103 KAR 1:130. Taxation of federal and

certain nonfederal obligations.

 

      RELATES TO: KRS 136.290, 136.300,

136.310, 136.320, 141.010(10)(a), (12)(a)

      STATUTORY AUTHORITY: KRS 131.130(1)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS

131.130(1) authorizes the Department of Revenue to promulgate administrative

regulations to administer and enforce Kentucky's tax laws. KRS 141.010(10)(a)

and (12)(a) provides an exclusion from gross income when calculating Kentucky income

tax for income that is exempt from state taxation by the Kentucky Constitution

and the Constitution and statutory laws of the United States and Kentucky. KRS

136.290, 136.300, 136.310, and 136.320 impose an ad valorem tax on the total

value of the capital of federally or state chartered savings and loan

associations, savings banks, and other similar institutions and domestic life

insurance companies authorized to transact business in Kentucky, with property

and payroll both within and without this state. This administrative regulation

establishes the requirements relating to taxation of federal and certain

nonfederal obligations in accordance with those statutes.

 

      Section 1. Income Taxation. Interest

income from United States government obligations upon which states are prohibited

by federal law from imposing a tax shall be excluded from gross income when

calculating Kentucky income tax liability. Only the interest income from exempt

United States government obligations included in the taxpayer’s federal

taxable income may be deducted from the taxpayer’s gross income for Kentucky income tax purposes.

 

      Section 2. This section contains two (2)

lists of certain agencies, authorized corporations, and banks of the United

States government from which Kentucky taxpayers may receive interest income. These

lists are not all-inclusive, nor are they intended to be conclusive of the

taxable or exempt status of a particular obligation issued by or in conjunction

with a listed department, agency, instrumentality, or other entity.

      (1) The list in this subsection shall

serve as examples of departments, agencies, and instrumentalities that issue United States government obligations from which interest income shall be exempt from state

taxation.

      (a) U.S. Treasury (Bonds);

      (b) U.S. Treasury (Series EE and HH

Savings Bonds and I Bonds);

      (c) U.S. Treasury (Certificates of

Indebtedness);

      (d) U.S. Treasury (Bills);

      (e) U.S. Treasury (Notes);

      (f) U.S. Treasury (Note and Bond "Strips");

      (g) Commodity Credit Corporation;

      (h) Central Banks for Cooperatives and

Banks for Cooperatives;

      (i) Farm Credit Banks;

      (j) Federal Land Bank Associations;

      (k) Production Credit Associations;

      (l) Farm Credit System Financial

Assistance Corporation;

      (m) Federal Deposit Insurance

Corporation;

      (n) Federal Financing Bank;

      (o) Federal Home Loan Banks;

      (p) Federal Savings and Loan Insurance

Corporation;

      (q) General Insurance Fund, Department of

Housing and Urban Development, Rental Housing Insurance, War Housing Insurance

Project, Rental Housing Project, Armed Services Housing, National Defense

Housing Insurance, Neighborhood Conservation Housing Insurance;

      (r) Guam (Bonds);

      (s) Puerto Rico (Bonds);

      (t) Virgin Islands (General Obligation

Bonds and Public Improvement Bonds);

      (u) American Samoa (Industrial

Development Bonds);

      (v) Student Loan Marketing Association

(SLMA or "Sallie Mae");

      (w) Tennessee Valley Authority (Bonds); or

      (x) United States Postal Service.

      (2) The list in this subsection shall

serve as examples of organizations which issue obligations from which interest

income shall be taxable for Kentucky income tax purposes.

      (a) Bank Certificates of Deposit;

      (b) Farmers Home Administration;

      (c) Federal Home Loan Mortgage Corp.

(FHLMC or "Freddie Mac");

      (d) Federal National Mortgage Association

(FNMA or "Fannie Mae");

      (e) Government National Mortgage

Association (GNMA or "Ginnie Mae");

      (f) Inter-American Development Bank;

      (g) International Bank for Reconstruction

and Development (World Bank); or

      (h) International Monetary Fund.

 

      Section 3. Property Taxation. A claim by

a taxpayer that property or capital subject to the ad valorem taxes imposed by

KRS 136.290, 136.300, 136.310 or 136.320 is exempt under federal law shall be

supported by specific statutory or binding case authority. In the absence of statutory

or binding case authority, all intangible property shall be taxable. Securities

merely guaranteed by the U.S. government shall be taxable as intangible property.

 

      Section 4. Exempt federal obligations shall

be classified as:

      (1) Direct obligations of the United States

such as U.S. Treasury bonds, U.S. Treasury notes or U.S. Treasury bills; or

      (2) Direct obligations of U.S. government agencies.

 

      Section 5. (1) The following list is

provided as a general reference of obligations exempt from state ad valorem

taxation imposed by KRS 136.290, 136.300, 136.310, or 136.320:

      (a) Banks for Cooperatives;

      (b) Central Banks for Cooperatives;

      (c) Commodity Credit Corporation;

      (d) Farmers Home Administration;

      (e) Farmers Home Corporation;

      (f) Federal Credit Union;

      (g) Federal Savings and Loan Associations

(Kentucky);

      (h) Federal Deposit Insurance

Corporation;

      (i) Federal Farm Credit Corporation;

      (j) Federal Home Loan Bank (Stocks and

Bonds);

      (k) Federal Housing Administration;

      (l) Federal Intermediate Credit Banks;

      (m) Federal Land Banks;

      (n) Federal Maritime Board and Maritime

Administration;

      (o) Federal Reserve Banks;

      (p) Federal Savings and Loan Insurance

Corporation;

      (q) General Insurance Fund;

      (r) Guam Bonds;

      (s) Municipal Obligations (Kentucky);

      (t) National Farm Loan Association;

      (u) Panama Canal Bonds;

      (v) Production (Agricultural) Credit Association

or Corporation;

      (w) Puerto Rican Bonds;

      (x) Student Loan Marketing Association;

      (y) Tennessee Valley Authority;

      (z) U.S. Housing Authority;

      (aa) U.S. Postal Service Bonds; or

      (bb) Virgin Island Bonds.

      (2) The following list is provided as a

general reference of obligations that are taxable entities for state ad valorem

taxation imposed by KRS 136.290, 136.300, 136.310, or 136.320:

      (a) Federal Home Loan Bank Deposits;

      (b) Federal Home Loan Mortgage

Corporation Bonds;

      (c) Federal National Mortgage Corporation

Bonds;

      (d) Government National Mortgage

Corporation Bonds; or

      (e) Retail Repurchase Agreements. (33 Ky.R.

1190; Am. 1790; eff. 2-2-07.)