KRS § 141.206 — KY Code / Title XI / Chapter 141 / Section 141.206
141.206 Filing of returns by pass-through entities -- Withholding requirements on owners of pass-through entities -- Apportionment issues for pass-through entities
Status: in_force

141.206 Filing of returns by pass-through entities -- Withholding requirements on

owners of pass-through entities -- Apportionment issues for pass-through

entities.

(1) Every pass-through entity doing business in this state shall, on or before the

fifteenth day of the fourth month following the close of its annual accounting

period, file a copy of its federal tax return with the form prescribed and furnished

by the department.

(2) (a) Pass-through entities shall calculate net income in the same manner as in the

case of an individual under KRS 141.019 and the adjustment required under

Sections 703(a) and 1363(b) of the Internal Revenue Code.

(b) Computation of net income under this section and the computation of the

partner's, member's, or shareholder's distributive share shall be computed as

nearly as practicable identical with those required for federal income tax

purposes except to the extent required by differences between this chapter and

the federal income tax law and regulations.

(3) Individuals, estates, trusts, or corporations doing business in this state as a partner,

member, or shareholder in a pass-through entity shall be liable for income tax only

in their individual, fiduciary, or corporate capacities, and no income tax shall be

assessed against the net income of any pass-through entity, except as required:

(a) For S corporations under KRS 141.040;

(b) For a partnership level audit under KRS 141.211; and

(c) For a pass-through entity making an election under KRS 141.209.

(4) (a) Every pass-through entity required to file a return under subsection (1) of this

section, except publicly traded partnerships as described in KRS

141.0401(6)(a)18. and (b)14., shall withhold Kentucky income tax on the

distributive share, whether distributed or undistributed, of each nonresident

individual partner, member, or shareholder.

(b) Withholding shall be at the maximum rate provided in KRS 141.020.

(5) (a) Every pass-through entity required to withhold Kentucky income tax as

provided by subsection (4) of this section shall pay estimated tax for the

taxable year, if for a nonresident individual partner, member, or shareholder,

the estimated tax liability can reasonably be expected to exceed five hundred

dollars ($500).

(b) The payment of estimated tax shall contain the information and shall be filed

as provided in KRS 141.207.

(6) (a) If a pass-through entity demonstrates to the department that a partner,

member, or shareholder has filed an appropriate tax return for the prior year

with the department, then the pass-through entity shall not be required to

withhold on that partner, member, or shareholder for the current year unless

the exemption from withholding has been revoked pursuant to paragraph (b)

of this subsection.

(b) 1. An exemption from withholding shall be considered revoked if the

partner, member, or shareholder does not file and pay all taxes due in a

timely manner.

2. An exemption so revoked shall be reinstated only with permission of the

department.

3. If a partner, member, or shareholder who has been exempted from

withholding does not file a return or pay the tax due, the department

may require the pass-through entity to pay to the department the amount

that should have been withheld, up to the amount of the partner's,

member's, or shareholder's ownership interest in the entity.

4. The pass-through entity shall be entitled to recover a payment made

pursuant to this paragraph from the partner, member, or shareholder on

whose behalf the payment was made.

(7) In determining the tax under this chapter, a resident individual, estate, or trust that

is a partner, member, or shareholder in a pass-through entity shall take into account

the partner's, member's, or shareholder's total distributive share of the pass-through

entity's items of income, loss, deduction, and credit.

(8) In determining the tax under this chapter, a nonresident individual, estate, or trust

that is a partner, member, or shareholder in a pass-through entity required to file a

return under subsection (1) of this section shall take into account:

(a) 1. If the pass-through entity is doing business only in this state, the

partner's, member's, or shareholder's total distributive share of the pass-

through entity's items of income, loss, and deduction; or

2. If the pass-through entity is doing business both within and without this

state, the partner's, member's, or shareholder's distributive share of the

pass-through entity's items of income, loss, and deduction multiplied by

the apportionment fraction of the pass-through entity as prescribed in

subsection (11) of this section; and

(b) The partner's, member's, or shareholder's total distributive share of credits of

the pass-through entity.

