103 KAR 20:020. Items of capital for corporation license tax

      Section 1. Definitions. (1) "Advance" means a loan of money.

      (2) "Affiliated companies" means two (2) or more corporations in an affiliated group as defined in 26 U.S.C. 1504(a), except that in determining the voting power and value test prescribed by 26 U.S.C. 1504(a)(2), "more than fifty (50) percent" is substituted for "eighty (80) percent".

      (3) "Bank overdraft" means the liability account reflecting the amount of checks issued or drawn against the corporation’s bank account in excess of credit and does not include a credit balance in the cash account.

      (4) "Book value" is defined by KRS 136.071(2).

      (5) "Borrowed money" means a loan of money including a loan from a stockholder or a bank overdraft.

      (6) "Capital stock" means:

      (a) The sum of:

      1. The par value of all issued and outstanding shares of stock having a par value; and

      2. The amount of consideration received by the corporation for shares of stock issued and outstanding without a par value;

      (b) Less treasury stock.

      (7) "Contingent liability" means a liability, including a deferred tax liability, not yet fixed or certain but dependent on events to occur in the future.

      (8) "Debt" means an unconditional and legally enforceable obligation for the payment of money, which:

      (a) Includes trade payables or accrued operating expense accounts; and

      (b) Does not include a contingent liability or an estimated liability.

      (9) "Estimated liability" means a liability the existence of which is certain but for which the amount, due date, or payee is indeterminable.

      (10) "Financial statement prepared for book purposes" means:

      (a) The balance sheet prepared on a consistent basis from the corporation's books and records as of the last day of the taxable year; and

      (b) If the balance sheet presentation of an account is questioned, a financial statement that is prepared as required by generally accepted accounting principles.

      (11) "Intercompany accounts" means the corporation's receivable and payable accounts, other than advances, reflecting the result of transactions between affiliated companies.

      (12) "Loan" means delivery by one (1) party to and receipt by another party of a sum of money upon agreement, expressed or implied, to repay it with or without interest.

      (13) "Loans from stockholders" means the liability account reflecting the amount of loans from stockholders without a reduction for the asset account reflecting the amount of loans to stockholders.

      (14) "Net assets" means the amount by which total assets of a corporation exceed the total debt of the corporation.

      (15) "Stockholder" means an individual or a corporation, which is not an affiliated company, owning stock in a corporation.

      (16) "Surplus" means the excess of the net assets of a corporation over its capital stock.

      (17) "Total assets" means the original cost of the entire property of a corporation:

      (a) Including real property, personal property, tangible property, and intangible property;

      (b) Less applicable contra-asset accounts and deferred tax benefits.

 

      Section 2. The financial statement reflecting book value may be composed of a single general ledger account or multiple accounts.

 

      Section 3. Computation of Capital. (1) A corporation shall determine the book value of each of the following items of capital:

      (a) Capital stock;

      (b) Surplus;

      (c) Advances by affiliated companies;

      (d) Intercompany accounts; and

      (e) Borrowed moneys.

      (2) The corporation shall combine the book value of each item of capital.

 

      Section 4. Surplus. Equity in affiliated companies shall be included in surplus if the parent corporation records the equity on its financial statements prepared for book purposes.

 

      Section 5. Advances by Affiliated Companies. (1) The amount of advances by affiliated companies included in capital shall be the excess, if any, of the total advances by or from affiliated companies over the total advances to affiliated companies.

      (2) Advances by affiliated companies shall include a liability account representing a transfer of cash resulting from a cash management plan.

      (3) Advances to affiliated companies shall include an asset account representing a transfer of cash resulting from a cash management plan.

 

      Section 6. Intercompany Accounts. (1) The amount of intercompany accounts included in capital shall be the net of the receivable and payable accounts, other than advances, reflecting the result of transactions between affiliated companies.

      (2) Intercompany accounts shall not include:

      (a) A loan of money;

      (b) An asset or liability account representing a transfer of cash resulting from a cash management plan; or

      (c) An advance by or to an affiliated company.

 

      Section 7. Borrowed Moneys. (1) Borrowed moneys shall include loans and bank overdrafts.

      (2) Borrowed moneys shall not include trade accounts or notes payable arising through trade transactions including salaries payable, taxes payable, or accounts representing various types of liabilities incurred for supplies, repairs, or other accounts if the seller allows the purchaser to pay within thirty (30) to ninety (90) days.

 

      Section 8. Loans From Stockholders. (1) Loans from stockholders shall be included in capital as borrowed moneys.

      (2) The amount of loans from stockholders included in capital shall be the balance of the liability account titled loans from stockholders.

      (3) The asset account titled loans to stockholders shall not be:

      (a) Included in capital; or

      (b) Netted against the liability account titled loans from stockholders.

 

      Section 9. This administrative regulation shall not apply to tax periods ending on or after December 31, 2005. (26 Ky.R. 665; Am. 990; eff. 10-28-99; 32 Ky.R. 930; 1220; eff. 2-3-2006.)

Notation

      RELATES TO: KRS 136.070

      STATUTORY AUTHORITY: KRS 131.130(1)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS 131.130(1) authorizes the Department of Revenue to promulgate administrative regulations for the administration and enforcement of all tax laws of this state. KRS 136.070(1) requires payment of a corporation license tax based on the amount of capital employed in the business. This administrative regulation establishes the requirements for computing the amount of capital for corporation license tax purposes in accordance with the definition of capital established in KRS 136.070(2).