Running a business in the Bluegrass State comes with its own unique set of financial rules, and sales tax is at the top of that list. Whether you are opening a new boutique in Louisville, running a consultancy in Lexington, or launching a restaurant in Bowling Green, understanding the Kentucky Department of Revenue’s requirements is non-negotiable.
Kentucky has recently undergone significant changes regarding what services are taxable, making it more important than ever for business owners to stay up to date. This guide covers everything you need to know to stay compliant.
What is the Kentucky sales tax?
Sales tax is a tax on tangible personal property and digital property that is sold, leased, or rented in Kentucky and selected services. The Kentucky state sales tax rate is 6%.
Unlike many other states that have a complicated patchwork of city, county, and district taxes, Kentucky is relatively unique: there are no local sales tax rates.
This means the sales tax rate is uniform across the state.
| Location | State Rate |
|---|---|
| State of Kentucky (base) | 6% |
| Louisville | 6% |
| Lexington | 6% |
| Florence | 6% |
Note for Restaurant Owners: While there is no local sales tax, some specific municipalities (such as Berea, Elizabeth, and others) may impose a separate “Restaurant Tax” or “Transient Room Tax” on food and lodging. Always check your specific municipality for these niche industry taxes, but for general retail, the rate remains a flat 6%.
How to calculate Kentucky sales tax?
Because there are no varying local rates, calculating sales tax in Kentucky is straightforward. You simply multiply the purchase price of the taxable item or service by 0.06.
Example: If you sell a coffee mug for $20.00:
20.00 × 0.06 = $1.20
Total transaction: $21.20
Use our “reverse” sales tax calculator
If you are pricing items for a menu or a catalog and want to see what your prices should be to include tax, or if you simply want to verify your point-of-sale system is accurate, a sales tax calculator is a great tool.
You can use a reverse sales tax calculator to quickly find the pretax or double-check your math.
What is subject to sales tax in Kentucky?
Historically, Kentucky applied sales tax primarily to “tangible personal property,” physical goods like furniture, clothing, electronics, and cars. However, recent legislation (specifically House Bill 8) has significantly expanded the tax base.
Currently, Kentucky sales tax applies to:
- Tangible personal property: Almost all physical goods sold at retail.
- Digital property: Digital audio works, books, and pre-written computer software.
- Selected services: A growing list of service-based transactions (detailed below).
Does Kentucky charge sales tax on services?
Yes, and this list has expanded recently. As of 2023 and 2024, Kentucky charges sales tax on many services that were previously exempt. If you offer these services, you must collect the 6% tax.
Taxable services now include:
- Photography and photo finishing
- Marketing and telemarketing services
- Public opinion and research polling
- Lobbying services
- Website design and development
- Cosmetic surgery services (non-medically necessary)
- Personal fitness training
- Janitorial and cleaning services
- Landscaping and lawn care
- Pet care and grooming
Kentucky sales tax on food
Kentucky distinguishes between grocery food and prepared food, which is a critical distinction for restaurant owners and convenience stores. Grocery food is generally exempt from Kentucky sales tax. However, items such as candy and soft drinks are not considered grocery food and remain taxable.
If you own a restaurant, café, or food truck, you are essentially acting as a state tax collector for every meal you serve. Prepared food sold for immediate consumption is subject to Kentucky sales tax, regardless of whether grocery food is exempt.
| Category | State Sales Tax Rate | Application |
|---|---|---|
| Grocery items | EXEMPT | Includes unprepared food items bought at a market for home consumption. |
| Prepared food | 6% | Includes food sold hot, food sold with utensils (like plates, knives, and forks), and meals served in restaurants. |
For restaurants and grocery stores, sales tax compliance can be especially challenging. Between taxable prepared foods, exempt grocery items, and exceptions for products like candy and soft drinks, it is easy for mistakes to happen.
DAVO by Avalara helps restaurants and grocery stores simplify sales tax by automatically setting aside the sales tax collected from each transaction and handling filing and payment on your behalf when it is due. This helps ensure the correct amount is paid on time, even as tax rules vary by product type.
