{"data":{"id":"us-ky/krs-141.120","jurisdiction":"us-ky","citation":"KRS 141.120","heading":"Division of income of interstate business for tax purposes --","body":"Apportionment.\nThis section applies to taxable years beginning on or after January 1, 2018.\n(1) As used in this section:\n(a) \"Apportionable income\" means:\n1. All income that is appor tionable under the Constitution of the United\nStates and is not allocated under this section, including:\na. Income arising from transactions and activity in the regular course\nof the taxpayer's trade or business; and\nb. Income arising from tangible and int angible property if the\nacquisition, management, employment, development, or\ndisposition of the property is or was related to the operation of the\ntaxpayer's trade or business; and\n2. Any income that would be allocable to this state under the Constitution\nof the United States, but that is apportioned rather than allocated\npursuant to this section;\n(b) \"Commercial domicile\" means the principal place from which the trade or\nbusiness of the taxpayer is directed or managed;\n(c) \"Financial organization\" means an y bank, trust company, savings bank,\nindustrial bank, land bank, safe deposit company, private banker, savings and\nloan association, cooperative bank, small loan company, sales finance\ncompany, investment company, or any similar type of entity;\n(d) \"Non-apportionable income\" means all income other than apportionable\nincome;\n(e) \"Receipts\" means all gross receipts of the taxpayer that are not allocated under\nthis section, and that are received from transactions and activity in the regular\ncourse of the taxpa yer's trade or business, except that receipts of a taxpayer\nfrom:\n1. Hedging transactions; and\n2. The maturity, redemption, sale, exchange, loan, or other disposition of\ncash or securities;\nshall be excluded; and\n(f) \"This state\" means the Commonwealth of Kentucky.\n(2) Any taxpayer having income from business activity which is taxable both within\nand without this state, other than activity as a provider as defined in KRS 136.602, a\nfinancial organization, or a public s ervice company, shall allocate and apportion net\nincome as provided in this section.\n(3) For purposes of allocation and apportionment of income under this section, a\ntaxpayer is taxable in another state if:\n(a) In that state the taxpayer is subject to a ne t income tax, a franchise tax\nmeasured by net income, a franchise tax for the privilege of doing business, or\na corporate stock tax; or\n(b) That state has jurisdiction to subject the taxpayer to a net income tax\nregardless of whether, in fact, the state does or does not do so.\n(4) Rents and royalties from real or tangible personal property, capital gains, interest, or\npatent or copyright royalties, to the extent that they constitute nonapportionable\nincome, shall be allocated as provided in subsections (5) to (8) of this section.\n(5) (a) Net rents and royalties from real property located in this state are allocable to\nthis state.\n(b) Net rents and royalties from tangible personal property are allocable to this\nstate:\n1. If and to the extent that the property is utilized in this state; or\n2. In their entirety if the taxpayer's commercial domicile is in this state and\nthe taxpayer is not organized under the laws of or taxable in the state in\nwhich the property is utilized.\n(c) The extent of utilization of tangi ble personal property in a state is determined\nby multiplying the rents and royalties by a fraction the numerator of which is\nthe number of days of physical location of the property in this state during the\nrental or royalty period in the taxable year and the denominator of which is the\nnumber of days of physical location of the property everywhere during all\nrental or royalty periods in the taxable year. If the physical location of the\nproperty during all rental or royalty periods is unknown or unascertain able by\nthe taxpayer, tangible personal property is utilized in the state in which the\nproperty was located at the time the rental or royalty payer obtained\npossession.\n(6) (a) Capital gains and losses from sales of real property located in this state are\nallocable to this state.\n(b) Capital gains and losses from sales of tangible personal property are allocable\nto this state if:\n1. The property had a situs in this state at the time of the sale; or\n2. The taxpayer's commercial domicile is in this state and the taxpayer is\nnot taxable in the state in which the property had a situs.\n(c) Capital gains and losses from sales of intangible personal property are\nallocable to this state if the taxpayer's commercial domicile is in this state.\n(7) Interest is allocabl e to this state if the taxpayer's commercial domicile is in this\nstate.\n(8) (a) Patent and copyright royalties are allocable to this state:\n1. If and to the extent that the patent or copyright is utilized by the payer in\nthis state; or\n2. If and to the extent that the patent or copyright is utilized by the payer in\na state in which the taxpayer is not taxable and the taxpayer's\ncommercial domicile is in this state.\n(b) A patent is utilized in a state to the extent that it is employed in production,\nfabrication, manufacturing, or other processing in the state or to the extent that\na patented product is produced in the state. If the basis of receipts from patent\nroyalties does not permit allocation to states or if the accounting procedures\ndo not reflect state s of utilization, the patent is utilized in the state in which\nthe taxpayer's commercial domicile is located.\n(9) All apportionable income shall be apportioned to this state by multiplying the\nincome by a fraction the numerator of which is the total receip ts of the taxpayer in\nthis state during the taxable year and the denominator of which is the total receipts\nof the taxpayer everywhere during the taxable year.\n(10) Receipts from the sale of tangible personal property are in this state if:\n(a) The property is delivered or shipped to a purchaser, other than the United\nStates government, within this state regardless of the f.o.b. point or other\nconditions of the sale; or\n(b) The property is shipped from an office, store, warehouse, factory, or oth er\nplace of storage in this state and the purchaser is the United States\ngovernment.