Taxes and Incentives

Kentucky’s pro-business climate provides a number of incentives for businesses. The Kentucky Economic Development Finance Authority (KEDFA), established within the Cabinet for Economic Development to encourage economic development, business expansion, and job creation, provides financial support through an array of financial assistance and tax credit programs. Helping businesses in this way furthers the Commonwealth’s goals of achieving long-term economic growth and employment opportunities for its citizens.

Kentucky’s economic development incentive toolbox was further enhanced when Governor Steve Beshear signed into law House Bill 3, known as Incentives for the New Kentucky (INK), in June 2009, streamlining and modernizing Kentucky’s business incentive programs. The landmark legislation revamps key existing programs, while also creating several new programs to further encourage new investment and job creation in the Commonwealth. One of those programs is the Kentucky Small Business Investment Credit (KSBIC) program, the first tax credit program of its kind for small businesses in Kentucky.

KEDFA approval is required for participation in the loan and tax incentive programs, except the Skills Training Investment credits, which are approved by the Bluegrass State Skills Corporation (BSSC). KEDFA meets the last Thursday of each month. Projects must be received by the last Friday of the month prior to the KEDFA meeting date in order to be considered.

Click here to view projects approved by KEDFA for incentives.

To find out if your business qualifies contact the Department for Business Development where a professional economic development agent will be assigned to work with you. Your agent can answer your questions and guide you through the application processes.

New and Expanding Industry

• Kentucky Business Investment (KBI) Program – (PDF)
  Provides income tax credits and wage assessments to new and existing agribusinesses, regional and national headquarters, manufacturing companies, and non-retail service or technology related companies that locate or expand operations in Kentucky. Projects locating in certain counties may qualify for enhanced incentives. Click here to view a map of the enhanced incentive counties.
• Kentucky Enterprise Initiative Act (KEIA)(PDF)
  For new or expanded service or technology, manufacturing, or tourism attraction project in Kentucky. KEIA provides a refund of Kentucky sales and use tax paid by approved companies for building and construction materials permanently incorporated as an improvement to real property. It is also available for Kentucky sales and use tax refunds for eligible equipment used for research and development and data processing equipment.
• Direct Loan Program (KEDFA) (PDF)
  KEDFA encourages economic development business expansion and job creation by providing business loans to supplement other financing. The Direct Loan Program provides loans at below-market interest rates (subject to the availability of state revolving loan funds) for fixed asset financing for agribusiness, tourism, industrial ventures, or the service industry. Retail projects are not eligible.
• Industrial Revenue Bonds – IRB (PDF)
  IRBs issued by state and local governments in Kentucky can be used to finance manufacturing projects and their warehousing areas, major transportation and communication facilities, most health care facilities, and mineral extraction and processing projects. Click here for the IRB Procedures.
• Community Development Block Grants Loans – CDBG
  Federally funded low interest loans made available through the Department for Local Government.

Job Retention

• Kentucky Reinvestment Act (KRA) – (PDF)
  Provides tax credits to an existing Kentucky company engaged in manufacturing and related functions on a permanent basis for a reasonable period of time that will be investing in eligible equipment and related costs of at least $2,500,000.
• Kentucky Industrial Revitalization Act (KIRA) PDF
  Investments in the rehabilitation of manufacturing or coal mining and processing operations that are in imminent danger of permanently closing or that have closed temporarily may qualify for tax credits. An eligible company shall also include one that has closed but resumes mining operations. Eligible entities include manufacturing companies that save or create 25 jobs and coal mining and processing companies that intend to employ a minimum of 500 persons and have a raw production of at least three million tons from the economic revitalization project facility.

