Kentucky Statutes 141.121 – Special rules for apportioning business income — Management of a treasury function — Passenger airlines — Qualified air freight forwarders — Administrative regulations regarding sourcing of receipts
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(1) As used in this section:
(a) “Affiliated airline” means an airline:
1. For which a qualified air freight forwarder facilitates air transportation;
and
2. That is in the same affiliated group as a qualified air freight forwarder; (b) “Affiliated group” has the same meaning as in KRS § 141.201;
(c) “Kentucky revenue passenger miles” means the total revenue passenger miles within the borders of Kentucky for all flight stages that either originate or terminate in this state;
(d) “Passenger airline” means a person or corporation engaged primarily in the carriage by aircraft of passengers in interstate commerce;
(e) “Provider” means any corporation engaged in the business of providing:
1. Communications service as defined in KRS § 136.602;
2. Cable service as defined in KRS § 136.602; or
3. Internet access as defined in 47 U.S.C. § 151; (f) “Qualified air freight forwarder” means a person that:
1. Is engaged primarily in the facilitation of the transportation of property by air;
2. Does not itself operate aircraft; and
3. Is in the same affiliated group as an affiliated airline; and
(g) “Revenue passenger miles” means miles calculated in accordance with 14
C.F.R. Part 241.
(2) (a) For purposes of apportioning business income to this state for taxable years beginning prior to January 1, 2018:
1. Passenger airlines shall determine the property, payroll, and sales factors as follows:
a. Except as modified by this subdivision, the property factor shall be determined as provided in KRS § 141.901. Aircraft operated by a passenger airline shall be included in both the numerator and denominator of the property factor. Aircraft shall be included in the numerator of the property factor by determining the product of:
i. The total average value of the aircraft operated by the passenger airline; and
ii. A fraction, the numerator of which is the Kentucky revenue passenger miles of the passenger airline for the taxable year and the denominator of which is the total revenue passenger miles of the passenger airline for the taxable year;
b. Except as modified by this subdivision, the payroll factor shall be determined as provided in KRS § 141.901. Compensation paid during the tax period by a passenger airline to flight personnel shall be included in the numerator of the payroll factor by determining the product of:
i. The total amount paid during the taxable year to flight personnel; and
ii. A fraction, the numerator of which is the Kentucky revenue passenger miles of the passenger airline for the taxable year and the denominator of which is the total revenue passenger miles of the passenger airline for the taxable year; and
c. Except as modified by this subdivision, the sales factor shall be determined as provided in KRS § 141.901. Transportation revenues shall be included in the numerator of the sales factor by determining the product of:
i. The total transportation revenues of the passenger airline for the taxable year; and
ii. A fraction, the numerator of which is the Kentucky revenue passenger miles for the taxable year and the denominator of which is the total revenue passenger miles for the taxable year; and
2. Qualified air freight forwarders shall determine the property, payroll, and sales factors as follows:
a. The property factor shall be determined as provided in KRS
141.901;
b. The payroll factor shall be determined as provided in KRS
141.901; and
c. Except as modified by this subparagraph, the sales factor shall be determined as provided in KRS § 141.901. Freight forwarding revenues shall be included in the numerator of the sales factor by determining the product of:
i. The total freight forwarding revenues of the qualified air freight forwarder for the taxable year; and
ii. A fraction, the numerator of which is miles operated in Kentucky by the affiliated airline and the denominator of which is the total miles operated by the affiliated airline.
(b) For purposes of apportioning income to this state for taxable years beginning on or after January 1, 2018, except as modified by this paragraph, the apportionment fraction shall be determined as provided in KRS § 141.120, except that:
1. Transportation revenues shall be determined to be in this state by multiplying the total transportation revenues by a fraction, the numerator of which is the Kentucky revenue passenger miles for the taxable year
and the denominator of which is the total revenue passenger miles for the taxable year; and
2. Freight forwarding revenues shall be determined to be in this state by multiplying the total freight forwarding revenues by a fraction, the numerator of which is miles operated in Kentucky by the affiliated airline and the denominator of which is the total miles operated by the affiliated airline.
(3) For purposes of apportioning income to this state for taxable years beginning on or after January 1, 2018, the apportionment fraction for a provider shall continue to be calculated using a three (3) factor formula as provided in KRS § 141.901.
