If you own a business in Kentucky—or want to start one—there are a variety of tax incentive programs you could qualify for. Here, we’re sharing a list of tax credits and exemptions available in the state.
Quick Links
Kentucky business tax incentives
Kentucky Small Business Tax Credit Program
The Kentucky Small Business Tax Credit Program (KSBTC) gives small businesses a credit against their state income tax for hiring a new employee and investing in new equipment. The credit amount ranges from $3,500 to $25,000 depending on the number of new jobs you create (and retain) and how much you invest in new equipment or technology.
To be eligible for the credit, you need to meet the below qualifications:
- Be a small business in Kentucky with 50 or fewer full-time employees
- Hire at least one new full-time employee for an entire year
- Pay the new employee a minimum wage of $10.88 per hour
- Spend at least $5,000 on new equipment or technology for your business
Download a KSBTC application here to get started.
Hiring? Here are 9 steps you need to take when getting a new employee in Kentucky.
Angel Investment Tax Credit
Kentucky’s Angel Investment Tax Credit gives qualified angel investors a credit for investing in certain small businesses in the state. Qualified investors can get a credit equal to 25% of their investment, or 40% if the business is located in a county with a high unemployment rate.
To be eligible for the credit, an investor needs to invest a minimum of $10,000 in a Qualified Small Business, which is a legal entity in good standing with the state that has 100 or fewer full-time employees. The Qualified Small Business must be engaged in one of the following industries:
- Bioscience
- Environmental and energy technology
- Health and human development
- Information technology and communications
- Materials science and advanced manufacturing
- Other knowledge-based activity
Learn more about the credit and apply here.
Kentucky Selling Farmer Tax Credit Program
The Kentucky Selling Farmer Tax Credit Program rewards established farmers in Kentucky for selling their agricultural land and assets to beginning farmers in the state. The credit amount is 5% of the purchase price of the agricultural assets, up to $25,000 per year (with a four-year cap).
Farmers who want to sell assets to a beginner farmer can’t have more than 50 full-time employees. A beginner farmer is defined as someone who hasn’t previously owned any agricultural land for a period of over ten years. Beginner farmers also have to commit to managing and operating a for-profit farming business for at least five years and buying the land and assets.
Get more information on the program and how to apply here.
Thinking of starting a farm or other operation? Here’s everything you need to know about starting and growing a business in Kentucky.
Kentucky Business Investment Program
Under the Kentucky Business Investment Program (KBIP), qualified businesses can get an income tax credit for relocating to or expanding their operations in Kentucky.
To qualify for the credit, a business needs to create at least ten new full-time jobs, pay at least 90% of those new hires a minimum wage of $10.88 per hour, offer at least 90% of the new hires reasonable job benefits (like health insurance), and invest at least $100,000 into a qualified business project.
The credit amount is equal to up to 100% of the corporate income or limited liability entity tax incurred from the project.
To be eligible for the credit, a business needs to be involved in one or more of the below activities:
- Manufacturing
- Agribusiness
- Headquarters operations
- Non-retail service or technology activities like call centers or fulfillment centers
- Coal severing and processing
- Hospital operations
- Alternative fuel or renewable energy production
- Carbon dioxide or hydrogen transmission pipeline
Check out this fact sheet for more information on the KBIP.
Kentucky Reinvestment Act Program
The Kentucky Reinvestment Act (KRA) Program credits existing Kentucky companies for investing in a significant growth project involving purchasing and installing new equipment or rehabilitating or reconstructing new facilities.
To qualify for the credit, the company must abide by the below criteria:
- Be engaged in one of the following activities: manufacturing; agribusiness; headquarters operations; non-retail service or technology activities like call centers or fulfillment centers; coal severing and processing; hospital operations; alternative fuel or renewable energy production; or carbon dioxide or hydrogen transmission pipelines
- Spend at least $1 million in eligible equipment and related costs for leased projects (a leased project is an economic development project site occupied by an approved company) OR at least $2.5 million in eligible equipment and related costs for owned projects (an owned project is an economic development site owned by the approved company or an affiliate)
- Maintain a full-time employment base of at least 85% at the facility as soon as it’s approved
The credit amount is up to 100% of the corporate income or limited liability entity tax incurred from the project.
Learn more about the program here.
Related: Understand how all your business taxes break down in Kentucky.
Kentucky Entertainment Incentive Program
The Kentucky Entertainment Incentive (KEI) Program is designed to encourage entertainment and production companies to set their film, TV, documentary, and theater projects in Kentucky.
Qualified production companies can get a credit for 30% of their qualifying production expenses and 35% of their qualified payroll expenses. To qualify for the credit, companies have to meet a minimum spending threshold depending on their projects and company location:
- Kentucky-based companies have to incur expenses of at least $125,000 for film and TV programs, $10,000 for documentaries, and $20,000 for nationally touring Broadway productions.
- Out-of-state companies have to incur expenses of at least $250,000 for film and TV programs, $20,000 for documentaries, and $20,000 for nationally touring Broadway productions.
Get a full breakdown of which expenses qualify for the credit here.
Bluegrass State Skills Corporation Skills Training Investment Credit
The Bluegrass State Skills Corporation’s (BSSC) Skills Training Investment Credit (STIC) is geared toward businesses that upskill their employees. Eligible businesses can get a credit against their income tax liability; the credit amount is equal to $500 per full-time employee trained, up to $75,000 total.
Only businesses that are engaged in one of the below activities may apply for the credit:
- Manufacturing
- Agribusiness
- Headquarters operations
- Non-retail service or technology activities like call centers or fulfillment centers
- Coal severing and processing
- Hospital operations
- Alternative fuel or renewable energy production
- Carbon dioxide or hydrogen transmission pipeline
You can see more details on the STIC fact sheet here.
Related: Check out these 6 online courses to help your team upgrade their skills.
Energy-Related Business Act Incentives
Kentucky has an Incentives for Energy-Related Business Act (IEBA) program geared toward Kentucky companies involved in operating a cryptocurrency facility. Qualified companies can get a handful of different incentives, including:
- Sales and use tax refunds up to 100% of tax paid on tangible personal property made to construct, retrofit, or upgrade a cryptocurrency facility, including commercial cryptocurrency mining equipment
- A tax credit of up to 100% against your corporate income or limited liability entity tax liability arising from the project
- Wage assessment incentives of up to 4% of the gross wages of each employee
To qualify for the tax incentives, a company must make a minimum capital investment of $1 million in a cryptocurrency facility. Eligible investment costs include real estate, labor for constructing the facility, insurance, and architectural and engineering services rendered.
For more information on the program, check out this fact sheet.
Business tax exemptions in Kentucky
Kentucky Enterprise Initiative Act
Under the Kentucky Enterprise Initiative Act (KEIA), companies in certain industries can get a refund on the sales and use tax they pay on building and construction materials, research and development equipment, electronic processing equipment, and flight simulation equipment.
To qualify for the refund, businesses must meet the following criteria:
- Be engaged in one of the following activities: manufacturing; agribusiness; headquarters operations; non-retail service or technology activities like call centers or fulfillment centers; coal severing and processing; hospital operations; alternative fuel or renewable energy production; or carbon dioxide or hydrogen transmission pipelines
- Invest at least $500,000 in an approved economic development project
Get more information on the KEIA here.
Kentucky city and county tax credits
Some cities or counties in Kentucky have their own business tax incentive programs. To find out if yours does, check here for your county’s website.
Business financing in Kentucky
Good news for Kentucky business owners: the state has a ton of business loan and grant programs for operations of all sizes and industries. Check out Gusto’s guide to grants and loans in the bluegrass state to get started.