By removing the need to manually track, file, and pay sales tax, DAVO allows food-based businesses to focus on serving customers instead of worrying about compliance details.
Make your sales tax less taxing with DAVO.
What is exempt from sales tax in Kentucky?
While the base is broadening, several standard exemptions remain to protect essential goods and specific industries.
Common exemptions include:
- Prescription medicines and prosthetic devices.
- Grocery food items (unprepared).
- Residential utilities (water, electricity, gas) for a primary residence.
- Manufacturing machinery: Raw materials and industrial supplies used directly in manufacturing may qualify for exemptions.
- Sales for resale: Items purchased by a retailer to be resold to a final customer.
Sales of admissions and tangible property sales at fundraising events by all nonprofit groups and governmental organizations are now exempt from sales tax for transactions
How to manage tax-exempt sales in Kentucky?
If you are selling to a customer who claims they are exempt (such as a non-profit or a reseller), you need proper documentation. You must obtain a completed Resale Certificate (Form 51A105) or the appropriate exemption certificate from the buyer.
You must keep this certificate on file. If you are audited and cannot produce the certificate for a tax-free sale, you will be held liable for the uncollected tax.
Kentucky sales tax holiday
Currently, Kentucky does not have a sales tax holiday. While neighboring states like Tennessee or Ohio may offer back-to-school tax-free weekends, Kentucky retailers must collect the 6% tax year-round.
How to register for a Kentucky sales tax license?
Before making your first taxable sale, you must register with the Kentucky Department of Revenue. The easiest and fastest way to register is online through the Kentucky Taxpayer Portal:
- Go to the Kentucky Taxpayer Portal: MyTaxes.ky.gov.
- Complete the Kentucky Tax Registration Application.
After completing the Kentucky Tax Registration Application and receiving approval, you will be issued a Sales and Use Tax Permit.
Businesses may also register by mail, fax, or email by submitting a completed registration application, Form 10A100. However, registrations submitted using these methods can take up to three weeks to process. For this reason, applying online is strongly recommended.
Please note that there is a registration fee, and the cost may vary depending on the type of business being registered.
Once issued, the Sales and Use Tax Permit does not expire as long as your business remains active and compliant.
How to file Kentucky sales tax?
Businesses must file and pay tax returns online as the Department makes the functionality available for various tax types. This mandate applies to all monthly, quarterly, and annual filer frequency accounts. You will file your returns through the MyTaxes.ky.gov portal.
If a business does not have access to the internet or can document technical issues that prevent online filing or payment, it may request approval to use an alternative filing or payment method, as outlined in the Department’s File and Pay Tax Returns Online guidance. Approval is not automatic and must be requested.
Your filing frequency depends on your average monthly tax liability:
- Monthly: If your average monthly tax liability is roughly $100 or more (this is the most common status).
- Quarterly: If your liability is consistently very low (under $100/month).
- Annually: Reserved for businesses with extremely low annual liability (under $125/year).
- Accelerated filing: This filing method applies to businesses identified by the Kentucky Department of Revenue with an average monthly sales and use tax liability exceeding $50,000. Businesses subject to accelerated filing are notified in writing by the Department. These businesses must remit payment by the 25th of each month for sales occurring during the period from the 16th of the previous month through the 15th of the current month.
Businesses should follow the filing frequency assigned by the state and any notices issued regarding changes to their filing or payment requirements.
How to pay Kentucky sales tax?
You can pay your sales tax liability directly through the MyTaxes.ky.gov portal using:
- ACH Debit (Bank draft)
- Credit card (Note: Credit card payments typically incur a processing fee).
In certain cases, if the state allows payment by mail, businesses may also submit payment by check or money order. Payments should be made payable to “KY State Treasurer” and mailed to:
Kentucky Department of Revenue
501 High St
Frankfort, KY 40619
Businesses should confirm whether mailed payments are permitted for their account and filing method, as processing times are longer and mailed payments must be postmarked by the due date to be considered timely.
Kentucky sales tax due dates
Sales tax returns and payments are due on the 20th of the month following the reporting period.
