What Are the Different Types of Taxes in Kentucky?

Kentucky’s tax system encompasses a variety of levies on individuals and businesses, generate revenue for public services. These taxes support numerous state and local initiatives, from education and infrastructure to public safety and healthcare. The state’s approach to taxation includes income, consumption, property, and specific excise taxes.

Individual Income Tax

Kentucky imposes an individual income tax on its residents, as well as on non-residents who earn income from sources within the state. This tax is applied at a flat rate of 4% for the 2024 tax year. Lawmakers have indicated a future reduction to 3.5% effective January 1, 2026, with a long-term goal of potentially eliminating the individual income tax if certain fiscal conditions are met.

Kentucky’s income tax law aligns with the Internal Revenue Code as of December 31, 2023. Taxpayers may utilize itemized deductions and certain income-reducing deductions. Common credits available include a $40 tax credit for each individual aged 65 or over and for those who are legally blind. A child and dependent care credit is also available, calculated as 20% of the federal credit.

Sales and Property Taxes

Kentucky levies a statewide sales and use tax at a rate of 6% on the retail sale of tangible personal property and certain services. There are no additional local sales taxes imposed by cities or counties within Kentucky. Common exemptions from sales tax include groceries and prescription medicine.

Property taxes in Kentucky are assessed on both real estate and tangible personal property, but they are primarily levied and collected at the local level by counties, cities, and school districts. This localized assessment means that property tax rates can vary significantly depending on the specific jurisdiction where the property is located. The assessment process is based on the fair cash value of the property as of January 1 each year, with a property valuation administrator (PVA) responsible for determining these values.

The homestead exemption is available to homeowners who are at least 65 years old or who have been classified as totally disabled. For the 2025-2026 assessment years, the value of this exemption is $49,100. This amount is deducted from the assessed value of the home, and property taxes are then calculated on the remaining value. To qualify, the property must be owned, occupied, and maintained as the taxpayer’s personal residence.

Business Taxation

Businesses operating in Kentucky encounter various taxes, including the corporate income tax and the Limited Liability Entity Tax (LLET). The corporate income tax applies to corporations, including foreign corporations, that own or lease property or have paid employees in the state. For tax years beginning on or after January 1, 2018, Kentucky imposes a flat corporate income tax rate of 5%.

The Limited Liability Entity Tax (LLET) is imposed on entities with limited liability protection, such as corporations, LLCs, S-corporations, and limited partnerships. Sole proprietorships and general partnerships are exempt as they do not have limited liability. The LLET calculation is based on a business’s Kentucky gross receipts or gross profits, with a minimum tax of $175. For businesses with gross receipts or gross profits exceeding $6 million, the LLET is the lesser of 0.095% of Kentucky gross receipts or 0.75% of Kentucky gross profits.

Businesses also contribute to unemployment insurance through state unemployment insurance (SUI) taxes. New employers face a flat SUI rate of 2.7%, though rates for established employers can vary based on their experience ratings. Additionally, many local jurisdictions impose occupational license taxes on businesses, often based on a percentage of net profits or employee wages earned within that locality.

Common Excise Taxes

Kentucky imposes excise taxes on specific goods and services. Motor fuel taxes are levied on gasoline and special fuels. As of July 1, 2025, the gasoline tax is 25.0 cents per gallon, and special fuels are taxed at 22.0 cents per gallon, along with a 1.4 cents per gallon petroleum environmental assurance fee. These fuel taxes contribute to the state’s Road Fund, dedicated to the construction and maintenance of Kentucky’s infrastructure.

Tobacco products also incur excise taxes. Cigarettes are subject to a tax of 3 cents per 20 cigarettes, along with surtaxes that bring the total to $1.10 per pack. Other tobacco products, such as snuff and chewing tobacco, are taxed based on weight or unit. Snuff is taxed at 19 cents per 1.5 ounces, while chewing tobacco rates vary by net weight.

Alcoholic beverages are subject to excise taxes as well, varying by product type. For instance, distilled spirits are taxed at $1.92 per wine gallon, with a proportional rate for smaller containers. Wine is taxed at 50 cents per gallon, and malt beverages (beer) are taxed at $2.50 per barrel of 31 gallons. These taxes are built into the retail price of these products.