KRS 141.900: Definitions for KRS Chapter 141 -- Taxable years beginning prior to

January 1, 2018.

The definitions in this section are the same as the definitions appearing in KRS 141.010

prior to its repeal and reenactment in Section 53 of 2018 Ky. Acts chs . 171 and 207. For

taxable years beginning prior to January 1, 2018, as used in this chapter, unless the

context requires otherwise:

(1) "Commissioner" means the commissioner of the department;

(2) "Department" means the Department of Revenue;

(3) "Internal Revenue Code" means the Internal Revenue Code in effect on December

31, 2015, exclusive of any amendments made subsequent to that date, other than

amendments that extend provisions in effect on December 31, 2015, that would

otherwise terminate, and as modified by KRS 141.0101;

(4) "Dependent" means those persons defined as dependents in the Internal Revenue

Code;

(5) "Fiduciary" means "fiduciary" as defined in Section 7701(a)(6) of the Internal

Revenue Code;

(6) "Fiscal year" means "fiscal year" as define d in Section 7701(a)(24) of the Internal

Revenue Code;

(7) "Individual" means a natural person;

(8) "Modified gross income" means the greater of:

(a) Adjusted gross income as defined in Section 62 of the Internal Revenue Code

of 1986, including any subsequ ent amendments in effect on December 31 of

the taxable year, and adjusted as follows:

1. Include interest income derived from obligations of sister states and

political subdivisions thereof; and

2. Include lump -sum pension distributions taxed under the spe cial

transition rules of Pub. L. No. 104-188, sec. 1401(c)(2); or

(b) Adjusted gross income as defined in subsection (10) of this section and

adjusted to include lump -sum pension distributions taxed under the special

transition rules of Pub. L. No. 104-188, sec. 1401(c)(2);

(9) "Gross income," in the case of taxpayers other than corporations, means "gross

income" as defined in Section 61 of the Internal Revenue Code;

(10) "Adjusted gross income," in the case of taxpayers other than corporations, means

gross income as defined in subsection (9) of this section minus the deducti ons

allowed individuals by Section 62 of the Internal Revenue Code and as modified by

KRS 141.0101 and adjusted as follows, except that deductions shall be limited to

amounts allocable to income subject to taxation under the provisions of this chapter,

and except that nothing in this chapter shall be construed to permit the same item to

be deducted more than once:

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

Constitution and the Constitution and statutory laws of the United States a nd

Kentucky;

(b) Exclude income from supplemental annuities provided by the Railroad

Retirement Act of 1937 as amended and which are subject to federal income

tax by Public Law 89-699;

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

subdivisions thereof;

(d) Exclude employee pension contributions picked up as provided for in KRS

6.505, 16.545, 21.360, 61.523, 61.560, 65.155, 67A.320, 67A.510, 78.610,

and 161.540 upon a ruling by the Internal Revenue Service or the federal

courts that these contributions shall not be included as gross income until such

time as the contributions are distributed or made available to the employee;

(e) Exclude Social Security and railroad retirement benefits subject to federal

income tax;

(f) Include, for taxable years ending before January 1, 1991, all overpayments of

federal income tax refunded or credited for taxable years;

(g) Deduct, for taxable years ending before January 1, 1991, federal income tax

paid for taxable years ending before January 1, 1990;

(h) Exclude any money received because of a settlement or judgment in a lawsuit

brought against a manufacturer or distributor of "Agent Orange" for damages

resulting from exposure to Agent Orange by a member or veteran of the

Armed Forces of the United States or any dependent of such person who

served in Vietnam;

(i) 1. For taxable years ending prior to December 31, 2005, exclude the

applicable amount of total distributions from pension plans, annuity

contracts, profit -sharing plans, retiremen t plans, or employee savings

plans. The "applicable amount" shall be:

a. Twenty-five percent (25%), but not more than six thousand two

hundred fifty dollars ($6,250), for taxable years beginning after

December 31, 1994, and before January 1, 1996;

b. Fifty percent (50%), but not more than twelve thousand five

hundred dollars ($12,500), for taxable years beginning after

December 31, 1995, and before January 1, 1997;

c. Seventy-five percent (75%), but not more than eighteen thousand

seven hundred fifty dollar s ($18,750), for taxable years beginning

after December 31, 1996, and before January 1, 1998; and

d. One hundred percent (100%), but not more than thirty -five

thousand dollars ($35,000), for taxable years beginning after

December 31, 1997.

