AN ACT relating to individual income tax and declaring an emergency.

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AN ACT relating to individual income tax and declaring an emergency. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 141.010 is amended to read as follows: 3
As used in this chapter, for taxable years beginning on or after January 1, 2018: 4
(1) "Adjusted gross income," in the case of taxpayers other than corporations, means 5
the amount calculated in KRS 141.019; 6
(2) "Captive real estate investment trust" means a real estate investment trust as defined 7
in Section 856 of the Internal Revenue Code that meets the following requirements: 8
(a) 1. The shares or other ownership interests of the real estate investment 9
trust are not regularly traded on an established securities market; or 10
2. The real estate investment trust does not have enough shareholders or 11
owners to be required to register with the Securities and Exchange 12
Commission; 13
(b) 1. The maximum amount of stock or other ownership interest that is owned 14
or constructively owned by a corporation equals or exceeds: 15
a. Twenty-five percent (25%), if the corporation does not occupy 16
property owned, c onstructively owned, or controlled by the real 17
estate investment trust; or 18
b. Ten percent (10%), if the corporation occupies property owned, 19
constructively owned, or controlled by the real estate investment 20
trust. 21
The total ownership interest of a corpora tion shall be determined by 22
aggregating all interests owned or constructively owned by a 23
corporation; and 24
2. For the purposes of this paragraph: 25
a. "Corporation" means a corporation taxable under KRS 141.040, 26
and includes an affiliated group as defined in KRS 141.200, that is 27
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required to file a consolidated return pursuant to KRS 141.200; 1
and 2
b. "Owned or constructively owned" means owning shares or having 3
an ownership interest in the real estate investment trust, or owning 4
an interest in an entity that own s shares or has an ownership 5
interest in the real estate investment trust. Constructive ownership 6
shall be determined by looking across multiple layers of a 7
multilayer pass-through structure; and 8
(c) The real estate investment trust is not owned by another real estate investment 9
trust; 10
(3) "Commissioner" means the commissioner of the department; 11
(4) "Corporation" has the same meaning as in Section 7701(a)(3) of the Internal 12
Revenue Code; 13
(5) "Critical infrastructure" means property and equipment owned or us ed by 14
communications networks, electric generation, transmission or distribution systems, 15
gas distribution systems, or water or wastewater pipelines that service multiple 16
customers or citizens, including but not limited to real and personal property such 17
as buildings, offices, lines, poles, pipes, structures, or equipment; 18
(6) "Declared state disaster or emergency" means a disaster or emergency event for 19
which: 20
(a) The Governor has declared a state of emergency pursuant to KRS 39A.100; or 21
(b) A presidential declaration of a federal major disaster or emergency has been 22
issued; 23
(7) "Department" means the Department of Revenue; 24
(8) "Dependent" means those persons defined as dependents in the Internal Revenue 25
Code; 26
(9) "Disaster or emergency -related work" means repairing, renovating, installing, 27
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building, or rendering services that are essential to the restoration of critical 1
infrastructure that has been damaged, impaired, or destroyed by a declared state 2
disaster or emergency; 3
(10) "Disaster response business" means any entity: 4
(a) That has no presence in the state and conducts no business in the state, except 5
for disaster or emergency-related work during a disaster response period; 6
(b) Whose services are requested by a registered business or by a state or local 7
government for purposes of performing disaster or emergency -related work in 8
the state during a disaster response period; and 9
(c) That has no registrations, tax filings, or nexus in this state other than disaster 10
or emergency -related work during the calenda r year immediately preceding 11
the declared state disaster or emergency; 12
(11) "Disaster response employee" means an employee who does not work or reside in 13
the state, except for disaster or emergency-related work during the disaster response 14
