Kentucky Issues Guidance on Deduction for State Taxes

Kentucky issued guidance on which state taxes corporations can deduct from taxable income.

Which State Taxes Are Deductible?

Kentucky allows a deduction for all state taxes that are not based on gross or net income. Examples of deductible state taxes include:

– capital stock or capital base taxes;

– net worth taxes;

– real and personal property taxes;

– intangible property taxes;

– production taxes;

– use or consumption taxes; and

– business privilege taxes.

Some states impose tax based on the highest of a corporation’s:

– income;

– capital or net worth; or

– fixed dollar minimum tax.

Under this circumstance, a Kentucky taxpayer can deduct the tax based on capital or the minimum tax.

What Does “State Tax” Mean?

The term “state tax” means taxes paid or accrued to:

– any state in the U.S.;

– the District of Columbia;

– Puerto Rico;

– any U.S. territory or possession; and

– any foreign country or its political subdivisions.

KY-TAM-18-06, Kentucky Department of Revenue, November 1, 2018, ¶203-205

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