Kentucky sits where the Midwest meets the South, and the United States Census Bureau counts the "Bluegrass State" as a Southern state. To the north, the Ohio River forms a natural border. The 100,000 km² state is bordered by West Virginia, Virginia, Tennessee, Missouri, Illinois, Indiana and Ohio. Its capital, Frankfort, is not one of the largest cities in this state of 4.5 million people.
Kentucky has a diverse economy. Size, industry and location matter little here: every company is seen as an important part of the business ecosystem. In the state's eyes, every business can drive job growth, innovation and economic growth.
Thanks to its mix of location, infrastructure and a motivated workforce, companies from any industry can set up in Kentucky and run a successful business from here. The largest sectors are manufacturing, food and beverage, and services, especially transportation and logistics.
A state that backs business
Companies value the fast, efficient and personal service Kentucky offers. The state does its best to work with you on solutions that fit your needs.
The lowest cost of doing business in the entire US (CNBC) is a major advantage. Innovative, progressive tax incentive programs give companies flexible financial support to start or expand.
Low electricity costs are another point in Kentucky's favor. East of the Mississippi, you won't find a better price for industrial power. Electricity costs almost 20 percent less than the national average.
Outstanding logistics
From Kentucky, you can reach two thirds of the US population within a day's drive. That makes the industrial and consumer market enormous.
An excellent transportation network gets your products to their destination easily and efficiently, with every mode of transport at your disposal. By air, rail, road or water, the infrastructure will win you over. 20 interstates, other major highways, an extensive rail network, barge traffic on the Ohio and Mississippi Rivers and five commercial airports speak for themselves.
Kentucky ranks second in the nation for air cargo shipments. The state benefits from the two international and three global shipping hubs based here. The UPS Worldport, the DHL Americas Hub, the Amazon Air Global Port and several FedEx Ground hubs are spread across the state, enabling fast shipping to any destination worldwide.
Building the workforce together
Kentucky offers your company free support in recruiting new staff and training existing employees. The state also develops tailored plans for your staffing needs. Nearly 100,000 people are trained every year, helping more than 5,000 companies.
Kentucky's commitment to business innovation and small business formation shows in a range of unique and effective programs for entrepreneurs and investors alike.
The state isn't the only one doing its part to ensure a skilled talent pool. College and university programs are designed to meet the needs of the global economy. Innovative K-12 schools, apprenticeships, cutting-edge research universities and continuing education programs show how much weight Kentucky gives to education.
Income tax in Kentucky
Kentucky levies a flat income tax of 3.5% (since January 1, 2026; in 2025 the rate was still 4%). On top of that, federal income taxes apply.
Corporate tax in Kentucky
Kentucky levies a corporate income tax of 5%. On top of that, federal corporate tax applies.
Sales tax in Kentucky
The USA has no VAT on the European model. Instead, states, counties and municipalities levy a local sales tax on the sale of goods (but not services).
Kentucky sales tax rate
Kentucky's sales tax is 6% at state level. Cities and counties do not levy sales tax.
Kentucky nexus laws & sales tax
Learn more about economic nexus laws and sales tax.
Effective date
October 1, 2018
Included transactions:
Gross receipts from sales of tangible personal property or digital property delivered or transferred electronically into the Commonwealth. Taxable services are not included in the threshold.
Treatment of exempt sales:
Exempt sales are included; exempt services, however, are not included in the threshold
Trigger:
Sales or transactions
Sales/transaction threshold:
$100,000 or 200 transactions
Evaluation period:
The threshold applies to sales in the previous or current calendar year
Additional information:
- Registration requirements: Kentucky requires a remote seller to register to collect and remit sales tax on the first day of the calendar month that begins no later than 60 days after crossing the economic nexus threshold. See Ky. Rev. Stat. Ann. §139,340(2)(g)(2) for details.
- Kentucky sales and use tax collected by remote retailers
- HB487
Kentucky marketplace sellers & sales tax
Learn more about registration requirements for marketplace sellers
Effective date for marketplace facilitators:
Economic nexus threshold:
More than $100,000 in sales in Kentucky or at least 200 separate transactions in the current or previous calendar year. When calculating the threshold:
- For remote sellers, this includes sales made through a marketplace from July 1, 2019
- Marketplace facilitators include all sales made through the marketplace
Registration requirements:
- Remote multichannel sellers: Once you cross the economic nexus threshold, you must register with the Kentucky Department of Revenue (DOR) and collect Kentucky sales tax on sales not taxed by a marketplace facilitator.
- Sales made through a collecting marketplace can be deducted as an "Other deduction" described as "Sales tax collected by a marketplace provider".
- Remote marketplace sellers: From July 1, 2019, you no longer need to register with the Kentucky DOR, even if you cross the economic nexus threshold. Contact the Kentucky DOR for more information.
- In-state multichannel sellers: You must register with the Kentucky DOR and collect tax on sales not taxed by a marketplace facilitator.
- Sales made through a collecting marketplace can be deducted as an "Other deduction" described as "Sales tax collected by a marketplace provider".
- In-state marketplace sellers: You must register. Contact the Kentucky DOR for more information.
- Sales made through a collecting marketplace can be deducted as an "Other deduction" described as "Sales tax collected by a marketplace provider".
- Learn more here.
You'll find more state profiles in our overview of US states, and the right entity type in our article on the US LLC. Whether a US LLC without a US permanent establishment can stay tax-free for you is explained by our sister site www.zerotax.llc.
Our services for Kentucky:
Planning a business with ties to Kentucky? In a consultation, we'll work out which entity type and which state suit you. For a first overview, see our page on US company formation.