KRS § 141.901 — KY Code / Title XI / Chapter 141 / Section 141.901
141.901 Division of income of interstate business for tax purposes -- Apportionment
Status: in_force

141.901 Division of income of interstate business for tax purposes --

Apportionment.

The provisions of this section are the same as appeared in KRS 141.120 prior to its repeal

and reenactment in Section 60 of 2018 Ky. Acts chs. 171 and 207. This section applies to

all corporations for taxable years beginning prior to January 1, 2018, and to a provider, as

defined in KRS 141.121, for taxable years beginning on or after January 1, 2018.

(1) As used in this section, unless the context requires otherwise:

(a) "Business income" means income arising from transactions and activity in the

regular course of a trade or business of the corporation and includes income

from tangible and intangible property if the acquisition, management, or

disposition of the property constitutes integral parts of the corporation's

regular trade or business operations;

(b) "Commercial domicile" means the principal place from which the trade or

business of the corporation is managed;

(c) "Compensation" means wages, salaries, commissions, and any other form of

remuneration paid or payable to employees for personal services;

(d) "Financial organization" means any bank, trust company, savings bank,

industrial bank, land bank, safe deposit company, private banker, savings and

loan association, credit union, cooperative bank, investment company, or any

type of insurance company;

(e) "Nonbusiness income" means all income other than business income;

(f) "Public service company" means any business entity subject to taxation under

KRS 136.120;

(g) "Sales" means all gross receipts of the corporation not allocated under

subsections (3) to (7) of this section, except as provided by KRS 141.121; and

(h) "State" means any state of the United States, the District of Columbia, the

Commonwealth of Puerto Rico, any territory or possession of the United

States, and any foreign country or political subdivision thereof.

(2) Any corporation which is required by KRS 141.900 to allocate and apportion its net

income shall allocate and apportion its net income as provided in this section.

(3) Rents and royalties from real property, intangible or tangible personal property,

capital gains and losses, interest, or patent or copyright royalties, to the extent that

they constitute nonbusiness income, shall be allocated as provided in subsections

(4) to (7) of this section.

(4) (a) Net rents and royalties from real property located in this state are allocable to

this state.

(b) Net rents and royalties from tangible personal property are allocable to this

state if and to the extent that the property is utilized in this state; or in their

entirety if the corporation's commercial domicile is in this state and the

corporation is not organized under the laws of or taxable in the state in which

the property is utilized.

(c) The extent of utilization of tangible personal property in a state is determined

by multiplying the rents and royalties by a fraction, the numerator of which is

the number of days of physical location of the property in the state during the

rental or royalty period in the taxable year and the denominator of which is

the number of days of physical location of the property everywhere during all

rental or royalty periods in the taxable year. If the physical location of the

property during the rental or royalty period is unknown or unascertainable by

the corporation, the tangible personalty is utilized in the state in which the

property was located at the time the rental or royalty payer obtained

possession.

(d) Net rents and royalties from intangible personal property located in this state

are allocable to this state. For purposes of this section, royalties from property

leased in Kentucky shall be considered as royalties from intangible personal

property.

(5) (a) Capital gains and losses from sales or other dispositions of real property

located in this state are allocable to this state.

(b) Capital gains and losses from sales or other dispositions of tangible personal

property are allocable to this state if the property had a situs in this state at the

time of the sale, or the corporation's commercial domicile is in this state and

the corporation is not taxable in the state in which the property had a situs.

(c) Capital gains and losses from sales or other dispositions of intangible personal

property are allocable to this state if the corporation's commercial domicile is

in this state.

(6) Interest is allocable to this state if the corporation's commercial domicile is in this

state.

(7) (a) Patent and copyright royalties are allocable to this state if and to the extent

that the patent or copyright is utilized by the payer in this state; or if and to the

extent that the patent or copyright is utilized by the payer in a state in which

the corporation is not taxable and the corporation's commercial domicile is in

this state.