period; 15
(12) "Disaster response period" means a period that begins ten (10) days prior to the first 16
day of the Governor's declaration under KRS 39A.100, or the President's 17
declaration of a federal major disaster or emergency, whichever occurs first, and 18
that extends thirty (30) calendar days after the declared state disaster or emergency; 19
(13) "Doing business in this state" includes but is not limited to: 20
(a) Being organized under the laws of this state; 21
(b) Having a commercial domicile in this state; 22
(c) Owning or leasing property in this state; 23
(d) Having one (1) or more individuals performing services in this state; 24
(e) Maintaining an interest in a pass-through entity doing business in this state; 25
(f) Deriving income from or attributable to sources within this state, including 26
deriving income directly or indirectly from a trust doing business in this state, 27
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or deriving income directly or indirectly from a single -member limited 1
liability company that is doing business in this state and is disregarded as an 2
entity separate from its single member for federal income tax purposes; or 3
(g) Directing activities at Kentucky customers for the purpose of selling them 4
goods or services. 5
Nothing in this subsection shall be interpreted in a manner that goes beyond the 6
limitations imposed and protections provided by the United States Constitution or 7
Pub. L. No. 86-272; 8
(14) "Employee" has the same meaning as in Section 3401(c) of the Internal Revenue 9
Code; 10
(15) "Employer" h as the same meaning as in Section 3401(d) of the Internal Revenue 11
Code; 12
(16) "Fiduciary" has the same meaning as in Section 7701(a)(6) of the Internal Revenue 13
Code; 14
(17) "Financial institution" means: 15
(a) A national bank organized as a body corporate and e xisting or in the process 16
of organizing as a national bank association pursuant to the provisions of the 17
National Bank Act, 12 U.S.C. sec.[secs.] 21 et seq., in effect on December 31, 18
1997, exclusive of any amendments made subsequent to that date; 19
(b) Any bank or trust company incorporated or organized under the laws of any 20
state, except a banker's bank organized under KRS 286.3-135; 21
(c) Any corporation organized under the provisions of 12 U.S.C. secs. 611 to 631, 22
in effect on December 31, 1997, exclusive o f any amendments made 23
subsequent to that date, or any corporation organized after December 31, 24
1997, that meets the requirements of 12 U.S.C. secs. 611 to 631, in effect on 25
December 31, 1997; or 26
(d) Any agency or branch of a foreign depository as defined i n 12 U.S.C. sec. 27
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3101, in effect on December 31, 1997, exclusive of any amendments made 1
subsequent to that date, or any agency or branch of a foreign depository 2
established after December 31, 1997, that meets the requirements of 12 U.S.C. 3
sec. 3101 in effect on December 31, 1997; 4
(18) "Fiscal year" has the same meaning as in Section 7701(a)(24) of the Internal 5
Revenue Code; 6
(19) "Gross income": 7
(a) In the case of taxpayers other than corporations, has the same meaning as in 8
Section 61 of the Internal Revenue Code; and 9
(b) In the case of corporations, means the amount calculated in KRS 141.039; 10
(20) "Individual" means a natural person; 11
(21) "Internal Revenue Code" means for taxable years beginning on or after January 1, 12
2025, the Internal Revenue Code in effe ct on December 31, 2024, exclusive of any 13
amendments made subsequent to that date, other than amendments that extend 14
provisions in effect on December 31, 2024, that would otherwise terminate; 15
(22) "Limited liability pass -through entity" means any pass -through entity that affords 16
any of its partners, members, shareholders, or owners, through function of the laws 17
of this state or laws recognized by this state, protection from general liability for 18
actions of the entity; 19
(23) "Modified gross income" means the greater of: 20
(a) Adjusted gross income as defined in 26 U.S.C. sec. 62, including any 21
amendments in effect on December 31 of the taxable year, and adjusted as 22
follows: 23
1. Include interest income derived from obligations of sister states and 24
political subdivisions thereof; and 25
2. Include lump -sum pension distributions taxed under the special 26
transition rules of Pub. L. No. 104-188, sec. 1401(c)(2); or 27
