WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Kentucky is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Kentucky include physical property, like furniture, home appliances, and motor vehicles.
Groceries, prescription medicine, and gasoline are all tax-exempt.
Some services in Kentucky are subject to sales tax. For a detailed list of taxable services view this PDF from the Kentucky Department of Revenue website.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Kentucky requires businesses to collect sales tax on the sale of digital goods due to digital goods being considered tangible personal property.
However, Kentucky has one exception to this policy. Businesses must collect sales tax on pre-written computer software that is sold online.
HOW TO REGISTER FOR KENTUCKY SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Effective date
- Legal business name
- Previous account numbers
- Primary business location
- Ownership type
- Information about types of sales
- North American Industrial Classification System (NAICS) code required for all businesses. Lookup NAICS code.
- Social Security Number
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
Calculating sales tax on goods sold in Kentucky is easy. Simply charge the 6.000% flat sales tax rate on all items whether selling in-store or shipping across the state.
Kentucky businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Kentucky seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Kentucky requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- Annual filing: If your business collects less than $125 in sales tax per month then your business should elect to file returns on an annual basis.
- Quarterly filing: If your business collects between $125 and $1,200 in sales tax per month then your business should elect to file returns on a quarterly basis.
- Monthly filing: If your business collects between $1,200 and $10,000 in sales tax per month then your business should file returns on a monthly basis.
- Prepaid- Monthly filing: if your business collects more than $10,000 in sales tax per month then your business should file returns in advance using a prepaid-monthly basis.
Note: Kentucky requires you to file a sales tax return even if you have no sales tax to report.
All Kentucky sales tax return deadlines fall on the 20th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day.
Annual filing: January 20, 2020
- Q1 (Jan. - Mar.): Due April 20
- Q2 (April - June): Due July 20
- Q3 (July - Sept.): Due October 22
- Q4 (Oct. - Dec.): Due January 22, 2018
Monthly filing: The 20th of the following month, or the next business day, e.g. April 20 for the month of March, or May 22 for the month of April.
Penalties for Late Filing
Kentucky charges a late filing penalty of 2% per month or partial month with a minimum penalty of $10 that can be up to a maximum of 20% of the tax that remains due on the tax return. If this penalty is applied, the late payment penalty will not be applied.
Kentucky also charges a late payment penalty that is equal to 2% per month up to 20% of the tax that is unpaid if the return has been filed by the due date.
The state assesses the unpaid tax with a compounded interest rate of 6% per year or 0.5% per month or partial month for any unpaid tax or penalty.