(b) A patent is utilized in a state to the extent that it is employed in production,

fabrication, manufacturing, or other processing in the state or to the extent that

a patented product is produced in the state. If the basis of receipts from patent

royalties does not permit allocation to states or if the accounting procedures

do not reflect states of utilization, the patent is utilized in the state in which

the corporation's commercial domicile is located.

(c) A copyright is utilized in a state to the extent that printing or other publication

originates in the state. If the basis of receipts from copyright royalties does not

permit allocation to states or if the accounting procedures do not reflect states

of utilization, the copyright is utilized in the state in which the corporation's

commercial domicile is located.

(8) (a) Except as provided in subsection (9) of this section, all business income shall

be apportioned to this state by multiplying the income by a 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, 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) 1. The property factor is a fraction, the numerator of which is the average

value of the corporation's real and tangible personal property owned or

rented and used in this state during the tax period and the denominator

of which is the average value of all the corporation's real and tangible

personal property owned or rented and used during the tax period;

provided, however, that property which has been certified as a pollution

control facility as defined in KRS 224.1-300 shall be excluded from the

property factor.

2. Property owned is valued at its original cost. If the original cost of any

property is not determinable or is nominal or zero (0) the property shall

be valued by the department pursuant to administrative regulations

promulgated by the department. Property rented is valued at eight (8)

times the net annual rental rate. Net annual rental rate is the annual

rental rate paid by the corporation less any annual rental rate received by

the corporation from subrentals, provided that the rental and subrentals

are reasonable. If the department determines that the annual rental or

subrental rate is unreasonable, or if a nominal or zero (0) rate is charged,

the department may determine and apply the rental rate as will

reasonably reflect the value of the property rented by the corporation.

3. The average value of property shall be determined by averaging the

values at the beginning and ending of the tax period but the department

may require the averaging of monthly values during the tax period if

reasonably required to reflect properly the average value of the property.

(c) The payroll factor is a fraction, the numerator of which is the total amount

paid or payable in this state during the tax period by the corporation for

compensation, and the denominator of which is the total compensation paid or

payable by the corporation everywhere during the tax period. Compensation is

paid or payable in this state if:

1. The individual's service is performed entirely within the state;

2. The individual's service is performed both within and without the state,

but the service performed without the state is incidental to the

individual's service within the state; or

3. Some of the service is performed in the state and the base of operations

or, if there is no base of operations, the place from which the service is

directed or controlled is in the state, or the base of operations or the

place from which the service is directed or controlled is not in any state

in which some part of the service is performed, but the individual's

residence is in this state.

(d) 1. The sales factor is a fraction, the numerator of which is the total sales of

the corporation in this state during the tax period, and the denominator

of which is the total sales of the corporation everywhere during the tax

period.

2. Sales of tangible personal property are in this state if:

a. The property is delivered or shipped to a purchaser, other than the

United States government, or to the designee of the purchaser

within this state regardless of the f.o.b. point or other conditions of

the sale; or

b. The property is shipped from an office, store, warehouse, factory,

or other place of storage in this state and the purchaser is the

United States government.

3. Sales, other than sales of tangible personal property, are in this state if

the income-producing activity is performed in this state; or the income-

producing activity is performed both in and outside this state and a

greater proportion of the income-producing activity is performed in this

state than in any other state, based on costs of performance.

(9) (a) If the allocation and apportionment provisions of this section do not fairly

represent the extent of the corporation's business activity in this state, the

corporation may petition for or the department may require, in respect to all or

any part of the corporation's business activity, if reasonable:

1. Separate accounting;

2. The exclusion of any one (1) or more of the factors;

3. The inclusion of one (1) or more additional factors which will fairly

represent the corporation's business activity in this state; or

4. The employment of any other method to effectuate an equitable

allocation and apportionment of income.

(b) A corporation may elect the allocation and apportionment methods for the

corporation's business income provided for in subparagraphs 1. and 2. of this

paragraph. The election, if made, shall be irrevocable for a period of five

years.