\n(11) (a) Receipts, other than receipts described in subsection (10) of this section, are in\nthis state if the taxpayer's market for the sales is in this state. The taxpaye r's\nmarket for sales is in this state:\n1. In the case of sale, rental, lease, or license of real property, if and to the\nextent the property is located in this state;\n2. In the case of rental, lease, or license of tangible personal property, if\nand to the extent the property is located in this state;\n3. In the case of sale of a service, if and to the extent the service is\ndelivered to a location in this state; and\n4. In the case of intangible property:\na. That is rented, leased, or licensed, if and to the e xtent the property\nis used in this state, provided that intangible property utilized in\nmarketing a good or service to a consumer is used in this state if\nthat good or service is purchased by a consumer who is in this\nstate; and\nb. That is sold, if and to the extent the property is used in this state,\nprovided that:\ni. A contract right, government license, or similar intangible\nproperty that authorizes the holder to conduct a business\nactivity in a specific geographic area is used in this state if\nthe geographic area includes all or part of this state;\nii. Receipts from intangible property sales that are contingent on\nthe productivity, use, or disposition of the intangible property\nshall be treated as receipts from the rental, lease, or licensing\nof the inta ngible property under subdivision a. of this\nsubparagraph; and\niii. All other receipts from a sale of intangible property shall be\nexcluded from the numerator and denominator of the receipts\nfactor.\n(b) If the state or states of assignment under paragraph (a) of this subsection\ncannot be determined, the state or states of assignment shall be reasonably\napproximated.\n(c) If the taxpayer is not taxable in a state to which a receipt is assigned under\nparagraph (a) or (b) of this subsection, or if the state of assignment cannot be\ndetermined under paragraph (a) of this subsection or reasonably approximated\nunder paragraph (b) of this subsection, the receipt shall be excluded from the\ndenominator of the receipts factor.\n(d) The department may promulgate administr ative regulations necessary to carry\nout the purposes of this section.\n(12) (a) If the allocation and apportionment provisions of this section do not fairly\nrepresent the extent of the taxpayer's business activity in this state, the\ntaxpayer may petition f or or the department may require, in respect to all or\nany part of the taxpayer's business activity, if reasonable:\n1. Separate accounting;\n2. The inclusion of one (1) or more additional factors which will fairly\nrepresent the taxpayer's business activity in this state; or\n3. The employment of any other method to effectuate an equitable\nallocation and apportionment of the taxpayer's income.\n(b) 1. If the allocation and apportionment provisions of this section do not\nfairly represent the extent of business a ctivity in this state of taxpayers\nengaged in a particular industry or in a particular transaction or activity,\nthe department may, in addition to the authority provided in paragraph\n(a) of this subsection, promulgate administrative regulations for\ndetermining alternative allocation and apportionment methods for those\ntaxpayers.\n2. An administrative regulation promulgated pursuant to this paragraph\nshall be applied uniformly, except that with respect to any taxpayer to\nwhom the administrative regulation app lies, the taxpayer may petition\nfor or the department may require adjustment according to paragraph (a)\nof this subsection.\n(c) 1. The party petitioning for or the department requiring the use of any\nmethod to effectuate an equitable allocation and apporti onment of the\ntaxpayer's income pursuant to paragraph (a) of the subsection shall prove\nby clear and convincing evidence:\na. That the allocation and apportionment provisions of this section do\nnot fairly represent the extent of the taxpayer's business activity in\nthis state; and\nb. That the alternative to the provisions is reasonable.\n2. The same burden of proof shall apply whether the taxpayer is petitioning\nfor, or the department is requiring, the use of any reasonable method to\neffectuate an equitable allocation and apportionment of the taxpayer's\nincome. Notwithstanding the previous sentence, if the department can\nshow that in any t wo (2) of the prior five (5) taxable years, the taxpayer\nhad used an allocation or apportionment method at variance with its\nallocation or apportionment method or methods used for the other\ntaxable years, then the department shall not bear the burden of pr oof in\nimposing a different method provided by paragraph (a) of this\nsubsection.\n(d) If the department requires any method to effectuate an equitable allocation and\napportionment of the taxpayer's income, the department cannot impose any\ncivil or criminal penalty with reference to the tax due that is attributable to the\ntaxpayer's reasonable reliance solely on the allocation and apportionment\nprovisions of this subsection.\n(e) A taxpayer that has received written permission from the department to use a\nreasonable method to effectuate an equitable allocation and apportionment of\nthe taxpayer's income shall not have that permission revoked with respect to\ntransactions and activities that have already occurred unless there has been a\nmaterial change in, or a ma terial misrepresentation of, the facts provided by\nthe taxpayer upon which the department reasonably relied.","path":["KRS Chapter 141"],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=47368","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:50:34Z","sha256":"e078389b5b0bfc2fa6378c9c632f9689d0966fe45ea7ee3ed2228f648c0e5288","source_id":"us-ky","stale":false,"prev":"us-ky/krs-141.110","next":"us-ky/krs-141.121"},"notice":"GroundRules: Original legal text. Not legal advice."}