2. For taxable y ears beginning after December 31, 2005, exclude up to

forty-one thousand one hundred ten dollars ($41,110) of total

distributions from pension plans, annuity contracts, profit -sharing plans,

retirement plans, or employee savings plans.

3. As used in this paragraph:

a. "Distributions" includes but is not limited to any lump -sum

distribution from pension or profit -sharing plans qualifying for the

income tax averaging provisions of Section 402 of the Internal

Revenue Code; any distribution from an individual r etirement

account as defined in Section 408 of the Internal Revenue Code;

and any disability pension distribution;

b. "Annuity contract" has the same meaning as set forth in Section

1035 of the Internal Revenue Code; and

c. "Pension plans, profit-sharing plans, retirement plans, or employee

savings plans" means any trust or other entity created or organized

under a written retirement plan and forming part of a stock bonus,

pension, or profit -sharing plan of a public or private employer for

the exclusive ben efit of employees or their beneficiaries and

includes plans qualified or unqualified under Section 401 of the

Internal Revenue Code and individual retirement accounts as

defined in Section 408 of the Internal Revenue Code;

(j) 1. a. Exclude the portion of the distributive share of a shareholder's net

income from an S corporation subject to the franchise tax imposed

under KRS 136.505 or the capital stock tax imposed under KRS

136.300; and

b. Exclude the portion of the distributive share of a shareholder's ne t

income from an S corporation related to a qualified subchapter S

subsidiary subject to the franchise tax imposed under KRS

136.505 or the capital stock tax imposed under KRS 136.300.

2. The shareholder's basis of stock held in a S corporation where the S

corporation or its qualified subchapter S subsidiary is subject to the

franchise tax imposed under KRS 136.505 or the capital stock tax

imposed under KRS 136.300 shall be the same as the basis for federal

income tax purposes;

(k) Exclude, to the extent not already excluded from gross income, any amounts

paid for health insurance, or the value of any voucher or similar instrument

used to provide health insurance, which constitutes medical care coverage for

the taxpayer, the taxpayer 's spouse, and dependents, or for any person

authorized to be provided excludable coverage by the taxpayer pursuant to the

federal Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111 -

148, or the Health Care and Education Reconciliation Act of 2010, Pub. L.

No. 111-152, during the taxable year. Any amounts paid by the taxpayer for

health insurance that are excluded pursuant to this paragraph shall not be

allowed as a deduction in computing the taxpayer's net income under

subsection (11) of this section;

(l) Exclude income received for services performed as a precinct worker for

election training or for working at election booths in state, county, and local

primary, regular, or special elections;

(m) Exclude any amount paid during the taxable y ear for insurance for long -term

care as defined in KRS 304.14-600;

(n) Exclude any capital gains income attributable to property taken by eminent

domain;

(o) Exclude any amount received by a producer of tobacco or a tobacco quota

owner from the multistate settlement with the tobacco industry, known as the

Master Settlement Agreement, signed on November 22, 1998;

(p) Exclude any amount received from the secondary settlement fund, referred to

as "Phase II," established by tobacco companies to compensate tobac co

farmers and quota owners for anticipated financial losses caused by the

national tobacco settlement;

(q) Exclude any amount received from funds of the Commodity Credit

Corporation for the Tobacco Loss Assistance Program as a result of a

reduction in the quantity of tobacco quota allotted;

(r) Exclude any amount received as a result of a tobacco quota buydown program

that all quota owners and growers are eligible to participate in;

(s) Exclude state Phase II payments received by a producer of tobacco or a

tobacco quota owner;

(t) Exclude all income from all sources for active duty and reserve members and

officers of the Armed Forces of the United States or National Guard who are

killed in the line of duty, for the year during which the death occurred and t he

year prior to the year during which the death occurred. For the purposes of this

paragraph, "all income from all sources" shall include all federal and state

death benefits payable to the estate or any beneficiaries; and

(u) For taxable years beginning on or after January 1, 2010, exclude all military

pay received by active duty members of the Armed Forces of the United

States, members of reserve components of the Armed Forces of the United

States, and members of the National Guard, including compensatio n for state

active duty as described in KRS 38.205;

