Kentucky State Legislature Passes Tax Credits/Incentives Amendments

Thoughtware Alert Published: Apr 23, 2021
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The Kentucky General Assembly recently passed legislation modifying several existing state tax credits and incentives. The new legislation aims to direct manufacturing production, entrepreneurship activity, and private investment funding toward personal protective equipment (PPE) and bioscience technology production and research and development (R&D). The statute makes changes to add or remove clauses to existing laws to make various businesses eligible or ineligible for the credits and also increase or decrease the amount of credits available. 

The first of the changes abolishes the Kentucky Claims Commission and creates the Office of Claims and Appeals in its place. The Office of Claims and Appeals will comprise of three boards: the Board of Tax Appeals, the Board of Claims, and the Crime Victims Compensation Board. A second update included in the legislation will implement a sunset provision on the income tax credit included in the Kentucky Industrial Revitalization Act. The new deadline for preliminary approval is June 30, 2021. 

One of the larger changes the legislation makes is to modify the industries that will be eligible for the state’s Skills Training Investment Credit. Companies qualifying for the credit include manufacturing, agribusiness, nonretail services or technology, national or regional headquarters operations, alternative fuel, gasification, energy-efficient alternative fuel, carbon dioxide transmission pipeline, coal severing and processing, and hospital operations. The new law also increases the maximum amount of the credit from $500 to $2,000 per trainee and from $100,000 to $200,000 per company per year. 

The new legislation states that a “qualified activity” for purposes of the Angel Investment Credit may include activity by an entity involved in other technological advances, as determined by the Office of Entrepreneurship and Small Business Innovation, which is created by the bill. The bill updates the Kentucky Investment Fund Act to create a new tax credit cap, limit the tax credit to 25 percent of the investor’s proportional ownership share, and make changes to the application and approval process. The Office of Entrepreneurship and Small Business Innovation is expected to grant the credit to any business that operates in a “qualified activity,” which for the purposes of the credit means any knowledge-based activity related to the Office’s “New Economy Focus Areas.” The amount of the credit will be decreased after January 1, 2022.

The legislation also amends several incentives designed to encourage the manufacturing of PPE and vital medications within Kentucky. The bill updates the definition of the terms “manufacturing,” “personal protective equipment,” and “vital medications” to help make businesses in those industries specifically eligible for the incentives. The bill includes updates to the Kentucky Business Investment Act (KBIA) Credit, Kentucky Enterprise Initiative Act (KEIA), and Kentucky Reinvestment Act Credit. The definition of an “eligible company” under the KEIA will be updated to include several different kinds of business legal structures with a proposed economic development project that is primarily engaged in a list of activities related to PPE, bioscience engineering, and R&D. Definitions updated in the KBIA Credit include “manufacturing” and “full-time job,” as well as which industries are eligible for the credit. The Kentucky Reinvestment Act is amended to require a preliminarily approved company to complete the respective project within three years of the date from preliminary approval. The bill also places limits on the total credit amount in relation to the size of the business applicant and project.

The amendments included in this legislation are surely a response to the ongoing COVID-19 pandemic and the related demand for PPE and COVID-19 vaccines. The bill should make Kentucky more competitive in attracting businesses that operate in industries related to those demands.

For additional guidance on changes in Kentucky law, reach out to your BKD Trusted Advisor or submit the Contact Us form below. 

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