?
The out-of-state retailer can issue you a completed Kentucky resale certificate with his state’s retail number and put a statement on the certificate that he is an out-of-state retailer not required to hold a Kentucky permit. In lieu of issuing the Kentucky Resale Certificate (Form 51A105) or a Streamlined Sales Tax Certificate of Exemption (Form 51A260), an out-of-state entity may issue the Multi-State Tax Commission’s Uniform Sales and Use Tax Certificate-Multijurisdiction.
6.) Where can I find a copy of the sales and use tax return?
You may file electronically via Kentucky E-tax, or via a paper return issued by the department. The department mails a unique paper return to each account for each respective filing period. The return mailed by the department or a form from a pre- approved forms provider, must be used if filing by paper.
7.) Why does the Department of Revenue change my filing frequency?
The state’s fiscal year end is June 30th. On an annual basis each sales tax account is reviewed to determine if a taxpayer needs to file more or less frequently depending on the tax liability paid in the past year. This adjustment should not change your bookkeeping. It only means that you have to report your sales and use tax more or less frequently.
8.) If I refund money to a customer, do I claim this amount on line 28 (credit claimed) of my sales and use tax return?
No. if you refund money to your customer you either send in an amended return and ask for credit, or file a refund application (Form 51A209) requesting the money be refunded. The credit line on your sales tax return (line 28) is for pre-authorized credits by the DOR only.
9.) What is the Sales Tax? Who is responsible for collecting sales tax?
Sales tax is a tax on tangible personal property and digital property that is sold, leased or rented in Kentucky and selected services. It is the seller’s responsibility to collect the sales tax from the customers and to remit the sales tax to the Department of Revenue.
10.) What is the tax rate?
There is a six percent (6%) statewide rate. There is no local option sales tax in Kentucky.
11.) What is the use tax rate? What is the use tax rate?
The use tax rate is a tax on tangible personal property and digital property used in Kentucky upon which the sales tax has not been paid. In other words, it is a sort of “backstop” for the sales tax. Property which is purchased, leased or rented outside of Kentucky for storage, use or other consumption in this state is subject to the use tax. Tangible personal property and digital property purchased for resale, but which is used instead of being resold, is subject to sales and use tax. The use tax rate is six percent (6%).
Persons who become liable for use tax are required to report and pay the tax directly to the Department within 20 days following the end of the month in which the taxable use occurs. Persons who occasionally incur a use tax liability and who do not hold a sales and use tax permit may report and pay the use tax on a non-registered basis on a Consumer’s Use Tax return, Revenue Form 51A113(0). The return may be obtained at any Kentucky Taxpayer Service Center, by writing to the address below.
Department of Revenue
Division of Sales and Use Tax
P.O. Box 181
Frankfort, KY 40602-0181
Or online at http://revenue.ky.gov/Business/Sales-Use-Tax/Pages/default.aspx
Businesses which are registered to collect sales tax should report their purchases subject to use tax on line 23(a) of their sales and use tax return.
12.) How is each tax computed?
The sales tax is computed on the gross receipts from sales. The use tax is computed on the purchase price of the property.
13.) What kind of receipts are subject to the sales tax?
- 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
14.) Are all sales of tangible personal property and digital property taxable?
No. There are three types of sales that are exempt from the sales tax. They are:
- Sales for Resale – tangible personal property and digital property which is purchased by another seller who issues a Resale Certificate.
- Interstate Commerce – property purchased to be delivered to a location outside of Kentucky.
- Sales of property which is exempt under the sales and use tax law.
15.) Who is required to collect and remit the use tax on out-of-state purchases of tangible personal property and digital property brought into Kentucky for use, storage or consumption?
The consumer of the tangible personal property and digital property is responsible to remit the use tax to the Department of Revenue (DOR). However, if the out-of-state vendor is registered with the Kentucky DOR, he/she is responsible to collect and remit the tax to the DOR. The purchaser must obtain from the out-of-state vendor a receipt showing the Kentucky use tax has been paid in order to be relieved from paying the use tax directly to the DOR.
16.) Does the law require the seller to provide a receipt to his customer showing the sales and use tax paid?
Yes. A detailed receipt showing the tax separately state from the purchase price must be issued to the purchaser.
17.) Are sellers allowed compensation for reporting and paying the tax?
Yes. The seller may keep one and three fourths percent (1.75%) of the first $1,000 and one and a half percent (1.5%) of any amount over $1,000. The vendor’s compensation cap has been reduced from $1,500 to $50 per reporting period effective July 1, 2013. Compensation is not
allowed on returns filed or paid late.
18.) How long must a registered retailer keep records?
Four (4) years pursuant to KRS 139.720.
19.) How do I close my sales and use account?
Complete Form 51A205 (the account maintenance portion), and mail to the address in question #11 above or submit via fax to the Division of Sales and Use Tax at (502) 564-2041. Form 51A205 is mailed with every sales and use tax return and is also available at http://revenue.ky.gov/Business/Sales-Use-Tax/Pages/default.aspx.
20.) How do I obtain a copy of my sales and use tax permit?
A sales and use tax permit is contained within correspondence mailed to every new sales and use tax registrant. If you need another copy, contact the Division of Sales and Use Tax at (502) 564-5170, or via e-mail at [email protected]