(11) "Net income," in the case of taxpayers other than corporations, means adjusted

gross income as defined in subsection (10) of this section, minus:

(a) The deduction allowed by KRS 141.0202 as it exist ed prior to January 1,

2018;

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

insurance coverage to employees or their families;

(c) For taxable years beginning on or after January 1, 2010, the amount of

domestic production activ ities deduction calculated at six percent (6%) as

allowed in Section 199(a)(2) of the Internal Revenue Code for taxable years

beginning before 2010; and

(d) 1. All the deductions allowed individuals by Chapter 1 of the Internal

Revenue Code as modified by KRS 141.0101 except:

a. Any deduction allowed by the Internal Revenue Code for state or

foreign taxes measured by gross or net income, including state and

local general sales taxes allowed in lieu of state and local income

taxes under the provisions of Sec tion 164(b)(5) of the Internal

Revenue Code;

b. Any deduction allowed by the Internal Revenue Code for amounts

allowable under KRS 140.090(1)(h) in calculating the value of the

distributive shares of the estate of a decedent, unless there is filed

with the income return a statement that such deduction has not

been claimed under KRS 140.090(1)(h);

c. The deduction for personal exemptions allowed under Section 151

of the Internal Revenue Code and any other deductions in lieu

thereof;

d. For taxable years begi nning on or after January 1, 2010, the

domestic production activities deduction allowed under Section

199 of the Internal Revenue Code;

e. 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, services, 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;

f. Any deduction directly or indirectly allocable to inc ome which is

either exempt from taxation or otherwise not taxed under this

chapter;

g. The itemized deduction limitation established in 26 U.S.C. sec. 68

shall be determined using the applicable amount from 26 U.S.C.

sec. 68 as it existed on December 31, 2006; and

h. A taxpayer may elect to claim the standard deduction allowed by

KRS 141.081 instead of itemized deductions allowed pursuant to

26 U.S.C. sec. 63 and as modified by this section; and

2. Nothing in this chapter shall be construed to permit the sa me item to be

deducted more than once;

(12) "Gross income," in the case of corporations, means "gross income" as defined in

Section 61 of the Internal Revenue Code and as modified by KRS 141.0101 and

adjusted 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 received after December 31, 1969;

(c) Include interest income derived from obligati ons 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

attributable 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 Section 281 of the Internal Revenue Code in

computing gross income;

(g) Exclude income from "safe harbor leases" (Section 168(f)(8) of the Internal

Revenue Code);

(h) Exclude any amount received by a producer of tobacco or a tobacco quota

owner from the multistate settlement with the tobacco industry, known as the

Master Settlement Agreement, signed on November 22, 1998;

(i) Exclude any amount received from the secondary settlement fund, referred to

as "Phase II," establish ed by tobacco companies to compensate tobacco

farmers and quota owners for anticipated financial losses caused by the

national tobacco settlement;

(j) Exclude any amount received from funds of the Commodity Credit

Corporation for the Tobacco Loss Assistanc e Program as a result of a

reduction in the quantity of tobacco quota allotted;

(k) Exclude any amount received as a result of a tobacco quota buydown program

that all quota owners and growers are eligible to participate in;

(l) For taxable years beginning after December 31, 2004, and before January 1,

2007, exclude the distributive share income or loss received from a

corporation defined in subsection (24)(b) of this section whose income has

been subject to the tax imposed by KRS 141.040. The exclusion pro vided in

this paragraph shall also apply to a taxable year that begins prior to January 1,

2005, if the tax imposed by KRS 141.040 is paid on the distributive share

income by a corporation defined in subparagraphs 2. to 8. of subsection

(24)(b) of this sec tion with a return filed for a period of less than twelve (12)

months that begins on or after January 1, 2005, and ends on or before

December 31, 2005. This paragraph shall not be used to delay payment of the

tax imposed by KRS 141.040; and

(m) Exclude sta te Phase II payments received by a producer of tobacco or a

tobacco quota owner;

(13) "Net income," in the case of corporations, means "gross income" as defined in

subsection (12) of this section minus:

