Kentucky — Sales & Use Tax

Kentucky imposes a 6% sales tax on retailers' gross receipts from retail sales of tangible personal property and digital property made within the state, as well as specified services.

Source: KRS 139.200

The tax applies to tangible personal property regardless of delivery method, and to digital property whether the purchaser has a permanent right to use the property or conditional access based on continued payment.

Source: KRS 139.200(1)

Kentucky law presumes that all gross receipts and sales of tangible personal property, digital property, and services sold for delivery in Kentucky are taxable unless the retailer proves otherwise.

Source: KRS 139.260

No local sales taxes. Kentucky does not authorize local governments to impose additional sales or use taxes; the 6% state rate applies uniformly throughout the state.

Source: Kentucky DOR – Sales & Use Tax

Use tax. Kentucky also imposes a 6% complementary use tax on the purchase price of tangible personal property and digital property purchased for storage, use, or other consumption in Kentucky. The use tax functions as a backstop to the sales tax and generally applies when sales tax was not collected at the time of purchase, particularly for out-of-state purchases.

Source: Kentucky DOR – Sales & Use Tax

Sales and use tax laws are codified in Kentucky Revised Statutes Chapter 139 and implemented through Kentucky Administrative Regulations Title 103.

Source: Kentucky DOR – Sales & Use Tax

Kentucky requires remote sellers with no physical presence in the state to register and collect sales and use tax when they exceed either $100,000 in gross receipts or 200 or more separate transactions from sales into Kentucky during the previous or current calendar year. Remote sellers meeting either threshold must register and begin collecting tax no later than the first day of the calendar month that is at most 60 days after either threshold is reached.

Source: KRS 139.340; Kentucky DOR Remote Retailers FAQ

Kentucky significantly expanded its sales and use tax base effective January 1, 2023, through House Bill 8 (2022 Ky. Acts ch. 212), adding approximately 30 enumerated service categories to KRS 139.200(2). Prior to HB 8, Kentucky's 6% sales tax applied primarily to tangible personal property, digital property, and a limited set of services—transient room rentals, sewer services, admissions, telecommunications services, and natural gas distribution services under KRS 139.200(2)(a) through (f). The 2023 expansion subjects a broad range of personal and business services to tax for the first time.

Services made taxable effective January 1, 2023. KRS 139.200(2)(g) through (ax) enumerate the new taxable service categories. Key categories include:

• Landscaping services (KRS 139.200(2)(g)), defined to include "lawn care and maintenance services," "tree trimming, pruning, or removal services," "landscape design and installation services," "landscape care and maintenance services," and "snow plowing or removal services"
• Janitorial services (KRS 139.200(2)(h)), including "residential and commercial cleaning services, and carpet, upholstery, and window cleaning services"
• Small animal veterinary services (KRS 139.200(2)(i)), excluding veterinary services for "equine, cattle, poultry, swine, sheep, goats, llamas, alpacas, ratite birds, buffalo, and cervids"
• Pet care services (KRS 139.200(2)(j)), including "grooming and boarding services, pet sitting services, and pet obedience training services"
• Industrial laundry services (KRS 139.200(2)(k)), including "industrial uniform supply services, protective apparel supply services, and industrial mat and rug supply services"
• Non-coin-operated laundry and dry cleaning services (KRS 139.200(2)(l))
• Linen supply services (KRS 139.200(2)(m)), including "table and bed linen supply services and nonindustrial uniform supply services"
• Indoor skin tanning services (KRS 139.200(2)(n))
• Fitness and recreational sports center services (KRS 139.200(2)(o))
• Photography and photo finishing services (KRS 139.200(2)(p)), defined in KRS 139.010(31) to mean "(i) the taking, developing, or printing of an original photograph, or (ii) image editing"
• Cosmetic surgery services (KRS 139.200(2)(q)), defined in KRS 139.010(9) as "modifications to all areas of the head, neck, and body to enhance appearance through surgical and medical techniques"
• Extended warranty services (KRS 139.200(2)(s)), expanded to include service contracts on real property and all tangible and digital property regardless of whether the underlying property is taxable
• Interior decorating and design services (KRS 139.200(2)(t))
• Specialized design services (KRS 139.200(2)(u)), covering clothing, costumes, fashion, furs, jewelry, shoes, textiles, and lighting design
• Telemarketing services (KRS 139.200(2)(v)), defined in KRS 139.010(48) and expanded by HB 360 to include "the use of text messages or social media to solicit contributions or promote, take orders for, or provide information or assistance regarding products or services"
• Website design services (KRS 139.200(2)(w))
• Prewritten computer software access services (KRS 139.200(2)(x)), commonly known as Software-as-a-Service (SaaS); defined in KRS 139.010(33) as "the right of access to prewritten computer software where the object of the transaction is to use the prewritten computer software while possession of the prewritten computer software is maintained by the seller or a third party"
• Labor or services to apply, repair, or maintain commercial refrigeration equipment and systems (KRS 139.200(2)(z)) when the charge "does not include the sale of tangible personal property"
• Labor to repair or alter apparel, footwear, watches, or jewelry (KRS 139.200(2)(aa)) when the charge "does not include the sale of tangible personal property"
• Rental of space for short-term business uses, entertainment events, and short-term social events (KRS 139.200(2)(ab)), defined as rentals for less than 30 days
• Motor vehicle washing, waxing, and detailing services (KRS 139.200(2)(ac))

The full list continues through KRS 139.200(2)(ax).

