103 KAR 16:270. Apportionment; sales
RELATES TO: KRS 141.120, 141.040(5)(b)1,
STATUTORY AUTHORITY: KRS 131.130,
NECESSITY, FUNCTION, AND CONFORMITY: KRS
141.120(8) requires that all business income of multi-state corporations be
apportioned to Kentucky by multiplying the income by a fraction, the numerator
of which is the property factor plus the payroll factor plus a weighted sales
factor and the denominator of which is four (4). KRS 141.120(10)(b) requires
the cabinet to promulgate administrative regulations providing how to determine
the sales factor used in the multi-state business income apportionment formula.
This administrative regulation provides guidelines for determining the sales
factor of a multistate corporation.
Section 1. Definition. (1) "Gross
receipts" means the total amount of consideration, including cash, credit,
property, and services, paid for the sale, lease, rental, or use of property.
Section 2. The following shall be
examples of activities that result in the assignments of gross receipts to
Kentucky and shall be included in the numerator described in KRS 141.120(8)(c),
if the receipts are business income:
(1) The sale, lease, rental, or other use
of tangible personal property in this state;
(2) The sale of real property located in
(3) The lease, rental or other use of
real property located in Kentucky;
(4) The provision of services performed
entirely in Kentucky during the tax period;
(5) The provision of services performed
within and without Kentucky during the tax period;
(6) Intangible property received by a
business with a commercial domicile in Kentucky;
(7) Intangible property, if the
intangible has acquired a Kentucky business situs;
(8) Franchise fees received from a
franchisee located in Kentucky; and
(9) The distributive share of net income
received from a general partnership that is required to file a Kentucky income
tax return under the provisions of KRS 141.206.
Section 3. Assignment of Sales to
Kentucky. (1) Sales of real or tangible personal property shall be assigned to
Kentucky if the property is in Kentucky or is shipped or delivered to a
purchaser in Kentucky.
(2) Sales of goods destined for delivery
outside of Kentucky shall not be assigned to Kentucky, irrespective of method
of shipment or delivery.
(3) Sales of tangible personal property
to the U.S. Government shall be assigned to Kentucky if the property is shipped
(4) Receipts from intangibles shall be
assigned to Kentucky if the corporation’s commercial domicile is in Kentucky or
the intangible has acquired a Kentucky business situs. Examples of receipts
from intangibles which are deemed to have acquired a Kentucky business situs
shall be franchise fees from a franchisee located in Kentucky and a
corporation’s Kentucky distributive share of net income from a general
partnership doing business in Kentucky.
(5) Rents or royalties from real or
tangible personal property shall be assigned to Kentucky if the property is
located in Kentucky or in the case of mobile property the rent is assigned to
Kentucky, if the lessee’s base of operations for the property is in Kentucky.
(6) Receipts from the performance of
services shall be assigned to Kentucky if the services are performed entirely
in Kentucky, or the services are performed both within and without Kentucky but
a greater portion is performed in Kentucky than in any other state based on
cost of performance.
(7) If the corporation has income from a
general partnership, the distributive share income shall be included in the
sales factor. The denominator shall include the total distributive share; the
numerator shall include the amount of the distributive share apportioned to
Kentucky pursuant to KRS 141.206(9).
Section 4.(1) Receipts from intangible
property shall be assigned to Kentucky, regardless of the corporation’s or
general partnership’s commercial domicile, if possession and control of the intangible
personal property is localized in connection with a trade or business, creating
business situs with Kentucky, so that substantial use or value attaches to the
intangible property in Kentucky.
(2) In determining if possession and
control is localized in connection with a trade or business, the following
factors shall be considered:
(a) The use of the intangible property in
the continuous course of the trade or business in Kentucky;
(b) The permanency of the location of the
intangible property in Kentucky;
(c) The independent control and
management of the intangible property in Kentucky;
(d) The possession and control of the
intangible property in Kentucky by an independent local agent for the purpose
of transacting a permanent business; and
(e) The establishment or use of the
intangible property in Kentucky in a manner that attaches substantial use and
value of the intangible property to the Kentucky trade or business.
Section 5. This administrative regulation
shall apply to tax periods beginning on or after January 1, 2005. (32 Ky.R.
1830; 2290; 33 Ky.R. 71; eff. 8-7-2006.)