What is the sales tax rate in Kentucky?
In the state of Kentucky, the standard sales tax rate is 6%. This means that most retail sales and some services are subject to a 6% tax at the point of sale.
There are no local tax rates in Kentucky, which simplifies compliance somewhat and makes accurate calculation of applicable sales taxes a straightforward affair.
When should your business collect Sales Tax in Kentucky?
Businesses in Kentucky are required to collect sales tax when they have a nexus in the state. A nexus is a connection or link between a business and the state that obligates the business to collect and remit sales tax. There are several ways a business can establish a nexus in Kentucky, including having a physical presence, reaching a certain sales threshold, or participating in certain activities.
If your business meets any of the criteria for establishing a nexus in Kentucky, you are required to collect sales tax from your customers. It’s important to note that sales tax should be collected at the point of sale, and it should be remitted to the Kentucky Department of Revenue on a regular basis, as determined by your sales volume and other factors.
When you collect sales tax, it’s essential to keep accurate records of your sales, the amount of sales tax collected, and any exemptions or deductions that apply. Keeping proper records will help you when it’s time to file your sales tax returns and remit the tax to the state.
Kentucky Physical Sales Tax Nexus
Having a physical presence in Kentucky establishes a nexus and requires your business to collect sales tax. This is known as a physical nexus.
Sales Tax Physical Nexus checklist for Kentucky
To determine if your business has a physical nexus in Kentucky, consider the following:
- Location of your business: If your business operates out of a physical location in Kentucky, you have a physical nexus.
- Employees: If you have employees or representatives working in Kentucky, you likely have a physical nexus.
- Inventory: Storing inventory or products in a warehouse or fulfillment center in Kentucky creates a physical nexus.
- Affiliates: If your business has a relationship with an affiliate in Kentucky, it may establish a physical nexus.
If your business meets any of the above criteria, you are required to collect sales tax from your customers in Kentucky.
Kentucky Economic Nexus Threshold: Revenue, Thresholds and Transactions
The thresholds for establishing an economic nexus in Kentucky are $100,000 in gross sales or 200 separate transactions in the state. If your business meets or exceeds either of these thresholds within a calendar year, you have an economic nexus and are required to collect sales tax from your customers in Kentucky.
It is important to note that the thresholds are cumulative. Therefore, if your business has a combination of sales and transactions that meets or exceeds the thresholds, you are required to collect sales tax.
Which services are taxable in Kentucky?
In Kentucky, certain services are subject to sales tax. It’s important to know which services are taxable, as businesses that provide these services are required to collect sales tax from their customers.
List of taxable services in Kentucky:
- Landscaping services
- Janitorial services
- Pet care services
- Fitness and recreational sports services
- Personal care services
- Repair and maintenance services
Note that this list is not exhaustive, and there may be other services that are subject to sales tax in Kentucky. It is important to consult with the Kentucky Department of Revenue to determine which services are taxable in your specific situation.
Kentucky Sales Tax on Products: How to Calculate What Your Business Should be Charging
Calculating the amount of sales tax your business should charge on products sold in Kentucky involves a few steps. First, you need to determine if the product you are selling is taxable. In Kentucky, tangible personal property and certain services are generally subject to sales tax, while many intangible items and services are exempt.
Next, you need to determine the appropriate sales tax rate. Kentucky has a statewide base sales tax rate of 6%,, and because Kentucky has no local sales tax rates, sales taxes are always calculated at 6%.
Here is a basic example of how sales taxes can be calculated:
- Price of the product: $100
- Sales tax rate: 6%
- Sales tax amount: $100 x 0.06 = $6
- Total charge to the customer: $100 + $6 = $106
Remember to regularly check for updates on sales tax rates and regulations, as they can change over time.
How much is Kentucky clothing tax?
Kentucky has a 6% statewide sales tax, which applies to most retail sales of tangible personal property, including clothing. And as there are no additional local sales taxes in Kentucky, the total sales tax rate on clothing will generally be 6%.
It is important to note that there are some exemptions from sales tax in Kentucky. For example, sales made to nonprofit organizations, sales of prescription drugs, and sales of certain agricultural supplies and equipment are generally exempt from sales tax.
Kentucky Online Sales Tax: Are SaaS and Digital Services Taxable?
Digital goods and products are indeed taxable in Kentucky, and as of 2023, so are SaaS products.. Kentucky tax law is applied to a blanket of “digital property”, which includes digital audio works, digital books, audio visual works, and e-books.
SaaS Sales Tax Kentucky: Do I need to tax software subscriptions?
As of January 2023, Software as a Service (SaaS) is subject to sales tax in Kentucky, as long as it is delivered into the state. This change comes following updates to House Bill 8, which now states that “prewritten computer software access services” (i.e. SaaS products) are taxable. So software subscription providers need to make sure that Kentucky SaaS sales tax is at the top of their priority list.
How can a business get a sales tax permit in Kentucky?
To collect sales tax in Kentucky, your business must first obtain a sales tax permit from the Kentucky Department of Revenue. Follow these steps:
- Apply for a sales tax permit online through the Kentucky Online Gateway (KOG) or by completing Kentucky Tax Registration Application Form 10A100.
- Provide the necessary information about your business, including business name, address, type of business, and estimated monthly sales.
- Wait for the approval of your application and receive your sales tax permit.
Once you have your permit, you can start collecting sales tax on taxable sales in Kentucky. Keep in mind that having a sales tax permit also means you must file regular sales tax returns.
Collecting Sales Tax in Kentucky as a Business
Once you have your sales tax permit and have started collecting sales tax on sales, the next step is to ensure you remit taxes and file sales tax returns on time.
Kentucky Tax Return Due Dates Explained
In Kentucky, sales tax returns are generally due on the 20th of the month following the end of the reporting period. However, the frequency at which you must file your returns can vary based on your sales volume. Businesses with higher sales volumes may be required to file monthly or quarterly, while those with lower sales volumes may file annually.
What is the required frequency for sales tax returns in Kentucky?
The frequency for filing sales tax returns in Kentucky depends on your sales volume:
- Monthly: If your monthly tax liability is $1,200 or more.
- Quarterly: If your monthly tax liability is less than $1,200 but more than $100.
- Annual: If your monthly tax liability is $100 or less.
It’s important to file your sales tax returns on time to avoid penalties and interest.
