Kentucky Limited Liability Entity Tax: $175 Minimum, Sliding Scale Above $3 Million and Who Pays
Kentucky Limited Liability Entity Tax: $175 Minimum, Sliding Scale Above $3 Million and Who Pays
If you form an LLC or corporation in Kentucky and do business in the state, you will owe the Kentucky limited liability entity tax (LLET) every year. Kentucky has no franchise tax, so the LLET is the entity-level tax most owners encounter after formation. It has a $175 floor, which means a business that loses money still owes it. Larger businesses pay on a sliding scale, and businesses at $6 million and above pay the lesser of two percentages.
This guide explains who owes the LLET, how the $175 minimum and the higher tiers work, how the credit against income tax fits in, and when the return is due. This is informational content, not legal or tax advice. Confirm your figures with the Kentucky Department of Revenue or a certified public accountant (CPA) before you file.
What the LLET Is and How It Differs From Formation Fees
The Kentucky limited liability entity tax is an annual tax on limited liability entities doing business in the state. It is set out in KRS 141.0401. It is not a one-time cost paid with your formation paperwork. Your Articles of Organization (Form KLC, Profit Limited Liability Company) carry a $40 filing fee with the Secretary of State. The annual report carries a separate $15 fee due June 30. The LLET is reported on the entity's Kentucky return, which is a Department of Revenue filing, not a Secretary of State filing.
Who Owes the Kentucky Limited Liability Entity Tax
Every corporation and limited liability pass-through entity doing business in Kentucky owes the LLET, regardless of how it is taxed federally. The table below shows the common structures.
| Entity type | Owes the LLET? |
|---|---|
| Limited liability company (LLC) | Yes |
| Limited partnership (LP) | Yes |
| Limited liability partnership (LLP) | Yes |
| S corporation | Yes |
| C corporation | Yes |
| Sole proprietorship | No |
| General partnership | No |
If you operate as a sole proprietor, you do not owe the LLET. You may still need a Certificate of Assumed Name (Form ASN) if you trade under a name other than your own, but that registration is filed with the county clerk for sole proprietors, not with the LLET return.
The $175 Minimum
The LLET is at least $175 in every year it applies. The minimum applies regardless of profit, losses or credits. An entity with Kentucky gross receipts or gross profits of $3 million or less pays exactly $175.
The practical result is that a new LLC with little or no income in its first year still owes $175 if it is doing business in Kentucky. Build that cost into your first-year budget, and ask a CPA or the Department of Revenue whether your activity counts as doing business in Kentucky if you are unsure.
The Sliding Scale Between $3 Million and $6 Million
Once Kentucky gross receipts or gross profits rise above $3 million, the LLET phases up from the $175 minimum on a sliding scale. That scale runs until the $6 million threshold. The exact phase-in calculation is not reproduced here, so check with the Kentucky Department of Revenue for its current worksheet or instructions before you estimate your tax in this range. Do not rely on a rough percentage from a blog post, including this one, for an entity in this tier.
Above $6 Million: The Lesser of Two Figures
At $6 million and above, the LLET is the lesser of these two amounts:
- 0.095% of Kentucky gross receipts
- 0.75% of Kentucky gross profits
The lesser-of structure means the tax depends on which measure produces the smaller number. Here is an illustration with hypothetical figures:
- Kentucky gross receipts: $10 million. 0.095% of $10 million is $9,500.
- Kentucky gross profits: $3 million. 0.75% of $3 million is $22,500.
- LLET owed: the lesser amount, $9,500.
Your actual figures depend on how your receipts are sourced to Kentucky, which is a question to confirm with the Department of Revenue or your CPA. The table below summarizes all three tiers.
| Kentucky gross receipts or gross profits | LLET |
|---|---|
| $3 million or less | $175 (exact) |
| Above $3 million, below $6 million | Sliding scale. Confirm the calculation with the Department of Revenue |
| $6 million and above | Lesser of 0.095% of Kentucky gross receipts or 0.75% of Kentucky gross profits |
Gross Receipts, Gross Profits and Cost of Goods Sold
Gross profits matter for the LLET calculation, and the rules are narrower than many owners expect. Only product businesses count cost of goods sold when computing gross profits. Product businesses are those engaged in manufacturing, producing, reselling, retailing or wholesaling. If your business is not a product business, you do not subtract cost of goods sold in computing gross profits.
