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Sales and Use Tax | Union Mclean Henderson Webster | NWKY Forward

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State Sales & Use Tax

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A state sales tax is levied at the rate of 6% on the purchase or lease price of taxable goods and on utility services. Local sales taxes are not levied in Kentucky.

Kentucky’s combined state and local own source revenue per capita for 2002 was below the national average and ranked as the 7th lowest among the 50 states. The 2005 Kentucky General Assembly passed major Tax Modernization legislation, which lowers corporation income tax rates, eliminates state license taxes, eliminates most intangible property taxes, introduces several new tax credit incentives, and improves Kentucky’s overall business tax climate.

Major exemptions for businesses (state taxes only):

  • Items purchased for resale. (KRS 139.260)
  • Machinery for new and expanded industry (manufacturing, extraction of minerals, ores, coal, clay, stone, and natural gas). Replacement machinery for manufacturing is exempt when it increases consumption of recycled materials not less than 10 percent, performs a different function, manufactures a different product, or has a greater productive capacity.  Repair parts, replacement parts, and spare parts are taxable. (KRS 139.480; 139.170; and 103 KAR 30:120)
  • Raw materials which enter into and become a part of the manufactured product. (KRS 139.470)
  • Supplies used directly in manufacturing which have a useful life of less than one year (lubricating and compounding oils, grease, machine waste, abrasives, chemicals, solvents, fluxes, anodes, filtering materials, fire brick, catalysts, dyes, refrigerants, explosives, etc.), excluding repair, replacement, or spare parts of any kind. (KRS 139.470)
  • Industrial tools that have a useful life of less than one year, limited to hand tools (such as jigs, dies, drills, cutters, rolls, reamers, chucks, saws, spray guns, etc.) and tools attached to a machine (such as molds, grinding balls, grinding wheels, dies, bits, cutting blades, etc.), excluding repair, replacement, or spare parts of any kind. (KRS 139.470)
  • Materials and supplies that are not reusable after one manufacturing cycle, excluding repair, replacement, or spare parts of any kind. (KRS 139.470)
  • Pollution control equipment and facilities approved by the Kentucky Revenue Cabinet. Included is equipment for air pollution control, water pollution control, disposal or reclaiming of solid or hazardous wastes, sound emission control, and pretreatment of raw materials for environmental protection. (KRS 139.480 and 224.01-300)