Department of Revenue Reports that Increased Number of Entities Required to File Corporation Income Tax Returns
The Kentucky Department of Revenue (“Department”) issued an article regarding corporation income tax delinquency notices in its March 2009 edition of “Kentucky Tax Alert.” As stated in the article, for tax years beginning in 2005, House Bill 272 (“H.B. 272”) of the 2005 Regular Session imposed a new “doing business” nexus standard. H.B. 272 provided that a limited liability pass-through entity was to be taxed as a corporation and amended KRS 141.200 to require that a corporation must file a nexus consolidated return if it is a member of an affiliated group.
Further, for tax years beginning in 2007, House Bill 1 (“H.B. 1”) of the 2006 Extraordinary Session amended the “doing business” standard to provide that maintaining an interest in a pass-through entity “doing business” in Kentucky creates nexus for income tax purposes. H.B. 1 also provided that limited liability pass-through entities would no longer be treated as corporations for Kentucky tax purposes and modified the alternative minimum calculation into a limited liability entity tax for all corporations and limited liability pass-through entities doing business in Kentucky, including limited liability companies owned by individuals.
As a result of the tax changes from H.B. 272 and H.B. 1, the Department indicated that an increased number of entities have been required to file a tax return with the Commonwealth. The Department also indicated that it has been sending delinquency letters to entities registered with the Secretary of State that have not filed a tax return with the Department.
The Department notes that, if an entity receives a delinquency notice and the “doing business” standard established in KRS 141.010(25) has been met, the entity should file a tax return with the Department for the tax year(s) included in such Notice. The Department further notes that if the tax year or years included in the delinquency notice includes tax years 2005 or 2006, there is a minimum tax of $175 required by KRS 141.040(7); and that if the tax year is 2007 or later, there is a $175 minimum pursuant to KRS 141.0401(2).