What Is the Kentucky Credit for Ad Valorem Tax Paid on Inventory?
The Kentucky credit for ad valorem (personal property) tax paid on inventory was designed to alleviate the tax burden on eligible businesses holding inventory in the state by offering a tax credit to offset income and limited liability entity (franchise) taxes (LLETs). Kentucky implemented this credit as Ky. Rev. Stat. Section 141.408, effective for tax years beginning on or after January 1, 2018. Phased in over a period of four years, the credit initially allowed for an income or franchise tax credit for 25% of personal property tax paid on inventory in 2018. As of January 1, 2021, the credit is calculated as 100% of the personal property tax paid. Taxpayers may retrospectively claim credits by amending returns that are still open within the state’s statute of limitations, which is four years from the date that the return was timely filed.
Does the Tax Credit Apply to Dealers?
One of the eligible business types for this credit is dealerships, such as those in the automotive, heavy truck, and machinery and equipment sectors. Dealerships must pay this annual ad valorem tax on inventory held for sale or lease. This credit then allows taxpayers to recoup 100% of this timely paid ad valorem tax on inventory as a credit against the corporate income tax, individual income tax, or LLET. The credit does not have a carryforward provision, so it is a “use it or lose it” benefit. The credit may be claimed by C corporations, S corps, and partnerships. The credit also may be claimed by individuals who are owners of S corps or partnerships, as the credit can be included on the Schedule K-1 as a flow-through item.
How We Can Help
Dealers with rooftops in Kentucky could benefit from this tax credit. We are uniquely positioned to help guide dealerships through the complexities of this credit. Our team of State & Local Tax professionals focuses on understanding the nuanced requirements of the statute. This gives us the ability to look over the ad valorem tax paid on business assets and enhance the credit by evaluating eligible inventories. Our consulting services can help you stay compliant and find eligible tax savings, enabling dealerships to reinvest in their businesses and drive growth. To learn more, reach out to one of our professionals.