Lexington KY Business License: 2.25% Occupational License Fee, Form 228 IP Account, $100 Minimum and the $200 Short-Term Rental License

If you are starting a business in Lexington, the first thing to understand is that Kentucky does not issue a general business license. Registering an LLC, corporation or assumed name with the Secretary of State is a filing, not a license. The local license most Lexington businesses actually deal with is the occupational license tax administered by the Lexington-Fayette Urban County Government (LFUCG) Division of Revenue. This guide explains how that tax works, how to open your account, and what changes if you plan to offer a short-term rental.

This article is informational content, not legal or tax advice. Rules, rates and deadlines change. Confirm every figure with the agency named here before you file or pay.

What the Lexington Occupational License Tax Covers

Lexington imposes an occupational license tax of 2.25% on compensation and net profits. The Secretary of State directory lists a $100 minimum. Do not assume Lexington's rate, minimum or forms match Louisville or any other Kentucky city. Kentucky has 120 counties and about 420 cities, and each sets its own local rules.

The local tax sits alongside your state obligations. Every LLC and corporation owes the Limited Liability Entity Tax (LLET), with a $175 minimum. Kentucky has no franchise tax. The state annual report costs $15 and is due June 30 every year. Those are state items, separate from the Lexington tax.

Materials and Information You Need

• Your formation documents, if you have formed an LLC or corporation (Articles of Organization or Articles of Incorporation), or your Certificate of Assumed Name if you operate under a trade name.
• Your business address in Fayette County. If you plan to rent a property short term, the address of that property too.
• Your estimated gross receipts and expected net profit for the year. If you have employees, have your payroll totals ready.
• Access to the Kentucky One Stop Business Portal at onestop.ky.gov, and a MyTaxes.ky.gov account if you need a state tax registration.
• The Division of Revenue contact details: 218 E. Main St., Lexington, KY, phone 859-280-8300.
• A calendar with two dates marked: April 15 for net profit returns (calendar-year filers) and June 30 for the state annual report.

Step 1: Set Up Your Entity or Assumed Name

Form your entity first, or file an assumed name if you do business under a name other than your legal name. The Kentucky One Stop portal handles new formations. Articles of Organization (Form KLC) for an LLC carry a $40 filing fee. Articles of Incorporation (Form PAI) for a corporation carry a $50 filing fee. A Certificate of Assumed Name (Form ASN) costs $20 with the Secretary of State, and the registration is effective for five years. Sole proprietors file assumed names with the county clerk where they reside under KRS 365.015(3), and county recording fees are set locally, so confirm that amount with your clerk.

Your LLC name must include the words limited liability company, limited company, LLC or LC. Your registered office must be a Kentucky street address. A post office box is not accepted. Changing your registered agent or registered office costs $10.

Step 2: Register Your State Tax Account

If you will have employees or sell taxable goods or services, register with the Kentucky Department of Revenue using Form 10A100 through MyTaxes.ky.gov. You can find the sales tax permit page at https://revenue.ky.gov/Business/Pages/Register-Business.aspx. Kentucky's state sales tax is a flat 6%, and it reaches about 50 services. Kentucky has no local sales tax, so Lexington adds nothing on top of the 6% rate.

Step 3: Open Your Occupational License Account With Form 228 IP

Form 228 IP is the form that opens your Lexington occupational license account. Call the Division of Revenue at 859-280-8300 or visit 218 E. Main St. An online filing portal launched March 4, 2026. Ask the Division whether your account type can be opened and managed through that portal, and whether it can be used for your first filing.

Step 4: Figure Out Your Tax

The tax applies to compensation and net profits. The Secretary of State directory lists a $100 minimum. Sole proprietors whose non-rental gross receipts were $4,400 or less are exempt from the minimum, but they must still file. That exemption comes from the 2025 instructions, so confirm it for the current tax year before you rely on it.

For a rough estimate, multiply your net profit by 2.25%. A sole proprietor with $30,000 in net profit would owe about $675 under that formula. Your actual amount depends on the filing rules that apply to your entity type, so verify the calculation with the Division.

If you have employees, the tax also applies to their compensation, and you must withhold. Employers file the 220 and 221 returns, which the city mails each January, and the 222 reconciliation. Ask the Division of Revenue what your payroll withholding rate is. Published figures differ, so do not rely on a single number from a website.

Step 5: Know About the School District Tax

The Secretary of State directory also lists Fayette County Public Schools at 0.5% of net profit. House Bill 757 bars new or raised school occupational taxes after January 1, 2027. Ask the Division of Revenue whether the school tax applies to your business, when it begins and whether any changes affect you.

Step 6: File Your Net Profit Return

Calendar-year filers report net profit on Form 228, due April 15. Keep your books current through the year, because the return is only as accurate as the records behind it. Mark April 15 on your calendar as soon as you open your account.

Step 7: Meet the Short-Term Rental Requirements

A short-term rental needs three things in order. First, a Zoning Compliance Permit. Second, an LFUCG business license. Third, a Special Fees license, which costs $200 for the first unit and $100 for each additional unit. You must also carry $1,000,000 in liability insurance. Confirm with LFUCG where each application goes and in what order, because the permit comes before the licenses.

Renting without these approvals is costly. Unlicensed rentals face fines of up to $500 a day. Lexington also levies a transient room tax on short-term stays. The published rates differ, so ask the Division of Revenue for the current transient room tax rate before you set your nightly price.

Common Mistakes to Avoid

• Treating a state filing as a license. Forming an LLC or filing an assumed name does not replace the Lexington occupational license account.
• Assuming Lexington matches Louisville. Rates, minimums and forms are local. Check the Lexington numbers directly.
• Skipping the return because you think you are exempt. Sole proprietors under the $4,400 threshold must still file.
• Missing the April 15 and June 30 deadlines. Net profit returns are due April 15 for calendar-year filers, and the state annual report is due June 30.
• Listing a post office box as your registered office. Kentucky requires a Kentucky street address.
• Renting short term before the permits clear. Fines can reach $500 a day.
• Guessing your payroll withholding rate. Ask the Division of Revenue for the current figure.

Tips for a Smoother Setup

• Call the Division of Revenue before you open your account and write down the name of the person who answers your questions and the date of the call.
• Set up a bookkeeping system that separates business income, personal income and rental income from the start.
• Keep copies of every form you file and every receipt you pay, including the Special Fees license and insurance certificate for a rental.
• Check your school district tax status before you assume it does or does not apply to your business.

Expected Results

Following these steps should help you open a Lexington occupational license account, understand your filing obligations and avoid the most common penalties. Many first-time filers find that most of the time goes to gathering records, not filling out forms. Results depend on your entity type, your income, your payroll and any rental activity, so treat this guide as a starting checklist rather than a guaranteed outcome.

When to Get Professional Help

If you have several owners, employees in more than one jurisdiction, or a rental property with mortgage or lease questions, talk with a qualified attorney or CPA before you file. The Kentucky Small Business Development Center offers free guidance at https://kentuckysbdc.com/, and the SBA's Kentucky district page is at https://www.sba.gov/district/kentucky. For state filings, the Secretary of State's business page is at https://www.sos.ky.gov/bus/business-filings/Pages/default.aspx, and the Department of Revenue is at https://revenue.ky.gov/.

Disclaimer: This article is informational content, not legal or tax advice. Confirm all fees, rates, deadlines and requirements with the Lexington-Fayette Urban County Government Division of Revenue, the Kentucky Secretary of State and the Kentucky Department of Revenue before you act.