High-Tech

• High-Tech Investment / Construction Pools (PDF)
  The Department of Commercialization and Innovation provides funds to help further the commercialization of a product, process, or other innovation. Incentives awarded are in the form of forgivable loans, with the amount of the loan primarily based on the applicant company’s projected high-tech job creation. These forgivable loans typically range from $150,000 to $400,000 depending upon the project.
• SBIR-STTR Matching Funds Program
  The Cabinet will match, on a competitive basis, Phase 1 and Phase 2 federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) awards received by Kentucky high-tech small businesses and those willing to become Kentucky-based businesses. This includes matching Phase 1 federal awards up to $150,000 to support the exploration of the technical merit or feasibility of an idea or technology, and up to $500,000 of federal Phase 2 awards, which support full-scale research and development.
• Commonwealth Seed Capital LLC
  The Commonwealth Seed Capital LLC (CSC) provides early-stage seed funds to facilitate the commercialization of innovative ideas and technologies developed in Kentucky. CSC will invest state capital in Kentucky technology companies. Contact: [email protected].
• Kentucky Enterprise Fund and Rural Innovation Fund
  The Kentucky Enterprise Fund and the Rural Innovation Fund provide seed-stage capital to Kentucky-based companies that are commercializing a technology-based product or process. The funds exist to stimulate private investment in Kentucky-based technology companies with high growth potential. The Kentucky Science and Technology Corporation administers the funds under contract with the Council on Postsecondary Education.

Energy and Environment

• Kentucky New Energy Ventures Fund
  The Kentucky New Energy Ventures Fund provides seed stage capital to support the development and commercialization of alternative fuel and renewable energy products, processes, and services in Kentucky. The funds exist to stimulate private investment in Kentucky-based technology companies with high growth potential. KNEV makes grants of $30,000 and investments ranging from $250,000 to $750,000+. Qualified companies must be Kentucky-based and funds are to be used for business development activities.
• Incentives for Energy Independence Act – IEIA (PDF)
  Requires a capital investment of at least $25 million for an alternative fuel facility using biomass, or an investment of at least $100 million for an alternative fuel facility using coal, as its primary feedstock. A capital investment of at least $1 million is required for a renewable power facility that meets minimum electric output standards based upon the power source. The negotiated incentives cannot exceed 50% of the capital expenditures and may include a reimbursement of sales and use taxes paid on tangible personal property; a tax credit of the income tax and limited liability entity tax owed by the company; and, wage assessment incentives up to 4% of gross wages of each employee whose job was created as part of the project. Advanced disbursements may also be available.
• Kentucky Environmental Stewardship Act (KESA) (PDF)
  For companies manufacturing products that have a substantial positive impact on human health and the environment. Companies with projects approved under KESA must have at least $5 million in eligible cost and can potentially recover up to 25% of the projects fixed asset cost and 100% of employee skills training. The tax incentive is available for recovery over a 10-year period.

Small Business

• The Kentucky Small Business Investment Credit (KSBIC) – (PDF)
  The KSBIC program is designed to encourage small business growth and job creation by providing a nonrefundable tax credit to eligible businesses hiring one or more eligible individuals and investing at least $5,000 in qualifying equipment or technology. With certain exceptions, most for-profit businesses with 50 or fewer full-time employees are considered eligible for this program. The KSBIC program is limited to allocating a total of $3 million in tax credits per state fiscal year.
• Small Business Loan Program (PDF)
  The Small Business Loan Program is designed to help small businesses acquire funding needed to start or grow their small business. A small business must be engaged in manufacturing, agribusiness, or service and technology. Loan funds may be used to acquire land and buildings, purchase and install equipment, or for working capital. The minimum loan amount is $15,000 and the maximum is $100,000. The approved company must create one new full-time job within one year of the loan closing. KEDFA can fund up to 100% of the project costs and the loan can be used in conjunction with other lenders. The term of the loan can range from 3-10 years.
• Kentucky Microenterprise Loan Program (PDF)
  Provides technical assistance and business loans, up to $50,000, to entrepreneurs in 25 Kentucky counties that formerly had no access to such a program. Funds may be used for, among other purposes, working capital, equipment purchases and inventory purchases.
• U.S. Small Business Administration
  Federal agency that provides a number of guaranteed loan and other financial assistance programs to small businesses.