Because the top tier uses both measures, classify your business correctly before you run the numbers. Misclassifying a business can change which measure is the lesser amount and therefore the tax owed.
How the Credit Against Income Tax Works
If your LLET is above $175, the amount above the minimum earns a credit against Kentucky income tax on the entity's income. Credits can reduce your income tax, but they never reduce the LLET itself below $175. So the $175 minimum is a floor even for an entity that has large credits available.
Income of an LLC generally passes through to its members, and for 2026 that income is taxed at the 3.5% flat individual rate. How the credit flows through to owners depends on your entity's structure and tax elections, so review it with a CPA before you rely on the credit in your planning.
When the LLET Is Due
The LLET is reported on the entity's Kentucky return and is due on the 15th day of the fourth month after the year ends. For calendar-year filers, that is April 15. The LLET is not paid with your formation paperwork, so the first LLET deadline often comes long after you form the entity.
Keep the LLET deadline separate from the Secretary of State annual report, which has its own deadline and fee:
| Obligation | Filed with | Cost | Due |
|---|---|---|---|
| Articles of Organization (LLC) | Secretary of State | $40 filing fee | At formation |
| Annual report | Secretary of State | $15 | June 30 every year. The window opens January 1 |
| Limited liability entity tax return | Kentucky Department of Revenue | At least $175, more above $3 million | 15th day of the 4th month after year end (April 15 for calendar-year filers) |
Missing the June 30 annual report deadline has serious consequences. A domestic entity that misses June 30 can be administratively dissolved if it does not correct the problem within 60 days of the Secretary of State's notice. Treat that date as non-negotiable, and file the annual report online through the Kentucky One Stop Business Portal or the Secretary of State's FastTrack Online Filings system.
Common Mistakes to Avoid
- Paying the LLET at formation. It is reported on the annual Kentucky return, not with your Articles of Organization.
- Assuming a zero-profit year means no LLET. The $175 minimum applies regardless of profit.
- Estimating the $3 million to $6 million tier from a rough formula. Use the Department of Revenue's official calculation.
- Subtracting cost of goods sold without checking your business type. Only product businesses count it in gross profits.
- Confusing the annual report with the tax. The $15 annual report is a Secretary of State filing and does not replace the LLET return.
- Assuming sole proprietors owe it. Sole proprietors and general partnerships do not owe the LLET.
Next Steps for Your Entity
- Calculate your Kentucky gross receipts for the tax year, and confirm with the Department of Revenue how receipts are sourced to Kentucky.
- Determine whether your business is a product business, which controls whether you subtract cost of goods sold in computing gross profits.
- If your figures are above $3 million, request the current phase-in calculation from the Department of Revenue before estimating your tax.
- Calendar April 15 (for calendar-year filers) for the LLET return, and June 30 for the $15 annual report.
- Give your CPA the figures early. Entities near the $3 million or $6 million thresholds benefit from planning before year end.
Official Kentucky Resources
- Kentucky Department of Revenue: LLET returns, instructions and the phase-in calculation
- Kentucky Secretary of State, Division of Business Filings: Articles of Organization and annual reports
- Kentucky One Stop Business Portal: online formation filings
Important Disclaimer
This article is informational only. It is not legal, tax or accounting advice, and it does not create an attorney-client or CPA-client relationship. Tax rules, thresholds and calculation methods can change, and the figures here may not reflect your situation. Entities with multiple owners, multi-state operations, or gross receipts near the $3 million or $6 million thresholds should consult a qualified CPA and attorney before filing.