Our Dash of SALT Blog provides the most recent developments and changes in state and local tax regulations. Here are the latest updates for Kentucky.
February 3, 2026
Kentucky Addresses Treatment of Prewritten Software With AI for Sales Tax Purposes
Authored by: Jessie Racioppi and Katie Nguyen, CPA
On January 20, 2026, the Kentucky Department of Revenue released Sales Tax Facts Winter 2025/2026. The issue states that sales of prewritten computer software and prewritten software-as-a-service (SaaS) are taxable for sales tax purposes, even if they include Artificial Intelligence (AI) components. The KY DOR acknowledges that AI may be able to change its response or output based on the data input; however, it is not considered custom software unless explicitly programmed. The sale of software, including AI, should be treated as taxable prewritten computer software under KY Revised Statutes section 139.010. Software that is prewritten, with or without AI, including specific modifications or improvements for a single customer, can qualify as exempt from sales tax.
If you have questions about the state tax treatment of digital goods and services, please reach out to a member of the Withum SALT Team.
April 8, 2025
Kentucky Ruling Provides Sales Tax Exemption for Food Manufacturers
Authored by: Bonnie Susmano, JD, MBA and Emilia Jarrin
In Kentucky Department of Revenue v. Hale, Inc., the Kentucky Court of Appeals clarified the qualifications for small to medium-sized food manufacturers to claim a sales tax exemption. The court ruled in favor of Lotsa Pasta, a Louisville business, stating that although its products were considered prepared food, the business still qualified for the sales tax exemption on salads, spreads, and Italian ices under KRS 139.485, which provides an exemption to food manufacturers:
- Classified under NAICS Sector 311;
- Selling products unheated or without utensils; and,
- Engaged in food production.
This ruling emphasizes the importance of proper classification and operational structure for sales tax purposes.
If you have questions about sales tax exemptions, please reach out to a member of the Withum SALT Team.
Disclaimer: Please note that this information is readily available at this time and is subject to change, so please consult your Withum tax advisor.
Have Questions or Need Guidance?
For more information on this topic, please contact a member of our team.