- Example: January sales tax for monthly filers is due by February 20th.
Kentucky sales tax returns are generally due monthly, though the Department allows less frequent filing based on the amount of sales tax a business reports annually. Filing frequencies are reviewed and adjusted each June programmatically by the Kentucky Department of Revenue.
Taxpayers may request a filing frequency change directly from the Department when business circumstances change. However, businesses may not file less frequently than their payment history and tax liability allow.
Kentucky vendor compensation (sales tax discount)
The “On-Time” Discount: Kentucky offers a vendor compensation (collection allowance) to businesses that file and pay on time.
- The Reward: You can keep 1.75% of the first $1,000 of tax due, and 1.5% of any tax due over $1,000.
- The Cap: The total deduction is capped at $50 per reporting period.
While $50 might seem small, it adds up to $600 a year. When you use an automated sales tax solution like DAVO, this collection allowance is collected and refunded back to you. In many cases, this refund can cover a significant portion or even all of the cost of your DAVO subscription. If you operate in multiple states, check out our guide on vendor compensation by state to see where else you can save.
| Filing Frequency | Due Date |
|---|---|
| Monthly | The 20th of the following month |
| Quarterly | The 20th day of the month following the end of the reporting period: April 20, July 20, October 20, and January 20 of the following year. |
| Annual | January 20 of the following year |
| Accelerated | The 25th of each month. For example, sales made from March 16 through April 15 must be paid by April 25 |
If the due date falls on a weekend or a state/federal holiday, the deadline is typically the next business day.
Remembering when to file and pay sales tax, and setting aside the funds to do so, can be stressful for busy business owners. DAVO helps by automatically setting aside the sales tax you collect and submitting your payments on your behalf when they are due. This removes the need to manually schedule payments or worry about missed deadlines, helping Kentucky businesses stay compliant while focusing on running their day-to-day operations.
What is the Kentucky sales tax late payment penalty?
Kentucky enforces strict sales tax penalties, and multiple penalties may apply at the same time. The Kentucky Department of Revenue assesses penalties based on how late a return or payment is and the reason for noncompliance. Here are a few common penalties:
- Late filing penalty: 2% of the tax due for each 30-day period (or fraction thereof) the return is late, up to 20%.
Minimum penalty is $10 (or $100 if filed after a jeopardy assessment). - Late payment penalty: 2% of the unpaid tax for each 30-day period the payment is late, up to 20%, with a $10 minimum. Applies even if the return was filed on time.
- Negligence penalty: 10% of the tax assessed when underpayment results from careless or reckless disregard of tax rules. No cap applies.
- Unhonored (cold) check penalty: 10% of the payment amount, with a $10 minimum and $100 maximum.
- Cost of collection fee: If tax remains unpaid 60 days after the Original Notice Date, Kentucky may add a 25% collection fee to the unpaid tax.
- Interest: Accrues from the original due date until paid in full and cannot be waived. The interest rate for 2026 is listed at 9%.
With uncapped penalties and a 25% collection fee, Kentucky sales tax liabilities can grow quickly. Filing accurately and paying on time is the best way to avoid unnecessary costs.
Consider using sales tax software that integrates with your point-of-sale system to help manage filing and payment, so you can avoid these penalties.
How DAVO can help with Kentucky sales tax
Kentucky’s sales tax is simpler than most, thanks to its flat 6% rate, but the rules for services and the strict payment deadlines still pose a compliance challenge. DAVO automates every step of the sales tax process, including setting aside tax dollars due, for you using data directly from your POS. When the due date arrives, DAVO automatically files and pays your taxes with the Kentucky Department of Revenue, guaranteeing* your payment is on time and in full. Best of all, that valuable 1.75% collection allowance goes right back into your pocket, potentially covering your DAVO subscription fee entirely.
Choose your POS system to get started with DAVO.
Kentucky Department of Revenue:
https://revenue.ky.gov/ | https://mytaxes.ky.gov/
Contact information: https://revenue.ky.gov/Get-Help/Pages/Contact-Us.aspx
