KRS 136.540: Calculation of payroll factor.

(1) The payroll factor is a fraction the numerator of which is the total amount paid in

this Commonwealth during the taxable year by the financial institution for

compensation and the denominator of which is the total compensation paid both

within and without this Commonwealth during the taxable year.

(2) The compensation of any employee for services or activities which are not

connected with business activities and payments made to any independent

contractor or any other person not properly classifiable as an employee shall be

excluded from both the numerator and denominator of the factor.

(3) Compensation is paid in this Commonwealth if any one of the following tests is

met:

(a) The employee's services are performed entirely within this Commonwealth.

(b) The e mployee's services are performed both within and without the

Commonwealth, but the service performed without the Commonwealth is

incidental to the employee's service within the Commonwealth. The term

"incidental" means any service which is temporary or tra nsitory in nature, or

which is rendered in connection with an isolated transaction.

(c) If the employee's services are performed both within and without this

Commonwealth, the employee's compensation will be attributed to this

Commonwealth if:

1. The emplo yee's principal base of operations is within this

Commonwealth;

2. There is no principal base of operations in any state in which some part

of the services are performed, but the place from which the services are

directed or controlled is in this Commonwealth; or

3. The principal base of operations and the place from which the services

are directed or controlled are not in any state in which some part of the

service is performed but the employee's residence is in this

Commonwealth.