Kentucky has introduced several important sales and use tax developments that take effect August 1, 2026. If your business sells products or services into Kentucky—especially digital offerings or through remote sales channels—now is a good time to review your compliance obligations.
Here are the key updates:
Data Brokering Services Become Taxable
Kentucky is expanding its sales tax base to include data brokering services, effective August 1, 2026. This change, enacted through House Bill 757, defines data brokering services as "the act of collecting, aggregating, and analyzing personal data for sale to a third party while possession of the personal data is maintained by the person providing the data brokering services or by the third party".
Businesses that collect, aggregate, and analyze personal data for sale to third parties may now be required to charge Kentucky sales tax. The statutory definition is notably broad and could extend beyond entities traditionally viewed as data brokers—potentially capturing businesses that provide these services incidentally to their primary operations. Sales tax applies regardless of how charges are billed, whether on a per-use, per-user, per-license, subscription, or other basis. The tax does not apply to data brokering services provided by state and local government agencies.
If your business provides data-driven services, it's worth reviewing whether your offerings fall within the new definition.
Economic Nexus Rules Are Changing
Kentucky is eliminating the 200-transaction threshold for economic nexus, also effective August 1, 2026. Under the new standard, remote sellers and marketplace facilitators will only be required to collect Kentucky sales tax if they exceed $100,000 in Kentucky sales during the current or previous calendar year.
Key implications:
High-volume, low-average-order-value sellers: Businesses that registered solely because they exceeded 200 transactions—but remained under $100,000 in sales—should consider whether deregistration is possible. However, trailing nexus rules apply, so consult a tax advisor before taking any action.
Marketplace sellers: Sales facilitated through marketplace platforms count toward the $100,000 threshold for determining nexus.
The $100,000 threshold applies to: tangible personal property, digital property, and services delivered to Kentucky purchasers.
Kentucky joins a growing list of states that have moved to sales-only thresholds. Businesses that remain over $100,000 in Kentucky sales will continue to have the same registration and collection obligations.
Additional Compliance Reminders
In addition to these legislative changes, the Kentucky Department of Revenue has recently reminded taxpayers about a few important advisory areas:
Streaming Services and Digital Content Remain Taxable
Kentucky taxes Software-as-a-Service (SaaS) and prewritten computer software access services as of January 1, 2023. This includes:
Subscriptions to streaming services and digital content
Pay-per-view events and one-time movie rentals
AI-powered software—the Department of Revenue confirmed in January 2026 that software incorporating artificial intelligence is taxable as prewritten computer software, whether or not the AI component modifies its output based on user data
Businesses offering digital content should ensure their products are correctly classified and taxed at Kentucky's flat 6% statewide rate.
Drop Shipment Transactions
Drop shipment transactions continue to require careful handling of resale exemption certificates. Businesses should confirm that their documentation and processes are in order to avoid unexpected sales or use tax liabilities. Resale certificates are essential for avoiding double taxation when purchasing goods from suppliers for resale—if you fail to provide a valid certificate to a US-based supplier, that supplier is legally required to charge you sales tax.
Action Steps for Businesses
As the effective date approaches, businesses should:
Audit Kentucky sales volume before August 1 to determine whether you exceed $100,000 in sales, independent of transaction count
Review data brokering activities—evaluate whether your business collects, aggregates, and analyzes personal data for third-party sale, even as an incidental part of operations
Verify digital product classifications to ensure SaaS, streaming, and digital content are correctly taxed at 6%
Review drop shipment documentation and resale certificate processes to confirm compliance
Consult with a tax advisor before deregistering if you were registered solely due to the transaction threshold—trailing nexus rules can create liability for periods after you stop collecting if not handled correctly
Implement necessary changes to sales tax processes to support ongoing compliance
No comments:
Post a Comment