Marketing services: initially taxable, then repealed. HB 8 originally enacted KRS 139.200(2)(r) imposing sales tax on "marketing services," a broadly defined category encompassing advertising, media planning, creative services, and related activities. House Bill 360 (2023 Ky. Acts ch. 92, effective March 24, 2023) struck both the taxable-service provision at KRS 139.200(2)(r) and the definition at KRS 139.010(22), retroactively to January 1, 2023. Marketing services are therefore not subject to Kentucky sales and use tax.

De minimis exemption for small service providers. KRS 139.470(23) provides an exemption for retailers making sales "solely of a service listed under KRS 139.200(2)(g) to (ax)" (the newly taxable services) if the retailer does not exceed a threshold of gross receipts. As originally enacted by HB 8, the threshold was $6,000 per calendar year. The threshold was increased to $12,000 for calendar year 2024 and subsequent years. Under the statute, once a retailer exceeds the threshold in a calendar year, all gross receipts over the threshold are taxable in that year, and in subsequent years all gross receipts are taxable even if the retailer falls below the threshold. The exemption does not apply to retailers engaged in selling tangible personal property, digital property, or the services listed in KRS 139.200(2)(a) through (f) (the pre-HB 8 taxable services).

Resale of newly taxable services. KRS 139.260 was amended by HB 8 to allow services listed in KRS 139.200(2)(g) through (ax) to be purchased for resale. A purchaser acquiring a taxable service for resale may issue a properly completed certificate of exemption or resale certificate to relieve the selling service provider from the burden of proving the sale is exempt. For example, a website design firm that subcontracts a portion of the design work to another provider and then resells the completed service to the end customer may issue a resale certificate to the subcontractor.

Exclusions and grandfathering. KRS 139.202 excludes from the additional taxable services imposed by KRS 139.200(2)(q) through (ax) (note: the exclusion begins at subsection (q), cosmetic surgery services, not subsection (g)) certain transactions, including "a lease or rental agreement entered into on or before February 25, 2022." Existing contracts entered into before that date are grandfathered and not subject to the newly imposed tax on services.

Source: KRS 139.200; KRS 139.010; KRS 139.202; KRS 139.260; KRS 139.470

Kentucky requires marketplace providers to collect and remit sales and use tax on all sales made through their platforms—both their own sales and sales they facilitate for third-party sellers—when the provider exceeds either $100,000 in gross receipts or 200 separate transactions in the current or preceding calendar year. The threshold calculation combines the provider's own sales with all facilitated sales. Marketplace providers meeting either threshold must register and begin collecting tax no later than the first day of the calendar month that is at most 60 days after reaching the threshold. This requirement has been effective since July 1, 2019.

Source: KRS 139.450; Kentucky DOR Remote Retailers & Marketplace Providers FAQ

Kentucky exempts from sales and use tax purchases of tangible personal property and digital property when the purchaser acquires them for resale and provides the seller with a valid resale certificate. The resale exemption is governed by KRS 139.270 and implemented by regulation 103 KAR 31:111.

Certificate requirement. A seller may rely on a resale certificate to substantiate an exempt transaction and shift the burden of proof to the purchaser. Under KRS 139.270, the certificate relieves the retailer or seller from the burden of proof if the retailer or seller obtains a properly completed certificate within ninety (90) days after the date of sale. If a seller fails to obtain a timely certificate, the seller bears the burden of proving the sale is exempt as a sale for resale.

Accepted forms. The resale certificate issued by the purchaser must be in one of the following forms: (1) "Resale Certificate" (Revenue Form 51A105), (2) "Streamlined Sales and Use Tax Agreement - Certificate of Exemption" (Revenue Form 51A260), or (3) the Multistate Tax Commission's "Uniform Sales and Use Tax Exemption/Resale Certificate - Multijurisdiction."

Single purchase vs. blanket certificates. A resale certificate may be either a "single purchase certificate" or a "blanket certificate." A single purchase certificate includes an itemization by the purchaser of the specific tangible personal property, digital property, or services to be purchased. A blanket certificate includes a general description of the kind of property or services to be purchased for resale in the regular course of business. A purchaser who has executed a blanket certificate is not required to execute additional certificates for individual purchases if there is no change in the character of the purchaser's operation and the purchases are of the kind usually purchased by the purchaser for resale.