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(b) Adjusted gross income as defined in subsection (1) of this section and 1
adjusted to include lump -sum pension distributions taxed under the special 2
transition rules of Pub. L. No. 104-188, sec. 1401(c)(2); 3
(24) "Net income": 4
(a) In the case of taxpayers other than corporations, means the amount calculated 5
in KRS 141.019; and 6
(b) In the case of corporations, means the amount calculated in KRS 141.039; 7
(25) "Nonresident" means any individual not a resident of this state; 8
(26) "Number of withholding exemptions claimed" means the number of withholding 9
exemptions claimed in a withholding exemption certificate in effect under KRS 10
141.325, e xcept that if no such certificate is in effect, the number of withholding 11
exemptions claimed shall be considered to be zero; 12
(27) "Part-year resident" means any individual that has established or abandoned 13
Kentucky residency during the calendar year; 14
(28) "Pass-through entity" means any partnership, S corporation, limited liability 15
company, limited liability partnership, limited partnership, or similar entity 16
recognized by the laws of this state that is not taxed for federal purposes at the 17
entity level, but instead passes to each partner, member, shareholder, or owner their 18
proportionate share of income, deductions, gains, losses, credits, and any other 19
similar attributes; 20
(29) "Payroll period" has the same meaning as in Section 3401(b) of the Internal 21
Revenue Code; 22
(30) "Person" has the same meaning as in Section 7701(a)(1) of the Internal Revenue 23
Code; 24
(31) "Qualified overtime compensation" has the same meaning as in 26 U.S.C. sec. 25
225; 26
(32) "Qualified tips" has the same meaning as in 26 U.S.C. sec. 224; 27
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(33) "Registered business" means a business entity that owns or otherwise possesses 1
critical infrastructure and that is registered to do business in the state prior to the 2
declared state disaster or emergency; 3
(34)[(32)] "Resident" means an individual domic iled within this state or an individual 4
who is not domiciled in this state, but maintains a place of abode in this state and 5
spends in the aggregate more than one hundred eighty -three (183) days of the 6
taxable year in this state; 7
(35)[(33)] "S corporation" has the same meaning as in Section 1361(a) of the Internal 8
Revenue Code; 9
(36)[(34)] "State" means a state of the United States, the District of Columbia, the 10
Commonwealth of Puerto Rico, or any territory or possession of the United States; 11
(37)[(35)] "Taxable net income": 12
(a) In the case of corporations that are taxable in this state, means "net income" as 13
defined in subsection (24) of this section; 14
(b) In the case of corporations that are taxable in this state and taxable in another 15
state, means "net inco me" as defined in subsection (24) of this section and as 16
allocated and apportioned under KRS 141.120; 17
(c) For homeowners' associations as defined in Section 528(c) of the Internal 18
Revenue Code, means "taxable income" as defined in Section 528(d) of the 19
Internal Revenue Code. Notwithstanding the provisions of subsection (21) of 20
this section, the Internal Revenue Code sections referred to in this paragraph 21
shall be those code sections in effect for the applicable tax year; and 22
(d) For a corporation that meets the requirements established under Section 856 23
of the Internal Revenue Code to be a real estate investment trust, means "real 24
estate investment trust taxable income" as defined in Section 857(b)(2) of the 25
Internal Revenue Code, except that a captive real estate investment trust shall 26
not be allowed any deduction for dividends paid; 27
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(38)[(36)] "Taxable year" means the calendar year or fiscal year ending during such 1
calendar year, upon the basis of which net income is computed, and in the case of a 2
return made for a fractional part of a year under the provisions of this chapter or 3
under administrative regulations prescribed by the commissioner, "taxable year" 4
means the period for which the return is made; and 5
(39)[(37)] "Wages" has the same meaning as in Sect ion 3401(a) of the Internal Revenue 6
Code and includes other income subject to withholding as provided in Section 7
3401(f) and Section 3402(k), (o), (p), (q), and (s) of the Internal Revenue Code. 8
Section 2. KRS 141.019 is amended to read as follows: 9
