Easing the Kentucky Combined Reporting Transition

Last year, Kentucky adopted a major tax overhaul: it dropped its income and corporate taxes by a point, removed numerous credits and carveouts from the income and sales taxes, reduced the archaic inventory tax, and adopted single-sales factor apportionment and combined reporting for business taxes. Altogether, the package (enacted over Governor Bevin’s veto) raised some $395 million in annual revenue, to address the state’s crushing public employee pension shortfall. Combined reporting, effective in Kentucky as of January 1, 2019, requires all corporations within one business group file a consolidated return for their activities in the state. It is distinct from separate reporting, a filing method where each subsidiary files its taxes as a distinct entity. Proponents of combined reporting say without it, multistate corporations will artificially move income between subsidiaries in different states to reduce tax liability. Opponents say defining the unitary group and…

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