On March 25, 2021, Kentucky Governor Andy Beshear signed into law a set of bills intended to make Kentucky an attractive destination for cryptocurrency mining businesses. Explicitly recognizing the value of blockchain infrastructure to the modernization of Kentucky’s economy, the bills provide significant tax benefits to commercial cryptocurrency miners, including targeted sales and use tax exemptions, utility gross receipts tax exemptions, income tax abatement and other incentives. Benefits under both bills are effective on July 1, 2021, and are available by application only.
The first bill builds upon the framework of the state’s expired Incentives for Energy Independence Act (IEIA) program. It renames the IEIA program the Incentives for Energy-related Business Act (IEBA) program, and expands the definition of a qualifying facility to include cryptocurrency mining facilities making a new minimum capital investment of $1 million. It then revises the program’s sunset date to allow cryptocurrency mining facilities to apply for benefits even though the program is otherwise closed. Benefits under the IEBA program are limited to 50% of the total capital investment made. Key benefits include:
- An incentive covering sales and use tax imposed on tangible personal property used to construct, retrofit, upgrade or equip a cryptocurrency mining facility,
- An incentive covering up to 100% of the corporate or personal income tax, and limited liability entity tax imposed on the income, Kentucky gross profits or Kentucky gross receipts of the approved company generated by or arising from the eligible project, and
- Advance disbursement of post-construction incentives based on the labor component of the total capital investment in the project.
Additionally, although no hiring is required to qualify for the program, the program allows a cryptocurrency mining facility to impose a wage assessment of up to 4% of the wages paid to specified individual employees subject to Kentucky tax.
The second bill provides for a sales and use tax exemption for electricity used or consumed in commercial cryptocurrency mining. A business can benefit from this exemption from the effective date of their application to July 1, 2030. Additionally, the bill provides an exemption from utility gross receipts license tax for electricity used or consumed at a colocation facility for the commercial cryptocurrency mining.
Both bills include separate application, approval, documentation and compliance processes, as well as highly nuanced definitional provisions. Businesses interested in expanding or locating a facility in Kentucky should carefully review each of the available programs and tailor the intended use of the facility to maximize their benefits. Kentucky is not the first jurisdiction to consider tax benefits for cryptocurrency miners and likely will not be the last. Taxpayers with questions about incentives for mining or similar business operations should speak to their state and local tax credits and incentives adviser.