{"data":{"id":"us-ky/krs-141.202","jurisdiction":"us-ky","citation":"KRS 141.202","heading":"Requirement of taxpayer engaged in a unitary business with one or more","body":"other corporations to file a combined report -- Administrative regulations --\nTaxable years beginning on or after January 1, 2019.\n(1) This section shall apply to taxable years beginning on or after January 1, 2019.\n(2) As used in this section:\n(a) \"Combined group\" means the group of all corporations whose income and\napportionment factors are required to be taken into account as provided in\nsubsection (3) of this section in  determining the taxpayer's share of the net\nincome or loss apportionable to this state. A combined group shall include\nonly corporations, the voting stock of which is more than fifty percent (50%)\nowned, directly or indirectly, by a common owner or owners;\n(b) \"Corporation\" has the same meaning as in KRS 141.010, including an\norganization of any kind treated as a corporation for tax purposes under KRS\n141.040, wherever located, which if it were doing business in this state would\nbe a taxpayer, and the busi ness conducted by a pass -through entity which is\ndirectly or indirectly held by a corporation shall be considered the business of\nthe corporation to the extent of the corporation's distributive share of the pass -\nthrough entity income, inclusive of guaranteed payments;\n(c) \"Doing business in a tax haven\" means being engaged in activity sufficient for\nthat tax haven jurisdiction to impose a tax under United States constitutional\nstandards;\n(d) 1. \"Tax haven\" means a jurisdiction that, during the taxable year has no or\nnominal effective tax on the relevant income and:\na. Has laws or practices that prevent effective exchange of\ninformation for tax purposes with other governments on taxpayers\nbenefitting from the tax regime;\nb. Has a tax regime which lacks transp arency. A tax regime lacks\ntransparency if the details of legislative, legal, or administrative\nprovisions are not open and apparent or are not consistently\napplied among similarly situated taxpayers, or if the information\nneeded by tax authorities to dete rmine a taxpayer's correct tax\nliability, such as accounting records and underlying\ndocumentation, is not adequately available;\nc. Facilitates the establishment of foreign -owned entities without the\nneed for a local substantive presence or prohibits these entities\nfrom having any commercial impact on the local economy;\nd. Explicitly or implicitly excludes the jurisdiction's resident\ntaxpayers from taking advantage of the tax regime's benefits or\nprohibits enterprises that benefit from the regime from operating in\nthe jurisdiction's domestic market; or\ne. Has created a tax regime which is favorable for tax avoidance,\nbased upon an overall assessment of relevant factors, including\nwhether the jurisdiction has a significant untaxed offshore\nfinancial or other services sector relative to its overall economy.\n2. \"Tax haven\" does not include a jurisdiction that has entered into a\ncomprehensive income tax treaty with the United States, which the\nSecretary of the Treasury has determined is satisfactory for purposes o f\nSection 1(h)(11)(C)(i)(II) of the Internal Revenue Code;\n(e) \"Taxpayer\" means any corporation subject to the tax imposed under this\nchapter;\n(f) \"Unitary business\" means a single economic enterprise that is made up either\nof separate parts of a single corporation or of a commonly controlled group of\ncorporations that are sufficiently interdependent, integrated, and interrelated\nthrough their activi ties so as to provide a synergy and mutual benefit that\nproduces a sharing or exchange of value among them and a significant flow of\nvalue to the separate parts. For purposes of this section, the term \"unitary\nbusiness\" shall be broadly construed, to the e xtent permitted by the United\nStates Constitution; and\n(g) \"United States\" means the fifty (50) states of the United States, the District of\nColumbia, and United States' territories and possessions.\n(3) (a) Except as provided in KRS 141.201, a taxpayer eng aged in a unitary business\nwith one (1) or more other corporations shall file a combined report which\nincludes the income, determined under subsection (5) of this section, and the\napportionment fraction, determined under KRS 141.120 and paragraph (d) of\nthis subsection, of all corporations that are members of the unitary business,\nand any other information as required by the department. The combined report\nshall be filed on a waters-edge basis under subsection (8) of this section.\n(b) The department may, by  administrative regulation, require that the combined\nreport include the income and associated apportionment factors of any\ncorporations that are not included as provided by paragraph (a) of this\nsubsection, but that are members of a unitary business, in o rder to reflect\nproper apportionment of income of the entire unitary businesses. Authority to\nrequire combination by administrative regulation under this paragraph\nincludes authority to require combination of corporations that are not, or\nwould not be combined, if the corporation were doing business in this state.\n(c) In addition, if the department determines that the reported income or loss of a\ntaxpayer engaged in a unitary business with any corporation not included as\nprovided by paragraph (a) of this su bsection represents an avoidance or\nevasion of tax by the taxpayer, the department may, on a case -by-case basis,\nrequire all or any part of the income and associated apportionment factors of\nthe corporation be included in the taxpayer's combined report.