Kentucky Franchise Tax: What You Need to Know as Business Entity



Do you own a business in Kentucky? If so, you need to be aware of the franchise tax in Kentucky. This tax is imposed on all business entities doing business in the state, and there are several important things that you need to know about it. In this blog post, we will discuss the basics of the franchise tax in Kentucky, including what it is, how much you owe, and when you are liable for it. We will also provide some tips on how to reduce your liability for this tax. So if you’re a business owner in Kentucky, read on!

What is the Kentucky franchise tax and what businesses are subject to it

The Kentucky franchise tax is a tax imposed on businesses that are incorporated in the state of Kentucky. The tax is based on the gross receipts of the business, and businesses with annual gross receipts of $5,000 or less are exempt from the tax. Businesses that are subject to the tax must file an annual report with the Kentucky Department of Revenue. The report must be filed by April 15th of each year, and businesses that fail to file the report on time will be subject to a late filing penalty.

The penalties for late filing are as follows:

  • A penalty of 5% of the unpaid tax for each month or part of a month that the return is late, up to a maximum penalty of 25% of the unpaid tax.
  • A minimum penalty of $10 for each month or part of a month that the return is late, up to a maximum penalty of $50.
  • Interest on the unpaid tax at a rate of 1% per month or part of a month from the due date of the return until the date the tax is paid.
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How is the tax calculated and what are the rates

The franchise tax in Kentucky is calculated using two methods: the net worth method and the capital stock method. The rates for the tax vary depending on the type of business, with different rates for corporations, limited liability companies, and partnerships.

For corporations, the rate is 0.15% of net worth or $175 per $1000 of capital stock, whichever is greater. For LLCs, the rate is $175 per $1000 of capital stock. And for partnerships, the rate is 0.15% of net worth. There are also certain businesses that are exempt from the tax, such as nonprofit organizations and churches.

When is the tax due and how can it be paid

The franchise tax is due on or before April 15th of each year. Kentucky’s Franchise Tax can be paid via check or money order made payable to “Kentucky State Treasurer,” or online through the Kentucky Department of Revenue’s website.

When paying by check or money order, include the tax return form and write the tax period and taxpayer identification number on the check or money order. Online payment can be made by electronic check or credit card. A convenience fee will be charged for credit card payments. For more detailed instructions, visit the Kentucky Department of Revenue’s website.


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What happens if a business fails to pay the franchise tax or files late returns/payments

Businesses that fail to file their franchise tax return or pay their franchise tax on time will be charged a late payment penalty of 5% of the unpaid tax amount. In addition, interest will accrue on the unpaid tax balance at a rate of 1% per month.

If a business fails to file its return or pay its taxes for two consecutive years, its license to operate in Kentucky will be revoked. As a result, it is important for businesses to ensure that they timely file their returns and make any required tax payments. Doing so will help avoid penalties and interest charges, as well as the possibility of losing their right to operate in the state.

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Are there any other special taxes that businesses in Kentucky should be aware of

In addition to state and federal income taxes, businesses in Kentucky should also be aware of a few other potential taxes.

  • For example, most businesses are required to pay property taxes on any buildings or land that they own.
  • In addition, businesses may also be subject to sales taxes on the goods and services that they sell.
  • Finally, businesses may need to pay employment taxes, including Social Security and Medicare taxes, on the wages that they pay to their employees.

By staying up-to-date on all of the different taxes that apply to their business, Kentucky businesses can ensure that they comply with all tax laws and avoid penalties.

What can you do to reduce your liability 

As a business owner in Kentucky, you are required to pay a franchise tax. However, there are several ways to reduce your liability.

  • One way is to file an annual report. This report must be filed by June 1st and will list your business’s gross receipts for the previous year. You can also submit a personal financial statement, which will allow the Department of Revenue to consider your ability to pay the tax.
  • Another way to reduce your tax liability is to participate in the Voluntary Disclosure Program. This program allows businesses who have not been paying their taxes to come forward and do so without penalty.
  • Finally, you can appeal your tax liability if you believe it to be too high. If you are able to reduce your franchise tax liability, it will save you money and help your business run more smoothly.

How to file and pay the franchise tax 

  1. Determine if you need to file a Kentucky franchise tax return: You must file if your business is organized as a corporation or partnership, and you conduct business in Kentucky. The return is also required if you’re registered as a foreign corporation or partnership but do business in the state. You don’t need to file the return if your business is a sole proprietorship, an LLC with only one member, or a cooperative.
  2. Calculate your minimum tax liability: The minimum tax is $175 for most businesses, but it may be more or less depending on your company’s structure. If you’re not sure how much you owe, you can use the online estimator on the state’s Department of Revenue website.
  3. Obtain the necessary forms: You can get the forms you need to file your return from the Department of Revenue website or by request from the agency.
  4. File your return and pay any taxes owed: Returns must be filed by May 1st of each year, and taxes must be paid in full at that time. You can pay online, by mail, or in person at a Kentucky Revenue Cabinet office. Extensions are available for businesses that can’t meet the May 1st deadline, but you must request one before the due date.
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By following these steps, you can ensure that you file and pay your Kentucky franchise tax correctly and on time. Doing so will help avoid penalties and interest charges, and keep your business in good standing with the state.



Frequently Asked Questions

Is there a franchise tax in Kentucky?

Kentucky does not impose a franchise tax on businesses, but it does impose a limited liability company tax under KRS 141.0401 on all non-exempt businesses and limited liability companies operating in Kentucky on all gross receipts or gross income earned in Kentucky.

Who is subject to Kentucky LLET tax?

The Kentucky limited liability company tax applies to traditional corporations, S corporations, LLCs, limited liability partnerships (LPs), and limited liability partnerships (LLPs). The tax is based on a company’s annual gross receipts. For businesses with less than $3 million in gross receipts, a minimum LLET of $175 applies.

What is a franchise tax for an LLC?

Despite its name, the “franchise tax” is not a tax on franchise businesses. Rather, it is a tax that states charge corporations and other business entities, such as limited liability companies (“LLCs”), for the privilege of establishing or operating a business in their state.

Why am I being charged a franchise tax?

A franchise tax is levied by a state on businesses for the privilege of establishing or doing business in that state. Franchise taxes are usually levied annually, just like income taxes. Failure to pay franchise taxes may result in a company being banned from doing business in a particular state.

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