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141.206 Filing of returns by pass-through entities -- Withholding requirements on
owners of pass-through entities -- Apportionment issues for pass-through
entities -- Composite returns.
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(2)
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As used in this section unless the context requires otherwise:
(a) For taxable years beginning after December 31, 2004, and before January 1,
2007, "pass-through entity" means a general partnership not subject to the tax
imposed by KRS 141.040, including any publicly traded partnership as
defined by Section 7704(b) of the Internal Revenue Code that is treated as a
partnership for federal tax purposes under Section 7704(c) of the Internal
Revenue Code and its publicly traded partnership affiliates. "Publicly traded
partnership affiliates" shall include any limited liability company or limited
partnership for which at least eighty percent (80%) of the limited liability
company member interests or limited partner interests are owned directly or
indirectly by the publicly traded partnership; and
(b) For all other taxable years, "pass-through entity" means pass-through entity as
defined in KRS 141.010.
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.
Pass-through entities shall determine net income in the same manner as in the case
of an individual under KRS 141.010(9) to (11) and the adjustment required under
Sections 703(a) and 1363(b) of the Internal Revenue Code. 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.
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 for S
corporations by KRS 141.040(14).
(a) Every pass-through entity required to file a return under subsection (2) of this
section, except publicly traded partnerships as defined in KRS 141.0401(6)(r),
shall withhold Kentucky income tax on the distributive share, whether
distributed or undistributed, of each:
1.
Nonresident individual partner, member, or shareholder; and
2.
Corporate partner or member that is doing business in Kentucky only
through its ownership interest in a pass-through entity.
(b) Withholding shall be at the maximum rate provided in KRS 141.020 or
141.040.
(a) Effective for taxable years beginning after December 31, 2011, every passthrough entity required to withhold Kentucky income tax as provided by
subsection (5) of this section shall make a declaration and payment of
estimated tax for the taxable year if:
1.
For a nonresident individual partner, member, or shareholder, the
estimated tax liability can reasonably be expected to exceed five
hundred dollars ($500); or
2.
For a corporate partner or member that is doing business in Kentucky
only through its ownership interest in a pass-through entity, the
estimated tax liability can reasonably be expected to exceed five
thousand dollars ($5,000).
(b) The declaration and payment of estimated tax shall contain the information
and shall be filed as provided in KRS 141.207.
(7) (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) 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.
An exemption so revoked shall be reinstated only with permission of the
department. 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. 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.
(8) 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.
(9) 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 (2) 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 passthrough 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 (12) of this section; and
(b) The partner's, member's, or shareholder's total distributive share of credits of
the pass-through entity.
(10) 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) For taxable years beginning prior to January 1, 2007, the items of income,
loss, and deduction, when applicable, shall be multiplied by the apportionment
fraction of the pass-through entity as prescribed in subsection (12) of this
section; or
(b) For taxable years beginning on or after January 1, 2007:
1.
A corporation that owns an interest in a limited liability pass-through
entity or that owns an interest in a general partnership organized or
formed as a general partnership after January 1, 2006, 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;
2.
A corporation that owns an interest in a general partnership organized or
formed on or before January 1, 2006, shall follow the provisions of
paragraph (a) of this subsection; and
(c) Credits from the partnership.
(11) (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 (12) 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 (12) of this section.
(12) 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
(13)
(14)
(15)
(16)
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 141.120(8), 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).
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.
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.
(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.
(a) 1.
A pass-through entity may file a composite income tax return on behalf
of electing nonresident individual partners, members, or shareholders.
2.
The pass-through entity shall report and pay on the composite income
tax return income tax at the highest marginal rate provided in this
chapter on any portion of the partners', members', or shareholders' pro
rata or distributive shares of income of the pass-through entity from
doing business in this state or deriving income from sources within this
state. Payments made pursuant to subsection (6) of this section shall be
credited against any tax due.
3.
The pass-through entity filing a composite return shall still make
estimated tax payments if required to do so by subsection (6) of this
section, and shall remain subject to any penalty provided by KRS
131.180 or 141.990 for any declaration underpayment or any installment
not paid on time.
4.
The partners', members', or shareholders' pro rata or distributive share of
income shall include all items of income or deduction used to compute
adjusted gross income on the Kentucky return that is passed through to
the partner, member, or shareholder by the pass-through entity, including
but not limited to interest, dividend, capital gains and losses, guaranteed
payments, and rents.
(b) A nonresident individual partner, member, or shareholder whose only source
(c)
(d)
of income within this state is distributive share income from one (1) or more
pass-through entities may elect to be included in a composite return filed
pursuant to this section.
A nonresident individual partner, member, or shareholder that has been
included in a composite return may file an individual income tax return and
shall receive credit for tax paid on the partner's behalf by the pass-through
entity.
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
electing nonresident individual partners, members, or shareholders, the
amount paid in accordance with this subsection, and any other information the
department may require. 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.
Effective: June 4, 2010
History: Amended 2010 (1st Extra. Sess.) Ky. Acts ch. 2, sec. 4, effective June 4, 2010.
-- Amended 2006 (1st Extra. Sess.) Ky. Acts ch. 2, sec. 9, effective June 28, 2006. -Amended 2005 Ky. Acts ch. 85, sec. 489, effective June 20, 2005; and ch. 168, sec.
17, effective March 18, 2005. -- Amended 2002 Ky. Acts ch. 230, sec. 8, effective
July 15, 2002. -- Amended 1988 Ky. Acts ch. 332, sec. 2. -- Created 1954 Ky. Acts
ch. 79, sec. 17, effective June 17, 1954.
Legislative Research Commission Note (6/28/2006). 2006 (1st Extra Sess.) Ky. Acts
ch. 2, sec. 73, provides that "unless a provision of this Act specifically applies to an
earlier tax year, the provisions of this Act shall apply to taxable years beginning on or
after January 1, 2007."
Legislative Research Commission Note (3/18/2005). 2005 Ky. Acts ch. 168, sec. 165,
provides that this section shall apply to tax years beginning on or after January 1,
2005.
Legislative Research Commission Note (3/18/2005). 2005 Ky. Acts chs. 11, 85, 95, 97,
98, 99, 123, and 181 instruct the Reviser of Statutes to correct statutory references to
agencies and officers whose names have been changed in 2005 legislation confirming
the reorganization of the executive branch. Such a correction has been made in this
section.
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