Did your small business hire for newly created positions last year? Has your company made $5,000 or more in equipment or technology purchases? If so, then it may interest you to discover the Kentucky Small Business Tax Credit. This non-refundable state tax credit is available to (for-profit) small businesses that create and fill eligible positions and invest at least $5,000 in qualifying technology/equipment in the same year. Since the state can only offer $3M in yearly tax credits it’s essential to determine program eligibility and prepare your application at the earliest date possible. To help our clients, prospects and other understand how to leverage this incentive; Barnes Dennig has provided detailed information about the qualification requirements and application process below.
Qualifying small businesses can include sole proprietorships, partnerships, corporations, limited liability companies and associations that employ fifty of fewer full time employees. As stated above, a company must have created an eligible position and made at least $5,000 in qualifying technology/equipment purchases in the same year. It’s important to note that a company is not eligible if they have received Kentucky Economic Development Finance Authority loans, grants or other incentives for job creation or equipment purchases.
The position is eligible if it meets the following criteria:
- The position increases the employment base of the business.
- The newly created position that has never been filled or is a previously created position that has been continuously vacant for one year or longer.
- It pays a base hourly wage including tips and commissions of at least 150% of the federal minimum wage.
- The position is filled by an employee subject to Kentucky income tax.
- The position is filled by an employee working an average of 35 hours or more per week for the last twelve months. In order to determine this number an employer should include both work hours and paid leave time.
The purchase of equipment or technology qualifies if it meets the following criteria:
- The equipment/technology is purchased for use in the business (and not for resale or personal use).
- The per unit cost of the item is at least $300 excluding rebates and refunds. It’s important to note that the per unit cost does not include tax, labor, installation or other supplementary charges. The $300 must be directly related to the cost of the item.
- The item purchased must have an expected useful life or more than one year.
Examples of qualifying purchases (assuming the above is true) generally include: laptops, desktops, tablets and servers, network hardware, new office furniture, lighting fixtures, and vehicles. Real property, buildings and consumable supplies for office, technology or equipment maintenance do not qualify.
Determining the Credit Value
The amount of the credit is not fixed and is based on set formula. Broadly speaking the amount of the credit is determined by both the number of qualifying positions included in the application and a percentage of the actual purchase price of qualifying equipment or technology. The tax credit may not exceed $3,500 per eligible position or $25,000 per business per year.