(a) The deduction allowed by KRS 141.0202 as it exist ed prior to January 1,

2018;

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

insurance coverage to employees or their families;

(c) For taxable years beginning on or after January 1, 2010, the amount of

domestic production activ ities deduction calculated at six percent (6%) as

allowed in Section 199(a)(2) of the Internal Revenue Code for taxable years

beginning before 2010; and

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

the Internal Revenue Code and 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 Commonwealt h

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

foreign country or political subdivision thereof;

2. The deductions contained 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, and nothing in this chapter shall be construed to permit the

same item to be deducted more than once;

5. Exclude expenses related to "safe harbor leases" (Section 168(f)(8) of

the Internal Revenue Code);

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

establishment which ha s 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, services,

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 an y 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;

7. Any deduction prohibited by KRS 141.205;

8. Any dividends-paid deduction of any captive real estate investment trust;

and

9. For taxable years beginning on or after January 1, 2010, the domestic

production activities deduction allowed under Section 199 of the

Internal Revenue Code;

(14) (a) "Taxable net income," in the case of corporations that are taxable in this state,

means "net income" as defined in subsection (13) of this section;

(b) "Taxable net income," in the case of c orporations that are taxable in this state

and taxable in another state, means "net income" as defined in subsection (13)

of this section and as allocated and apportioned under KRS 141.901. A

corporation is taxable in another state if, in any state other t han Kentucky, the

corporation is required to file a return for or pay a net income tax, franchise

tax measured by net income, franchise tax for the privilege of doing business,

or corporate stock tax;

(c) "Taxable net income," in the case of homeowners' as sociations as defined in

Section 528(c) of the Internal Revenue Code, means "taxable income" as

defined in Section 528(d) of the Internal Revenue Code. Notwithstanding the

provisions of subsection (3) of this section, the Internal Revenue Code

sections referred to in this paragraph shall be those code sections in effect for

the applicable tax year; and

(d) "Taxable net income," in the case of a corporation that meets the requirements

established under Section 856 of the Internal Revenue Code to be a real es tate

investment trust, means "real estate investment trust taxable income" as

defined in Section 857(b)(2) of the Internal Revenue Code, except that a

captive real estate investment trust shall not be allowed any deduction for

dividends paid;

(15) "Person" means "person" as defined in Section 7701(a)(1) of the Internal Revenue

Code;

(16) "Taxable year" means the calendar year or fiscal year ending during such calendar

year, upon the basis of which net income is computed, and in the case of a return

made for a fractional part of a year under the provisions of this chapter or under

regulations prescribed by the commissioner, "taxable year" means the period for

which the return is made;

(17) "Resident" means an individual domiciled within this state or an indiv idual who is

not domiciled in this state, but maintains a place of abode in this state and spends in

the aggregate more than one hundred eighty -three (183) days of the taxable year in

this state;

(18) "Nonresident" means any individual not a resident of this state;

(19) "Employer" means "employer" as defined in Section 3401(d) of the Internal

Revenue Code;

(20) "Employee" means "employee" as defined in Section 3401(c) of the Internal

Revenue Code;

(21) "Number of withholding exemptions claimed" means the nu mber of withholding

exemptions claimed in a withholding exemption certificate in effect under KRS

141.325, except that if no such certificate is in effect, the number of withholding

exemptions claimed shall be considered to be zero (0);

(22) "Wages" means "wages" as defined in Section 3401(a) of the Internal Revenue

Code and includes other income subject to withholding as provided in Section

3401(f) and Section 3402(k), (o), (p), (q), and (s) of the Internal Revenue Code;

(23) "Payroll period" means "payrol l period" as defined in Section 3401(b) of the

Internal Revenue Code;

(24) (a) For taxable years beginning before January 1, 2005, and after December 31,

2006, "corporation" means "corporation" as defined in Section 7701(a)(3) of

the Internal Revenue Code; and

(b) For taxable years beginning after December 31, 2004, and before January 1,

2007, "corporations" means:

1. "Corporations" as defined in Section 7701(a)(3) of the Internal Revenue

Code;

2. S corporations as defined in Section 1361(a) of the Internal Revenue

Code;

