If you are a corporation or a limited liability pass-through entity operating in Kentucky, you might receive a notice in the coming weeks.
According to the March, 2009 issue of the Kentucky Tax Alert, a publication written by the Kentucky Department of Revenue, the Department is in the process of sending delinquency letters to entities registered with the Secretary of State that have not filed a tax return with the Department.
If you are familiar with Kentucky, then you know they changed their tax laws for the tax years 2005 through 2007 and beyond. I'm sure those changes created confusion and mistakes by taxpayers trying to comply with Kentucky tax laws.
2005 Changes
As stated in the Kentucky Tax Alert, Kentucky imposed a new "doing business" standard starting in 2005. Kentucky also started requiring limited liability pass-through entities to be taxed as corporations, and to file a nexus consolidated return if it was part of an affiliated group.
This caused all limited liability pass-through entities to register and file a corporate income tax return, except disregarded single member limited liability companies owned by a corporation or limited liability pass-through entity.
Obviously, these changes required more entities to file a tax return with Kentucky.
2007 Changes
Starting in 2007, Kentucky amended the "doing business" standard to state that simply maintaining an interest in a pass-through entity doing business in Kentucky creates nexus.
On the flip side, at the same time, Kentucky no longer required limited liability pass-through entities (PTEs) to be treated as corporations for Kentucky tax purposes. That didn't mean limited liability PTEs were no longer taxable, because Kentucky created the limited liability entity tax for all corporations and limited liability PTEs doing business in Kentucky, including limited liability companies owned by individuals.
So once again, these changes required more entities to file tax returns with Kentucky.
Sound confusing?
CONCLUSION
If you receive a notice and the "doing business" standard has been met, you will need to file a tax return for the tax year or years stated on the notice. Depending on the year involved, at least a minimum tax of $175 could be due.
If you have any questions, please contact me at leveragesalt@earthlink.net or
contact Kentucky at 502-564-8139 or WEBResponseCorporationTax@ky.gov.
Click on the following link to see the March 2009 Kentucky Tax Alert:
http://revenue.ky.gov/NR/rdonlyres/A5FE4C4B-A5B1-4BB0-9D9F-22FC1BC7EC43/0/KYTaxAlertMarch2009_v3revised.pdf