Workforce Training

• Bluegrass State Skills Corporation Skills Training Investment Credit
  Provides credit against Kentucky income tax to existing businesses that sponsor occupational or skills upgrade training programs for the benefit of their employees.
• Bluegrass State Skills Corporation Grant Reimbursement Program
  Provides matching grant funds for customized business and industry-specific training programs.

Tax Increment Financing (TIF)

Click here to view a list of active state participation Tax Increment Financing projects.

• Tax Increment Financing (TIF)(PDF)
  Tax increment financing (TIF) is a tool to use future gains in taxes to finance the current improvements that will create those gains. The state participates with local governments and eligible agencies in three TIF programs: the Commonwealth Participation Program for State Real Property Ad Valorem Tax Revenues, the Signature Project Program, and the Commonwealth Participation Program for Mixed-Use Redevelopment in Blighted Urban Areas.
• TIF Loan Support Program(PDF)
  Any agency with a Tax Increment Financing Signature Project approved by the former Tax Increment Financing Commission and which executed its tax incentive agreement prior to January 1, 2008 may apply for The Tax Increment Financing (TIF) Loan Support Program. The Loan Support Program facilitates a supplemental reserve fund to cover debt service related to the bond financing of the TIF project.
• Local Redevelopment TIF (PDF)
  The program is available for use to redevelop blighted areas into mixed use development by using the incremental additional local taxes such as property or occupational taxes realized as a result of the development. The community or agency can request state participation in this program with certain additional requirements.
• Local Vacant Land TIF (PDF)
  This program is available to develop vacant land by using the additional incremental local taxes, such as property or occupational taxes, realized as a result of the new development (example: construction of infrastructure at a local industrial park). State tax increment is not available for this type of development area.

Agri-business Opportunities

• Kentucky Agricultural Development Fund
  The Kentucky Agricultural Development Fund provides incentives for innovative proposals that increase net farm income, stimulates markets for Kentucky agricultural products, creates new ways to add value to Kentucky agricultural products, and explores new opportunities for Kentucky farmers. For more information visit the Governor’s Office of Agricultural Policy’s website, agpolicy.ky.gov contact Angela Blank (502) 564-4627.
• Kentucky Agricultural Finance Corporation
  The Kentucky Agricultural Finance Corporation provides capital access for agricultural diversification and infrastructure projects. Participating Loan Programs Include: Agricultural Infrastructure, Beginning Farmer, Diversification through Entrepreneurship in Agri-business and Large Animal Veterinary Programs. Direct Loan Programs include the Agricultural Process Loan Program and the Coordinated Value-Added Assistance Loan Program. For more information visit the Governor’s Office of Agricultural Policy’s KAFC website, kafc.ky.gov or contact Bill McCloskey at (502) 564-4627.

Other Business Incentives and Financial Programs

• Kentucky Investment Fund Act – KIFA (PDF)
  KIFA provides tax credits to individuals and companies that invest in approved venture capital funds. Investors in KIFA approved funds are entitled to a 40% credit against Kentucky individual or corporate income tax or Kentucky corporate license tax. KEDFA (see above) approves investment funds and fund managers.
• Summary of Kentucky Business Incentives (PDF)

Tourism Development

The following tourism-related incentives are administered through the Kentucky Tourism, Arts and Heritage Cabinet.

• Tourism Development Act
  The Tourism Development Act provides developers of approved new or expanding tourism projects the ability to recover up to 25% of the project’s development costs over a 10-year term. Projects including, but not limited to, lodging facilities constructed on state park, federal park or national forest lands are eligible to recover up to 50% of the development costs over a 20-year term.
• Kentucky Film Incentive
  The Kentucky Film Incentive is designed to encourage the development of the film industry in Kentucky. The incentive provides qualifying applicants the ability to recover up to 20% of qualified expenditures through a refundable income tax credit. Qualifying applicants must invest a minimum of $50,000 for documentaries and national touring Broadway shows, $200,000 for commercials, $500,000 for full-length films.