RELATES TO:
KRS 136.290,
136.300,
136.310,
136.320,
141.019,
141.900
NECESSITY, FUNCTION, AND CONFORMITY:
KRS 131.130(1) authorizes the
Department of Revenue to promulgate administrative regulations to administer
and enforce Kentucky's tax laws.
KRS 141.019(1)(a) and
141.900(10)(a)
and (12)(a) provide an exclusion from gross
income when calculating Kentucky income tax for income that is exempt from
state taxation by the Kentucky Constitution and the Constitution and statutory
laws of the United States and Kentucky.
KRS 136.290,
136.300,
136.310,
and
136.320
impose an ad valorem tax on the total value of the capital of federally or
state chartered savings and loan associations, savings banks, and other similar
institutions and domestic life insurance companies authorized to transact
business in Kentucky, with property and payroll both within and without this
state. This administrative regulation establishes the requirements relating to
taxation of federal and certain nonfederal obligations in accordance with those
statutes.
Section 1. Income Taxation.
Interest income from United States government obligations upon which states are
prohibited by federal law from imposing a tax shall be excluded from gross
income when calculating Kentucky income tax liability. Only the interest income
from exempt United States government obligations included in the taxpayer's
federal taxable income may be deducted from the taxpayer's gross income for
Kentucky income tax purposes.
Section
2. This section contains two (2) lists of certain agencies,
authorized corporations, and banks of the United States government from which
Kentucky taxpayers may receive interest income. These lists are not
all-inclusive, nor are they intended to be conclusive of the taxable or exempt
status of a particular obligation issued by or in conjunction with a listed
department, agency, instrumentality, or other entity.
(1) The list in this subsection shall serve
as examples of departments, agencies, and instrumentalities that issue United
States government obligations from which interest income shall be exempt from
state taxation.
(a) U.S. Treasury
(Bonds);
(b) U.S. Treasury (Series
EE and HH Savings Bonds and I Bonds);
(c) U.S. Treasury (Certificates of
Indebtedness);
(d) U.S. Treasury
(Bills);
(e) U.S. Treasury
(Notes);
(f) U.S. Treasury (Note
and Bond "Strips");
(g) Commodity
Credit Corporation;
(h) Central
Banks for Cooperatives and Banks for Cooperatives;
(i) Farm Credit Banks;
(j) Federal Land Bank Associations;
(k) Production Credit Associations;
(l) Farm Credit System Financial Assistance
Corporation;
(m) Federal Deposit
Insurance Corporation;
(n) Federal
Financing Bank;
(o) Federal Home
Loan Banks;
(p) Federal Savings and
Loan Insurance Corporation;
(q)
General Insurance Fund, Department of Housing and Urban Development, Rental
Housing Insurance, War Housing Insurance Project, Rental Housing Project, Armed
Services Housing, National Defense Housing Insurance, Neighborhood Conservation
Housing Insurance;
(r) Guam
(Bonds);
(s) Puerto Rico
(Bonds);
(t) Virgin Islands
(General Obligation Bonds and Public Improvement Bonds);
(u) American Samoa (Industrial Development
Bonds);
(v) Student Loan Marketing
Association (SLMA or "Sallie Mae");
(w) Tennessee Valley Authority (Bonds); or
(x) United States Postal
Service.
(2) The list in
this subsection shall serve as examples of organizations which issue
obligations from which interest income shall be taxable for Kentucky income tax
purposes.
(a) Bank Certificates of
Deposit;
(b) Farmers Home
Administration;
(c) Federal Home
Loan Mortgage Corp. (FHLMC or "Freddie Mac");
(d) Federal National Mortgage Association
(FNMA or "Fannie Mae");
(e)
Government National Mortgage Association (GNMA or "Ginnie Mae");
(f) Inter-American Development
Bank;
(g) International Bank for
Reconstruction and Development (World Bank); or
(h) International Monetary Fund.
Section 3. Property
Taxation. A claim by a taxpayer that property or capital subject to the ad
valorem taxes imposed by
KRS 136.290,
136.300,
136.310
or
136.320
is exempt under federal law shall be supported by specific statutory or binding
case authority. In the absence of statutory or binding case authority, all
intangible property shall be taxable. Securities merely guaranteed by the U.S.
government shall be taxable as intangible property.
Section 4. Exempt federal obligations shall
be classified as:
(1) Direct obligations of
the United States such as U.S. Treasury bonds, U.S. Treasury notes or U.S.
Treasury bills; or
(2) Direct
obligations of U.S. government agencies.
Section 5.
(1) The following list is provided as a
general reference of obligations exempt from state ad valorem taxation imposed
by
KRS 136.290,
136.300,
136.310,
or
136.320:
(a) Banks for Cooperatives;
(b) Central Banks for Cooperatives;
(c) Commodity Credit Corporation;
(d) Farmers Home Administration;
(e) Farmers Home Corporation;
(f) Federal Credit Union;
(g) Federal Savings and Loan Associations
(Kentucky);
(h) Federal Deposit
Insurance Corporation;
(i) Federal
Farm Credit Corporation;
(j)
Federal Home Loan Bank (Stocks and Bonds);
(k) Federal Housing Administration;
(l) Federal Intermediate Credit
Banks;
(m) Federal Land
Banks;
(n) Federal Maritime Board
and Maritime Administration;
(o)
Federal Reserve Banks;
(p) Federal
Savings and Loan Insurance Corporation;
(q) General Insurance Fund;
(r) Guam Bonds;
(s) Municipal Obligations
(Kentucky);
(t) National Farm Loan
Association;
(u) Panama Canal
Bonds;
(v) Production (Agricultural)
Credit Association or Corporation;
(w) Puerto Rican Bonds;
(x) Student Loan Marketing
Association;
(y) Tennessee Valley
Authority;
(z) U.S. Housing
Authority;
(aa) U.S. Postal Service
Bonds; or
(bb) Virgin Island
Bonds.
(2) The following
list is provided as a general reference of obligations that are taxable
entities for state ad valorem taxation imposed by
KRS 136.290,
136.300,
136.310,
or
136.320:
(a) Federal Home Loan Bank
Deposits;
(b) Federal Home Loan
Mortgage Corporation Bonds;
(c)
Federal National Mortgage Corporation Bonds;
(d) Government National Mortgage Corporation
Bonds; or
(e) Retail Repurchase
Agreements.
