Tax Type
Corporation Income Tax
Description
Kentucky Limited Liability Entity Tax
Topic
Clarification
Credits
Out of State Tax Credits
Date Issued
08-10-2011
August 10, 2011
Re: Ruling Request: Corporate Income Tax
Dear *****:
This will reply to your correspondence in which you request a ruling concerning the Kentucky Limited Liability Entity Tax and whether it must to be added back in determining a corporation's Virginia taxable income.
FACTS
For purposes of computing the taxable income of a corporation, Virginia requires an addition for the amount of income taxes and other taxes based on net income. See Va. Code § 58.1-402 B 4. You request a ruling as to whether the Kentucky Limited Liability Entity Tax, effective for taxable years beginning on or after January 1, 2007, is required to be added back under this statute.
RULING
Under Ky. Rev. Stat. Ann. § 141.0401, a tax is imposed on corporations and limited liability pass-through entities based on the lesser of $0.095 per $100 of an entity's gross receipts or $0.75 per $100 of the entity's gross profits. Corporations and limited liability pass-through entities must pay a minimum tax of at least $175. Corporations are required to pay both the Kentucky Limited Liability Entity Tax and the corporate income tax. However, corporations are granted a credit against corporate income tax for the amount of the Kentucky Limited Liability Entity Tax liability less the $175 minimum tax.
Virginia's modification under Va. Code § 58.1-402 B 4 requires an addition for net income taxes and "other taxes, including franchise and excise taxes, which are based on, measured by, or computed with reference to net income, imposed by the Commonwealth or any other taxing jurisdiction, to the extent deducted in determining federal taxable income." Because the Kentucky Limited Liability Entity Tax excludes almost all business expenses normally permitted in determining net income, the Department would not consider it to be a tax based on, measured by, or computed with reference to net income. Therefore, the Kentucky Limited Liability Entity Tax is not required to be added back under Va. Code § 58.1-402 B 4 when computing Virginia taxable income.
Further, because of the credit permitted against Kentucky's corporate income tax, corporations only pay income tax if it is more than the Kentucky Limited Liability Entity Tax. Accordingly, Virginia will only consider the Kentucky corporate income tax to be a tax based on net income to the extent that it exceeds the Kentucky Limited Liability Entity Tax. As such, corporations will only be required to make an addition under Va. Code § 58.1-402 B 4 for the amount of its Kentucky corporate income tax liability after it is reduced by the credit for the Kentucky Limited Liability Entity Tax.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
If you have any questions regarding this ruling, you may contact ***** in they Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4780008606.o
Rulings of the Tax Commissioner