In the case of taxpayers other than corporations: 10
(1) Adjusted gross income shall be calculated by subtracting from the gross income of 11
those taxpayers the deductions allowed individuals by Section 62 of the Internal 12
Revenue Code and adjusting as follows: 13
(a) Exclude income that is exempt from state taxation by the Kentucky 14
Constitution and the Constitution and statutory laws of the United States; 15
(b) Exclude income from supplemental annuities provided by the Railroad 16
Retirement Act of 1937 as amended and which are subject to federal income 17
tax by Pub. L. No. 89-699; 18
(c) Include interest income derived from obligations of sister states and political 19
subdivisions thereof; 20
(d) Exclude employee pension contributions picked up as provided for in KRS 21
6.505, 16.545, 21.360, 61.523, 61.560, 65.155, 67A.320, 67A.510, 7 8.610, 22
and 161.540 upon a ruling by the Internal Revenue Service or the federal 23
courts that these contributions shall not be included as gross income until such 24
time as the contributions are distributed or made available to the employee; 25
(e) Exclude Social Security and railroad retirement benefits subject to federal 26
income tax; 27
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(f) Exclude any money received because of a settlement or judgment in a lawsuit 1
brought against a manufacturer or distributor of "Agent Orange" for damages 2
resulting from exposure to Agent Orange by a member or veteran of the 3
Armed Forces of the United States or any dependent of such person who 4
served in Vietnam; 5
(g) 1. a. For taxable years beginning after December 31, 2005, but before 6
January 1, 2018, exclude up to forty-one thousand one hundred ten 7
dollars ($41,110) of total distributions from pension plans, annuity 8
contracts, profit -sharing plans, retirement plans, or employee 9
savings plans; and 10
b. For taxable years beginning on or after January 1, 2018, exclude 11
up to thirty -one tho usand one hundred ten dollars ($31,110) of 12
total distributions from pension plans, annuity contracts, profit -13
sharing plans, retirement plans, or employee savings plans. 14
2. As used in this paragraph: 15
a. "Annuity contract" has the same meaning as set forth i n Section 16
1035 of the Internal Revenue Code; 17
b. "Distributions" includes but is not limited to any lump -sum 18
distribution from pension or profit -sharing plans qualifying for the 19
income tax averaging provisions of Section 402 of the Internal 20
Revenue Code; an y distribution from an individual retirement 21
account as defined in Section 408 of the Internal Revenue Code; 22
and any disability pension distribution; and 23
c. "Pension plans, profit-sharing plans, retirement plans, or employee 24
savings plans" means any trust or other entity created or organized 25
under a written retirement plan and forming part of a stock bonus, 26
pension, or profit -sharing plan of a public or private employer for 27
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the exclusive benefit of employees or their beneficiaries and 1
includes plans qualifi ed or unqualified under Section 401 of the 2
Internal Revenue Code and individual retirement accounts as 3
defined in Section 408 of the Internal Revenue Code; 4
(h) 1. a. Exclude the portion of the distributive share of a shareholder's net 5
income from an S corp oration subject to the franchise tax imposed 6
under KRS 136.505 or the capital stock tax imposed under KRS 7
136.300; and 8
b. Exclude the portion of the distributive share of a shareholder's net 9
income from an S corporation related to a qualified subchapter S 10
subsidiary subject to the franchise tax imposed under KRS 11
136.505 or the capital stock tax imposed under KRS 136.300. 12
2. The shareholder's basis of stock held in an S corporation where the S 13
corporation or its qualified subchapter S subsidiary is subject t o the 14
franchise tax imposed under KRS 136.505 or the capital stock tax 15
imposed under KRS 136.300 shall be the same as the basis for federal 16
income tax purposes; 17
(i) Exclude income received for services performed as a precinct worker for 18
election training o r for working at election booths in state, county, and local 19
primaries or regular or special elections; 20
(j) Exclude any capital gains income attributable to property taken by eminent 21
domain; 22
(k) 1. Exclude all income from all sources for members of the Arm ed Forces 23
who are on active duty and who are killed in the line of duty, for the 24
