ALP: I own a small start-up company that does business in Kentucky as an LLC. Last year I had to file a Kentucky corporate income tax return and pay tax even though my company did not make a profit! I heard that Kentucky recently made changes to its tax

December 2006

For the 2006 tax year, your business will still need to file a Kentucky corporate income tax return and pay at least a minimum tax of $175.  During 2006, LLCs and other pass-through entities are still considered under Kentucky's Tax Modernization scheme to be “corporations” for purposes of Kentucky ’s corporate income tax.  This tax requires “corporations” to pay the greatest of the following components: (1) a tax on net income; (2) an Alternative Minimum Calculation or “AMC” which equals the lesser of .095% of Kentucky gross receipts or .75% of Kentucky gross profits; or (3) a $175 minimum tax. 

The Kentucky General Assembly recently enacted relief provisions that exempt businesses with $3 million or less of gross receipts or gross profits from the AMC component of the corporate income tax.  Businesses with gross receipts or gross profits between $3 million and $6 million will get partial relief, while businesses with more than $6 million of gross receipts or gross profits will be subject to all components of Kentucky's corporate income tax.

For tax years beginning in 2007, your business will no longer have to file a corporate income tax as Kentucky's corporate income tax will once again apply only to “C” corporations.  However, your business may need to file a Limited Liability Entity Tax (“LLET”) return.  The LLET will be composed of the AMC and minimum tax components of the corporate income tax, provided that the relief provisions above will apply to both these components.