Sales Tax Guide for Kentucky

What Is Taxable in Kentucky?

In Kentucky, most tangible personal property is subject to sales tax. However, certain items are exempt, such as prescription drugs, residential utilities, and some agricultural equipment.

If your business sells taxable goods or services, you need to collect and remit sales tax appropriately. Businesses should also check whether additional use taxes apply when purchasing out-of-state products.

Who Needs to Collect Sales Tax?

Businesses required to collect sales tax include:

• Retailers with a physical presence in Kentucky
• Online sellers that meet the state’s economic nexus threshold
• Service providers, if the service is taxable

Kentucky enforces an economic nexus threshold of $100,000 in sales or 200 transactions per year. If you exceed this limit, even without a physical presence in Kentucky, you must register and collect sales tax. Businesses that fail to do so may face penalties and back taxes, making doola’s Bookkeeping service essential for staying compliant and avoiding issues.

How to Register for a Sales Tax Permit in Kentucky

Obtaining a sales tax permit in Kentucky involves the following steps:

1. Gather necessary information: EIN, business information, and personal identification.
2. Visit the Kentucky Department of Revenue website.
3. Complete the online application process.
4. Receive your Sales Tax Account Number and start collecting tax.

Collecting tax without a sales tax permit is illegal, so be sure to register before making taxable sales. doola’s expert bookkeeping team can help navigate this process, freeing up your time to focus on your business.

How to Calculate Sales Tax in Kentucky

To correctly calculate sales tax, follow these steps:

Step 1:
Determine the applicable sales tax rate based on your business address and the location of the buyer.

Step 2:
Collect the appropriate amount of sales tax at the point of sale.

Step 3:
Maintain accurate records of all sales transactions.

Kentucky requires businesses to file sales tax returns on a monthly, quarterly, or annual basis, depending on their sales volume. Check the due dates for filing to avoid any late fees.

Common Sales Tax Exemptions in Kentucky

Certain businesses and organizations may qualify for sales tax exemptions, including:

• Purchases for resale (with a valid resale certificate)
• Sales to government and nonprofit organizations
• Certain manufacturing and agricultural purchases

To claim an exemption, businesses must use proper exemption certificates and maintain accurate records. Misusing these certificates can lead to audits and fines.

Remote Seller and Marketplace Sales Tax Rules in Kentucky

For remote sellers and marketplace platforms like Amazon, eBay, Shopify, and Etsy, Kentucky has specific sales tax rules.

The economic nexus threshold is set at $100,000 in sales or 200 transactions, requiring businesses that exceed these limits to comply with Kentucky’s remote seller sales tax regulations.

What Triggers a Sales Tax Audit

The Kentucky Department of Revenue may audit businesses for several reasons, including missing or incorrect sales tax filings, frequent late payments, discrepancies between reported sales and actual revenue, and misuse of exemption certificates.

To minimize audit risks, maintain detailed records of sales, exemptions, and tax payments. Conduct periodic internal reviews to ensure the accuracy of tax filings.

FAQs About Sales Tax in Kentucky

Common questions about Kentucky sales tax include:

Does Kentucky tax digital goods? 

Some digital goods are taxable, so it’s important to verify the specific status according to Kentucky state guidelines.

Do out-of-state businesses need to collect Kentucky sales tax? 

If you exceed the $100,000 or 200-transaction threshold, yes.

What happens if I overcharge or undercharge sales tax? 

You may need to refund customers or pay the difference to the state. Keeping accurate records prevents these issues.

Are any services taxable in Kentucky? 

Some services are taxable, so it’s essential to verify which services are subject to tax.

Stay Compliant With doola

Sales tax compliance doesn’t have to be stressful. By staying informed and utilizing the right tools, you can avoid penalties and keep your business running smoothly.

doola can offer guidance and tools for compliance, supporting businesses with financial solutions, tax guidance, and bookkeeping.