1. All business income derived directly or indirectly from the sale of

management, distribution, or administration services to or on behalf of

regulated investment companies, as defined under the Internal Revenue

Code of 1986, as amended, including trustees, and sponsors or

participants of employee benefit plans which have accounts in a

regulated investment company, shall be apportioned to this state only to

the extent that shareholders of the investment company are domiciled in

this state as follows:

a. Total business income shall be multiplied by a fraction, the

numerator of which shall be Kentucky receipts from the services

for the tax period and the denominator of which shall be the total

receipts everywhere from the services for the tax period;

b. For purposes of subdivision a. of this subparagraph, Kentucky

receipts shall be determined by multiplying total receipts for the

tax period from each separate investment company for which the

services are performed by a fraction. The numerator of the fraction

shall be the average of the number of shares owned by the

investment company's shareholders domiciled in this state at the

beginning of and at the end of the investment company's taxable

year, and the denominator of the fraction shall be the average of

the number of the shares owned by the investment company

shareholders everywhere at the beginning of and at the end of the

investment company's taxable year; and

c. Nonbusiness income shall be allocated to this state as provided in

subsections (4) to (7) of this section.

2. All business income derived directly or indirectly from the sale of

securities brokerage services by a business which operates within the

boundaries of any area of the Commonwealth, which on June 30, 1992,

was designated as a Kentucky Enterprise Zone, as described in KRS

154.655(2) before that statute was renumbered in 1992, shall be

apportioned to this state only to the extent that customers of the

securities brokerage firm are domiciled in this state. The portion of

business income apportioned to Kentucky shall be determined by

multiplying the total business income from the sale of these services by

a fraction determined in the following manner:

a. The numerator of the fraction shall be the brokerage commissions

and total margin interest paid in respect of brokerage accounts

owned by customers domiciled in Kentucky for the brokerage

firm's taxable year;

b. The denominator of the fraction shall be the brokerage

commissions and total margin interest paid in respect of brokerage

accounts owned by all of the brokerage firm's customers for that

year; and

c. Nonbusiness income shall be allocated to this state as provided in

subsections (4) to (7) of this section.

(10) Public service companies and financial organizations required by KRS 141.900 to

allocate and apportion net income shall allocate and apportion such income as

follows:

(a) Nonbusiness income shall be allocated to this state as provided in subsections

(4) to (7) of this section;

(b) Business income shall be apportioned to this state by multiplying the business

income by a 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, 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). The payroll factor shall be determined as

provided in subsection (8)(c) of this section. The property factor and sales

factor shall be determined as provided by administrative regulations

promulgated by the department.

(c) An affiliated group electing to file a consolidated return under KRS

141.200(4) or required to file a consolidated return under KRS 141.200(11)

that includes a public service company, a provider of communications

services or multichannel video programming services as defined in KRS

136.602, or a financial organization shall determine the amount of payroll to

be included in the apportionment factor as provided in subsection (8)(c) of

this section. The amount of property and sales of the public service company,

provider of communications services or multichannel video programming

services as defined in KRS 136.602, or financial organization to be included

in the apportionment factors of the affiliated group shall be determined in

accordance with administrative regulations promulgated by the department

under paragraph (b) of this subsection.

(11) For taxable years beginning on or after January 1, 2007, a corporation that:

(a) Owns an interest in a limited liability pass-through entity; or

(b) Owns an interest in a general partnership organized or formed as a general

partnership after January 1, 2006;

shall include the proportionate share of sales, property, and payroll of the limited

liability pass-through entity or general partnership when apportioning income, and

shall include the proportionate share of sales in calculating the tax due pursuant to

KRS 141.0401. The phrases "an interest in a limited liability pass-through entity"

and "an interest in a general partnership organized or formed as a general

partnership after January 1, 2006," shall extend to each level of multiple-tiered

pass-through entities.