close
Share with your friends

Kentucky: Deadline to claim deferred tax deduction July 1, 2019

Kentucky: Deadline to claim deferred tax deduction

In 2018, two comprehensive tax reform bills (House Bill 366 and House Bill 487) were enacted in Kentucky. Collectively, this legislation made substantial changes to Kentucky’s tax code. One of the most significant changes was the repeal of Kentucky’s unique nexus consolidated return rules and adoption of mandatory unitary combined reporting.

1000

Related content

Recognizing that certain companies would be adversely affected by the change, House Bill 458 (signed by the governor in April 2019) allows publicly traded companies whose deferred tax positions are negatively affected as a direct result of the change to combined reporting to claim a deduction in an amount necessary to fully offset the financial statement impact that results from the change.  The deduction may be claimed only by filing the recently released Schedule DTD on or before July 1, 2019. 

KPMG observation

The Department of Revenue has no leeway to extend the date even for reasonable cause. As such, there are only about six weeks left to file this form, or no deduction will be allowed. 

Deferred tax deduction for publicly traded companies

The deferred tax deduction applies only to publicly traded companies “including affiliated corporations participating in the filing of a publicly traded company’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America….” 

House Bill 458 does not specifically mandate that the company be traded on a U.S. stock exchange. Thus, foreign publicly traded companies with U.S. operations that are affected by the move to combined reporting appear eligible to claim the deduction.

Although the default filing methodology in Kentucky beginning with the 2019 tax year is mandatory unitary combined reporting, taxpayers may elect to file a consolidated return in lieu of a unitary combined report. The consolidated return must include all members of the taxpayer’s affiliated group as determined under IRC section 1504(a).  House Bill 458 makes clear that the tax deferred deduction is available only to those taxpayers that file a mandatory unitary combined report. Taxpayers that elect to file a consolidated return are ineligible to claim the deferred tax deduction.

Only corporate taxpayers that experience an increase in their net deferred tax liabilities, a decrease in their net deferred tax assets, or a change from a net deferred tax asset position to a net deferred tax liability position are eligible to claim the deduction. The Schedule DTD instructions require a corporation to measure its Kentucky deferred tax assets and liabilities before unitary combined reporting and then measure those “deferreds” again after the enactment of unitary combined reporting.  Assuming there is a negative “deferred tax impact,” this amount is divided by the corporate tax rate of 5% and by the corporation’s Kentucky apportionment factor to arrive at the deferred tax deduction amount.

Taxpayers that meet the eligibility requirements (discussed above) may claim the deduction for tax years beginning on or after January 1, 2024.  The deduction will be taken ratably over a 10-year period.

 

For more information, contact a KPMG State and Local Tax professional:

Adam Hines | +1 513 763-2651 | adamhines@kpmg.com

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.KPMG International Cooperative (“KPMG International”) is a Swiss entity.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

Request for proposal