(4) (a) A corporation may elect the allocation and apportionment methods for the corporation’s apportionable income provided for in paragraphs (b) and (c) of this subsection. The election, if made, shall be irrevocable for a period of five (5) years.
(b) All business income derived directly or indirectly from the sale of management, distribution, or administration services to or on behalf of regulated investment companies, as defined under the Internal Revenue Code of 1986, as amended, including trustees, and sponsors or participants of employee benefit plans which have accounts in a regulated investment company, shall be apportioned to this state only to the extent that shareholders of the investment company are domiciled in this state as follows:
1. Total apportionable income shall be multiplied by a fraction, the numerator of which shall be Kentucky receipts from the services for the tax period and the denominator of which shall be the total receipts everywhere from the services for the tax period;
2. For purposes of subparagraph 1. of this paragraph, Kentucky receipts shall be determined by multiplying total receipts for the taxable year from each separate investment company for which the services are performed by a fraction. The numerator of the fraction shall be the average of the number of shares owned by the investment company’s shareholders domiciled in this state at the beginning of and at the end of the investment company’s taxable year, and the denominator of the fraction shall be the average of the number of the shares owned by the investment company shareholders everywhere at the beginning of and at the end of the investment company’s taxable year; and
3. Nonapportionable income shall be allocated to this state as provided in
KRS § 141.120.
(c) All apportionable income derived directly or indirectly from the sale of securities brokerage services by a business which operates within the boundaries of any area of the Commonwealth, which on June 30, 1992, was designated as a Kentucky Enterprise Zone, as described in KRS § 154.655(2) before that statute was renumbered in 1992, shall be apportioned to this state only to the extent that customers of the securities brokerage firm are domiciled in this state. The portion of business income apportioned to
Kentucky shall be determined by multiplying the total business income from the sale of these services by a fraction determined in the following manner:
1. The numerator of the fraction shall be the brokerage commissions and total margin interest paid in respect of brokerage accounts owned by customers domiciled in Kentucky for the brokerage firm’s taxable year;
2. The denominator of the fraction shall be the brokerage commissions and total margin interest paid in respect of brokerage accounts owned by all of the brokerage firm’s customers for that year; and
3. Nonapportionable income shall be allocated to this state as provided in
KRS § 141.120.
(5) Public service companies and financial organizations required by KRS § 141.010 to allocate and apportion net income shall allocate and apportion that income as follows:
(a) Nonapportionable income shall be allocated to this state as provided in KRS
141.120;
(b) Apportionable income shall be apportioned to this state as provided by KRS
141.120. Receipts shall be determined as provided by administrative regulations promulgated by the department; and
(c) An affiliated group required to file a consolidated return under KRS § 141.201 that includes a public service company, a provider of communications services or multichannel video programming services as defined in KRS § 136.602, or a financial organization shall determine the amount of receipts as provided by administrative regulations promulgated by the department.
(6) A corporation:
(a) That owns an interest in a limited liability pass-through entity; or
(b) That owns an interest in a general partnership;
shall include the proportionate share of receipts of the limited liability pass-through entity or general partnership when apportioning income. The phrases “an interest in a limited liability pass-through entity” and “an interest in a general partnership” shall extend to each level of multiple-tiered pass-through entities.
(7) The department shall promulgate administrative regulations to detail the sourcing of the following receipts related to financial institutions:
(a) Receipts from the lease of real property;
(b) Receipts from the lease of tangible personal property;
(c) Interest, fees, and penalties imposed in connection with loans secured by real property;
(d) Interest, fees, and penalties imposed in connection with loans not secured by real property;
(e) Net gains from the sale of loans;
(f) Receipts from fees, interest, and penalties charged to card holders; (g) Net gains from the sale of credit card receivables;
(h) Card issuer’s reimbursement fees; (i) Receipts from merchant discount; (j) Receipts from ATM fees;
(k) Receipts from loan servicing fees; (l) Receipts from other services;
(m) Receipts from the financial institution‘s investment assets and activity and trading assets and activity; and
(n) All other receipts.
