KY Intercompany Sales – Taxable or Exempt
Published on by Barnes Dennig in Firm News, Tax Services
Manufacturing companies commonly sell equipment, materials and supplies to their affiliates and other related companies. However, are these sales subject to Kentucky sales tax?
Kentucky law begins with the assumption that all tangible personal property sales are subject to sales tax, unless they meet an exception[1]. Often overlooked are intercompany transfers of assets as a result of mergers or acquisitions; however, these transfers are frequently subject to sales tax. In order for a sale to be exempt from sales tax, it needs to meet one of the exemptions listed in the Kentucky sales tax statutes. Unfortunately, there is no exemption for intercompany sales.
Although intercompany sales don’t qualify for exemption based on that fact alone, they may qualify for exemption if the property sold is materials or tools used in manufacturing. According to Kentucky law, sales of materials, component parts, supplies and industrial tools directly used in manufacturing are exempt from sales tax, as long as the items have a useful life of less than one year[2]. Qualifying items may include raw materials, chemicals, jigs, dyes, molds and other similar items.
An intercompany sale may also be exempt if it qualifies as an “occasional sale.” Typically, Kentucky has interpreted “occasional sale” to mean no more than 2 sales in a 12-month period.
In summary, intercompany sales do not qualify for sales tax exemption on that basis alone, but may qualify for exemption if they are materials or tools used in manufacturing with a useful life of less than a year. Additionally, an “occasional sale” of tangible personal property will be exempt from sales tax.
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For more information on Kentucky sales tax law or how this may impact your company, have a member of the Barnes Dennig team contact you here, or call 513-241-8313.
[1] KRS 139.260
[2] KRS 139.470
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