103 KAR 17:060. Income subject to
taxation; portions.
RELATES TO: KRS 141.010, 141.020
STATUTORY AUTHORITY: KRS 131.130(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS
131.130(1) authorizes the department to promulgate administrative regulations
to administer and enforce Kentucky's tax laws. KRS 141.020 establishes the
income tax requirements for residents and nonresidents. This administrative
regulation prescribes methods of determining the Kentucky portion of certain
income tax deductions of nonresidents and part-year residents.
Section 1. Residents. The entire net
income of a full-year resident individual shall be subject to Kentucky income
tax regardless of its source. Income from out-of-state sources shall not be
exempt. The adjustments to gross income and itemized deductions allowed under
KRS 141.010(10) and (11) of a full-year resident shall not be limited to those
paid in Kentucky.
Section 2. Persons Becoming Residents
During the Year. (1) Persons who become Kentucky residents during the year shall
be subject to Kentucky individual income tax upon their entire net incomes from
any source after becoming Kentucky residents and upon their incomes from
Kentucky sources prior to becoming Kentucky residents.
(2) Except as provided in Section 6 of
this administrative regulation for net operating loss deductions, persons who
become residents during the year shall be limited to either:
(a) Adjustments to gross income and
itemized deductions allowed pursuant to KRS 141.010(10) and (11) paid after
becoming Kentucky residents; or
(b) That portion of total adjustments to
gross income and itemized deductions that Kentucky income bears to total income.
Section 3. Persons Becoming Nonresidents
During the Year. (1) Persons who are Kentucky residents, but become
nonresidents during the year, shall be subject to Kentucky individual income
tax upon their entire net incomes from all sources while they are Kentucky
residents, and upon their incomes from Kentucky sources after becoming
nonresidents.
(2) Except as provided in Section 6 of
this administrative regulation for net operating loss deductions, persons who
become nonresidents during the year shall be limited to either:
(a) Adjustments to gross income and
itemized deductions allowed pursuant to KRS 141.010(10) and (11) paid while a
Kentucky resident; or
(b) That portion of total adjustments to
gross income and total itemized deductions allowed pursuant to KRS 141.010(10)
and (11) that Kentucky income bears to total income.
Section 4. Nonresidents. (1) Any net
income of a nonresident shall be subject to Kentucky income tax if it is
derived from services performed in Kentucky or from property located in
Kentucky. Income from sources outside Kentucky shall not be subject to Kentucky
income tax. Losses incurred outside Kentucky deductible in computing Kentucky
shall not be adjusted gross income.
(2) Except as provided in Section 6 of
this administrative regulation for net operating loss deductions, the
adjustments to gross income and itemized deductions allowed pursuant to KRS
141.010(10) and (11) shall be limited to that portion of adjustments to gross
income and total itemized deductions that Kentucky income bears to total income.
Section 5. Allocation Based Upon Kentucky
Income. If a deduction or an adjustment to gross income is allowable based upon
the receipt of certain types of income and is limited to a maximum amount
deductible for federal income tax purposes, the Kentucky income used to make
the allocation shall be the same type of income used to allow the deduction on
the federal return.
Section 6. Net Operating Loss Deduction.
An individual resident, a part-year individual resident, or an individual
nonresident shall compute the net operating loss deduction using Kentucky
income and expenses allowed or allowable on the Kentucky return. (II-6-1;
1 Ky.R. 329; eff. 2-5-1975; Am. 20 Ky.R. 2879; eff. 5-18-94; 32 Ky.R. 2060; 33
Ky.R. 77; eff. 8-7-2006.)