\n(d) With respect to the inclusion of associated apportionment factors as provided\nin paragraph (a) of this subsection, the department may require the inclusion\nof any one (1) or more additional factors which will fairly represent the\ntaxpayer's business acti vity in this state, or the employment of any other\nmethod to effectuate a proper reflection of the total amount of income subject\nto apportionment and an equitable allocation and apportionment of the\ntaxpayer's income.\n(e) A unitary business shall consider  the combined gross receipts and combined\nincome from all sources of all members under subsection (8) of this section,\nincluding eliminating entries for transactions among the members under\nsubsection (8)(e) of this section.\n(f) Notwithstanding paragraphs (a) to (e) of this subsection, a consolidated return\nmay be filed as provided in KRS 141.201 if the taxpayer makes an election\naccording to KRS 141.201.\n(4) The use of a combined report does not disregard the separate identities of the\ntaxpayer members of the combined group. Each taxpayer member is responsible for\ntax based on its taxable income or loss apportioned or allocated to this state, which\nshall include, in addition to the other types of income, the taxpayer member's share\nof apportionable income of the combined group, where apportionable income of the\ncombined group is calculated as a summation of the individual net incomes of all\nmembers of the combined group. A member's net income is determined by\nremoving all but apportionable income, expense, a nd loss from that member's total\nincome as provided in subsection (5) of this section.\n(5) (a) Each taxpayer member is responsible for tax based on its taxable income or\nloss apportioned or allocated to this state, which shall include:\n1. Its share of any income apportionable to this state of each of the\ncombined groups of which it is a member, determined under subsection\n(6) of this section;\n2. Its share of any income apportionable to this state of a distinct business\nactivity conducted within and without the state wholly by the taxpayer\nmember, determined under KRS 141.120;\n3. Its income from a business conducted wholly by the taxpayer member\nentirely within the state;\n4. Its income sourced to this state from the sale or exchange of capital or\nassets, and from involuntary conversions, as determined under\nsubsection (8)(g) of this section;\n5. Its nonapportionable income or loss allocable to this state, determined\nunder KRS 141.120;\n6. Its income or loss allocated or apportioned in an earlier year, required t o\nbe taken into account as state source income during the income year,\nother than a net operating loss; and\n7. Its net operating loss carryover.\n(b) No tax credit or post -apportionment deduction earned by one (1) member of\nthe group, but not fully used by or allowed to that member, may be used in\nwhole or in part by another member of the group or applied in whole or in part\nagainst the total income of the combined group, except as provided in\nparagraph (c) of this subsection.\n(c) If the taxable income compu ted pursuant to KRS 141.039 results in a net loss\nfor a taxpayer member of the combined group, that taxpayer member has a\nKentucky net operating loss, subject to the net operating loss limitations and\ncarry forward provisions of KRS 141.011. No prior year net operating loss\ncarryforward shall be available to entities that were not doing business in this\nstate in the year in which the loss was incurred. A Kentucky net operating loss\ncarryover incurred by a taxpayer member of a combined group shall be\ndeducted from income or loss apportioned to this state pursuant to this section\nas follows:\n1. For taxable years beginning on or after the first day of the initial taxable\nyear for which a combined unitary tax return is required under this\nsection, if the computa tion of a combined group's Kentucky net income\nbefore apportionment to this state results in a net operating loss, a\ntaxpayer member of the group may carry over its share of the net\noperating loss as apportioned to this state, as calculated under this\nsection and in accordance with KRS 141.120 or 141.121, and it shall be\ndeductible from a taxpayer member's apportioned net income derived\nfrom the unitary business in a future tax year to the extent that the\ncarryover and deduction is otherwise consistent with KRS 141.011;\n2. Where a taxpayer member of a combined group has a Kentucky net\noperating loss carryover derived from a loss incurred by a combined\ngroup in a tax year beginning on or after the first day of the initial tax\nyear for which a combined unitary  tax return is required under this\nsection, then the taxpayer member may share the net operating loss\ncarryover with other taxpayer members of the combined group if the\nother taxpayer members were members of the combined group in the tax\nyear that the loss  was incurred. Any amount of net operating loss\ncarryover that is deducted by another taxpayer member of the combined\ngroup shall reduce the amount of net operating loss carryover that may\nbe carried over by the taxpayer member that originally incurred the loss;\n3. Where a taxpayer member of a combined group has a net operating loss\ncarryover