Sales and Use Taxes in Kentucky

April 13, 2006

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The Kentucky sales tax is a general privilege tax levied on the gross receipts from sales at retail of tangible personal property or on its lease or rental. Kentucky also charges sales tax on the furnishing of specified services. The services that are subject to the sales tax are the rental of transient accommodations, the furnishing of sewer services and intrastate telephone and telegraph services, and the sale of admissions.

Sales and use tax rate. The Kentucky sales and use tax rate is 6 percent. (In addition, make sure you contact your local governments in Kentucky because they are allowed to assess a local sales and use tax.)

Tax-exempt items. Kentucky has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Kentucky sales tax. You'll want to check and see if you are exempt from the sales tax.

Responsibility for paying sales tax. In Kentucky, although the sales tax is generally imposed on a retailer's gross receipts, shifting of the tax to the purchaser is mandatory. Sales tax must be separately stated and the tax becomes a debt from the retailer to the state of Kentucky.

Use tax. The use tax on the storage, use, or other consumption of tangible personal property in Kentucky is a complementary tax to the sales tax. In other words, if you have collected or paid the sales tax, then the use tax doesn't apply.

Responsibility for collecting use tax. The incidence of the use tax is on the purchaser or consumer. The liability remains a debt to Kentucky until paid except when the tax has been paid to a retailer doing business in the state who has furnished a receipt confirming payment.

Obtaining tax permits in Kentucky. In Kentucky persons engaged in the business of making sales at retail are required to obtain a permit. A permit is required for each place of business and is obtained by filing an application with the Kentucky Revenue Cabinet.

Leases. In general, leases and rentals of all kinds of tangible personal property (except motor vehicles and property qualifying for exemptions) are subject to the sales and use taxes. Lease or rental means granting to another person the right to use or possess tangible personal property for a period of time for consideration.

The following discussions address additional sales and use tax issues that many small business owners face: