United States: COST SPRING 2017 – Kentucky State And Local Tax Developments


A. Legislative Developments.


B. Judicial Developments.

1. World Acceptance Corporation, et al. v. Commonwealth of Kentucky, Finance & Administration Cabinet, Department of Revenue, Kentucky Board of Tax Appeals, File No. K13-R-18, Order No. K-24682 (August 29, 2014), appealed to Franklin Circuit Court, Civil Action No. 2014-CI- 1193 (August 14, 2015), vacated and reversed (November 10, 2015), appealed to Kentucky Court of Appeals, Case No. 2015-CA-001852 (Pending).

On November 10, 2015, the Franklin Circuit Court granted the Kentucky Department of Revenue's (the "KDOR") motion to alter, amend, or vacate the Court's August 14, 2015 Order holding that an out-of-state corporation and its Kentucky subsidiary were required to file consolidated income tax returns. In so doing, the Court affirmed the final ruling of the KDOR and the Kentucky Board of Tax Appeals (the "KBTA"). The taxpayers, World Acceptance Corporation ("WAC") and its wholly-owned subsidiary, World Finance Corporation of Kentucky ("WFCKY") (collectively "Taxpayers") amended the separate returns initially filed by WFCKY to reflect the consolidated filing of the Taxpayers for tax years 2007-2010. The amended returns resulted in significant refund claims being owed to the Taxpayers, and the KDOR denied the refund claims. Notably, the Taxpayers relied upon a letter ruling issued by the KDOR advising WAC to file a consolidated return.

The Taxpayers appealed the KDOR's denial of their refund claims to the KBTA, which ruled in favor of the KDOR. The Taxpayers appealed the KBTA's decision to the Franklin Circuit Court, which initially reversed the KBTA and ordered the KDOR to grant the Taxpayers' refund claims. In its first order, the Court held the KDOR's interpretation of the relevant statutes contradicted fundamental rules of statutory construction. Nevertheless, the Court granted the KDOR's motion to alter, amend, or vacate the Court's judgment, finding its initial Order was "erroneous".

The KDOR argued the facts contained in the anonymous request for a letter ruling submitted by WAC were materially different from the facts provided in WAC's amended return because WAC failed to disclose that management services were performed outside Kentucky or that the employee providing services in Kentucky also worked in another state. The Court concluded the KBTA's finding that the facts presented in WAC's amended returns were materially different from the facts presented in WAC's request for a letter ruling was based upon substantial evidence. The Court noted that WAC did not disclose that its employee working in Kentucky also worked the majority of the time in other states or that management services were performed outside Kentucky. Furthermore, in a holding that provides unprecedented protections to the KDOR and greatly undermines the utility of the letter ruling process, the Court held:

[A]n anonymous request for a letter ruling submitted by a taxpayer is not binding on either [the KDOR], the taxpayer, or a Kentucky court of law so long as that request contains facts that are materially different from those submitted in a subsequent filing with [the KDOR] or if [the KDOR] misapplies the applicable statutes and regulations to the facts submitted to it by the taxpayer.

(Emphasis added).

The Court next proceeded to address the parties' statutory construction arguments. Kentucky Revised Statute ("KRS") 141.200(10)(b) requires taxpayers to file separate returns unless there is a "common parent corporation doing business in Kentucky" that has nexus with an affiliate. Under KRS 141.200(9)(c), a "common parent corporation" is defined as the member of an "affiliated group" that meets the ownership requirement of paragraph (a)1 or (b)1 of KRS 141.200(9). Because KRS 141.200(9)(a)1 applies to taxable years prior to January 1, 2007, only KRS 141.200(9)(b)1 applied in the instant case. KRS 141.200(9)(b)1 defines an "affiliated group" as "(1) or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation if [the common parent owns 80% or more of the stock and value in at least one other includible corporation and 80% of the stock in each of the includible corporations, excluding the common parent, is owned directly by one or more of the other corporations]."

An "includible corporation" is defined as any corporation doing business in Kentucky unless the corporation falls within one of the nine exceptions enumerated in KRS 141.200(9)(e). Of relevance here, KRS 141.200(9)(e)7 provides that a corporation is not an includible corporation if the corporation realizes a net operating loss and the corporation's Kentucky property, payroll and sales factors pursuant to KRS 141.120(8) are de minimis. Similarly, KRS 141.200(9)(e)8 states that a corporation is not an includible corporation if the sum of its property, payroll, and sales factors described in KRS 141.120(8) is zero.

