Does Kentucky have a franchise tax? Well, to start, Kentucky doesn't call it 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 don't pay 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.
Sole proprietorships and general partnerships skip this tax because they lack limited liability protection. Everyone else, including single-member LLCs that federal rules consider "disregarded entities," is still required to file a return. The single member just attaches the Kentucky form to their personal return.
You need just a few forms to stay compliant with Kentucky's LLET, but selecting the wrong one can create problems. Corporations, S-corps, multi-member LLCs, limited partnerships, and LLPs all use Form 720, which is Kentucky's combined Corporation Income Tax and LLET return. Single-member LLCs get a more straightforward path with Form 725-EZ, a two-page return for disregarded entities.
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. Kentucky doesn't charge convenience fees for electronic payments through its e-file portal either, so paper filing only costs you postage and processing time.
Kentucky aligns LLET roughly with your federal return timeline, but you'll need to track two different spring deadlines. S corporations and partnerships must file by March 16 (for the 2025 tax year, that's March 16, 2026). Everyone else, including single-member LLCs filing Form 725-EZ, follows the standard April 15 date.
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. But if you prepare more than ten Kentucky business returns annually, the Department of Revenue requires you to e-file.
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 remains possible, 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.
Kentucky's LLET casts a wide net by design. True exemptions are rare, as only sole proprietorships and general partnerships escape the tax entirely. Since neither structure offers limited liability protection, they fall outside the statute's definition of a "limited liability entity." You simply don't file or pay the tax.
Since exemptions are so limited, there's no formal application process to opt out. If your venture enjoys limited liability protection, assume you're in. Budget at least the $175 minimum and keep supporting records for any reductions you claim.
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 provides you with breathing room by offering an automatic six-month extension to file your return, and no separate form is required. 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.
With our platform, you can manage all your compliance needs from a single dashboard, automatically track deadlines, and file reports in minutes. 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.
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