year during which the death occurred and the year prior to the year 25
during which the death occurred. 26
2. For the purposes of this paragraph, "all income from all sources" shall 27
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include all federal and state death benefits payable to the estate or any 1
beneficiaries; 2
(l) Exclude all military pay received by members of the Armed Forces while on 3
active duty; 4
(m) 1. Include the amount deducted for depreciation under 26 U.S.C. sec. 16 7 5
or 168; and 6
2. Exclude the amounts allowed by KRS 141.0101 for depreciation; 7
(n) Include the amount deducted under 26 U.S.C. sec. 199A; 8
(o) Ignore any change in the cost basis of the surviving spouse's share of property 9
owned by a Kentucky community property trust occurring for federal income 10
tax purposes as a result of the death of the predeceasing spouse; 11
(p) Allow the same treatment allowed under Pub. L. No. 116 -260, secs. 276 and 12
278, related to the tax treatment of forgiven covered loans, deductions 13
attributable to those loans, and tax attributes associated with those loans for 14
taxable years ending on or after March 27, 2020, but before Ja nuary 1, 2022;[ 15
and] 16
(q) For taxable years beginning on or after January 1, 2020, but before March 11, 17
2023, allow the same treatment of restaurant revitalization grants in 18
accordance with Pub. L. No. 117 -2, sec. 9673 and 15 U.S.C. sec. 9009c, 19
related to t he tax treatment of the grants, deductions attributable to those 20
grants, and tax attributes associated with those grants;[ and] 21
(r) For taxable years beginning on or after January 1, 2025, but before 22
January 1, 2029, allow the same treatment of qualified t ips in accordance 23
with 26 U.S.C. sec. 224; and 24
(s) For taxable years beginning on or after January 1, 2025, but before 25
January 1, 2029, allow the same treatment of qualified overtime 26
compensation in accordance with 26 U.S.C. sec. 225; and 27
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(2) Net income sh all be calculated by subtracting from adjusted gross income all the 1
deductions allowed individuals by Chapter 1 of the Internal Revenue Code, as 2
modified by KRS 141.0101, except: 3
(a) Any deduction allowed by 26 U.S.C. sec. 164 for taxes; 4
(b) Any deduction allowed by 26 U.S.C. sec. 165 for losses, except wagering 5
losses allowed under Section 165(d) of the Internal Revenue Code; 6
(c) Any deduction allowed by 26 U.S.C. sec. 213 for medical care expenses; 7
(d) Any deduction allowed by 26 U.S.C. sec. 217 for moving expenses; 8
(e) Any deduction allowed by 26 U.S.C. sec. 67 for any other miscellaneous 9
deduction; 10
(f) Any deduction allowed by the Internal Revenue Code for amounts allowable 11
under KRS 140.090(1)(h) in calculating the value of the distributive shares of 12
the estate of a decedent, unless there is filed with the income return a 13
statement that the deduction has not been claimed under KRS 140.090(1)(h); 14
(g) Any deduction allowed by 26 U.S.C. sec. 151 for personal exemptions and 15
any other deductions in lieu thereof; 16
(h) Any deduction allowed for amounts paid to any club, organization, or 17
establishment which has been determined by the courts or an agency 18
established by the General Assembly and charged with enforcing the civil 19
rights laws of the Commonwealth, not to afford full and equal membership 20
and full and equal enjoyment of its goods, services, facilities, privileges, 21
advantages, or accommodations to any person because of race, color, religion, 22
national origin, or sex, except nothing shall be construed to deny a deduction 23
for amounts paid to any religious or denominational club, group, or 24
establishment or any organization operated solely for charitable or educational 25
purposes which restricts membership to persons of the same religion or 26
denomination in order to promote the religious principles for which it is 27
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established and maintained; and 1
(i) A taxpayer may elect to claim the standard deduction allowed by KRS 2
141.081 instead of itemized deductions allowed pursuant to 26 U.S.C. sec. 63 3
and as modified by this section. 4
Section 3. Whereas timely implementation of this legislation is necessary for 5
tax return processing, an emergency is declared to exist, and this Act takes effect upon its 6
passage and approval by the Governor or upon its otherwise becoming a law. 7