Kentucky Tax Modernization Act

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Kentucky Tax Modernization Act
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Agenda

• Kentucky Tax Modernization Act Summary
• Key Components of Act
• Intangible Tax
• Corporate License Tax
• Taxation of Corporations
• Alternative Minimum Calculation
• Estimated Tax Payments
• Other Considerations
• Questions

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Kentucky Tax Modernization Act

• Signed by Governor Fletcher on March 18, 2005
• Most extensive state tax reform in many years
• Effective for tax years beginning January 1, 2005

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Key Components of Act

• Repeals Corporate License Tax
• Repeals Intangible Property Tax
• Re-defines corporation in Kentucky
• Reduces Corporate tax rates and expands brackets
• Creates an Alternative Minimum Calculation for
  corporations

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Intangible Tax Repealed

• Last bill October or November 2005, based on
  values as of January 1, 2005
• Repealed effective based on values at January 1,
  2006

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Corporate License Tax

• Repealed
• Last license tax returns were part of the 2004
  income tax filing procedures
• LLCs have always been exempt from license tax

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Taxation of Corporations

• Extended to all business entities
• Regular Corporations
• S Corporations
• Limited Partnerships
• LLCs
• PLLCs

• Eliminates Carry Back Provisions for NOLs
• Net Operating Loss Carry Forwards 50
• Requires Consolidated Filing

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Alternative Minimum Calculation

• Higher of
• Income tax based on net income
• Alternative Minimum Calculation

• AMC is the lesser of
• Kentucky gross receipts tax
• Kentucky gross profits tax

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Estimated Income Tax Payments

• Existing corporate income tax rules
• Required for businesses whose 2005 tax liability
  is expected to be 5,000 or more
• 70 must be paid in to avoid penalty
• Installments are due the 15th of June, Sept and
  Dec
• Separate calculations must be done for each entity

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Other Considerations

• No netting of profits with losses
• Non-refundable credit at the individual level
• Lost itemized deductions

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Questions?
PowerPoint prepared by Andrea Yorgy Chilton
Medley PLC, CPAs