(9) A corporation that is subject to tax under KRS 141.040 and is a partner or member

in a pass-through entity shall take into account the corporation's distributive share

of the pass-through entity's items of income, loss, and deduction and:

(a) 1. For taxable years beginning on or after January 1, 2007, but prior to

January 1, 2018, shall include the proportionate share of the sales,

property, and payroll of the limited liability pass-through entity or

general partnership in computing its own apportionment factor; and

2. For taxable years beginning on or after January 1, 2018, shall include

the proportionate share of the sales of the limited liability pass-through

entity or general partnership in computing its own apportionment factor;

and

(b) Credits from the partnership.

(10) (a) If a pass-through entity is doing business both within and without this state,

the pass-through entity shall compute and furnish to each partner, member, or

shareholder the numerator and denominator of each factor of the

apportionment fraction determined in accordance with subsection (11) of this

section.

(b) For purposes of determining an apportionment fraction under paragraph (a) of

this subsection, if the pass-through entity is:

1. Doing business both within and without this state; and

2. A partner or member in another pass-through entity;

then the pass-through entity shall be deemed to own the pro rata share of the

property owned or leased by the other pass-through entity, and shall also

include its pro rata share of the other pass-through entity's payroll and sales.

(c) The phrases "a partner or member in another pass-through entity" and "doing

business both within and without this state" shall extend to each level of

multiple-tiered pass-through entities.

(d) The attribution to the pass-through entity of the pro rata share of property,

payroll and sales from its role as a partner or member in another pass-through

entity will also apply when determining the pass-through entity's ultimate

apportionment factor for property, payroll and sales as required under

subsection (11) of this section.

(11) (a) For taxable years beginning prior to January 1, 2018, a pass-through entity

doing business within and without the state shall compute an apportionment

fraction, the numerator of which is the property factor, representing twenty-

five percent (25%) of the fraction, plus the payroll factor, representing

twenty-five percent (25%) of the fraction, plus the sales factor, representing

fifty percent (50%) of the fraction, with each factor determined in the same

manner as provided in KRS 141.901, and the denominator of which is four

(4), reduced by the number of factors, if any, having no denominator,

provided that if the sales factor has no denominator, then the denominator

shall be reduced by two (2).

(b) For taxable years beginning on or after January 1, 2018, a pass-through entity

doing business within and without the state shall compute an apportionment

fraction as provided in KRS 141.120.

(12) Resident individuals, estates, or trusts that are partners in a partnership, members of

a limited liability company electing partnership tax treatment for federal income tax

purposes, owners of single member limited liability companies, or shareholders in

an S corporation which does not do business in this state are subject to tax under

KRS 141.020 on federal net income, gain, deduction, or loss passed through the

partnership, limited liability company, or S corporation.

(13) An S corporation election made in accordance with Section 1362 of the Internal

Revenue Code for federal tax purposes is a binding election for Kentucky tax

purposes.

(14) (a) Nonresident individuals shall not be taxable on investment income distributed

by a qualified investment partnership. For purposes of this subsection, a

"qualified investment partnership" means a pass-through entity that, during

the taxable year, holds only investments that produce income that would not

be taxable to a nonresident individual if held or owned individually.

(b) A qualified investment partnership shall be subject to all other provisions

relating to a pass-through entity under this section and shall not be subject to

the tax imposed under KRS 141.040 or 141.0401.

(15) (a) A pass-through entity shall deliver to the department a return upon a form

prescribed by the department showing the total amounts paid or credited to its

nonresident individual partners, members, or shareholders, the amount paid in

accordance with this subsection, and any other information the department

may require.

(b) A pass-through entity shall furnish to its nonresident partner, member, or

shareholder annually, but not later than the fifteenth day of the fourth month

after the end of its taxable year, a record of the amount of tax paid on behalf

of the partner, member, or shareholder on a form prescribed by the

department.