Department of Revenue

(As Amended at ARRS, December 12, 2017)


††††† 103 KAR 30:235. Sales[of utility services] to the federal government.


††††† RELATES TO: KRS 139.010, 139.200, 139.260, 139.270, 139.310, 139.330, 139.470, 139.720, 139.990


††††† NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations to administer and enforce Kentucky's tax laws.[KRS 139.470 was amended by Ky Acts Chapter 77, Pt III, Sec 1][The 1976 Kentucky General Assembly amended the sales tax law][to exempt sales to Kentucky State Government and to local governments in Kentucky, effective July 1, 1976.] [Sales of utility services to the federal government have continued to be taxed under policy that has been followed since the inception of the sales tax in 1960. All other sales to the federal government had been exempt. Recent research by the Attorney General's Office reveals some case law supporting the government's claim that to continue to tax sales to the federal government constitutes discrimination against the federal government.] This administrative regulation establishes requirements for application of[explains how] the sales tax[is to apply] to transactions involving the federal government.[, consistent with the treatment of sales to Kentucky State Government and local governments in Kentucky][case law referred to above].[Section 1. On and after the 30th day following the effective date of this administrative regulation, sales tax does not apply to receipts from sales to the federal government. This administrative regulation is prospective only and no refunds or credit adjustments will be made for purchases made prior to the 30th day following the effective date of this administrative regulation. Also, no assessments will be made on sales that were exempted administratively by the cabinet during that same period.]


††††† Section 1.[2.] The term "federal government" as used in this administrative regulation shall mean[means] federal agencies, instrumentalities, or corporations which are exempt from all state taxation under the Federal Constitution or statutes, and shall not include[.] an agency, corporation or instrumentality that is simply[is not entitled to the exemption simply because it is] regulated by or receives funds or grants from the federal government.


††††† Section 2.[3.] The exemption applies only to sales made directly to the federal government for use in the government function. Any official or employee who uses a[his] position to make a tax-free purchase for[his own] personal use or that of any other person shall[will] be subject[himself] to the penalties provided in KRS 139.990 and other applicable laws.


††††† Section 3.[4.] Sellers and retailers shall include sales made directly to the federal government[are to be included] in the gross receipts[to be] entered on line one (1) of the retailer's Kentucky Sales and Use Tax Return (Form 51A102). Sellers or retailers may deduct these[such] sales on line six (6)[twenty-one (21)] of the return. Sellers or retailers claiming a deduction for sales to the federal government shall[must] maintain in their records[files] a copy of the exemption authorization letter issued to the federal agency and a copy of the invoice upon which an official, or an employee exercising comparable authority, of the federal government has signed and acknowledged in writing that delivery of the property was actually made to the federal government.


††††† Section 4.[5.] Contractors may not claim the exemption when[may not be claimed by contractors] purchasing property to be used in fulfilling contracts with the federal government. As provided by 103 KAR 26:070, sales of property to contractors for use in fulfilling contracts with the federal, state, or local governments for erecting, remodeling, or repairing structures or improvement on or to real estate are subject to tax.


††††† Section 5.[6.] All federal government agencies seeking exemption under authority of this administrative regulation shall[must] apply to the Division of Sales and Use Tax[Sales and Severance Tax Division] for a tax exemption authorization letter. The application (Form 51A125)[form] may be obtained from the Division of Sales and Use Tax[Sales and Severance Tax Division], 501 High Street, Frankfort, Kentucky 40620[40601] or from one (1) of the departmentís[cabinet's ten (10)] field offices.


DANIEL P. BORK, Commissioner

††††† APPROVED BY AGENCY: October 6, 2017

††††† FILED WITH LRC: October 12, 2017 at 4 p.m.

††††† CONTACT PERSON: Lisa Swiger, Tax Policy Research Consultant, Department of Revenue, 501 High Street, Station 1, Frankfort, Kentucky 40601, phone (502) 564-9526, fax (502) 564-3875, email