KRS 141.039: Calculation of gross income and net income for corporations.

In the case of corporations:

(1) Gross income shall be calculated by adjusting federal gross income as defined in

Section 61 of the Internal Revenue Code as follows:

(a) Exclude income that is exempt from state taxation by the Kentucky

Constitution and the Constitution and statutory laws of the United States;

(b) Exclude all dividend income;

(c) Include interest income derived from obligations of sister states and political

subdivisions thereof;

(d) Exclude fifty percent (50%) of gross income derived from any disposal of

coal covered by Section 631(c) of the Internal Revenue Code if the

corporation does not claim any deduction for percentage depletion, or for

expenditures attribut able to the making and administering of the contract

under which such disposition occurs or to the preservation of the economic

interests retained under such contract;

(e) Include the amount calculated under KRS 141.205;

(f) Ignore the provisions of Sectio n 281 of the Internal Revenue Code in

computing gross income;

(g) Include the amount of deprecation deduction calculated under 26 U.S.C. sec.

167 or 168;

(h) Allow the same treatment allowed under Pub. L. No. 116 -260, secs. 276 and

278, related to the tax treatment of forgiven covered loans, deductions

attributable to those loans, and tax attributes associated with those loans for

taxable years ending on or after March 27, 2020, but before January 1, 2022;

(i) For taxable years beginning on or after January 1, 2020, but before March 11,

2023, allow the same treatment of restaurant revitalization grants in

accordance with Pub. L. No. 117 -2, sec. 9673 and 15 U.S.C. sec. 9009c,

related to the tax treatment of the g rants, deductions attributable to those

grants, and tax attributes associated with those grants;

(j) For taxable years beginning on or after January 1, 2026:

1. Include the amount deducted for domestic research or experimental

expenditures under 26 U.S.C. sec. 174A; and

2. Allow a subtraction equal to the amortization of domestic research or

experimental expenditures computed in accordance with 26 U.S.C. sec.

174, as that section existed on December 31, 2024;

(k) Include the amount deducted for any qualifie d film or television production,

any qualified live theatrical production, and any qualified sound recording

production under 26 U.S.C. sec. 181;

(l) Include interest deducted under 26 U.S.C. sec. 139L for amounts paid to a

qualified lender on any qualified real estate loan; and

(m) For purposes of determining the limitation on business interest under 26

U.S.C. sec. 163(j), the provisions of that section in effect on December 31,

2024, exclusive of any amendments made subsequent to that date, shall be

used; and

(2) Net income shall be calculated by subtracting from gross income:

(a) The deduction for depreciation allowed by KRS 141.0101;

(b) Any amount paid for vouchers or similar instruments that provide health

insurance coverage to employees or their families;

(c) All the deductions from gross income allowed corporations by Chapter 1 of

the Internal Revenue Code, as modified by KRS 141.0101, except:

1. Any deduction for a state tax which is computed, in whole or in part, by

reference to gross or net income and which is paid or accrued to any

state of the United States, the District of Columbia, the Commonwealth

of Puerto Rico, any territory or possession of the United States, or to any

foreign country or political subdivision thereof;

2. The deductions conta ined in Sections 243, 245, and 247 of the Internal

Revenue Code;

3. The provisions of Section 281 of the Internal Revenue Code shall be

ignored in computing net income;

4. Any deduction directly or indirectly allocable to income which is either

exempt from taxation or otherwise not taxed under the provisions of this

chapter, except for deductions allowed under Pub. L. No. 116 -260, secs.

