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Kentucky Direct Financial Incentives

Kentucky's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment.

Q1 2014
Direct state loans:
The Kentucky Economic Development Finance Authority (KEDFA) offers a direct loan program at below-market interest rates for fixed-asset financing for agribusiness, tourism, industrial ventures or the service industry. Loans up to $500,000, with up to 50 percent participation, are available. The number of jobs created and wages paid are factors in determining the level of participation.

Small business loans:
The Kentucky Economic Development Finance Authority (KEDFA) also offers a small business loan program. Loans up to $100,000 are available to businesses with no more than 50 employees that are engaged in manufacturing, service, technology or agribusiness and will create at least one new job.

The Kentucky Small Business Investment Credit (KSBIC)
The KSBIC program is designed to encourage small business growth and job creation by providing a nonrefundable tax credit to eligible businesses hiring one or more eligible individuals and investing at least $5,000 in qualifying equipment or technology. With certain exceptions, most for-profit businesses with 50 or fewer full-time employees are considered eligible for this program. The KSBIC program is limited to allocating a total of $3 million in tax credits per state fiscal year.

Skills training grants:
The Cabinet for Economic Development's Bluegrass State Skills Corporation (BSSC) works with business, industry and the state's educational institutions to establish programs of skills training. BSSC can partially reimburse the cost of instruction performed by an educational institution, an in-house instructor or a consultant, including the necessary textbooks and supplies. BSSC reimburses companies for 50 percent of eligible costs. BSSC can also provide assistance with travel-related expenses for new and expanding industries for an employee to travel to another company facility or equipment vendor location and return to train others at the Kentucky plant. Eligible train-the-trainer activities also include company employees traveling from other locations to the applicant's site.

Skills Training Investment Credit Act:
Existing companies may recover up to 50 percent of approved costs for occupational and skills upgrade training through an income tax credit limited to $500 per employee not to exceed $100,000 per company per biennium. Credits may be carried forward for three successive years. Training may be given by company employees, instructors from educational institutions, or consultants on contract.

Tax Incentives
Kentucky Business Investment (KBI) Program:

Eligible companies must be engaged in one of the following activities: manufacturing; agribusiness; be a regional or national headquarters operation; or certain non-retail service or technology activities. The minimum requirements for an eligible project are it must create a minimum of 10 new, full-time jobs for Kentucky residents, incur at least $100,000 in costs, and meet a minimum level of wages and benefits. The tax incentives involved with this program are available for up to 15 years for enhanced incentive counties or up to 10 years for all other counties. The incentive may be taken as tax credits against Kentucky income tax imposed on corporate income or limited liability entity tax arising from the project (up to 100 percent). A wage assessment of up to five percent of the gross wages of each employee whose job was created by the project in enhanced counties or up to 4 percent (including up to 1 percent required local participation) of the gross wages of each employee whose job was created by the project in other counties may also be available.

Kentucky Reinvestment Act (KRA):
KRA is available for eligible companies that are permanent Kentucky companies engaged in manufacturing. Requirements of the program include: incurring eligible equipment and related costs of at least $2.5 million; establishing an employment retention base of at least 85 percent of existing employment; not having received incentives under the Kentucky Industrial Revitalization Act (KIRA) within the previous five years; and the applicant certifying that the project would not be economically feasible without the incentives. Approved costs for recovery include up to 50 percent of the eligible equipment and related costs and 100 percent of the job skills upgrade training costs. The incentive is available for up to 10 years and may be recovered via Kentucky income tax credits of up to 100 percent of tax imposed on the corporate income or limited liability entity tax generated by or arising from the project.

Incentives for Energy Independence Act (IEIA):
IEIA requires a capital investment of at least: (1) $25 million for an alternative fuel facility using biomass as its primary feedstock; (2) $100 million for an alternative fuel facility using coal as its primary feedstock; (3) a capital investment of $25 million for an alternative fuel facility that produces a homogeneous fuel from processes designed to densify coal, waste coal, or biomass resources; and (4) $1 million for a renewable energy facility that meets minimum electric output standards based upon the power source. The negotiated incentives cannot exceed 50 percent of the capital expenditures and may include a reimbursement of sales and use taxes paid on tangible personal property; a tax credit of the Kentucky income tax and limited liability entity tax owed by the company; and wage assessment incentives up to 4 percent of gross wages of each employee whose job was created as part of the project. Advanced disbursements may also be available.

Kentucky Industrial Revitalization Act (KIRA):
Investments in the rehabilitation of manufacturing or coal mining and processing operations that are in imminent danger of permanently closing or that have closed temporarily may qualify for tax credits. An eligible company shall also include one that has closed but resumes mining operations. Eligible entities include manufacturing companies that save or create 25 jobs and coal mining and processing companies that intend to employ a minimum of 500 persons and have a raw production of at least three million tons from the economic revitalization project facility.

