KENTUCKY SALES, USE & PROPERTY TAX AUDIT & RECOVERY CHECKLIST Prepared by George & Company Tax Consulting 594 Rose Jones Lane, London, KY 40741 · (606) 682-2986 · https://kysalestaxconsultants.com Last verified against Kentucky Revised Statutes (KRS Chapters 131, 134, 139, 143, 143A): October 2026 ================================================================================ IMPORTANT NOTICE: This checklist is provided for general educational and preparation purposes only. It is not legal or tax advice and does not establish a consultant-client relationship. Eligibility for specific exemptions or refunds depends on your actual facts, purchase invoices, utility usage, and filing records. -------------------------------------------------------------------------------- PART 1: SEVEN AREAS WHERE INDUSTRIAL & COMMERCIAL BUSINESSES OFTEN OVERPAY OR MISCLASSIFY -------------------------------------------------------------------------------- 1. Production Machinery for New and Expanded Industry (KRS 139.480(10)) - Machinery used directly in a manufacturing or processing production process and incorporated for the first time into a Kentucky plant facility may qualify for exemption from the 6% sales and use tax. - Common Pitfall: Paying vendor sales tax on capital expansion equipment or failing to distinguish exempt new/expanded capacity from taxable one-for-one replacement machinery. 2. Manufacturing Industrial Supplies & Tools (KRS 139.470 / KRS 139.480) - Certain tangible personal property directly used and consumed in manufacturing or industrial processing (such as qualifying industrial supplies, lubricants, abrasives, and short-lived tooling) may be exempt, whereas general maintenance or non-production repair parts are generally taxable. - Common Pitfall: Letting accounts payable default-tax all plant MRO vendor invoices without separating exempt industrial supplies from taxable repair parts. 3. Plant Energy & Utility Exemption — The 3% Cost-of-Production Threshold (KRS 139.480(3)) - Electricity, natural gas, water, and fuels used in manufacturing, processing, mining, or severing may qualify for exemption if the cost of energy or energy-producing fuels exceeds 3% of the cost of production. - Common Pitfall: Never performing a cost-of-production utility study, or failing to update utility exemption filings (Form 51A159) after plant expansions. 4. Mining & Rock Quarry Extraction and Processing Inputs (KRS Chapters 139, 143, 143A) - Coal mining operations, mineral producers, and limestone/aggregate rock quarries face overlapping sales/use tax and severance tax rules. - Common Pitfall: Overpaying sales or use tax on qualifying processing machinery or plant utilities, or miscalculating allowable transportation deductions on severance tax returns. 5. Monthly Use Tax Self-Accrual Errors (Form 51A102 / 51A103) - Businesses must self-accrue 6% Kentucky use tax on taxable out-of-state or untaxed purchases, but AP teams frequently either: (a) Under-accrue on untaxed out-of-state equipment, software/digital goods, or shop supplies (creating audit exposure), OR (b) Over-accrue use tax on exempt manufacturing inputs or invoices where sales tax was already billed. 6. Missing or Incomplete Exemption Certificates on Sales - When selling to exempt customers, sellers must collect and retain properly executed Kentucky exemption certificates (e.g., Resale Certificate Form 51A105, Manufacturing Exemption Form 51A111, Agricultural Exemption). - Common Pitfall: Missing certificates during a Department of Revenue sample period, causing auditors to project disallowed exempt sales across the entire audit period. 7. Tangible Personal Property Tax "Ghost Assets" & Schedule Classifications (Form 62A500) - Kentucky Tangible Personal Property Tax returns are due annually (generally May 15). - Common Pitfall: Reporting scrapped, idle, or disposed equipment that still sits on federal tax depreciation schedules ("ghost assets"), or misclassifying qualifying manufacturing machinery (Schedule B) as general tangible property (Schedule A). -------------------------------------------------------------------------------- PART 2: RECORDS AUDITORS TYPICALLY REQUEST FIRST -------------------------------------------------------------------------------- If your business receives a Kentucky Department of Revenue audit notice or Information Document Request (IDR), gather and review these before submitting records: [ ] The audit notification letter, audit period dates, and any proposed statute-of-limitations waiver [ ] Filed Kentucky Sales & Use Tax returns (and Direct Pay Authorization, if applicable) for the audit period [ ] Federal income tax returns and fixed-asset depreciation schedules (acquisitions & disposals) [ ] General ledger, chart of accounts, and trial balances [ ] Exemption certificates on file for exempt sales (Form 51A105, etc.) [ ] Accounts payable purchase registers and sample capital/expense invoices [ ] Filed Tangible Personal Property Tax returns (Form 62A500), if property tax is included -------------------------------------------------------------------------------- PART 3: KEY STATUTORY DEADLINES TO WATCH -------------------------------------------------------------------------------- * Refund Claims — 4-Year Rolling Statute (KRS 134.580): Kentucky generally allows claims for refund or credit of overpaid state taxes within four (4) years from the date the tax was paid. Each month that passes can allow older overpayments to expire. * Monthly Sales & Use Tax Filing Deadline: Generally due on the 20th day of the month following the reporting period. * Formal Audit Protest — 60-Day Window (KRS 131.110): If the Department of Revenue issues a formal Notice of Tax Due, a written protest supported by a statement of grounds must generally be filed within sixty (60) days of the notice date. -------------------------------------------------------------------------------- NEXT STEP: SPEAK DIRECTLY WITH GEORGE & COMPANY TAX CONSULTING -------------------------------------------------------------------------------- - Sales & Property Tax Audit Defense: Available to ANY type of business - Monthly Use Tax Calculations & AP Training: Available to ANY type of business - Sales, Use & Property Tax Refund Recovery: Dedicated exclusively to Manufacturers, Mining Operations, and Rock Quarries - Severance Tax Consulting: For Coal, Limestone, Aggregate, and Mineral Producers Phone: (606) 682-2986 (Mon–Fri, 8:00 AM – 5:00 PM ET) Office: 594 Rose Jones Lane, London, KY 40741 Web: https://kysalestaxconsultants.com/contact