276 and 278, related to the tax treatment of forgiven covered loans and

deductions attributable to those loans for taxable years ending on or

after March 27, 2020, but before January 1, 2022; and deductions

allowed under Pub. L. No. 117 -2, sec. 9673 and 15 U.S.C. sec. 9009c,

related to the tax treatment of restaurant revitalization grants and

deductions attributable to those grants for taxable years beginning on or

after January 1, 2020, but before March 11, 2023. Nothing in this

chapter shall be construed to permit the same item to be deducted more

than once;

5. Any deduction for amounts paid to any club, organization, or

establishment which has been determined by the courts or an agency

established by the General Assembly and charged with enforcing the

civil rights laws of the Commonwealth, not to afford full and equal

membership and full and equal enjoyment of its goods, ser vices,

facilities, privileges, advantages, or accommodations to any person

because of race, color, religion, national origin, or sex, except nothing

shall be construed to deny a deduction for amounts paid to any religious

or denominational club, group, or establishment or any organization

operated solely for charitable or educational purposes which restricts

membership to persons of the same religion or denomination in order to

promote the religious principles for which it is established and

maintained;

6. Any deduction prohibited by KRS 141.205; and

7. Any dividends -paid deduction of any captive real estate investment

trust; and

(d) 1. A deferred tax deduction in an amount computed in accordance with this

paragraph.

2. For purposes of this paragraph:

a. "Net deferred tax asset" means that deferred tax assets exceed the

deferred tax liabilities of the combined group, as computed in

accordance with accounting principles generally accepted in the

United States of America; and

b. "Net deferred tax liability" mea ns deferred tax liabilities that

exceed the deferred tax assets of a combined group as defined in

KRS 141.202, as computed in accordance with accounting

principles generally accepted in the United States of America.

3. Only publicly traded companies, inclu ding affiliated corporations

participating in the filing of a publicly traded company's financial

statements prepared in accordance with accounting principles generally

accepted in the United States of America, as of January 1, 2019, shall be

eligible for this deduction.

4. If the provisions of KRS 141.202 result in an aggregate increase to the

member's net deferred tax liability, an aggregate decrease to the

member's net deferred tax asset, or an aggregate change from a net

deferred tax asset to a net defe rred tax liability, the combined group

shall be entitled to a deduction, as determined in this paragraph.

5. For ten (10) years beginning with the combined group's first taxable

year beginning on or after January 1, 2028, a combined group shall be

entitled to a deduction from the combined group's entire net income

equal to one -tenth (1/10) of the amount necessary to offset the increase

in the net deferred tax liability, decrease in the net deferred tax asset, or

aggregate change from a net deferred tax asse t to a net deferred tax

liability. The increase in the net deferred tax liability, decrease in the net

deferred tax asset, or the aggregate change from a net deferred tax asset

to a net deferred tax liability shall be computed based on the change that

would result from the imposition of the combined reporting requirement

under KRS 141.202, but for the deduction provided under this paragraph

as of June 27, 2019.

6. The deferred tax impact determined in subparagraph 5. of this paragraph

shall be converted to the annual deferred tax deduction amount, as

follows:

a. The deferred tax impact determined in subparagraph 5. of this

paragraph shall be divided by the tax rate determined under KRS

141.040;

b. The resulting amount shall be further divided by the

apportionment factor determined by KRS 141.120 or 141.121 that

was used by the combined group in the calculation of the deferred

tax assets and deferred tax liabilities a s described in subparagraph

5. of this paragraph; and

c. The resulting amount represents the total net deferred tax

deduction available over the ten (10) year period as described in

subparagraph 5. of this paragraph.

7. The deduction calculated under this paragraph shall not be adjusted as a

result of any events happening subsequent to the calculation, including

but not limited to any disposition or abandonment of assets. The

deduction shall be calculated without regard to the federal tax effect and

shall n ot alter the tax basis of any asset. If the deduction under this

section is greater than the combined group's entire Kentucky net income,

any excess deduction shall be carried forward and applied as a deduction

to the combined group's entire net income in future taxable years until

fully utilized.

8. Any combined group intending to claim a deduction under this

paragraph shall file a statement with the department on or before July 1,

2019. The statement shall specify the total amount of the deduction

which t he combined group claims on the form, including calculations

and other information supporting the total amounts of the deduction as

required by the department. No deduction shall be allowed under this

paragraph for any taxable year, except to the extent cl aimed on the

timely filed statement in accordance with this paragraph.