derived from a loss incurred in a tax year prior to the initial\ntax year for which a combined unitary tax return is required under this\nsection, the carryover shall re main available to be deducted by that\ntaxpayer member and any other taxpayer members of the combined\ngroup, but in no case shall the deduction reduce any taxpayer member's\nKentucky apportioned taxable income by more than fifty percent (50%)\nin any taxable year, other than the taxpayer member that originally\nincurred the net operating loss, in which case no limitation is provided\nexcept as provided by Section 172 of the Internal Revenue Code. Any\nnet operating loss carryover that is not utilized in a particu lar taxable\nyear shall be carried over by the taxpayer member that generated the loss\nand utilized in the future consistent with the limitations of this\nsubparagraph; or\n4. Where a taxpayer member of a combined group has a net operating loss\ncarryover derived from a loss incurred in a tax year during which the\ntaxpayer member was not a taxpayer member of the combined group, the\ncarryover shall remain available to be deducted by that taxpayer member\nor other taxpayer members, but in no case shall the deduction reduce any\ntaxpayer member's Kentucky apportioned taxable income by more than\nfifty percent (50%) in any taxable year, other than the taxpayer member\nthat originally incurred the net operating loss, in which case no\nlimitation is provided except as prov ided by Section 172 of the Internal\nRevenue Code. Any net operating loss carryover that is not utilized in a\nparticular taxable year, shall be carried over by the taxpayer member that\ngenerated the loss and utilized in the future consistent with the\nlimitations of this subparagraph.\n(6) The taxpayer's share of the business income apportionable to this state of each\ncombined group of which it is a member shall be the product of:\n(a) The apportiona ble income of the combined group, determined under\nsubsection (7) of this section; and\n(b) The taxpayer member's apportionment fraction, determined under KRS\n141.120, including in the sales factor numerator the taxpayer's sales associated\nwith the combined  group's unitary business in this state, and including in the\ndenominator the sales of all members of the combined group, including the\ntaxpayer, which sales are associated with the combined group's unitary\nbusiness wherever located. The sales of a pass-through entity shall be included\nin the determination of the partner's apportionment percentage in proportion to\na ratio, the numerator of which is the amount of the partner's distributive share\nof the pass -through entity's unitary income included in the inc ome of the\ncombined group as provided in subsection (8) of this section and the\ndenominator of which is the amount of pass -through entity's total unitary\nincome.\n(7) The apportionable income of a combined group is determined as follows:\n(a) The total incom e of the combined group is the sum of the income of each\nmember of the combined group determined under federal income tax laws, as\nadjusted for state purposes, as if the member were not consolidated for federal\npurposes; and\n(b) From the total income of the combined group determined under subsection (8)\nof this section, subtract any income and add any expense or loss, other than\nthe apportionable income, expense, or loss of the combined group.\n(8) To determine the total income of the combined group, taxpaye r members shall take\ninto account all or a portion of the income and apportionment factor of only the\nfollowing members otherwise included in the combined group as provided in\nsubsection (3) of this section:\n(a) The entire income and apportionment percentage of any member, incorporated\nin the United States or formed under the laws of any state, the District of\nColumbia, or any territory or possession of the United States, that earns less\nthan eighty percent (80%) of its income from sources outside of the Un ited\nStates, the District of Columbia, or any territory or possession of the United\nStates;\n(b) Any member that earns more than twenty percent (20%) of its income, directly\nor indirectly, from intangible property or service related activities that are\ndeductible against the apportionable income of other members of the\ncombined group, to the extent of that income and the apportionment factor\nrelated to that income. If a non -United States corporation is includible as a\nmember in the combined group, to the ext ent that the non -United States\ncorporation's income is excluded from United States taxation pursuant to the\nprovisions of a comprehensive income tax treaty, the income or loss is not\nincludible in the combined group's net income or loss. The member's expenses\nor apportionment factors attributable to income that is excluded from United\nStates taxation pursuant to the provisions of a comprehensive income tax\ntreaty are not to be included in the combined report;\n(c) The entire income and apportionment factor o f any member that is doing\nbusiness in a tax haven. If the member's business activity within a tax haven is\nentirely outside the scope of the laws, provisions, and practices that cause the\njurisdiction to meet the definition established in subsection (2)(d ) of this\nsection, the activity of the member shall be treated as not having been\nconducted in a tax haven;\n(d) If a unitary business includes income from a pass -through entity, the income\nto be included in the total income of the combined group shall be t he member\nof the combined group's direct and indirect distributive share of the pass -\nthrough entity's unitary income;\n(e) Income from an intercompany transaction between members of the same\ncombined group shall be deferred in a manner similar to 26 C.F.R. 1.1502-13.