The rules about Kentucky’s sales tax can be hard to understand, especially for businesses of all sizes. This article makes the process easier by giving clear information on important topics like connections, waivers, and filing requirements.
No matter how long you have been in business or how new you are to it, you need to know Kentucky’s sales tax rules inside and out to make sure you follow them and avoid financial problems.
As a Louisville, KY, resident, you might want to talk to an accountant in Louisville to help you figure out these complicated issues and make sure your business is following all tax rules.
The basics of sales tax in Kentucky.
Kentucky has a sales tax that people who buy physical goods, digital goods, and some services in the state have to pay. This tax is put on both store sales and rents.
It is a fee that is added to the cost of these things and services to help pay for government projects and programs. Businesses act as agents for the state to receive this tax from customers at the point of sale. They send it to the state on a regular basis.
The very important “6%”.
Kentucky has a single sales tax rate of 6% that applies to the whole state. This makes things easier for both businesses and buyers. This consistency makes sure that sales tax rates stay the same across the state.
This makes it easier to keep records and lets both businesses and customers know how much sales tax they need to pay.
When do you need to collect sales tax?
Nexus is a legal word that has a strong connection to a state and allows companies to collect sales tax on items bought in that state. In 2018, this changed how businesses get sales tax.
That was before Wayfair. However, the Wayfair ruling made it clear that connection can be created by economic action as well as real presence. This means that if your business is outside of Kentucky and makes any of the following:
- Last year, you made at least 200 sales to people in Kentucky or
- Last year, you made more than $100,000 in sales to people in Kentucky.
Then you have done enough business action in Kentucky to be thought of as having a connection there. This means you have to sign up with the Kentucky Department of Revenue and start collecting sales tax on all of your sales in Kentucky.
Please keep in mind that these limits apply to all of your sales in Kentucky, whether you have a physical presence there or not.
How to navigate the confusing maze of exemptions.
There are some things that do not have to be taxed in Kentucky, like food, prescription drugs, farm goods and tools, and some services. Most of the time, these exemptions do not cost sales tax, but the details may change based on the service or item.
The webpage of the Kentucky Department of Revenue has a complete list of things that are not taxed. These allowances are necessary for making meals at home, getting medical care, farming, and providing school services.
How to file sales tax returns.
Businesses need to set up a nexus and know which sales are taxed in order to file sales tax reports with the Kentucky Department of Revenue. How often varies on how much the business sells.
If the monthly sales and use tax liability is more than $10,000, the business has to file every month. If the monthly liability is less than $10,000, the business can file every three months or once a year.
All tax reports are due by the 20th of the month after the tax period. If the deadline falls on a weekend or holiday, it will be moved to the next business day. The website for the Kentucky Department of Revenue has information on sales tax rules. Tax experts and software companies can also help businesses.
