Kentucky’s decision to mandate combined reporting for unitary businesses during the 2018 legislative session continues to generate a ripple effect of policies and procedures intended to address the changes. Late in the 2019 Regular Session, the Kentucky General Assembly passed HB 458, which authorizes a new Deferred Tax Deduction for Kentucky income tax.

Under the new law, publicly traded corporations may claim a deduction for a decrease in their net deferred tax assets or an increase in their net deferred tax liabilities, as long as the change resulted from the adoption of combined business group reporting under KRS 141.202 in 2019. The deduction must be calculated in accordance with generally accepted accounting principles. Affiliated groups of corporations electing to file a consolidated return under KRS 141.201 are not eligible for the deduction.

The Kentucky Department of Revenue recently issued KY-RP-19-02, a Kentucky Revenue Procedure offering guidance to ensure taxpayer compliance with the notice requirements to claim the Deferred Tax Deduction. In order to claim the deduction, the taxpayer must complete Schedule DTD and file it with the Department on or before July 1, 2019. The Schedule DTD must include all supporting schedules and statements. There is no extension available, so taxpayers are urged to begin preparing Schedule DTD as soon as possible. However, no adjustments to the deduction calculation may be made to account for events happening after it has been completed, so taxpayers should wait to file Schedule DTD as close to the deadline as possible if there is a chance the calculation could fluctuate between now and July 1. Taxpayers with questions about the new deduction or the consolidated filing rules should contact their tax professionals.