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Kentucky Tax Legislation

03.08.2006

The Kentucky General Assembly has recently enacted House Bill 403 (“HB 403”), which makes significant changes to Kentucky tax law as discussed below.

Corporation Income Tax:

HB 403 makes several changes to Kentucky’s Corporation Income Tax. These changes are effective for taxable years beginning on or after January 1, 2006. A safe harbor is established for estimated tax payments required under KRS 141.040. KRS 141.200(10)(e) is amended to add disregarded entities for purposes of consolidated filings. HB 403 also amends KRS 141.420 to provide for credits of pass-through entities to flow through to the individual shareowners, partners, or members when a pass-through entity is owned by a corporation as defined under KRS 141.010(24)(b) to (h). Effective retroactively for taxable years beginning on or after January 1, 2005, HB 403 amends KRS 141.205 to disallow “intangible expenses” among related members. Finally, HB 403 makes various other technical corrections to sections related to “Tax Modernization,” enacted during the 2005 Session of the Kentucky General Assembly.

Utility Gross Receipts License Tax:

HB 403 amends KRS 131.183 (effective January 1, 2006) to provide interest for overpayments of the Utility Gross Receipts License Tax collected under KRS 160.613 and 160.614. HB 403 also creates a new KRS Chapter 136, which allows a credit against the tax imposed by KRS 136.616, and allows taxpayers that provide multi-channel video programming service or communications service subject to the tax imposed under KRS 136.616 to claim a credit for taxes paid in another state for the provision of the same multi-channel video programming service or communication services to thesame customer.

Miscellaneous Taxes:

HB 403 amends the Cigarette Tax to include dry snuff (effective June 1, 2006). HB 403 adds the text “titled” or “titling” to various sections of the Motor Vehicle Usage Tax in order to close what has been characterized a “loophole” in the Tax where vehicles may be “titled,” but never “registered.” It essentially extends the application of the Motor Vehicle Usage Tax to both “titling” or “registering” a vehicle. This provision is retroactive to July 1, 2005.

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