Kentucky Investment Fund Act - KIFA
KIFA provides tax credits to individuals and companies that invest in approved venture capital funds. Investors in KIFA approved funds are entitled to a 40% credit against Kentucky individual or corporate income tax or Kentucky corporate license tax. KEDFA (see above) approves investment funds and allocates credits to investment funds.

Kentucky Environmental Stewardship Act (KESA)
This program is for companies manufacturing products that have a substantial positive impact on human health and the environment. Companies with projects approved under KESA must have at least $5 million in eligible cost and can potentially recover up to 25% of the projects fixed asset cost and 100% of employee skills training. The tax incentive is available for recovery over a 10-year period.

Kentucky Enterprise Initiative Act (KEIA):
A KEIA approved company, with a minimum investment of $500,000, is eligible to receive a refund of sales and use tax paid not to exceed the approved recovery amount authorized in the KEIA agreement for the following items purchased during the term of the project:
  • Building and construction materials
  • Research and development equipment
  • Electronic processing equipment costing a minimum of $50,000
  • The term of the agreement is negotiated with the Kentucky Economic Development Finance Authority (KEDFA) and may be extended by approval of the KEDFA for good cause shown. However, the term shall not be extended beyond seven years from the initial date of approval. The maximum sales and use tax refund incentive available for commitment by KEDFA in each fiscal year for all projects is limited to $20 million for building and construction materials and $5 million for equipment used for research and development or electronic processing.

High-Tech Small Business SBIR-STTR Matching Program:
The Cabinet for Economic Development, through a competitive process, matches Phase 1 and Phase 2 federal SBIR and STTR awards received by Kentucky businesses, or those willing to relocate to Kentucky. This includes matching awards up to $150,000 to support Phase 1 exploration of the technical merit or feasibility of an idea or technology. Phase 2 federal awards, which support full-scale research and development, can be matched by the Commonwealth up to $500,000 in each year of the federal award.

High-Tech Investment Pool:
The Cabinet for Economic Development provides funds to help further the commercialization of a product or new and improved process in order to build and promote innovation-driven industries and clusters in Kentucky.

Kentucky New Energy Ventures Fund (KNEV):
KNEV supports the development and commercialization of alternative fuel and renewable energy products, processes, and services in Kentucky. Companies must have a unique and competitive product, technology or process that can be protected in the commercial marketplace. KNEV will provide grants as well as equity investments. Companies must match the fund's investment on a one-to-one dollar ratio.

Commonwealth Seed Capital, LLC (CSC):
CSC is an independent fund dedicated to creating high-tech jobs by providing needed seed capital for high-growth potential, high-tech companies. Businesses that receive investments from CSC are based on innovation, have a meaningful Kentucky presence, and are expected to generate an appropriate rate of return for investors. CSC also invests in seed and venture capital funds that actively invest in these types of companies in Kentucky.

Tax Increment Financing (TIF)
TIF is a tool to use future gains in taxes to finance the current improvements that will create those gains. The state participates with local governments and eligible agencies in three TIF programs: the Commonwealth Participation Program for State Real Property Ad Valorem Tax Revenues, the Signature Project Program, and the Commonwealth Participation Program for Mixed-Use Redevelopment in Blighted Urban Areas.

TIF Loan Support Program
Any agency with a Tax Increment Financing Signature Project approved by the former Tax Increment Financing Commission and which executed its tax incentive agreement prior to January 1, 2008 may apply for The Tax Increment Financing (TIF) Loan Support Program. The Loan Support Program facilitates a supplemental reserve fund to cover debt service related to the bond financing of the TIF project.

Local Redevelopment TIF
The program is available for use to redevelop blighted areas into mixed use development by using the incremental additional local taxes such as property or occupational taxes realized as a result of the development. The community or agency can request state participation in this program with certain additional requirements.

Local Vacant Land TIF
This program is available to develop vacant land by using the additional incremental local taxes, such as property or occupational taxes, realized as a result of the new development (example: construction of infrastructure at a local industrial park). State tax increment is not available for this type of development area.

Film Tax Credit
The Kentucky Film Incentive is designed to encourage the development of the film industry in Kentucky. The incentive provides qualifying applicants the ability to recover up to 20 percent of qualified expenditures through a refundable income tax credit. Qualifying applicants must invest a minimum of $50,000 for documentaries and national touring Broadway shows, $200,000 for commercials, $500,000 for full-length films.

Tourism Development Tax Credit
The Tourism Development Act provides developers of approved new or expanding tourism projects the ability to recover up to 25 percent of the project’s development costs over a 10-year term. Projects including, but not limited to, lodging facilities constructed on state park, federal park, or national forest lands are eligible to recover up to 50 percent of the development costs over a 20-year term.

Kentucky State Contact:
Kentucky Cabinet for Economic Development
Old Capitol Annex
300 West Broadway
Frankfort, KY 40601
(800) 626-2930
Fax: (502) 564-3256

Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.

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