Does Kentucky have a franchise tax? Well, to start, Kentucky doesn't call it a franchise tax. It’s called the Limited Liability Entity Tax (LLET). If your company has limited liability protection, like an LLC, S corporation, C corporation, limited partnership, or LLP, Kentucky expects you to pay this tax. Sole proprietorships and general partnerships are exempt because they don't shield owners from liability.
LLET exists alongside Kentucky's corporate income tax, but they're separate. You calculate LLET first, then claim a credit for what you paid when figuring out any income tax bill. This design ensures every protected entity contributes something to public coffers, closing a loophole where businesses with clever deductions could zero out their income tax.
If your business has limited liability protection and does business in Kentucky, you're paying the Limited Liability Entity Tax. Kentucky casts a wide net, requiring LLCs, C corporations, S corporations, limited partnerships, and limited liability partnerships to file, regardless of size.
Beyond sole proprietorships and general partnerships, KRS 141.0401(6) provides specific LLET exemptions for:
Qualified exempt organizations can exclude their proportionate share of Kentucky gross receipts or profits.
Everyone else, including single-member LLCs that federal rules consider "disregarded entities," is still required to file a return.
You need just a few forms to stay compliant with Kentucky's LLET, but selecting the wrong one can create problems. Form selection depends on your entity type:
Whichever form you use, you must attach Schedule LLET showing your Kentucky gross receipts or gross profits calculation. Add any apportionment or credit schedules your situation requires. Keep your supporting documentation, including:
Auditors will want these if your numbers don't add up.
Kentucky keeps its fee structure simple. Every entity pays at least $175 with its return. That $175 serves as both the minimum tax and the entire liability for businesses under the $3 million small-business threshold.
Once your calculated tax exceeds $175, you pay the higher amount, and no separate filing fee is added. Service provider fees may apply for electronic payments, particularly credit card transactions. Paper filing only costs you postage and processing time.
All Kentucky LLET returns, regardless of entity type, are due on the 15th day of the fourth month following the close of the tax year. For calendar-year filers, this means April 15. This applies to C corporations filing Form 720, S corporations and multi-member LLCs filing Form PTE, partnerships filing Form 765, and single-member LLCs filing Form 725.
Kentucky's LLET is calculated based on gross receipts and gross profits, after which you pay whichever creates the lower tax. The process follows three steps:
For multi-state operations, apportionment matters. For example, a company with $12 million in total receipts but only $4 million from Kentucky customers would multiply that $4 million by 0.00095, generating a receipts-based tax of $3,800. They'd compare that to their profits-based calculation and pay whichever is lower.
Kentucky offers two filing options for your LLET return: electronic filing through their Modernized e-File (MeF) system or paper filing. Mandatory e-file and e-pay is required for entities with federal gross receipts of $1,000,000 or more. This applies to Forms 720, 720U, PTE, 725, and 740NP-WH for tax years beginning on or after October 1, 2021.
Electronic filing is facilitated through approved software that utilizes the IRS e-file platform, then sends the state portion to Kentucky's servers. Paper filing is still available for entities below the $1,000,000 gross receipts threshold, but you'll miss real-time validation and wait longer for confirmation.
Here's your filing process:
E-filing cuts processing time dramatically, catches math errors instantly, and gives you an electronic receipt for your records. If you're juggling multiple states or hate Kentucky's dual-base calculation system, consider using a professional or compliance platform that integrates with MeF.
If you miss Kentucky's LLET deadline, penalties begin immediately. The state enforces strict financial and operational consequences that escalate quickly with continued non-compliance.
Calculate your tax early, file through Kentucky's electronic portal, and pay before the deadline to avoid penalties, maintain good standing, and keep your business record clean.
If you run a C corporation, you still owe Kentucky corporate income tax in addition to your LLET. Kentucky lets you apply a credit against your income tax liability, so you're not double-taxed. You'll find the mechanics spelled out on Form 720 itself.
Sales and use tax comes next. Whenever you sell taxable goods or services to Kentucky customers or buy items that should have been taxed but weren't, you're responsible for collecting or remitting the state's sales tax. The sales tax return follows a different schedule from your filing, so you'll need a separate calendar to track due dates.
If you have employees, add employer withholding for state income tax and quarterly unemployment-insurance contributions. Each program carries its own registration, deposit frequency, and reporting cadence.
Kentucky does not provide an automatic extension. To obtain an extension, you must either file Form 720EXT (Application for Extension of Time to File) with the Kentucky Department of Revenue, or attach a copy of your approved federal Form 7004 to your Kentucky return when filed.
Extensions are available as follows: corporations filing Form 720 can receive a 6-7 month extension; single-member LLCs filing Form 725 can receive a 6-month extension using Form 720EXT or federal Form 7004.
The extension only covers the paperwork, so you still need to pay any tax you owe by the original deadline (April 15 for calendar-year filers, March 16 for S corporations and partnerships). Miss that payment and you'll face penalties and interest, even if your return arrives on time later.
Amendments are straightforward but time-sensitive. If you discover an error after filing or the IRS adjusts your federal return, you have 180 days from the final federal determination to submit an amended Kentucky return. Use the same form (720 or 725-EZ), check the "Amended" box, and attach a copy of the federal notice, along with any changed schedules.
Managing annual reports and compliance requirements across Kentucky and multiple states can be a complex and time-consuming process. Discern offers a comprehensive solution designed specifically for businesses with multiple entities across various jurisdictions.
Our system handles multi-state compliance simultaneously, pre-fills forms with your entity information, and ensures you never miss a critical deadline again, including for multi-state franchise tax.
Book a demo to get started with Discern today.
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