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.
May 18, 2026
Kentucky Nexus Threshold Changes and Sales Tax Compliance Implications
Authored by: Katie Nguyen, CPA and Kassie Britt
Kentucky recently enacted changes to its economic nexus rules under House Bill 757, effective August 1, 2026. The legislation simplifies the state’s sales tax nexus standard by eliminating the 200-transaction threshold and retaining only the $100,000 gross sales threshold for remote sellers and marketplace providers.
Under the revised standard, businesses are required to collect and remit Kentucky sales tax if they exceed $100,000 in gross receipts from sales of tangible personal property, digital property, or services delivered or provided in Kentucky. Businesses that previously registered solely because they exceeded the transaction-count threshold should reassess their registration and filing obligations, including consideration of any applicable trailing nexus rules.
The legislation also expands Kentucky sales tax to certain data brokering services, subject to limited exceptions for government entities. For many remote sellers, however, the most significant impact will be the simplification of the economic nexus standard.
If you have questions about sales tax nexus, please reach out to a member of the Withum SALT Team.
May 11, 2026
Kentucky Refines Section 174 Conformity
Authored by: Kiana McGowan, CPA, MBA and Penny Sweeting, CPA
On April 27, 2026, Kentucky Gov. Beshear enacted H.B. 869, which includes details on its treatment of research and experimental expenditures following its earlier decoupling from certain federal changes, effective for tax years beginning January 1, 2026. With this Bill, taxpayers must include in Kentucky income any amounts deducted for domestic R&D under the new federal expensing rules, while also being permitted to subtract an amount equal to the amortization that would have applied under section 174 as in effect on December 31, 2024, creating a hybrid approach that blends addback and recovery. Taxpayers should revisit their 2026 projections and compliance processes to confirm the proper application of the addback and subtraction and ensure consistency with Kentucky’s modified conformity position.
Please find the full copy of the bill here.
If you have questions about state tax conformity to the IRC, please reach out to a member of the Withum SALT Team.
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.