What is the Kentucky Qualified Research Facility Tax Credit?

Answer: The Kentucky Qualified Research Facility Tax Credit is a nonrefundable state tax incentive equal to 5% of qualified costs for constructing, remodeling, expanding, or equipping tangible, depreciable property. This facility must be located in Kentucky and used exclusively for conducting qualified research as defined by IRC Section 41.

Glossary of Terms: Kentucky R&D Facility Tax Credit

Glossary Term	Definition
Qualified Research Facility Tax Credit	A Kentucky tax incentive equal to 5% of qualified costs for constructing eligible research facilities.
KRS 141.395 (Kentucky Revised Statute)	The specific Kentucky legislative statute authorizing the tax credit for constructing or equipping research facilities.
Tax Credit for Construction of Research Facilities	An incentive providing a 5% nonrefundable state credit for tangible, depreciable property used for research.
Qualified Costs of Construction	Eligible financial expenses incurred while building, remodeling, or equipping facilities exclusively for qualified Kentucky research.
Construction of Research Facilities (Definition)	The physical act of building, expanding, or outfitting structures utilized strictly for executing qualified research.
Tangible, Depreciable Property (Requirement)	Physical business assets possessing a determinable useful life necessary to qualify for the facility credit.
Exclusion: Replacement Property	Equipment or physical property that merely replaces existing operational assets does not qualify for credits.
Credit Percentage (5%)	The statutory rate applied directly to qualified construction expenditures to determine the final credit amount.
Kentucky Department of Revenue (DOR)	The official state governmental agency responsible for administering tax laws and approving research facility credits.
Nonrefundable Credit	A specific tax credit that can reduce owed tax liability to zero but cannot yield cash.
Carryforward Period (10 Years)	The designated ten-year timeframe unused facility tax credits can carry over to offset future taxes.
KRS 141.020 (Individual Income Tax)	The Kentucky state statute comprehensively governing the income tax levied upon individuals, estates, and trusts.
KRS 141.040 (Corporation Income Tax)	The Kentucky legislative statute outlining the precise taxation of corporate income earned within the state.
KRS 141.0401 (Limited Liability Entity Tax - LLET)	The specific statute imposing a state tax on limited liability entities based on gross receipts.
KRS 141.0205 (Priority/Ordering of Credits)	The established Kentucky law strictly specifying the sequential order in which multiple tax credits apply.
Kentucky Schedule TCS (Credit Summary for Corporations/PTEs)	The official state tax form used by corporations and pass-through entities to summarize claimed credits.
Kentucky Schedule ITC (Credit Summary for Individuals)	The specific reporting form utilized by individual Kentucky taxpayers to aggregate and summarize income credits.
Qualified Research (Same meaning as IRC Section 41)	Technological research activities systematically intended to discover novel information for developing new or improved products.
Internal Revenue Code (IRC) Section 41	The foundational federal tax code section providing a credit for increasing research and developmental activities.
IRC Section 41(d) (Definition of Qualified Research)	The federal statutory subsection defining the precise four-part test criteria qualifying projects must meet entirely.
Constructing Facilities (Qualified Cost)	Direct financial expenditures for erecting entirely new buildings in Kentucky primarily for qualified research purposes.
Remodeling Facilities (Qualified Cost)	Eligible expenses for structurally renovating existing buildings in Kentucky to properly accommodate qualified research activities.
Expanding Existing Facilities (Qualified Cost)	Approved capital costs associated with adding functional square footage to a building for research purposes.
Equipping Facilities (Qualified Cost)	Money correctly spent purchasing tangible, depreciable property to outfit a Kentucky facility for qualified research.
Facilities in This State (Kentucky)	The mandatory geographical requirement that physical structures claiming the construction credit reside within Kentucky borders.
Pass-Through Entity (PTE)	A recognized business structure where earned income and associated tax credits flow to owners' personal returns.
Partnership (PTE)	A legally formal arrangement by two or more parties to successfully manage and operate a business.
S-Corporation (PTE)	A closely held corporate entity officially electing to pass income, losses, and credits to shareholders.
Limited Liability Company (LLC) (PTE)	A flexible corporate structure providing limited liability protection while legally allowing pass-through taxation for owners.
Distributive Share of Income (PTE Allocation)	The distinct numerical portion of a pass-through entity's income and credits correctly allocated to each owner.
Kentucky Schedule K-1 (Pass-Through Credit Reporting)	The mandatory form detailing a specific partner's or shareholder's share of income, deductions, and credits.
Sole Proprietor (Eligibility)	An entirely unincorporated business owned by a single individual who can potentially claim research credits.
Business Component (IRC Section 41 Term)	A new or improved product, process, software, technique, formula, or invention intended for commercial use.
Elimination of Uncertainty (IRC Section 41 Term)	The fundamental goal of qualified research to effectively resolve technical unknowns regarding capability or methodology.
Process of Experimentation (IRC Section 41 Term)	A highly systematic, scientific approach evaluating multiple design alternatives to overcome established technical uncertainties effectively.
Technological in Nature (IRC Section 41 Term)	The strict federal requirement that eligible research relies fundamentally on principles of the hard sciences.
Application and Subsequent Approval of Credit	The requisite formal process of properly submitting documentation to the Department of Revenue for credit claims.
Supporting Schedule (Listing Depreciable Property)	A mandatory return attachment explicitly detailing all specific assets, costs, and dates for the claimed credit.
Date Purchased (Depreciable Property)	The exact chronological date a taxpayer formally acquired the tangible property used for research facilities.
Date Placed in Service (Depreciable Property)	The precise calendar date a capital asset becomes actively ready for its designated research function.
Unused Credit (Carryforward Calculation)	The calculated remaining portion of the facility tax credit exceeding current liability, available for future offsets.
KRS Chapter 141 (Income Taxes)	The comprehensive Kentucky legal section formally governing individual, corporate, and limited liability entity income taxes.
KRS Chapter 154 (Economic Development)	The specific Kentucky statutes explicitly focused on actively fostering business growth, investment, and statewide job creation.
Taxpayer (Claiming the Credit)	The officially recognized individual or business entity legally filing a return and claiming the facility credit.
Income Tax Liability (Against which the credit is applied)	The total calculated amount of income tax owed before applying allowable state nonrefundable tax credits.
LLET Liability (Against which the credit is applied)	The officially assessed Limited Liability Entity Tax legally owed, which this research facility credit can offset.
Kentucky Form 720 (Tax Return Filing with Schedule QR)	The standard required corporate income tax return document filed annually with the state of Kentucky.
Individual Income Tax Credit (Application)	The approved procedure of actively applying the facility credit against personal tax liabilities on individual returns.
Corporation Income Tax Credit (Application)	The permitted legal reduction of a corporation's tax burden utilizing the allowable Kentucky research facility credit.