Effective: April 15, 2020
History: Amended 2020 Ky. Acts ch. 91, sec. 10, effective April 15, 2020. — Amended
2019 Ky. Acts ch. 151, sec. 44, effective June 27, 2019. — Amended 2018 Ky. Acts ch. 171, sec. 78, effective April 14, 2018; and ch. 207, sec. 78, effective April 27,
2018. — Amended 2012 Ky. Acts ch. 101, sec. 2, effective April 11, 2012. — Created
2008 Ky. Acts ch. 18, sec. 3, effective July 15, 2008.
Legislative Research Commission Note (4/15/2020). 2020 Ky. Acts ch. 91, sec. 76 provides that the changes made to this statute in Section 10 of that Act apply to taxable years beginning on or after January 1, 2019.
Legislative Research Commission Note (4/27/2018). Pursuant to 2018 Ky. Acts ch.
207, sec. 153, the amendments made to this statute in that Act apply to taxable years beginning on or after January 1, 2018.
Legislative Research Commission Note (4/11/2012). 2012 Ky. Acts ch. 101, sec. 3, provides that this statute, as amended by 2012 Ky. Acts ch. 101, sec. 2, “applies to taxable years beginning on or after January 1, 2010.”
Legislative Research Commission Note (7/15/2008). 2008 Ky. Acts ch. 18, sec. 4 provides that this section “shall apply to taxable periods beginning after December
31, 2007.”
(a) “Affiliated airline” means an airline:
Terms Used In Kentucky Statutes 141.121
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Company: may extend and be applied to any corporation, company, person, partnership, joint stock company, or association. See Kentucky Statutes 446.010
- Corporation: means a corporation taxable under KRS §. See Kentucky Statutes 141.010
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Department: means the Department of Revenue. See Kentucky Statutes 141.010
- Financial institution: means :
(a) A national bank organized as a body corporate and existing or in the process of organizing as a national bank association pursuant to the provisions of the National Bank Act, 12 U. See Kentucky Statutes 141.010 - Internal Revenue Code: means for taxable years beginning on or after January 1,
2023, the Internal Revenue Code in effect on December 31, 2022, exclusive of any amendments made subsequent to that date, other than amendments that extend provisions in effect on December 31, 2022, that would otherwise terminate. See Kentucky Statutes 141.010 - Lease: A contract transferring the use of property or occupancy of land, space, structures, or equipment in consideration of a payment (e.g., rent). Source: OCC
- 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. See Kentucky Statutes 141.010
- Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
- Partnership: includes both general and limited partnerships. See Kentucky Statutes 446.010
- Pass-through entity: means any partnership, S corporation, limited liability company, limited liability partnership, limited partnership, or similar entity 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. See Kentucky Statutes 141.010
- Person: means "person" as defined in Section 7701(a)(1) of the Internal Revenue
Code. See Kentucky Statutes 141.900 - Personal property: All property that is not real property.
- Real property: Land, and all immovable fixtures erected on, growing on, or affixed to the land.
- State: when applied to a part of the United States, includes territories, outlying possessions, and the District of Columbia. See Kentucky Statutes 446.010
- Statute: A law passed by a legislature.
- 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 administrative regulations prescribed by the commissioner, "taxable year" means the period for which the return is made. See Kentucky Statutes 141.010
- Year: means calendar year. See Kentucky Statutes 446.010
1. For which a qualified air freight forwarder facilitates air transportation;
and
2. That is in the same affiliated group as a qualified air freight forwarder; (b) “Affiliated group” has the same meaning as in KRS § 141.201;
(c) “Kentucky revenue passenger miles” means the total revenue passenger miles within the borders of Kentucky for all flight stages that either originate or terminate in this state;
(d) “Passenger airline” means a person or corporation engaged primarily in the carriage by aircraft of passengers in interstate commerce;
(e) “Provider” means any corporation engaged in the business of providing:
1. Communications service as defined in KRS § 136.602;
2. Cable service as defined in KRS § 136.602; or
3. Internet access as defined in 47 U.S.C. § 151; (f) “Qualified air freight forwarder” means a person that:
1. Is engaged primarily in the facilitation of the transportation of property by air;
2. Does not itself operate aircraft; and
3. Is in the same affiliated group as an affiliated airline; and
(g) “Revenue passenger miles” means miles calculated in accordance with 14
C.F.R. Part 241.
