103 KAR 31:030. Direct pay authorization.
RELATES TO: KRS 139.260, 139.400, 139.710
STATUTORY AUTHORITY: KRS 131.130, 139.260, 139.660, 139.720
NECESSITY, FUNCTION, AND CONFORMITY: KRS 13A.139, 131.130(1), 139.260, 139.400, and 139.710 authorized the Revenue Cabinet to promulgate administrative regulations for the: (1) assessment, collection, refunding, administration, and enforcement of Kentucky tax laws; and (2) direct pay authorization. This administrative regulation establishes the requirements and procedures for the direct payment of Kentucky sales and use tax on purchases of tangible personal property excluding energy and energy producing fuels.
Section 1. Definitions. (1) "Direct pay authorization" or "DPA" means an authorization issued by the Revenue Cabinet that permits a taxpayer to report Kentucky sales and use tax directly to the cabinet on all purchases of tangible personal property, excluding energy and energy-producing fuels.
(2) "Distribution facility" means a specific location which is used to receive, hold, and ship business inventory.
(3) "Manufacturing" means a process that transforms tangible personal property having no commercial value for its intended use before processing into tangible personal property having appreciable commercial value for its intended use after processing.
Section 2. Qualifications. An applicant shall:
(1) Be a person engaged in:
(b) Extracting minerals, ores, clay, stone, coal, or natural gas;
(c) Operating a transportation company; or
(d) Operating a distribution facility; and
(2) Hold a valid Kentucky retail sales and use tax permit; and
(3) Have a record of timely payment of taxes administered by the cabinet;
(4) Maintain records in such a manner that, as applicable, the amount of tangible property purchased from:
(a) A Kentucky vendor may be properly reported; or
(b) An out-of-state vendor for storage, use, or other consumption in Kentucky or elsewhere can be verified; and
(5) Be engaged in business in Kentucky, and own property, other than office furniture and equipment, that is located in more than one (1) state; or
(6)(a) Have been in engaged in business in Kentucky in excess of twenty-four (24) months; and
(b) Have purchased tangible personal property of at least ten (10) million dollars for use in his Kentucky operations in the preceding calendar or fiscal year, as applicable.
Section 3. Application. (1) An applicant shall apply to the cabinet for a DPA upon Revenue Form 51A112, "Application for Direct Pay Authorization".
(2) The application shall include:
(a) The applicant's:
1. Legal business name;
2. Federal Employer Identification Number;
3. Date operations began in Kentucky;
4. Kentucky business address;
5. Mailing address;
6. Type of operation: manufacturing/processing; mining/quarrying; transportation company; or distribution facility;
7. Telephone and fax numbers;
8. Kentucky Employer's Withholding Account Number;
9. Kentucky Corporation Income and License Account Number; and
10. Kentucky Sales and Use Account Number;
(b) If an applicant is engaged in business and has property, other than office furniture and equipment, located in more than one (1) state, the location of the applicant's home office, and plants or places of business;
(c) If the applicant is not engaged in business and does not have property, other than office furniture and equipment, located in more than one (1) state, the amount of tangible property purchased for use in the applicant's Kentucky business operations in the last calendar or fiscal year, as applicable;
(d) Statements relating to records and documentation required by Sections 2(3) and (4) and 7 of this administrative regulation;
(e) Most recent year's financial statement certified by the applicant's chief financial officer or a certified public accountant; and
(f) A detailed description of the records maintained to document that the amount of taxable purchases is properly reported.
Section 4. Requirements. A DPA holder shall:
(1) Furnish all of his vendors, excluding vendors of energy and energy-producing fuels, with a copy of Revenue Form 51A110, "Direct Pay Authorization";
(2) Report and remit the sales or use tax on all taxable purchases of tangible personal property, excluding energy and energy-producing fuels, that would have been remitted by the applicant's retailer if the DPA had not been granted; and
(3) Report all taxable purchases in accordance with KRS 139.540, 139.550, 139.560 and 139.590.
Section 5. Vendor Responsibility. (1) A vendor shall be relieved of the duty of collecting and paying the sales or use tax if he:
(a) Accepts a copy of a company's DPA in good faith; and
(b) Retains the copy in his records pursuant to KRS 139.720(2).
(2) A vendor shall:
(a) Include sales for which a DPA has been accepted in Line 1, Gross Receipts, of Revenue Form 51A102, "Sales and Use Tax Return"; and
(b) Take a corresponding deduction on Line 19, which shall be labeled "DPA Sales".
Section 6. Limitations. A DPA holder shall not:
(1) Issue the DPA to a construction contractor; or
(2) Allow a contractor to use the holder's DPA to purchase, lease, or rent tangible personal property or purchase taxable services.
Section 7. Records. A DPA holder shall maintain records pursuant to KRS 139.720(2) and 103 KAR 31:020.
Section 8. Bond Requirement. Upon demand of the cabinet, the applicant or holder of a direct pay authorization shall execute pursuant to KRS 139.660, a bond or an indemnity agreement securing the payment of the sales or use taxes to the cabinet in an amount not less than $75,000 and not greater than three (3) times the estimated monthly liability.
Section 9. Transfer of Authorization. (1) A DPA shall not be transferable upon the sale, lease, or other transfer of the business.
(2) A DPA holder shall notify the cabinet within ten (10) days of the effective date of the sale, lease, or other transfer of the business.
Section 10. Termination. (1) The cabinet shall terminate a DPA if the DPA holder:
(a) Fails or ceases to be an eligible taxpayer;
(b) Fails to timely file its sales and use tax returns and timely pay any tax due; or
(c) Fails to comply with any of the provisions of this administrative regulation.
(2)(a) The cabinet shall notify a DPA holder of the termination by certified mail at his last known address.
(b) Upon receipt of the notification of termination, a DPA holder shall notify all vendors within thirty (30) days of the date of termination.
(3) The effective date of the termination shall be the date of the mailing of the termination notice.
Section 11. Protests. The denial or termination of a DPA may be protested pursuant to KRS 131.110.
Section 12. Incorporation by Reference. (1) The following material is incorporated by reference:
(a) "Application for Direct Pay Authorization, Form 51A112 (12-97)";
(b) "Direct Pay Authorization, Form 51A110 (8-97)"; and
(c) "Sales And Use Tax Return, Form 51A102 (9-92)".
(2) This material may be inspected, copied, or obtained at Kentucky Revenue Cabinet, 200 Fair Oaks, Frankfort, Kentucky 40620, or at a Kentucky Taxpayer Service Center, Monday through Friday, 8 a.m. to 4:30 p.m. (SU-56; 1 Ky.R. 470; eff. 3-12-75; Am. 24 Ky.R. 920; 1522; 1643; eff. 2-10-98.)