Use by purchaser. Property or services purchased for resale but subsequently used or consumed by the purchaser become subject to sales and use tax. Under KRS 139.270(5), if the department later finds that the seller complied with certificate requirements but the purchaser used the property or service in a manner that would not have qualified for resale status, the department shall hold the purchaser liable for the remittance of the tax originally due and may apply penalties provided in KRS 139.990.

Burden of proof timing. Under 103 KAR 31:111, if a retailer or seller has not obtained a completed resale certificate in a timely manner according to KRS 139.270, the burden of proving that a sale is exempt as a sale for resale is upon the retailer or seller. The retailer or seller may offer proof to the department that the sale is not subject to tax. For example, the regulation clarifies that if a retailer receives a completed resale certificate from a restaurant business for silverware after the 120-day period required under KRS 139.270, the burden of proof is considered "not met" and the retailer remains liable for the tax, since the items are for use within the restaurant business rather than for resale. However, if the retailer receives a completed resale certificate in the course of a department audit for purchases of disposable utensils from the same restaurant business, the burden of proof is considered "met" because the product is of the type resold in the normal course of the restaurant business.

Source: KRS 139.270; 103 KAR 31:111

Kentucky assigns each sales and use tax permit holder a filing frequency based on the business's tax liability, with returns due on the 20th of the month following the reporting period. Businesses whose average monthly sales and use tax liability exceeds $50,000 must file on an accelerated basis, remitting tax by the 25th of each month for the period from the 16th of the previous month through the 15th of the current month. Taxpayers required to file on an accelerated basis continue this practice until notified otherwise in writing by the Department. When the due date falls on a weekend or state holiday, the return is due the next business day.

Source: 103 KAR 25:131

Kentucky exempts from sales and use tax machinery and appurtenant equipment that is incorporated for the first time into new or existing plant facilities (or that replaces existing machinery having a lesser productive capacity) and is directly used in a manufacturing or industrial processing operation. The exemption is codified at KRS 139.480(10) and interpreted by regulation 103 KAR 30:120, which establishes a four-part test that must be satisfied before machinery qualifies.

Four-part qualification test. Under 103 KAR 30:120, the following four requirements must be met:

1. It must be machinery. The regulation defines "machinery" broadly as "machines, in general, or collectively; also, the working parts of a machine, engine, or instrument; such as, the machinery of a watch." The definition does not require machinery to have working parts and be able to perform a function in and of itself. The machinery of a manufacturing operation includes all components making up the process, including fixed and nonmoving parts as well as moving parts.

1. It must be used directly in the manufacturing or industrial processing process. "Directly used in the manufacturing or industrial processing process" is defined by KRS 139.010(12), and "industrial processing" is defined by KRS 139.010(17). The machinery must be intimately involved in production to be considered used "directly" in the manufacturing process. The manufacturing process begins with the movement of raw materials from storage into a continuous, unbroken, integrated process, and ends when the product being manufactured is packaged and ready for sale.

1. It must be incorporated for the first time into plant facilities or licensed premises established in Kentucky. To meet this requirement, the machinery must be installed in Kentucky for the first time and incorporated into plant facilities in the state. This requirement can be satisfied by purchasing new machinery or by purchasing used machinery that has never been installed in a plant facility in Kentucky. Machinery that has been previously installed into manufacturing facilities in Kentucky may be subject to tax when subsequently sold by that manufacturer.

1. It must not replace other machinery (unless the replacement meets certain criteria). New machinery purchased to replace other machinery in the plant is subject to tax unless the new machinery performs a different function, manufactures a different product, or has a greater productive capacity (measured by units of production) than the machinery replaced. Modification of existing machinery that results in automation of non-automated functions without performance of a different function or manufacture of a different product does not qualify for exemption.

Scope of exemption. The exemption applies to the machinery itself, the appurtenant equipment necessary to the completed installation of the machinery, and the materials directly used in the installation of the machinery and appurtenant equipment. "Processing production" includes the processing and packaging of raw materials, in-process materials, and finished products; the processing and packaging of farm and dairy products for sale; and the extraction of minerals, ores, coal, clay, stone, and natural gas.

Installation and service labor. Pursuant to KRS 139.470(22), charges for labor or services to apply, install, repair, or maintain tangible personal property directly used in manufacturing or industrial processing are not subject to sales and use tax if the charges for labor or services are separately stated. Purchasers may issue Form 51A360 (Certificate of Exemption Labor or Services on Manufacturing Equipment) or Form 51A206 (Streamlined Sales and Use Tax Agreement-Certificate of Exemption) to claim the exemption for labor or service charges.