(2) (a) For purposes of apportioning business income to this state for taxable years beginning prior to January 1, 2018:
1. Passenger airlines shall determine the property, payroll, and sales factors as follows:
a. Except as modified by this subdivision, the property factor shall be determined as provided in KRS § 141.901. Aircraft operated by a passenger airline shall be included in both the numerator and denominator of the property factor. Aircraft shall be included in the numerator of the property factor by determining the product of:
i. The total average value of the aircraft operated by the passenger airline; and
ii. A fraction, the numerator of which is the Kentucky revenue passenger miles of the passenger airline for the taxable year and the denominator of which is the total revenue passenger miles of the passenger airline for the taxable year;
b. Except as modified by this subdivision, the payroll factor shall be determined as provided in KRS § 141.901. Compensation paid during the tax period by a passenger airline to flight personnel shall be included in the numerator of the payroll factor by determining the product of:
i. The total amount paid during the taxable year to flight personnel; and
ii. A fraction, the numerator of which is the Kentucky revenue passenger miles of the passenger airline for the taxable year and the denominator of which is the total revenue passenger miles of the passenger airline for the taxable year; and
c. Except as modified by this subdivision, the sales factor shall be determined as provided in KRS § 141.901. Transportation revenues shall be included in the numerator of the sales factor by determining the product of:
i. The total transportation revenues of the passenger airline for the taxable year; and
ii. A fraction, the numerator of which is the Kentucky revenue passenger miles for the taxable year and the denominator of which is the total revenue passenger miles for the taxable year; and
2. Qualified air freight forwarders shall determine the property, payroll, and sales factors as follows:
a. The property factor shall be determined as provided in KRS
141.901;
b. The payroll factor shall be determined as provided in KRS
141.901; and
c. Except as modified by this subparagraph, the sales factor shall be determined as provided in KRS § 141.901. Freight forwarding revenues shall be included in the numerator of the sales factor by determining the product of:
i. The total freight forwarding revenues of the qualified air freight forwarder for the taxable year; and
ii. A fraction, the numerator of which is miles operated in Kentucky by the affiliated airline and the denominator of which is the total miles operated by the affiliated airline.
(b) For purposes of apportioning income to this state for taxable years beginning on or after January 1, 2018, except as modified by this paragraph, the apportionment fraction shall be determined as provided in KRS § 141.120, except that:
1. Transportation revenues shall be determined to be in this state by multiplying the total transportation revenues by a fraction, the numerator of which is the Kentucky revenue passenger miles for the taxable year
and the denominator of which is the total revenue passenger miles for the taxable year; and
2. Freight forwarding revenues shall be determined to be in this state by multiplying the total freight forwarding revenues by a fraction, the numerator of which is miles operated in Kentucky by the affiliated airline and the denominator of which is the total miles operated by the affiliated airline.
(3) For purposes of apportioning income to this state for taxable years beginning on or after January 1, 2018, the apportionment fraction for a provider shall continue to be calculated using a three (3) factor formula as provided in KRS § 141.901.
(4) (a) A corporation may elect the allocation and apportionment methods for the corporation’s apportionable income provided for in paragraphs (b) and (c) of this subsection. The election, if made, shall be irrevocable for a period of five (5) years.
(b) All business income derived directly or indirectly from the sale of management, distribution, or administration services to or on behalf of regulated investment companies, as defined under the Internal Revenue Code of 1986, as amended, including trustees, and sponsors or participants of employee benefit plans which have accounts in a regulated investment company, shall be apportioned to this state only to the extent that shareholders of the investment company are domiciled in this state as follows:
1. Total apportionable income shall be multiplied by a fraction, the numerator of which shall be Kentucky receipts from the services for the tax period and the denominator of which shall be the total receipts everywhere from the services for the tax period;
2. For purposes of subparagraph 1. of this paragraph, Kentucky receipts shall be determined by multiplying total receipts for the taxable year from each separate investment company for which the services are performed by a fraction. The numerator of the fraction shall be the average of the number of shares owned by the investment company’s shareholders domiciled in this state at the beginning of and at the end of the investment company’s taxable year, and the denominator of the fraction shall be the average of the number of the shares owned by the investment company shareholders everywhere at the beginning of and at the end of the investment company’s taxable year; and
3. Nonapportionable income shall be allocated to this state as provided in
KRS § 141.120.
