​Sourcing Guidlines

Sourcing guidelines for when the retail sales of services are subject to Kentucky sales and use tax.

​Sales tax on services is based on where the customer receives the service. If the service provider performs the services in Kentucky and then bills and provides the services to a customer that is located out of state, then the transaction is not subject to Kentucky sales and use tax. See guidance on the sourcing of retail sales in KRS 139.105 and information on receiving services in Kentucky Administrative Regulation 103 KAR 30:190.​

​Yes, the Kentucky customer receives the web hosting services in this state. Therefore, the sales transactions are sourced to Kentucky and the charges for web hosting services are subject to the 6% Kentucky sales and use tax.​

​The licenses for prewritten computer software access services purchased for use by the out of state employees are eligible for the temporary storage exemption provided the identified licenses are used solely outside the state by those employees. Since the sale of these services is by an out of state software provider, the 6% use tax is imposed on these transactions for the storage, use, or other consumption of the prewritten computer software access services for the Kentucky-based employees (KRS 139.310). See also the definitions of “storage" and “use" in KRS 139.010, which are the basis of the temporary storage provision. This treatment for software access services mirrors the treatment of similar transactions involving tangible personal property or digital property.​

Yes, the new services under HB 8 from the 2022 Session that became taxable on 01/01/2023 are subject to both sales tax under  KRS 139.200 and use tax under KRS 139.310. Therefore, if a Kentucky customer purchases one of these services from an out of state service provider that does not charge the 6% tax on the transaction, the customer is required to directly report the 6% use tax to the Department of Revenue. According to the provisions of KRS 139.330, the purchaser's liability for use tax payment is not extinguished unless the purchaser has a receipt showing that the 6% Kentucky tax was charged by the seller on the retail transaction.

To report use tax, retail businesses should use line 23 of the sales and use tax return. Non-retail businesses with a consumer's use tax account report purchases subject to tax on line 1 of the consumer's use tax return. For non-registered businesses that have use tax liabilities, they may report purchases subject to the 6% Kentucky use tax on line 1 of the Consumer's Use Tax Return (Form 51A113(O)), available on the Department website Sales & Use Tax - Department of Revenue (ky.gov). Non-business individual consumers may report purchases subject to use tax on the individual income tax return. The department also provides a look-up table as an option to report estimated use tax owed on retail purchases based on adjusted gross income when receipts are not readily available. The link is accessible at  Consumer Use Tax - Look-Up Table.

​The sourcing of these services depends upon where the customer receives the services. If the service provider sends the bill and report to the Kentucky office, then the charges are subject to Kentucky sales and use tax. If the provider sends the report and bills the Ohio office, then the sale is sourced to Ohio with tax due there.  ​

​Since the report goes to the Ohio office, the customer receives the service in that state. No Kentucky sales and use tax is due when the purchaser receives the services at the out of state location for use in that jurisdiction. Please note that the billing address is just one of the factors in determining the proper sourcing of a retail transaction. See KRS 139.105(1) for the hierarchy used to apply the information available to the seller.​