Exemption certificate. To claim the exemption at the time of purchase, manufacturers must provide the seller with a fully completed Form 51A111, Certificate of Exemption Machinery for New and Expanded Industry. The certificate may be executed by (1) a manufacturer or production processor, or (2) jointly by a contractor and the manufacturer or production processor when a contractor purchases, leases, or rents the property under contract.

Burden of proof. In all cases where a question arises concerning the exemption of machinery for new and expanded industry, the burden of proof that each qualification has been met is upon the one seeking the exemption.

Source: KRS 139.480(10); 103 KAR 30:120

Kentucky applies destination-based sourcing rules to determine the proper location of a retail sale for sales and use tax purposes. The sourcing rules under KRS 139.105 govern where a retailer must collect and remit tax on sales of tangible personal property, digital property, and taxable services. Proper sourcing is critical for retailers to determine whether Kentucky sales tax applies and, in states with local taxes, which local rate applies—though Kentucky imposes no local sales taxes.

General sourcing hierarchy. KRS 139.105(1)(a) establishes a three-tier hierarchy for sourcing retail sales not covered by the special rules for communications services, digital property, and florist wire sales:

1. Over-the-counter sales. When the purchaser receives tangible personal property, digital property, or service at a business location of the retailer, the sale is sourced to that business location.

1. Delivery to a specified address. When a purchaser or purchaser's donee receives tangible personal property, digital property, or service at a location specified by the purchaser, the sale is sourced to that specified delivery location.

1. Address unknown. When the retailer does not know the address where the tangible personal property, digital property, or service is received, the sale is sourced to the first known address in the following order of priority:

• The address of the purchaser;
• The billing address of the purchaser;
• The address of the purchaser's payment instrument; or
• The address from which the tangible personal property was shipped; from which the computer software delivered electronically or the digital property transferred electronically was first available for transmission by the retailer; or from which the service was provided (disregarding any location that merely provided the digital transfer of the product sold).

The hierarchy creates a clear preference for destination-based sourcing: the location where the customer receives the product or service controls in nearly all cases. For shipped goods, the delivery address governs. For electronically delivered digital property or services, the specified address (or, if not known, the purchaser's address or billing address) determines the sourcing.

Communications services. KRS 139.105(2) provides special sourcing rules for communications services, largely adopting the framework of the federal Mobile Telecommunications Sourcing Act. Sales of mobile telecommunications services are sourced to the customer's "place of primary use," defined as the residential or primary business street address where the customer's use of the service primarily occurs. Sales of post-paid calling services are sourced to the origination point of the telecommunications signal. Prepaid calling services are sourced to the location where the purchaser obtains the right to use the service (typically the retail location for a physical card, or the purchaser's address for online purchases). Ancillary services—such as caller ID, voicemail, and directory assistance—are sourced to the customer's place of primary use.

Digital property. For most digital property transactions, Kentucky applies the general three-tier hierarchy described above. Digital property transferred electronically is sourced to the delivery address if specified by the purchaser; if not specified, to the purchaser's address, billing address, or payment instrument address; and finally to the address from which the digital property was first available for transmission, disregarding the location that merely facilitated the digital transfer.

Florist wire sales. KRS 139.105(3) directs that florist wire sales must be sourced in accordance with an administrative regulation. Under 103 KAR 27:050, when a Kentucky florist receives an order and transmits instructions through a florist wire delivery association to a second florist (whether inside or outside Kentucky) for fulfillment and delivery, the originating Kentucky florist owes tax on the total receipts from the customer. When a florist conducts transactions by any means other than a florist wire delivery association, the sale is sourced to the destination where the tangible personal property is delivered, in accordance with the general destination-based rule of KRS 139.105.

Direct mail. KRS 139.777 governs sourcing of direct mail. For advertising and promotional direct mail, the sale is sourced based on the location of the recipients' delivery addresses if the purchaser provides the seller with a direct mail form substantiating those locations. If the purchaser does not provide a form, the sale is sourced under the general sourcing rules of KRS 139.105. For other direct mail (not advertising or promotional), the sale is sourced to the jurisdictions where the recipients' delivery addresses are located if the purchaser provides the seller with information showing the jurisdictions; otherwise, the sale is sourced under the general rules of KRS 139.105.

Use tax complement. KRS 139.105(1)(b) clarifies that the sourcing rules for sales tax do not affect a purchaser's separate obligation to remit use tax under KRS 139.310 when sales tax was not collected at the time of purchase. If a Kentucky purchaser buys tangible personal property, digital property, or a taxable service from an out-of-state seller that does not collect Kentucky sales tax (for example, because the seller lacks nexus or does not source the sale to Kentucky), the purchaser may owe Kentucky use tax on the transaction if the property is used, stored, or consumed in Kentucky.

Source: KRS 139.105; KRS 139.777; 103 KAR 27:050