KRS § 141.120 — KY Code / Title XI / Chapter 141 / Section 141.120
141.120 Division of income of interstate business for tax purposes -- Apportionment
Status: in_force

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

Apportionment.

This section applies to taxable years beginning on or after January 1, 2018.

(1) As used in this section:

(a) "Apportionable income" means:

1. All income that is apportionable under the Constitution of the United

States and is not allocated under this section, including:

a. Income arising from transactions and activity in the regular course

of the taxpayer's trade or business; and

b. Income arising from tangible and intangible property if the

acquisition, management, employment, development, or

disposition of the property is or was related to the operation of the

taxpayer's trade or business; and

2. Any income that would be allocable to this state under the Constitution

of the United States, but that is apportioned rather than allocated

pursuant to this section;

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

business of the taxpayer is directed or managed;

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

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

loan association, cooperative bank, small loan company, sales finance

company, investment company, or any similar type of entity;

(d) "Non-apportionable income" means all income other than apportionable

income;

(e) "Receipts" means all gross receipts of the taxpayer that are not allocated under

this section, and that are received from transactions and activity in the regular

course of the taxpayer's trade or business, except that receipts of a taxpayer

from:

1. Hedging transactions; and

2. The maturity, redemption, sale, exchange, loan, or other disposition of

cash or securities;

shall be excluded; and

(f) "This state" means the Commonwealth of Kentucky.

(2) Any taxpayer having income from business activity which is taxable both within

and without this state, other than activity as a provider as defined in KRS 136.602, a

financial organization, or a public service company, shall allocate and apportion net

income as provided in this section.

(3) For purposes of allocation and apportionment of income under this section, a

taxpayer is taxable in another state if:

(a) In that state the taxpayer is subject to a net income tax, a franchise tax

measured by net income, a franchise tax for the privilege of doing business, or

a corporate stock tax; or

(b) That state has jurisdiction to subject the taxpayer to a net income tax

regardless of whether, in fact, the state does or does not do so.

(4) Rents and royalties from real or tangible personal property, capital gains, interest, or

patent or copyright royalties, to the extent that they constitute nonapportionable

income, shall be allocated as provided in subsections (5) to (8) of this section.

(5) (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:

1. If and to the extent that the property is utilized in this state; or

2. In their entirety if the taxpayer's commercial domicile is in this state and

the taxpayer 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 this 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 all rental or royalty periods is unknown or unascertainable by

the taxpayer, tangible personal property is utilized in the state in which the

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

possession.

(6) (a) Capital gains and losses from sales of real property located in this state are

allocable to this state.

(b) Capital gains and losses from sales of tangible personal property are allocable

to this state if:

1. The property had a situs in this state at the time of the sale; or

2. The taxpayer's commercial domicile is in this state and the taxpayer is

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

(c) Capital gains and losses from sales of intangible personal property are

allocable to this state if the taxpayer's commercial domicile is in this state.

(7) Interest is allocable to this state if the taxpayer's commercial domicile is in this

state.

(8) (a) Patent and copyright royalties are allocable to this state:

1. If and to the extent that the patent or copyright is utilized by the payer in

this state; or

2. If and to the extent that the patent or copyright is utilized by the payer in

a state in which the taxpayer is not taxable and the taxpayer'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 taxpayer's commercial domicile is located.

(9) All apportionable income shall be apportioned to this state by multiplying the

income by a fraction the numerator of which is the total receipts of the taxpayer in

this state during the taxable year and the denominator of which is the total receipts

of the taxpayer everywhere during the taxable year.

(10) Receipts from the sale 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, 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.

(11) (a) Receipts, other than receipts described in subsection (10) of this section, are in

this state if the taxpayer's market for the sales is in this state. The taxpayer's

market for sales is in this state:

1. In the case of sale, rental, lease, or license of real property, if and to the

extent the property is located in this state;

2. In the case of rental, lease, or license of tangible personal property, if

and to the extent the property is located in this state;

3. In the case of sale of a service, if and to the extent the service is

delivered to a location in this state; and

4. In the case of intangible property:

a. That is rented, leased, or licensed, if and to the extent the property

is used in this state, provided that intangible property utilized in

marketing a good or service to a consumer is used in this state if

that good or service is purchased by a consumer who is in this

state; and

b. That is sold, if and to the extent the property is used in this state,

provided that:

i. A contract right, government license, or similar intangible

property that authorizes the holder to conduct a business

activity in a specific geographic area is used in this state if

the geographic area includes all or part of this state;

ii. Receipts from intangible property sales that are contingent on

the productivity, use, or disposition of the intangible property

shall be treated as receipts from the rental, lease, or licensing

of the intangible property under subdivision a. of this

subparagraph; and

iii. All other receipts from a sale of intangible property shall be

excluded from the numerator and denominator of the receipts

factor.

(b) If the state or states of assignment under paragraph (a) of this subsection

cannot be determined, the state or states of assignment shall be reasonably

approximated.

(c) If the taxpayer is not taxable in a state to which a receipt is assigned under

paragraph (a) or (b) of this subsection, or if the state of assignment cannot be

determined under paragraph (a) of this subsection or reasonably approximated

under paragraph (b) of this subsection, the receipt shall be excluded from the

denominator of the receipts factor.

(d) The department may promulgate administrative regulations necessary to carry

out the purposes of this section.

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

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

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

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

1. Separate accounting;

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

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

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

allocation and apportionment of the taxpayer's income.

(b) 1. If the allocation and apportionment provisions of this section do not

fairly represent the extent of business activity in this state of taxpayers

engaged in a particular industry or in a particular transaction or activity,

the department may, in addition to the authority provided in paragraph

(a) of this subsection, promulgate administrative regulations for

determining alternative allocation and apportionment methods for those

taxpayers.

2. An administrative regulation promulgated pursuant to this paragraph

shall be applied uniformly, except that with respect to any taxpayer to

whom the administrative regulation applies, the taxpayer may petition

for or the department may require adjustment according to paragraph (a)

of this subsection.

(c) 1. The party petitioning for or the department requiring the use of any

method to effectuate an equitable allocation and apportionment of the

taxpayer's income pursuant to paragraph (a) of the subsection shall prove

by clear and convincing evidence:

a. That the allocation and apportionment provisions of this section do

not fairly represent the extent of the taxpayer's business activity in

this state; and

b. That the alternative to the provisions is reasonable.

2. The same burden of proof shall apply whether the taxpayer is petitioning

for, or the department is requiring, the use of any reasonable method to

effectuate an equitable allocation and apportionment of the taxpayer's

income. Notwithstanding the previous sentence, if the department can

show that in any two (2) of the prior five (5) taxable years, the taxpayer

had used an allocation or apportionment method at variance with its

allocation or apportionment method or methods used for the other

taxable years, then the department shall not bear the burden of proof in

imposing a different method provided by paragraph (a) of this

subsection.

(d) If the department requires any method to effectuate an equitable allocation and

apportionment of the taxpayer's income, the department cannot impose any

civil or criminal penalty with reference to the tax due that is attributable to the

taxpayer's reasonable reliance solely on the allocation and apportionment

provisions of this subsection.

(e) A taxpayer that has received written permission from the department to use a

reasonable method to effectuate an equitable allocation and apportionment of

the taxpayer's income shall not have that permission revoked with respect to

transactions and activities that have already occurred unless there has been a

material change in, or a material misrepresentation of, the facts provided by

the taxpayer upon which the department reasonably relied.