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Sales Tax Obligations of Sellers in Kentucky

April 13, 2006

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Kentucky imposes various requirements on sellers doing business in the state. We recommend that you go through the items below to help you with the most frequently asked questions concerning sellers and sales and use tax issues.

Procedure for accepting resale certificates. Every person selling taxable tangible personal property in Kentucky must either collect any taxes due Kentucky or obtain a certificate of resale from the purchaser. As a seller, you accept resale certificates in good faith when you:

• accept a properly completed resale certificate
• maintain a file of such certificates which must be kept for at least four years
• determine that the kind of property being sold to the purchaser is normally offered for resale in the type of business operated by the purchaser
• the property, if delivered by you, is delivered to the purchaser's business address

As the seller, you are also relieved if the purchaser is unable to ascertain at the time of purchase whether the property will be sold or will be used for some other purpose.

A properly completed resale certificate contains the following information:

• the signature of the purchaser
• the name and address of the purchaser
• the number of the permit issued to the purchaser
• a description of the general character of the tangible personal property sold by the purchaser in the regular course of business

Procedure for accepting blanket certificates. Kentucky allows you to accept blanket resale certificates from your customers. A blanket resale certificate is a resale certificate provided to you by those customers who make numerous exempt resale purchases from you. The idea is that by maintaining a blanket resale certificate, both you and your customer can avoid the hassle of having to present a certificate every time your customer makes a purchase. The procedures for accepting a blanket certificate are the same as the procedures described above for the resale certificate. The blanket certificate requires the purchaser to generally describe the kind of property to be purchased for resale in the regular course of business. As a seller, you don't have to obtain an additional certificate of resale for individual sales to the same customer if they provide you with a blanket certificate. A new blanket certificate must be prepared when there is a change in the character of the operation. The blanket resale certificate should include the same information as a properly completed resale certificate as described above.

Sales and use tax liability for out-of-state mail order and catalogue retailers. Kentucky does not have a statute that specifically taxes out-of-state mail order and catalogue sellers. You will be responsible for paying this tax only if you have physical presence within Kentucky. To determine if you have physical presence, ask yourself the following:

• Do I have retail facilities, a warehouse, or any office space in Kentucky? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
• Do my employees or I enter Kentucky for purposes of taking and transmitting orders from Kentucky? If your employee or independent contractor goes into Kentucky to take or transmit orders, your business may have physical presence in Kentucky. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
• Do my delivery vehicles frequently enter Kentucky for purposes of delivering property? Frequent deliveries in Kentucky by your trucks will give you physical presence in Kentucky.

Sales tax "bracket system." The following bracket system may be followed by sellers in computing the sales tax. On each sale above $1.08 the tax is to be computed by applying the 6 percent tax rate to the sales price.

Absorbing the tax — using a "no sales tax" advertising strategy to drum up business. In Kentucky it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.

Claiming refund for excess tax payments. Any claim for refund or credit must be made by the taxpayer within four years of the due date of the return or the date the taxes were paid, whichever date is later. As a seller, you're not entitled to a refund or credit of the sales or use taxes that have been collected from a purchaser, unless the collected amount is refunded to the purchaser by you.

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