Kentucky Business Taxes at a Glance
Kentucky moved to a flat individual income tax and has lowered the rate several times, including for 2026. But Kentucky's local taxes are among the most involved in the country: many cities and counties tax wages and business profits through occupational license taxes. Businesses also pay a separate entity-level tax, sales tax now reaches many services, and the bourbon industry has its own property tax on aging barrels. BOMCAS helps Kentucky individuals and businesses manage these requirements.
Individual Income Tax
Kentucky taxes residents on all income and nonresidents on Kentucky-source income at one flat rate. Under 2022 legislation, the rate drops in steps when state revenue meets set conditions, and it was reduced again for 2026. Kentucky starts from federal adjusted gross income with its own adjustments, including an exclusion for a portion of pension income and no tax on Social Security.
Kentucky has reciprocal agreements for wages with several neighboring states, including Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin, some with conditions. We prepare Kentucky returns and handle reciprocity and part-year filings.
Local Occupational License Taxes
Many Kentucky cities, counties, and some school districts levy occupational license taxes on wages earned within their boundaries and on net profits of businesses operating there. Louisville Metro and Lexington-Fayette County are the largest, but many smaller cities and counties also impose them. Where a city and county both tax, credits may apply between them.
Employers withhold occupational tax based on where employees work, and businesses file net profit returns with each jurisdiction where they operate. Kentucky has standardized some forms and allows a common filing for net profit returns, but each jurisdiction still has its own rates and rules. We set up local withholding, prepare net profit returns, and track filing requirements by jurisdiction.
Corporate Income Tax and the LLET
A corporation with nexus in Kentucky apportions its income and pays Kentucky corporate income tax on its share. In addition, corporations, LLCs, limited partnerships, and other limited liability entities pay the limited liability entity tax (LLET), based on Kentucky gross receipts or gross profits, whichever is less, with a minimum. S corporations and LLCs taxed as partnerships pay the LLET even though their income passes through, and owners may receive a credit against their income tax for some of it.
We prepare corporate and entity returns, calculate the LLET, and track owner credits. Kentucky also offers an elective pass-through entity tax, which we evaluate each year.
Sales Tax: One Rate, More Services
Kentucky's sales and use tax has a single statewide rate with no local sales taxes. Since 2023, Kentucky has added many services to the sales tax base, including some personal, business, and repair services. Businesses that did not collect sales tax before may need to register now.
We review service businesses' activities against the current list of taxable services, register, update invoices, and file returns.
Distilled Spirits and the Barrel Tax
Kentucky's bourbon industry pays a property tax on distilled spirits aging in barrels, assessed each year on their value while they age. A credit for this tax is available to distillers who invest in Kentucky facilities, and recent legislation has been phasing the tax down. Distillers also manage federal excise taxes, inventory valuation for aging spirits, and tourism operations at visitor centers. We help craft distillers and related businesses with inventory accounting and bookkeeping.
Inheritance Tax
Kentucky has an inheritance tax based on the beneficiary's relationship to the deceased. Spouses, children, grandchildren, parents, and siblings are generally exempt, while nieces, nephews, and unrelated beneficiaries may owe tax. We help executors prepare estate records and final returns, working with estate counsel.
Remote Work and Local Occupational Taxes
Occupational license taxes generally follow where work is performed. An employee of a Louisville company who works from home in a county with a different tax, or with no occupational tax, may owe different local tax for those days. Employers need records of work locations and a clear policy for withholding, and employees may be able to request refunds for days worked outside a jurisdiction. We help employers set up withholding by location and help employees with refund claims where available.
Payroll and Local Withholding
Kentucky employers withhold state income tax, local occupational taxes based on work location, and report unemployment insurance to the Office of Unemployment Insurance. Remote and hybrid work affects local withholding. We run payroll, file reports, and reconcile them to the books.
Distillers, Automakers, Air Cargo, and Horse Farms
- Bourbon and distilling: barrel tax, inventory, and tourism
- Automotive manufacturing: inventory, fixed assets, and the LLET
- Logistics and air cargo: apportionment and payroll in multiple localities
- Horse industry: farm accounting and sales tax on related services
- Health care: practices with staff in several jurisdictions
Books That Track Work Locations and the LLET Base
Kentucky bookkeeping should track wages by work location for occupational taxes, gross receipts and gross profits for the LLET, and taxable services for sales tax. We design the chart of accounts and the month-end close so these numbers are ready when returns are due.
Contact BOMCAS About Kentucky
Businesses filing net profit returns in several jurisdictions, service providers newly subject to sales tax, and craft distillers managing barrel inventory can contact BOMCAS for a remote review. We plan to add Kentucky city pages, each with its own services, under this section. Return to the BOMCAS home page or our United States services for more about the firm. This page is general information, not advice for your situation.
Talk to BOMCAS About Your Kentucky Taxes
Have a question about your Kentucky filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.