(c) All apportionable income derived directly or indirectly from the sale of securities brokerage services by a business which operates within the boundaries of any area of the Commonwealth, which on June 30, 1992, was designated as a Kentucky Enterprise Zone, as described in KRS § 154.655(2) before that statute was renumbered in 1992, shall be apportioned to this state only to the extent that customers of the securities brokerage firm are domiciled in this state. The portion of business income apportioned to
Kentucky shall be determined by multiplying the total business income from the sale of these services by a fraction determined in the following manner:
1. The numerator of the fraction shall be the brokerage commissions and total margin interest paid in respect of brokerage accounts owned by customers domiciled in Kentucky for the brokerage firm’s taxable year;
2. The denominator of the fraction shall be the brokerage commissions and total margin interest paid in respect of brokerage accounts owned by all of the brokerage firm’s customers for that year; and
3. Nonapportionable income shall be allocated to this state as provided in
KRS § 141.120.
(5) Public service companies and financial organizations required by KRS § 141.010 to allocate and apportion net income shall allocate and apportion that income as follows:
(a) Nonapportionable income shall be allocated to this state as provided in KRS
141.120;
(b) Apportionable income shall be apportioned to this state as provided by KRS
141.120. Receipts shall be determined as provided by administrative regulations promulgated by the department; and
(c) An affiliated group required to file a consolidated return under KRS § 141.201 that includes a public service company, a provider of communications services or multichannel video programming services as defined in KRS § 136.602, or a financial organization shall determine the amount of receipts as provided by administrative regulations promulgated by the department.
(6) A corporation:
(a) That owns an interest in a limited liability pass-through entity; or
(b) That owns an interest in a general partnership;
shall include the proportionate share of receipts of the limited liability pass-through entity or general partnership when apportioning income. The phrases “an interest in a limited liability pass-through entity” and “an interest in a general partnership” shall extend to each level of multiple-tiered pass-through entities.
(7) The department shall promulgate administrative regulations to detail the sourcing of the following receipts related to financial institutions:
(a) Receipts from the lease of real property;
(b) Receipts from the lease of tangible personal property;
(c) Interest, fees, and penalties imposed in connection with loans secured by real property;
(d) Interest, fees, and penalties imposed in connection with loans not secured by real property;
(e) Net gains from the sale of loans;
(f) Receipts from fees, interest, and penalties charged to card holders; (g) Net gains from the sale of credit card receivables;
(h) Card issuer’s reimbursement fees; (i) Receipts from merchant discount; (j) Receipts from ATM fees;
(k) Receipts from loan servicing fees; (l) Receipts from other services;
(m) Receipts from the financial institution‘s investment assets and activity and trading assets and activity; and
(n) All other receipts.
Effective: April 15, 2020
History: Amended 2020 Ky. Acts ch. 91, sec. 10, effective April 15, 2020. — Amended
2019 Ky. Acts ch. 151, sec. 44, effective June 27, 2019. — Amended 2018 Ky. Acts ch. 171, sec. 78, effective April 14, 2018; and ch. 207, sec. 78, effective April 27,
2018. — Amended 2012 Ky. Acts ch. 101, sec. 2, effective April 11, 2012. — Created
2008 Ky. Acts ch. 18, sec. 3, effective July 15, 2008.
Legislative Research Commission Note (4/15/2020). 2020 Ky. Acts ch. 91, sec. 76 provides that the changes made to this statute in Section 10 of that Act apply to taxable years beginning on or after January 1, 2019.
Legislative Research Commission Note (4/27/2018). Pursuant to 2018 Ky. Acts ch.
207, sec. 153, the amendments made to this statute in that Act apply to taxable years beginning on or after January 1, 2018.
Legislative Research Commission Note (4/11/2012). 2012 Ky. Acts ch. 101, sec. 3, provides that this statute, as amended by 2012 Ky. Acts ch. 101, sec. 2, “applies to taxable years beginning on or after January 1, 2010.”
Legislative Research Commission Note (7/15/2008). 2008 Ky. Acts ch. 18, sec. 4 provides that this section “shall apply to taxable periods beginning after December
31, 2007.”