Should you collect sales tax in Kentucky?
Sales tax is levied on retail selling tangible personal property to your customers, including leasing or renting tangible property. However, you will collect the sales tax if you determine the nexus in Kentucky. A nexus is a presence that may come physically or economically.
A physical nexus is typically created when your business has a store, warehouse, or office in Kentucky. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds can be on revenue or some other transactional basis.
Let’s explore if your business has a Physical nexus in Kentucky.
A physical nexus is integrated when your business is engaged in the following in Kentucky:
- Servicing tangible personal property in Kentucky.
- Maintaining, occupying, or using a place of business or an office in Kentucky.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- We have a stock of goods in Kentucky.
Here is what the state of Kentucky says about the presence and businesses that need to register there.
Is it constituting an Economic nexus in Kentucky?
If you are a remote seller (i.e., don’t have a physical presence in the state) and your business sales in Kentucky exceeded $100,000 in the previous or current calendar year, or if you make 200 or more separate retail transactions or deliveries into the state, you must comply with sales tax regulations and register.
You may also refer to the Kentucky Taxation Department advisory to know more about business activities that may create an economic nexus within the state.
How can you Register for Sales tax in Kentucky?
By visiting the Kentucky One Stop solution, you must apply online to get the sales tax permit. Otherwise, you can submit the licensing application using form 10A100 and send it to their mailing address. Applying online would process your application faster, whereas a paper application may take up to 3 weeks.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- EIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Kentucky.
- Contact information.
- Estimated total monthly sales.
- Nature of business.
Is your product or services liable to Sales tax in Kentucky?
Tangible Property: Sales tax in Kentucky is imposed primarily on the retail sale of tangible personal property, such as furniture, giftware, toys, etc.
Services: Many services are subject to sales tax in Kentucky, such as service or labor costs leading to the creation of tangible personal property, hotel stays, vehicle rentals, landscaping services, industrial laundry services, etc. For more information, click here.
Digital Product: Digital goods are subject to sales tax in Kentucky. Thus, you have to collect sales tax if you sell digital goods like software, streaming services, e-books, etc. Click here for additional guidance on communication services and digital property.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. This is taxable in Kentucky. (Source)
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, newspapers/ magazines, and manufacturing equipment etc.
Read through the Kentucky department guide for taxability and exemptions of products and services.
How should you collect and calculate state taxes in Kentucky?
Since Kentucky’s sales tax is destination-based, meaning it applies to physical property sold to Kentucky-based buyers, gathering and computing appropriate sales tax to be submitted to the state may require enormous efforts, particularly if you are not resident in Kentucky.
Although, the sales tax calculation is easy in Kentucky as they don’t charge any local rates. However, complexities are involved when you have a business nexus, even if it is not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden and you can focus on other important business aspects.
Kentucky has a base sales tax rate of 6%.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6%)
Do you need to collect sales tax on Shipping Charges?
If non-taxable items are sold, shipping charges associated with such a sale are not subject to sales tax. However, when the sale includes taxable and non-taxable items, shipping charges need to be apportioned relatively between the taxable and non-taxable parts of the sale. Accordingly, sales tax applies to the taxable portion of the sale. This link will take you to the official guidance issued by the state on shipping charges.
How should you file sales tax in Kentucky?
E-file: You can e-file your return using the Kentucky One Stop solution.
Payments must also be remitted online along with the return. The state accepts payments through checks, EFT, credit cards, etc. Kentucky Department of Revenue has a separate payment gateway from where you can make payments.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the Kentucky Department of Revenue assigns you a filing frequency: Monthly, Quarterly, Semi-annually, or Yearly. According to your filing frequency, the due date for filing sales tax would be the 20th day of the month following the relevant reporting period.
Quarterly returns are due by April 22, July 22, October 21, and January 21.
Semi-annual filings are to be made by July 22 and January 21. The annual filing is due by January 21 of the following year.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official website of the Kentucky Revenue Department, where you can see what the state has to say about sales tax filing due dates.
Are there any fines or penalties for default in filing or paying sales tax?
The state levies a penalty of up to 2% of sales tax due for each 30 days of default. The maximum penalty is 20% of the tax due, subject to a minimum of $10. The late tax payment penalty is the same as the late filing penalty.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Review the comprehensive guidelines of penalties and interest issues by the Kentucky Department of Revenue.