The KDOR argued that under KRS 141.200(9)(b)1, the parent, WAC, must, but does not, meet the definition of "includible corporation" because WAC was a corporation realizing a net operating loss whose property, payroll and sales factors were de minimis. The Taxpayers argued the definition of "includible corporation" applicable to a "common parent corporation" is set forth at KRS 141.200(9)(b), i.e., a common parent corporation is an includible corporation if the ownership requirements set forth in that section are satisfied. Furthermore, the Taxpayers argued that even if KDOR was correct that KRS 141.200(9)(e)7 is applicable, WAC's apportionment factors were not de minimis (per KDOR's own letter ruling), and therefore, this section does not prohibit WAC from meeting the definition of "includible corporation".

In its final Order, the Court rejected the Taxpayers' argument that KRS 141.200(9)(b) contains the definition of "includible corporation" applicable to a "common parent corporation". The Court found KRS 141.200(9)(e) sets forth the definition of "includible corporation" for both "common parent corporations" and other non-parent companies, while KRS 141.200(9)(b) enumerates the ownership requirements for the affiliated group as a whole. The Court reasoned it must presume that when the legislature uses a defined term in a section in which it has already defined the term, the term must mean what is written in its definition and nothing else. The Court also held WAC's interpretation was contrary to the legislative history of KRS 141.200(9), finding the legislature amended the statute in 2006 to narrow the types of common parent corporations that could be part of an affiliated group.

After holding WAC must meet the definition of "includible corporation" in KRS 141.200(9)(e), the Court next found WAC did not meet this definition because WAC fell within the exceptions in either KRS 141.200(9)(e)7 or KRS 141.200(9)(e)8, as its property, payroll, and sales factors were either zero or de minimis.

The Court also summarily dismissed the Taxpayers' arguments that the KDOR's denial of their refund claims violated KRS 13A.130, Sections 27 and 28 of the Kentucky Constitution, and the doctrine of contemporaneous construction.

The Court's Order gives short shrift to the standard that must be satisfied for a motion to alter, amend, or vacate to be gr nted, which the Court acknowledges is "an extraordinary remedy and should be used sparingly."

The Taxpayers have appealed to the Kentucky Court of Appeals, and briefing has been completed.

The authors' firm represents the Taxpayers in this action.

C. Administrative Developments.

1. 2017 Kentucky Tax Alert – Electronic Filing of Tax Returns.

On January 1, 2017, the KDOR issued a special edition of the Kentucky Tax Alert addressing electronic filing of returns. The KDOR began accepting corporate income tax returns on January 6, 2017. Forms 725 and 720 mandatory nexus consolidated returns and supporting schedules can now be e-filed for tax year 2016. If a federal extension is used as a six-month extension to file a Kentucky return, a copy of the image of the federal extension is required to be attached to the electronic submission.

Direct debit is an option for e-filed corporate income tax return forms, although direct deposit is not available. Any Kentucky form or schedule requiring a Kentucky Corporation/LLET account number must be populated with the appropriate number associated with the FEIN, and the numbers must match the KDOR's records. The KDOR encourages taxpayers to file electronically but also notes that, for taxpayers who choose to file by mail, the mailing address for the filing of paper returns has changed to: Kentucky Department of Revenue, P.O. Box 856910, Louisville, KY 40285-6910.

The KDOR also encourages the electronic filing of withholding returns using its Withholding Returns and Payment System ("WRAPS"). Employers with 100 or more W-2s are required to file electronically, and employers with 250 or more 1099 or W-2G forms are required to submit those forms in electronic format to: Kentucky Department of Revenue, CD Processing, 501 High Street, Station 57, Frankfort, KY 40601.

2. New Markets Development Program Credit.

The KDOR has issued a permanent regulation, 103 KAR 15:180, effective November 4, 2016, regarding implementation of the new markets development program credit. KRS 141.434 establishes a nonrefundable tax credit for a person or entity making a qualified equity investment in a qualified community development entity ("CDE") as provided by KRS 141.432(6). The KDOR's regulation establishes guidelines and filing requirements of a CDE so that the KDOR may certify qualified equity investments and allocate tax credits accordingly.

D. Trends.

Taxpayers in Kentucky continue to hear a great deal about tax reform. In his State of the Commonwealth address in January, Governor Matt Bevin promised tax reform this year. The General Assembly, on the other hand, continues to show great reluctance with regard to the subject. If the Governor is able to persuade the General Assembly to join him, corporation income tax topics that could be considered include single sales factor apportionment; repeal of Kentucky's mandatory nexus consolidated filing methodology; and conforming the definition of "cost of goods sold" that is part of the limited liability entity tax to the federal definition of the term.

To read the article in full click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions