Kentucky business owners and entrepreneurs have the opportunity to take advantage of a variety of incentives and tax credits for qualifying business activities. From coal and environmental incentives to industry-specific workforce training there are several tax savings opportunities companies can leverage to reduce their overall tax liabilities. These incentives exist to ensure companies operating in or considering expanding operations in certain industries are rewarded by the state. Since other states offer such incentives it’s important to provide meaningful benefits to companies driving economic growth in the area. To help clients, prospects and others understand these programs we have provided a partial summary of key programs below. If you would like to learn about other Kentucky incentives, see our previous blog posts including Kentucky Business Incentives & Credits and Additional Kentucky Business Incentives.
- Voluntary Environmental Remediation Property Income Tax Credit – An income tax credit of up to $150,000 per taxpayer may be granted for expenditures to remediate contamination on qualifying voluntary environmental remediation property. The amount of the allowable credit for any tax year is limited to 25% of the maximum credit approved. The credit may be carried forward for up to 10 years.
- Coal Incentive Tax Credit – An electric power company or a company that owns and operates a coal-fired electric generating plant may be entitled to a coal incentive tax credit. The credit is equal to $2 per ton of Kentucky coal purchased by the company that is subject to Kentucky’s coal severance tax and above the amount of Kentucky coal purchased during the base year. The base year is 1999 for existing companies, and the base year amount will be zero for new entities. The nonrefundable credit may be taken against corporation income tax, individual income tax, corporation license tax, and public service company property tax.
- Kentucky Information Highway (KIH) – Companies approved for economic development incentives administered by Kentucky Economic Development Finance Authority (KEDFA) may receive access and use of the Kentucky Information Highway on the same terms as state agencies. Kentucky Captive Insurer Law permits companies to establish wholly-owned insurance subsidiaries to insure some or all of their own risks. As part of an overall risk-management program, a Captive offers many potential advantages over the commercial insurance market.
- Kentucky Investment Fund Act (KIFA) – The purpose of KIFA is to promote capital investment in Kentucky and thereby encourage the establishment of small businesses, new products, and technologies and provide additional jobs. KIFA offers a 40% tax credit to certain personal and corporate investors in approved investment funds.
To be eligible for the program, an investment fund must be managed by a fund manager (person or entity) and have a minimum of $500,000 in cash contributions from at least four unaffiliated investors with no investor having more than a 40% capital interest in the fund’s total capitalization.
To qualify for the tax credit, investments must be in Kentucky-based small businesses that meet the following criteria:
- 50% of the company’s assets, operations, and employees are located in Kentucky
- Net worth is less than $5 million (or $10 million if it is a knowledge-based business) or net income in each of the prior two years is less than $3 million
- No more than 100 employees
The state offers a number of incentives that can mean a significant tax savings for those who qualify. If you would like to determine if you qualify for these or other tax incentives, Barnes Dennig wants to help! For additional information please contact us at 859.344.6400, or click here to email us. In a brief consultation we can assess your situation and determine the best way to proceed!