3. A foreign limited liability company as defined in KRS 275.015;

4. A limited liability company as defined in KRS 275.015;

5. A professional limited liability company as defined in KRS 275.015;

6. A foreign limited partnership as defined in KRS 362.2-102(9);

7. A limited partnership as defined in KRS 362.2-102(14);

8. A limited liability partnership as defined in KRS 362.155(7) or in 362.1-

101(7) or (8);

9. A real estate investment trust as defined in Section 856 of the Internal

Revenue Code;

10. A regulated investment company as defined in Section 851 of the

Internal Revenue Code;

11. A real estate mortgage investment conduit as defined in Section 860D of

the Internal Revenue Code;

12. A financial asset securitization investment trust as defined in Section

860L of the Internal Revenue Code; and

13. Other similar entities created with limited liability for their partners,

members, or shareholders.

For purposes of this paragraph, "corpora tion" shall not include any publicly

traded partnership as defined by Section 7704(b) of the Internal Revenue Code

that is treated as a partnership for federal tax purposes under Section 7704(c)

of the Internal Revenue Code or its publicly traded partnersh ip affiliates. As

used in this paragraph, "publicly traded partnership affiliates" shall include

any limited liability company or limited partnership for which at least eighty

percent (80%) of the limited liability company member interests or limited

partner interests are owned directly or indirectly by the publicly traded

partnership;

(25) "Doing business in this state" includes but is not limited to:

(a) Being organized under the laws of this state;

(b) Having a commercial domicile in this state;

(c) Owning or leasing property in this state;

(d) Having one (1) or more individuals performing services in this state;

(e) Maintaining an interest in a pass-through entity doing business in this state;

(f) Deriving income from or attributable to sources within th is state, including

deriving income directly or indirectly from a trust doing business in this state,

or deriving income directly or indirectly from a single -member limited

liability company that is doing business in this state and is disregarded as an

entity separate from its single member for federal income tax purposes; or

(g) Directing activities at Kentucky customers for the purpose of selling them

goods or services.

Nothing in this subsection shall be interpreted in a manner that goes beyond the

limitations imposed and protections provided by the United States Constitution or

Pub. L. No. 86-272;

(26) "Pass-through entity" means any partnership, S corporation, limited liability

company, limited liability partnership, limited partnership, or similar ent ity

recognized by the laws of this state that is not taxed for federal purposes at the

entity level, but instead passes to each partner, member, shareholder, or owner their

proportionate share of income, deductions, gains, losses, credits, and any other

similar attributes;

(27) "S corporation" means "S corporation" as defined in Section 1361(a) of the Internal

Revenue Code;

(28) "Limited liability pass -through entity" means any pass -through entity that affords

any of its partners, members, shareholders, or owners, through function of the laws

of this state or laws recognized by this state, protection from general liability for

actions of the entity; and

(29) "Captive real estate investment trust" means a real estate investment trust as defined

in Section 856 of the Internal Revenue Code that meets the following requirements:

(a) 1. The shares or other ownership interests of the real estate investment trust

are not regularly traded on an established securities market; or

2. The real estate investment trust doe s not have enough shareholders or

owners to be required to register with the Securities and Exchange

Commission; and

(b) 1. The maximum amount of stock or other ownership interest that is owned

or constructively owned by a corporation equals or exceeds:

a. Twenty-five percent (25%), if the corporation does not occupy

property owned, constructively owned, or controlled by the real

estate investment trust; or

b. Ten percent (10%), if the corporation occupies property owned,

constructively owned, or controlled by the real estate investment

trust.

The total ownership interest of a corporation shall be determined by

aggregating all interests owned or constructively owned by a

corporation;

2. For the purposes of this paragraph:

a. "Corporation" means a corporation taxable under KRS 141.040,

and includes an affiliated group as defined in KRS 141.200, that is

required to file a consolidated return pursuant to the provisions of

KRS 141.200; and

b. "Owned or constructively owned" means owning shares or having

an ownership interest in the real estate investment trust, or owning

an interest in an entity that owns shares or has an ownership

interest in the real estate investment trust. Constructive ownership

shall be determined by looking a cross multiple layers of a

multilayer pass-through structure; and

(c) The real estate investment trust is not owned by another real estate investment

trust.