Kentucky
Taxes and business formation • USA 2025–2026
Corporation in Kentucky
Tax system of Kentucky
Income Tax
Kentucky applies a flat personal income tax — since 2023 the rate has been 4.5% on all types of taxable individual income. The tax is levied on wages, business income, rental income, dividends, and capital gains. The state offers certain deductions and credits, including a standard deduction and a deduction for retirees, but the relatively high rate makes Kentucky one of the more burdensome states for high earners.
Sales Tax
Kentucky's base sales tax rate is 6%. The state does not allow local surcharges, so the rate is uniform throughout the state. The tax applies to the sale of most goods and services, including commercial real estate rentals, software, security services, digital content, and more. Since 2023, the list of taxable services has expanded — the tax now also applies to areas such as cosmetology, fitness, and even DJ services. Determining the taxable base and the correct sales tax rate can be quite complex and requires a professional approach and knowledge of state law. Our firm provides services for obtaining a Sales Tax Certificate and for preparing and filing the Sales and Use Tax Return. We advise business owners on registration, calculation, and reporting.
Property Tax
Kentucky levies property tax at the county, school district, and state levels. The average effective rate is about 0.83% of market value, which makes the tax moderate compared with other states.
Business Taxes
C-corporations in Kentucky are subject to a corporate tax of 5% on profits. In addition, companies must pay the Limited Liability Entity Tax (LLET) — a minimum tax that applies to all LLCs and corporations doing business in the state. The amount depends on gross receipts and starts at $175. An Annual Report is mandatory for all companies registered in Kentucky, due each year by June 30. The state also requires annual filing of a tangible personal property return (equipment, furniture, machinery, vehicles). Our firm provides services for LLC and corporation registration, corporate recordkeeping, Annual Report filing, LLET calculation, and advising on the optimal tax structure.
Excise Taxes
Kentucky is known as a center of whiskey and tobacco production, so it levies excise taxes on alcohol, tobacco, gasoline, car rentals, and insurance premiums. Environmental fees are also imposed on certain types of production and waste.
Estate / Inheritance Tax
Kentucky is one of the few states that imposes an inheritance tax. It applies to non-blood relatives and third parties who inherit property from the deceased, with rates ranging from 4% to 16% depending on the category of heir and the size of the estate.
Favorable Tax Conditions
• No local surcharges on sales tax — the rate is uniform across the state; • Moderate property tax; • Low corporate tax (5%); • Competitive tax rates compared with states such as New Jersey, Massachusetts, or Connecticut; • The presence of an inheritance tax sets Kentucky apart from most states where it has been repealed.
Compared to Other States
Kentucky's personal income tax is lower than in California, New York, or Illinois, and the sales tax is lower than in Tennessee or Louisiana, since it has no local surcharges. The corporate tax is competitive, while the inheritance tax makes the state unique among western states.
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