United States

Kentucky issues guidance for new ad-valorem tax credit

INSIGHT ARTICLE  | 

On Oct. 8, 2018, the Kentucky Department of Revenue recently issued guidance for the ad valorem tax credit based on taxes paid on certain inventories located in the state. The credit was enacted on April 13, 2018 by a General Assembly override of Gov. Matt Bevin’s veto of House Bill 366. The Bill created the new income tax credit equal to the timely paid ad valorem property taxes for certain business inventory located in Kentucky.

The department’s guidance allows taxpayers to take the credit against individual and corporate income taxes, and allows owners of pass-through entities to use the credit against the limited liability entity tax. The tax credit increases each year by 25 percent of the ad valorem tax timely paid on inventory in each respective year starting in 2018, until the credit equals 100 percent by 2021.

The tax credit allowed increases annually as follows:

  • 25 percent of the ad valorem taxes timely paid for taxable years beginning on or after Jan. 1, 2018 and before Jan. 1, 2019;
  • 50 percent of the ad valorem taxes timely paid for taxable years beginning on or after Jan. 1, 2019 and before Jan. 1, 2020;
  • 75 percent of the ad valorem taxes timely paid for taxable years beginning on or after Jan. 1, 2020 and before Jan. 1, 2021; and
  • 100 percent of the ad valorem taxes timely paid for taxable years beginning on or after Jan. 1, 2021.
  • Fiscal year taxpayers can use the credit based on the year in which the tax is timely paid.

The department recognizes the complexity of ad valorem tax administration across large numbers of jurisdictions. To assist taxpayers with calculating the credit, the department will make an inventory tax calculator available.

Takeaways

The department allows the credit to offset state corporate income tax or the limited liability entity tax. Taxpayers that pay ad valorem taxes on inventories in Kentucky will be able to take advantage of the new credit regardless of entity structure. Taxpayers should contact their state and local advisers to evaluate eligibility, calculate the available credit, or to answer any other Kentucky credit and incentive-related questions.

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