Kentucky lesson 5 of 6
The Limited Liability Entity Tax, sales tax and licensing
Kentucky's distinctive LLC tax is the Limited Liability Entity Tax, a state tax on the entity itself that exists alongside, not instead of, the personal income tax that members pay on pass-through profit.
The Limited Liability Entity Tax
The LLET applies to Kentucky LLCs and other limited liability entities and is generally computed as the lesser of a small percentage of Kentucky gross receipts or a small percentage of Kentucky gross profits, but nearly every LLC owes at least the statutory minimum of $175 for the year, regardless of profit. The Department of Revenue publishes the current computation and exemption details, since the calculation and any exemption thresholds can be updated by the legislature.
The LLET is reported on the same return used for the entity's income tax filing and is separate from any federal tax classification you choose. It applies whether the LLC is taxed as a sole proprietorship, a partnership, or has elected S-Corp or C-Corp treatment for federal purposes.
Because the LLET is not tied to profit, a Kentucky LLC with no income in its first year can still owe the $175 minimum. Budget for it as a fixed annual cost, not a tax that only applies once the business is profitable.
Personal income tax on pass-through profit
A Kentucky LLC taxed as a pass-through entity for federal purposes passes its income to members, who pay Kentucky's flat individual income tax on their share. Confirm the current year's rate on the Department of Revenue's withholding and individual income tax pages before filing, since Kentucky law ties future rate cuts to the state meeting specific budget triggers, and a scheduled reduction is not guaranteed to take effect.
Sales tax and local licensing
If you sell taxable goods or certain services, register for a sales and use tax account with the Department of Revenue before making sales. Kentucky has no single statewide general business license; check with the city or county where you operate and with any state board that regulates your specific industry, and remember that cities such as Louisville and Lexington levy their own local occupational license tax on net profits or payroll on top of state tax.
Key takeaways
- The LLET has a $175 statutory minimum that applies to almost all LLCs regardless of income.
- Personal income tax on pass-through profit is separate from the LLET and applies at the state's current flat rate.
- Local occupational license taxes in cities like Louisville and Lexington are filed separately from state tax.
Frequently asked questions
Does every Kentucky LLC owe the Limited Liability Entity Tax?
Nearly all do, since the tax carries a $175 statutory minimum. Check the Department of Revenue's current LLET guidance for any exemption thresholds that may apply to smaller entities.
Is the LLET the same as a franchise tax?
It functions similarly to a franchise or privilege tax charged for the right to operate as a limited liability entity in Kentucky, and it applies on top of, not instead of, income tax on profit.
Official sources
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Last reviewed: September 2026 - reviewed by Gullia Filing Legal & Formation Team