\nUpon the occurrence of any of the following events, deferred income resulting\nfrom an intercompany transaction between members of a combined group\nshall be restored to the income of the seller, and shall be apportionable income\nearned immediately before the event:\n1. The object of a deferred intercompany transaction is:\na. Resold by the buyer to an entity that is not a member of the\ncombined group;\nb. Resold by the buyer to an entity that is a member of the combined\ngroup for use outside the unit ary business in which the buyer and\nseller are engaged; or\nc. Converted by the buyer to a use outside the unitary business in\nwhich the buyer and seller are engaged; or\n2. The buyer and seller are no longer members of the same combined\ngroup, regardless of whether the members remain unitary;\n(f) A charitable expense incurred by a member of a combined group shall, to the\nextent allowable as a deduction provided by Section 170 of the Internal\nRevenue Code, be subtracted first from the apportionable income of the\ncombined group, subject to the income limitations of that section applied to\nthe entire apportionable income of the group, and any remaining amount shall\nthen be treated as a nonapportionable expense allocable to the member that\nincurred the expense, s ubject to the income limitations of that section applied\nto the nonapportionable income of that specific member. Any charitable\ndeduction disallowed under this paragraph, but allowed as a carryover\ndeduction in a subsequent year, shall be treated as origin ally incurred in the\nsubsequent year by the same member, and this paragraph shall apply in the\nsubsequent year in determining the allowable deduction in that year;\n(g) Gain or loss from the sale or exchange of capital assets, property described by\nSection 1231(a)(3) of the Internal Revenue Code, and property subject to an\ninvoluntary conversion shall be removed from the total separate net income of\neach member of a combined group and shall be apportioned and allocated as\nfollows:\n1. For each class of gain o r loss, including short -term capital, long -term\ncapital, Internal Revenue Code Section 1231, and involuntary\nconversions, all members' gain and loss for the class shall be combined,\nwithout netting between the classes, and each class of net gain or loss\nseparately apportioned to each member using the member's\napportionment percentage determined under subsection (6) of this\nsection;\n2. Each taxpayer member shall then net its apportioned business gain or\nloss for all classes, including any apportioned gain an d loss from other\ncombined groups, against the taxpayer member's nonapportionable gain\nand loss for all classes allocated to this state, using the rules of Sections\n1231 and 1222 of the Internal Revenue Code, without regard to any of\nthe taxpayer member's gains or losses from the sale or exchange of\ncapital assets, Internal Revenue Code Section 1231 property, and\ninvoluntary conversions which are nonapportionable items allocated to\nanother state;\n3. Any resulting state source income or loss, if the loss is not subject to the\nlimitations of Section 1211 of the Internal Revenue Code, of a taxpayer\nmember produced by the application of subparagraphs 1. and 2. of this\nparagraph shall then be applied to all other state source income or loss of\nthat member; and\n4. Any resulting state source loss of a member that is subject to the\nlimitations of Section 1211 of the Internal Revenue Code shall be\ncarried forward by that member, and shall be treated as state source\nshort-term capital loss incurred by that member for t he year for which\nthe carryover applies; and\n(h) Any expense of one (1) member of the unitary group which is directly or\nindirectly attributable to the nonapportionable or exempt income of another\nmember of the unitary group shall be allocated to that othe r member as\ncorresponding nonapportionable or exempt expense, as appropriate.\n(9) (a) As a filing convenience, and without changing the respective liability of the\ngroup members, members of a combined reporting group shall annually\ndesignate one (1) taxpay er member of the combined group to file a single\nreturn in the form and manner prescribed by the department, in lieu of filing\ntheir own respective returns.\n(b) The taxpayer member designated to file the single return shall consent to act\nas surety with re spect to the tax liability of all other taxpayers properly\nincluded in the combined report, and shall agree to act as agent on behalf of\nthose taxpayers for the taxable year for matters relating to the combined\nreport. If for any reason the surety is unwil ling or unable to perform its\nresponsibilities, tax liability may be assessed against the taxpayer members.","path":["KRS Chapter 141"],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=49916","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:50:34Z","sha256":"6b966365ff9dc0411d5dc36105ff89266adacb81bff19de5b7d95f3f27c4386e","source_id":"us-ky","stale":false,"prev":"us-ky/krs-141.201","next":"us-ky/krs-141.205"},"notice":"GroundRules: Original legal text. Not legal advice."}