Kentucky charges its 6% sales and use tax on Software as a Service, and has done so since January 1, 2023. If you sell SaaS to Kentucky customers, whether you operate from Louisville or Los Angeles, the Kentucky SaaS sales tax applies once you have enough connection to the state to trigger a collection duty. That means registering with the Department of Revenue, charging 6% on taxable subscriptions, and filing returns on schedule.
What SaaS Kentucky Actually Taxes
The statute uses the term “prewritten computer software access services.” KRS 139.010(34) defines it as the right to access and use prewritten software while the seller or a third party keeps possession of it, no matter whether the charge is per user, per use, by subscription, or on some other basis.1Kentucky Legislative Research Commission. Kentucky Revised Statutes KRS 139.010 – Definitions for Chapter In practice, that language sweeps in nearly every browser-based or app-based platform on the market: accounting tools, project management, CRMs, analytics dashboards, and the rest.
Custom software is different. Software designed and developed for one specific customer is not prewritten and is not taxable. The line gets slippery when a vendor sells a prewritten product and layers modifications on top. Those customization charges are only exempt if the invoice states them separately. Bundle them into one line item and Kentucky taxes the whole amount at 6%.2Kentucky Department of Revenue. Sales Tax Facts Winter 2025-2026
Configuration isn’t customization. A tenant with its own branding, user roles, and workflow settings is still using prewritten code. The Department has also confirmed that adding artificial intelligence features to a prewritten platform does not change the classification; it stays taxable.2Kentucky Department of Revenue. Sales Tax Facts Winter 2025-2026
The underlying authority is KRS 139.200, which imposes the 6% tax on gross receipts from retail sales of tangible personal property, digital property, and services.3Kentucky Legislative Research Commission. Kentucky Revised Statutes KRS 139.200 – Imposition of Sales Tax House Bill 8, passed in 2022, is what pulled SaaS into that base.4Kentucky Department of Revenue. House Bill 8 FAQs Available on TaxAnswers.ky.gov
When Out-of-State Providers Have to Collect
You don’t need an office or employee in Kentucky to owe a collection duty. Remote sellers must register and collect once they cross either of two thresholds in the current or previous calendar year: $100,000 in gross receipts from Kentucky sales, or 200 separate transactions into the state.5Kentucky Department of Revenue. Kentucky Sales and Use Tax Collections by Remote Retailers Hitting either one is enough. There is no grace period: you are expected to begin collecting on the next transaction after the threshold is crossed.
Kentucky is a full member of the Streamlined Sales and Use Tax Agreement, so a SaaS company already selling into other states can register through the Streamlined Sales Tax Registration System and cover Kentucky in the same filing.6Streamlined Sales Tax Governing Board. Kentucky – Streamlined Sales Tax
Which Customer’s Address Determines the Tax
Kentucky uses destination sourcing. The tax follows the customer, not the seller. KRS 139.105 lays out a hierarchy: first the location where the customer actually receives the service, then the purchaser’s address on file, then the billing address, then the address tied to the payment method.7FindLaw. Kentucky Revised Statutes Title XI Revenue and Taxation 139.105 – Sourcing of Retail Sales
SaaS has no shipping address, so most vendors rely on the customer’s business address or billing address. Whichever one you use, keep documentation. During an audit, you need to show why you sourced each sale to Kentucky or didn’t.
Exemptions Worth Knowing
A handful of SaaS sales escape the tax.
- Resale. A business buying SaaS access to resell it can purchase tax-free using Kentucky’s Resale Certificate (Form 51A105). The buyer must hold an active Kentucky sales tax account to issue the certificate.2Kentucky Department of Revenue. Sales Tax Facts Winter 2025-2026
- Custom software. Software built entirely to one customer’s specifications is not prewritten and is outside the tax. Separately stated customization charges on prewritten software are also exempt.
- Print technology software. House Bill 360 created a narrow exemption for prewritten computer software access services sold to retailers that develop software for print technology and use those services in connection with print technology.8Kentucky Legislative Research Commission. Kentucky General Assembly – House Bill 360
Collect and keep a valid exemption certificate for every exempt sale. If an auditor finds a missing or expired certificate, the uncollected tax falls back on you.
Registering to Collect
Before charging the tax, get a sales and use tax permit from the Department of Revenue. The registration uses the Kentucky Tax Registration Application (Form 10A100), filed online through MyTaxes at mytaxes.ky.gov or on paper.9Kentucky Department of Revenue. Business Registration
Have these ready before you start:
- A Federal Employer Identification Number. The Department encourages every business to get one, even sole proprietors who aren’t federally required to, so a Social Security number doesn’t end up on tax forms.
- Social Security numbers and legal names of all owners, officers, or responsible parties.10Kentucky Department of Revenue. Kentucky Tax Registration Application and Instructions
- Your NAICS code identifying your primary business activity.
- The date you began or will begin taxable operations in Kentucky.
Once the application is processed, Kentucky assigns a Commonwealth Business Identifier that tracks every future filing.10Kentucky Department of Revenue. Kentucky Tax Registration Application and Instructions Remote sellers using Streamlined registration cover Kentucky through that single application instead.
Filing Returns and Paying
Returns go through MyTaxes at mytaxes.ky.gov; business tax filing has moved off the older OneStop portal.11Kentucky Department of Revenue. MyTaxes – Kentucky Department of Revenue The deadline is the 20th day of the month after the reporting period closes. Monthly is the default frequency, though the Department may assign quarterly or annual filing based on how much tax you report. Streamlined filers use a simplified electronic return through the same portal.
File even when there is nothing to report. Skipping a period because you had no taxable sales is one of the fastest ways to get a non-filer notice. Electronic funds transfer is required for businesses whose average payment per reporting period exceeds $25,000.12FindLaw. Kentucky Revised Statutes Title XI Revenue and Taxation 131.155 Smaller filers can still pay electronically; they just aren’t required to.
If You Haven’t Been Collecting
Two separate charges apply when tax isn’t paid on time, and neither is waived easily.
The late-payment penalty is 2% of the tax due for each 30-day period, or fraction of one, that the payment is late. It caps at 20% of the unpaid amount, with a $10 minimum.13Kentucky Department of Revenue. Penalties, Interest and Fees A business five months late on $10,000 of tax owes a $1,000 penalty on top of the tax.
Interest runs separately and cannot be waived. For 2026, the rate on unpaid Kentucky tax is 9% annually, accruing each day the balance sits unpaid.14Kentucky Department of Revenue. Tax Interest Rate Update for 01-01-26 Penalty and interest stack. A SaaS company that realizes it should have been collecting Kentucky tax for the past two years is looking at a sizable retroactive bill. Registering and getting current before the Department sends an audit notice is the cheaper route by a wide margin.