INSTRUCTIONS Department of Revenue ENTITY INCOME …

1 INSTRUCTIONS . PTE KENTUCKY PASS-THROUGH. Commonwealth of Kentucky 2021. ENTITY INCOME AND LLET RETURN. Department of Revenue PURPOSE OF THE INSTRUCTIONS HOW TO OBTAIN ADDITIONAL FORMS. These INSTRUCTIONS have been designed for pass- Forms and INSTRUCTIONS are available at all Kentucky through entities: S-corporations, partnerships, and Taxpayer Service Centers (see page 24).They may also general partnerships , which are required by law to file be obtained by writing FORMS, Department of Revenue , a Kentucky INCOME tax and LLET return. Form PTE is 501 High Street, Station 23B, Frankfort, KY 40601, or by complementary to the federal forms 1120S and 1065. calling 502 564 3658. Forms can be downloaded from KENTUCKY TAX LAW CHANGES. Enacted by the 2021 Regular Session of the General The work must take place up to 10 days prior and up to Assembly 30 days after the declared disaster or emergency ( the disaster response period ).

2 NOTE: This exemption does HB 278 Expenses paid with proceeds from forgiven not apply to the LLET or to taxes imposed under KRS. Paycheck Protection Program (PPP) loans or Economic on pass-through entities, such as nonresident Injury Disaster Loans (EIDL) grants and advances withholding. are authorized to be deducted for Kentucky INCOME tax purposes. HB 278 updated KRS to allow HB 249 Nonresident withholding on corporations the same treatment afforded by Pub. L. No. 116-260, by pass-through entities is not required for tax years sec. 276 and sec. 278, related to the tax treatment of beginning on or after January 1, 2022. Effective for tax forgiven covered loans, deductions attributable to years beginning on or after January 1, 2022, withholding those loans, and tax attributes associated with those of INCOME tax on the distributive share of a corporate loans for taxable years ending on or after March 27, partner or corporate member that is doing business 2020, but before January 1, 2022.

3 Loans forgiven in Kentucky only through its ownership interest in a under the CARES Act Paycheck Protection Program pass-through ENTITY is no longer required under KRS. and EIDL grants and advances that are excluded from and Corporations doing business in gross INCOME for federal INCOME tax purposes are also Kentucky are subject to Kentucky corporation INCOME excluded for Kentucky INCOME tax purposes. tax under KRS Composite return language in KRS was also removed. Corporations doing HB 84 INCOME tax exemption provided for disaster business in Kentucky through their ownership of a response employees and disaster response businesses. pass-through ENTITY are still subject to INCOME tax and HB 84 provided an exemption for qualified disaster LLET.

4 NOTE: Withholding for nonresident individuals response employees and disaster response businesses is still required. from INCOME tax for tax years beginning on or after January 1, 2021 but before January 1, 2025. A disaster HB 321 New West End Tax Increment Financing response business is exempt from INCOME tax under (TIF) Project created. HB 321 created a new TIF. KRS (corporations) and KRS (sole development district in Louisville designated as the proprietorships) if the disaster response business has West End Opportunity Partnership for both local and no presence in Kentucky and conducts no business in state tax revenues. The 20 year TIF program begins the state, except for disaster or emergency-related work once the required initial investment has been made.

5 During a disaster response period and the disaster or The Commonwealth is required to pledge 80% of emergency-related work was requested by a registered the incremental state tax revenues received from business or a state and local government. Disaster the development area to the West End Opportunity response employees are exempt from individual INCOME Partnership. The project will use this incremental tax if they do not work or reside in Kentucky, except for Revenue to reinvest into the project development area. disaster or emergency-related work during the disaster State revenues include state real property ad valorem response period. Disaster or emergency-related work taxes, individual INCOME taxes required to be withheld means repairing, renovating, installing, building, or by an employer, and sales taxes.

6 State tax revenues rendering services that are essential to the restoration of do not include revenues that have been pledged to critical infrastructure that has been damaged, impaired, support other TIF and economic development projects or destroyed by a declared state disaster or emergency. within the development area. Page 1 of 24. PTE. INSTRUCTIONS Page 2 of 24. (2021). Tax Credit Changes: approved company generated by or arising from the eligible project, with the ordering of credits as provided HB 563 Education Opportunity Account Program in KRS Pursuant to Franklin Circuit Court's October 8, 2021. Opinion and Order addressing a challenge to the HB 249 Film tax credit made refundable for qualified constitutionality of HB 563, which, in part, established applications approved on or after January 1, 2022.

7 A tax credit for a limited pool of Kentuckians to pay To qualify, HB 249 stipulated that the film production for private school tuition, the Department of Revenue must begin within six months after applying for the was ordered to cease administering the programs credit and production must be completed within two established by the bill. Accordingly, the Department of years of the production start date. The credit amount Revenue shall not approve the creation or operation of ranges between 30% to 35% of qualifying expenditures any Account-Granting Organizations, the establishment (full 35% in enhanced counties) against INCOME tax of any Educational Opportunity Accounts, or grant any and LLET. A minimum combined total of qualifying tax credits to fund such organizations and accounts expenditures and qualifying payroll expenditures must under the legislation enacted in House Bill 563.

8 See be met. The overall film tax credit cap was lowered from KRS et seq. $100 million to $75 million beginning in calendar year 2022. The credit is to be administered by the Kentucky The Department of Revenue will update its website, Economic Development Finance Authority together , to notify the public of any future with the Department of Revenue . The Office of Film changes based upon subsequent judicial decisions and Tourism Development was eliminated. and/or legislative enactments. HB 249 Major recycling Tax Credit applicants HB 249 and 321 Historic Rehabilitation Tax Credit allowed an extra year to apply. HB 249 extended cap raised to $100 million for applications received on the major recycling tax credit application, Schedule or after April 30, 2022.

9 HB 249 and HB 321 provided RC, due date to the first day of the seventh month that 25% of the tax credit cap must be allocated to after the close of the tax year following the tax year owner-occupied residential property, which will be in which the recycling and composting equipment allowed a credit against INCOME tax and LLET of 30%. was purchased or placed into service. For example, a of qualified expenses. 75% of the tax credit cap must calendar-year taxpayer with a major recycling project be allocated to other property types, including major that puts recycling and composting equipment into certified rehabilitation projects, which will be allowed service April 1, 2021 has until July 1, 2023 to apply for a credit of 20% of qualified expenses.

10 The Kentucky the credit. The change applies only to major recycling Heritage Council was also authorized to award one projects and is effective for tax years beginning on major certified rehabilitation tax credit for the first $30. or after January 1, 2020, but before January 1, 2024. million of qualified expenses for a certified historic structure that meets certain specific parameters. The SB 255 Energy-related tax credits expanded to include credit is refundable and transferable against INCOME commercial cryptocurrency mining operations. The tax tax and LLET and is available for up to four years with a credit program created under the Incentives for Energy maximum of 25% of the total approved credit allowed Independence Act (IEIA) was revised and renamed to be claimed each year.