103 KAR 31:030.
Direct pay authorization.
RELATES TO: KRS
139.260, 139.400, 139.710
STATUTORY
AUTHORITY: KRS 131.130, 139.260, 139.660, 139.720
NECESSITY,
FUNCTION, AND CONFORMITY: KRS 13A.139, 131.130(1), 139.260, 139.400, and
139.710 authorized the Revenue Cabinet to promulgate administrative regulations
for the: (1) assessment, collection, refunding, administration, and enforcement
of Kentucky tax laws; and (2) direct pay authorization. This administrative
regulation establishes the requirements and procedures for the direct payment
of Kentucky sales and use tax on purchases of tangible personal property
excluding energy and energy producing fuels.
Section 1.
Definitions. (1) "Direct pay authorization" or "DPA" means
an authorization issued by the Revenue Cabinet that permits a taxpayer to
report Kentucky sales and use tax directly to the cabinet on all purchases of
tangible personal property, excluding energy and energy-producing fuels.
(2)
"Distribution facility" means a specific location which is used to
receive, hold, and ship business inventory.
(3)
"Manufacturing" means a process that transforms tangible personal
property having no commercial value for its intended use before processing into
tangible personal property having appreciable commercial value for its intended
use after processing.
Section 2.
Qualifications. An applicant shall:
(1) Be a person
engaged in:
(a)
Manufacturing;
(b) Extracting
minerals, ores, clay, stone, coal, or natural gas;
(c) Operating a
transportation company; or
(d) Operating a
distribution facility; and
(2) Hold a valid
Kentucky retail sales and use tax permit; and
(3) Have a
record of timely payment of taxes administered by the cabinet;
(4) Maintain
records in such a manner that, as applicable, the amount of tangible property
purchased from:
(a) A Kentucky
vendor may be properly reported; or
(b) An
out-of-state vendor for storage, use, or other consumption in Kentucky or
elsewhere can be verified; and
(5) Be engaged
in business in Kentucky, and own property, other than office furniture and
equipment, that is located in more than one (1) state; or
(6)(a) Have been
in engaged in business in Kentucky in excess of twenty-four (24) months; and
(b) Have
purchased tangible personal property of at least ten (10) million dollars for
use in his Kentucky operations in the preceding calendar or fiscal year, as
applicable.
Section 3.
Application. (1) An applicant shall apply to the cabinet for a DPA upon Revenue
Form 51A112, "Application for Direct Pay Authorization".
(2) The
application shall include:
(a) The
applicant's:
1. Legal
business name;
2. Federal
Employer Identification Number;
3. Date
operations began in Kentucky;
4. Kentucky
business address;
5. Mailing
address;
6. Type of
operation: manufacturing/processing; mining/quarrying; transportation company;
or distribution facility;
7. Telephone and
fax numbers;
8. Kentucky
Employer's Withholding Account Number;
9. Kentucky
Corporation Income and License Account Number; and
10. Kentucky
Sales and Use Account Number;
(b) If an
applicant is engaged in business and has property, other than office furniture
and equipment, located in more than one (1) state, the location of the
applicant's home office, and plants or places of business;
(c) If the applicant
is not engaged in business and does not have property, other than office
furniture and equipment, located in more than one (1) state, the amount of
tangible property purchased for use in the applicant's Kentucky business
operations in the last calendar or fiscal year, as applicable;
(d) Statements
relating to records and documentation required by Sections 2(3) and (4) and 7
of this administrative regulation;
(e) Most recent
year's financial statement certified by the applicant's chief financial officer
or a certified public accountant; and
(f) A detailed
description of the records maintained to document that the amount of taxable
purchases is properly reported.
Section 4.
Requirements. A DPA holder shall:
(1) Furnish all
of his vendors, excluding vendors of energy and energy-producing fuels, with a
copy of Revenue Form 51A110, "Direct Pay Authorization";
(2) Report and
remit the sales or use tax on all taxable purchases of tangible personal
property, excluding energy and energy-producing fuels, that would have been
remitted by the applicant's retailer if the DPA had not been granted; and
(3) Report all
taxable purchases in accordance with KRS 139.540, 139.550, 139.560 and 139.590.
Section 5.
Vendor Responsibility. (1) A vendor shall be relieved of the duty of collecting
and paying the sales or use tax if he:
(a) Accepts a
copy of a company's DPA in good faith; and
(b) Retains the
copy in his records pursuant to KRS 139.720(2).
(2) A vendor
shall:
(a) Include
sales for which a DPA has been accepted in Line 1, Gross Receipts, of Revenue
Form 51A102, "Sales and Use Tax Return"; and
(b) Take a
corresponding deduction on Line 19, which shall be labeled "DPA
Sales".
Section 6.
Limitations. A DPA holder shall not:
(1) Issue the
DPA to a construction contractor; or
(2) Allow a
contractor to use the holder's DPA to purchase, lease, or rent tangible
personal property or purchase taxable services.
Section 7.
Records. A DPA holder shall maintain records pursuant to KRS 139.720(2) and 103
KAR 31:020.
Section 8. Bond
Requirement. Upon demand of the cabinet, the applicant or holder of a direct
pay authorization shall execute pursuant to KRS 139.660, a bond or an indemnity
agreement securing the payment of the sales or use taxes to the cabinet in an amount
not less than $75,000 and not greater than three (3) times the estimated
monthly liability.
Section 9.
Transfer of Authorization. (1) A DPA shall not be transferable upon the sale,
lease, or other transfer of the business.
(2) A DPA holder
shall notify the cabinet within ten (10) days of the effective date of the
sale, lease, or other transfer of the business.
Section 10.
Termination. (1) The cabinet shall terminate a DPA if the DPA holder:
(a) Fails or
ceases to be an eligible taxpayer;
(b) Fails to
timely file its sales and use tax returns and timely pay any tax due; or
(c) Fails to
comply with any of the provisions of this administrative regulation.
(2)(a) The
cabinet shall notify a DPA holder of the termination by certified mail at his
last known address.
(b) Upon receipt
of the notification of termination, a DPA holder shall notify all vendors
within thirty (30) days of the date of termination.
(3) The
effective date of the termination shall be the date of the mailing of the
termination notice.
Section 11.
Protests. The denial or termination of a DPA may be protested pursuant to KRS
131.110.
Section 12.
Incorporation by Reference. (1) The following material is incorporated by
reference:
(a)
"Application for Direct Pay Authorization, Form 51A112 (12-97)";
(b) "Direct
Pay Authorization, Form 51A110 (8-97)"; and
(c) "Sales
And Use Tax Return, Form 51A102 (9-92)".
(2) This
material may be inspected, copied, or obtained at Kentucky Revenue Cabinet, 200
Fair Oaks, Frankfort, Kentucky 40620, or at a Kentucky Taxpayer Service Center,
Monday through Friday, 8 a.m. to 4:30 p.m. (SU-56; 1 Ky.R. 470; eff. 3-12-75;
Am. 24 Ky.R. 920; 1522; 1643; eff. 2-10-98.)
