FINANCE AND ADMINISTRATION CABINET
Department of Revenue
(As Amended at ARRS, December 12, 2017)
103 KAR 31:030. Direct pay authorization.
RELATES TO: KRS
139.010, 139.240, 139.250, 139.260, 139.540,
139.550, 139.590, 139.660, [
STATUTORY AUTHORITY: KRS 131.130, 139.260, 139.660, 139.720
FUNCTION, AND CONFORMITY: KRS [
13A.139,]131.130(1), 139.260,[ 139.400,]
and 139.710 authorized the Department of Revenue[ Revenue Cabinet]
to promulgate administrative regulations for the: (1) assessment, collection,
refunding, administration, and enforcement of Kentucky tax laws; and (2) direct
pay authorization. This administrative regulation establishes the requirements
and procedures for the direct payment of Kentucky sales and use tax on
purchases of tangible personal property or[ and]
digital property excluding energy and energy producing fuels.
Definitions. (1) "Direct pay authorization" or "DPA" means
an authorization issued by the Department of Revenue[
that permits a taxpayer to report Kentucky sales and use tax directly to the
cabinet on all purchases of tangible personal property and digital property,
excluding energy and energy-producing fuels.
(2) "Distribution facility" means a specific location which is used to receive, hold, and ship business inventory.
as] defined by
KRS 139.010(16)[ means a process that transforms tangible personal
property having no commercial value for its intended use before processing into
tangible personal property having appreciable commercial value for its intended
use after processing].
Section 2. Qualifications. An applicant shall: (1) Be a person engaged in:
(b) Extracting minerals, ores, clay, stone, coal, or natural gas;
(c) Operating a transportation company; or
(d) Operating a distribution facility; and
(2) Hold a valid Kentucky retail sales and use tax permit; and
(3) Have a record of timely payment of taxes administered by the cabinet;
(4) Maintain records in such a manner that, as applicable, the amount of tangible property and digital property purchased from:
(a) A Kentucky seller
vendor] may be properly reported; or
out-of-state seller or retailer[
storage, use, or other consumption in Kentucky or elsewhere can be verified;
(5) Be engaged in business in Kentucky, and own property, other than office furniture and equipment, that is located in more than one (1) state; or
(6)(a) Have been in engaged in business in Kentucky in excess of twenty-four (24) months; and
(b) Have purchased
digital property or tangible personal property,
excluding energy and energy-producing fuels,[
or digital property]
of at least ten (10) million dollars for use in his Kentucky operations in the
preceding calendar or fiscal year, as applicable.
Application. (1) An applicant shall apply to the department[
for a DPA by submitting a fully completed[ upon] Revenue Form
51A112, "Application for Direct Pay Authorization".
(2) The application
shall include: [
(a) The applicant's: 1. Legal
business name; 2. Federal
Employer Identification Number; 3. Date
operations began in Kentucky; 4. Kentucky
business address; 5. Mailing
address; 6. Type of
operation: manufacturing/processing; mining/quarrying; transportation company;
or distribution facility; 7. Telephone
and fax numbers; 8. Kentucky
Employer's Withholding Account Number; 9. Kentucky
Corporation Income and License Account Number; and 10. Kentucky
Sales and Use Account Number;]
If an applicant is engaged in business and has property, other than office
furniture and equipment, located in more than one (1) state, the location of
the applicant's home office, and plants or places of business;
If the applicant is not engaged in business and does not have property, other
than office furniture and equipment, located in more than one (1) state, the
amount of tangible property and digital property purchased for use in
the applicant's Kentucky business operations in the last calendar or fiscal
year, as applicable;
Statements relating to records and documentation required by Sections 2(3) and
(4) and 7 of this administrative regulation;
Most recent year's financial statement certified by the applicant's chief
financial officer or a certified public accountant; and
A detailed description of the records maintained to document that the amount of
taxable purchases is properly reported.
Section 4. Requirements. A DPA holder shall:
(1) Furnish all of
his sellers or retailers, excluding sellers or retailers[
excluding vendors] of energy and energy-producing fuels, with a
copy of Revenue Form 51A110, "Direct Pay Authorization";
(2) Report and
remit the sales or use tax on all taxable purchases of digital
property or tangible personal property[
property], excluding energy and energy-producing fuels, that
would have been remitted by the DPA holder’s seller or[ applicant's]
retailer if the DPA had not been granted; and
(3) Report all
taxable purchases in accordance with KRS 139.540, 139.550, [
Section 5. Vendor Responsibility. (1) A vendor shall be relieved of the duty of collecting and paying the sales or use tax if he:
(a) Accepts a copy
of a company's DPA[
in good faith]; and
(b) Retains the copy in his records pursuant to KRS 139.720(2).
(2) A seller
(a) Include sales for which a DPA has been accepted in Line 1, Gross Receipts, of Revenue Form 51A102, "Sales and Use Tax Return"; and
(b) Take a corresponding deduction on Line 19, which shall be labeled "DPA Sales".
Section 6. Limitations. A DPA holder shall not:
(1) Issue the DPA to a construction contractor; or
(2) Allow a contractor to use the holder's DPA to purchase, lease, or rent tangible personal property, digital property, or purchase taxable services.
Section 7. Records. A DPA holder shall maintain records pursuant to KRS 139.720(2) and 103 KAR 31:020.
Section 8. Bond
Requirement. Upon demand of the department[
applicant or holder of a direct pay authorization shall execute pursuant to KRS
139.660, a bond or an indemnity agreement securing the payment of the sales or
use taxes to the department[ cabinet] in an amount not less than
$75,000 and not greater than three (3) times the estimated monthly liability.
Section 9. Transfer of Authorization. (1) A DPA shall not be transferable upon the sale, lease, or other transfer of the business.
(2) A DPA holder
shall notify the department[
cabinet] within ten (10) days of the
effective date of the sale, lease, or other transfer of the business.
Termination. (1) The department[
cabinet] shall terminate a DPA if
the DPA holder:
(a) Fails or ceases to be an eligible taxpayer;
(b) Fails to timely file its sales and use tax returns and timely pay any tax due; or
(c) Fails to comply with any of the provisions of this administrative regulation.
(2)(a) The department[
shall notify a DPA holder of the termination by certified mail at his last known
(b) Upon receipt
of the notification of termination, a DPA holder shall notify all sellers
vendors] within thirty (30) days of the date of
(3) The effective date of the termination shall be the date of the mailing of the termination notice.
Section 11. Protests. The denial or termination of a DPA may be protested pursuant to KRS 131.110.
Section 12. Forms. The forms listed herein may be inspected, copied, or obtained, subject to applicable copyright law, at:
(1) The Kentucky Department of Revenue, 501 High Street, Frankfort, Kentucky 40620;
(2) At a Kentucky Taxpayer Service Center during business hours; or
(3) On the
department website at http://revenue.ky.gov. [
Reference. (1) The following material is incorporated by reference: (a)
"Application for Direct Pay Authorization, Form 51A112 (12-97)"; (b)
"Direct Pay Authorization, Form 51A110 (8-97)"; and (c) "Sales
And Use Tax Return, Form 51A102 (9-92)". (2) This
material may be inspected, copied, or obtained at Kentucky Revenue Cabinet, 200
Fair Oaks, Frankfort, Kentucky 40620, or at a Kentucky Taxpayer Service Center,
Monday through Friday, 8 a.m. to 4:30 p.m.]
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 II, Department of Revenue, 501 High Street, Station 1, Frankfort, Kentucky 40601, phone (502) 564-9526, fax (502) 564-3874, email Lisa.Swiger@ky.gov.