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:
For Form 725-EZ, all of the following eligibility criteria must be met: gross receipts from all sources must be $3,000,000 or less, all LLC activities must be conducted in Kentucky, the single member must be a Kentucky resident, no tax credits or recaptures are claimed, the LLC was not an owner in a pass-through entity, and no prior-year tax credit exists.
The LLET computation is integrated as "Schedule L" within Forms 720 and 725 rather than filed as a standalone attachment. The previously available Schedule LLET PDF remains accessible on the Department of Revenue website for reference on prior-year returns, but current filings use the embedded schedule within the primary return forms. 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. According to the Kentucky Department of Revenue, the $175 minimum is never creditable against corporate income tax, making it a permanent, unavoidable floor for all LLET-subject entities.
Once your calculated tax falls below $175, you pay the minimum $175 instead. If your computed amount exceeds $175, you pay the higher computed amount. 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, pursuant to 103 KAR 15:050. For calendar-year filers, this means April 15. If the due date falls on a weekend or holiday, returns are due the next business day. 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. This distinction is especially important for PE firms, VC funds, and other multi-entity companies with operations across multiple states, where the worldwide threshold could be triggered even when Kentucky-specific activity is modest.
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, for tax years beginning on or after October 1, 2021. This applies to Forms 720, 720U, PTE, 725, and 740NP-WH. Entities that need a waiver from the electronic filing requirement can submit Form 8948 (K-C) to the Kentucky DOR before filing on paper, then attach the approved waiver to the paper return.
Electronic filing is facilitated through approved software connected to the Kentucky Taxpayer Portal. Paper filing is still available for entities below the $1,000,000 federal 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 navigating 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 under KRS 131.180 that escalate quickly with continued non-compliance.
Penalties may be waived if the failure is due to "reasonable cause" per KRS 131.180. 103 KAR 1:040 enumerates qualifying circumstances including erroneous DOR advice, death or serious illness, catastrophic events, and reliance on substantial legal authority.
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 imposes a flat 5% corporate income tax rate on C corporation taxable net income, as established under KRS 141.040. Kentucky lets you apply a credit against your income tax liability equal to your LLET paid minus the $175 minimum, so you're not double-taxed. The $175 minimum is never creditable, making it an effective alternative minimum tax. 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 6% sales tax. The sales tax return follows a different schedule from your LLET 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. Qualifying unemployment insurance contributions can generate a credit applicable against both corporate income tax and LLET, as described on the Kentucky DOR employer's unemployment tax credit page.
While no changes to core LLET rates, thresholds, or filing requirements have been enacted, one new tax credit affecting LLET was created in 2024. HB 8, signed into law during the 2024 Regular Session, established a Qualified Broadband Investment Tax Credit. This nonrefundable credit applies against both corporate income tax and LLET for Kentucky sales and use tax paid on qualifying broadband infrastructure investments made between January 1, 2025, and December 31, 2028. The credit is limited to 50% of eligible sales tax paid and subject to a $5 million annual statewide cap. Technology companies and fund investors in broadband infrastructure should evaluate eligibility before filing.
Additionally, HB 451, introduced in the 2026 session, proposes exempting entities with Kentucky gross receipts under $100,000 from LLET for tax years beginning on or after January 1, 2027. This bill remains pending in the Appropriations and Revenue Committee as of March 2026 and has not been enacted into law. Similar proposals in the 2024 and 2025 sessions did not advance, but the recurring pattern suggests ongoing legislative interest in small-entity relief.
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. A copy of Form 7004 must be attached to the Kentucky return at the time of filing; submitting it separately or after the return is filed does not constitute a valid extension, and late filing penalties will be assessed.
Extensions are available as follows: C corporations filing Form 720 can receive a 7-month extension; pass-through entities, including S corporations, partnerships, and single-member LLCs filing Forms PTE, 765, or 725, can receive a 6-month extension. Both groups may use either Form 720EXT or federal Form 7004 to obtain an extension.
The extension only covers the paperwork, so you still need to pay any tax you owe by the original deadline (April 15 for all calendar-year filers, regardless of entity type). Miss that payment and you'll face penalties and interest, even if your return arrives on time later.
Amendments are straightforward but time-sensitive. Under KRS 141.211, 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 corresponding amended return form for the applicable tax year, check the "Amended" box, and attach the entire Revenue Agent's Report along with any changed schedules.
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