RELATES TO:
KRS
141.120,
141.901
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
141.120 provides for the division of income
of interstate business for tax purposes.
KRS
141.120(12)(a)(1) states
that if the allocation and apportionment provisions do not fairly represent the
extent of the taxpayer's business activity in Kentucky, a taxpayer may petition
for, or the department may require, in respect to all or any part of the
taxpayer's business activity, if reasonable, an alternative method of
apportionment.
KRS
131.130(1) authorizes the
Kentucky Department of Revenue to promulgate administrative regulations to
administer and enforce Kentucky's tax laws. This administrative regulation
establishes alternative apportionment request procedures and when the separate
accounting method shall apply.
Section
1. Petition for Alternative Apportionment.
(1) Before a taxpayer may file a return with
an alternative method of allocation or apportionment pursuant to
KRS
141.120(12), a taxpayer
shall file a petition for the use of alternative apportionment with the
department, and the petition shall have been approved or denied by the
department. If the taxpayer chooses to be represented by a person or firm
outside of its business entity, Form 20A100, Kentucky Declaration of
Representative, shall be submitted to the department naming the taxpayer's
representative(s). Form 20A100, as prescribed by the department, may be found
online at
https://revenue.ky.gov.
(2) All petitions shall be in written form
and submitted to the attention of the Commissioner of the Department of
Revenue. A petition submitted as an attachment to a return shall not be
considered a valid petition. If the department processes a return which uses an
unapproved alternative apportionment method, the action shall not be construed
as the department's acceptance of the taxpayer's proposed alternative
method.
(3) The department shall
notify the taxpayer, in writing, if the requested alternative method has been
approved. If approved, the taxpayer may then file an amended or original return
utilizing the approved alternative apportionment method.
Section 2. Denial of Petition for Alternative
Apportionment. If a taxpayer disagrees with the department's denial of a
petition for alternative apportionment:
(1)
The taxpayer can pay the tax that is due pursuant to the department's
interpretation and seek a refund which, if denied, can be protested;
or
(2) The taxpayer may file a
return with the denied alternative apportionment method, which will result in
an assessment being issued that can then be protested pursuant to
KRS
131.110 and
103 KAR
1:010.
Section 3. Separate Accounting. If a taxpayer
is permitted or required to use the separate accounting method of
apportionment, the authorization or requirement shall be applied pro-spectively
from the date or taxable year it was directed in writing by the department or
requested by the taxpayer. Income tax returns filed under these conditions
shall be subject to audit and review on a separate accounting basis to
determine the correctness of income and expenses, but the method of
apportioning net income shall not be changed retroactively. The fact that
taxable income is greater or lesser, or that the taxpayer's accounting records
reflect income by contracts or by states shall not be sufficient to support a
request for separate accounting.
Section
4. This administrative regulation shall apply to taxable years
beginning on or after January 1, 2018.
