M&A Advisory in Kentucky

Kentucky imposes a flat 4.0% individual income tax in 2025, dropping to 3.5% effective January 1, 2026 under HB 1 (signed Feb. 2025). Capital gains are taxed as ordinary income at the flat rate — no preferential LTCG rate. The PTE election (Form 740-PTET, annually elected, irrevocable once made, SALT-cap workaround) allows pass-through owners to pay Kentucky tax at the entity level and receive a refundable credit; on a $80M–$100M gain, the federal SALT deduction benefit alone exceeds $1M at the 2025 rate.

Kentucky's starting point for individual taxable income is federal AGI under KRS 141.019, meaning the federal §1202 QSBS exclusion (100% on qualifying C-corp stock held >5 years, up to $15M or 10x basis post-OBBBA July 2025) flows through automatically. Kentucky imposes no add-back for §1202 gains, making it a favorable domicile for founders of properly structured C-corps in bourbon-adjacent tech, equine health services, or Lexington SaaS targets.

Kentucky is one of only five states with an inheritance tax (no estate tax since 2005). Class A beneficiaries (spouse, parents, children, stepchildren, grandchildren, siblings) are fully exempt. Class B (nieces, nephews, aunts, uncles, children-in-law): $1,000 exemption, graduated 4%–16%. Class C (cousins, unrelated, non-exempt entities): $500 exemption, graduated 6%–16%. Form 92A200 due within 18 months; 5% discount if paid within 9 months; 10-year installments available for tax >$5,000. Multi-generational distillery, equine farm, and manufacturing families must channel ownership to Class A beneficiaries before sale.

Kentucky imposes a 6% statewide sales and use tax (no local add-ons — lower combined rate than most Southeastern peers). In asset deals, tangible personal property (equipment, vehicles, inventory) is generally taxable; goodwill and IP are exempt. Successor liability applies under KRS 139.670 and 139.680: a buyer in an asset deal is personally liable for the seller's unpaid sales/use tax absent a KDOR tax clearance letter. A contractual indemnity does not relieve the statutory successor — escrow pending clearance is standard.

Every limited-liability entity doing business in Kentucky owes the LLET under KRS 141.0401 — the lesser of $0.095 per $100 of Kentucky gross receipts or $0.75 per $100 of gross profits, subject to a $175 minimum. The LLET is never creditable against the 5% corporate income tax, functioning as a minimum alternate tax. For LMM businesses with healthy margins, gross-receipts-based LLET typically exceeds the $175 floor; for asset-light businesses, gross-profits-based LLET applies. LLET must be modeled in every Kentucky QoE normalization.

Kentucky's M&A-relevant incentive stack: KEIA (Kentucky Enterprise Initiative Act) refunds 100% of sales/use tax on qualifying building materials and equipment; KBI (Kentucky Business Investment) provides income tax credits and wage assessments on new job creation; KAITC (Kentucky Angel Investment Tax Credit) provides 40%/50% (enhanced county) of qualifying investments, capped at $200,000 per investor annually with a 15-year carryforward. All require advance KEDFA approval for transferability and post-closing compliance monitoring. Sellers who fail to inventory and document credits risk forfeiting 2–10% of EV.