Frankfort’s and Kentucky’s innovative and progressive tax incentive programs provide the flexible financial assistance businesses need when locating, expanding or reinvesting in the state. Below are just a few of the programs that can be used to reduce or recover costs of a business investment in Kentucky. We also offer grants for customized workforce training programs, direct loans for fixed asset financing, small business loans and industrial revenue bonds.
Kentucky Business Investment Program (KBI)
Eligible Companies: Any business entity engaged in one or more of the following activities: manufacturing, agribusiness, or regional and national headquarters (regardless of the underlying business activity).
Non-retail service or technology activities must be: designed to serve a multistate, national or international market; provided to a customer base that includes more than 50% non-residents; and may include, but are not limited to, call centers, centralized administrative or processing centers, telephone or internet sales order or processing centers, distribution or fulfillment centers, data processing centers, research and development facilities and other similar activities.
Eligible company does not include companies where the primary activity to be conducted within the Commonwealth is forestry, fishing, mining, coal or mineral processing, the provision of utilities, construction, wholesale trade, retail trade, real estate, rental and leasing, educational services, accommodation and food services or public administration services.
Eligible Projects: An eligible project must create a minimum of 10 new, full-time jobs for Kentucky residents and maintain an annual average of at least 10 new, full-time jobs for Kentucky residents. At least 90% of the new, full-time Kentucky resident employees must receive base hourly wages of at least $10.88 (150% of the federal minimum wage). Kentucky resident employees must receive total hourly compensation (base hourly wages plus employee benefits) of at least $12.51. Also required are minimum eligible costs of at least $100,000.
Eligible costs will only include costs incurred after the date of preliminary approval. For a project to be considered an “owned” project, the approved company or an affiliate either owns the project in fee simple or possesses the project pursuant to a capital lease. Eligible costs for owned projects include 100 percent of the land, building, site development and startup costs.
For a project to be considered a “leased” project, the approved company occupies the site of the project pursuant to an operating lease agreement with an unrelated entity that reflects an arms’ length transaction. Eligible costs for leased projects include 100 percent of the start-up costs and 50 percent of the estimated annual rent payments for each year of the tax incentive agreement. Start-up costs include the costs incurred to furnish and equip a facility, such as computers, furnishings, office equipment, manufacturing equipment, fixtures, relocation of out-of-state equipment and nonrecurring costs of fixed telecommunication equipment. The cost of equipment eligible for recovery as an eligible cost is limited to $20,000 for each new, full-time job for Kentucky residents created as of the activation date.
Incentives: Tax incentives are available for up to 10 years via tax credits up to 100 percent of tax paid on corporate income or limited liability entity tax arising from the project. Wage assessment incentives up to four percent (including up to one percent required local participation) of gross wages of each employee. If the local community does not have a local occupational fee, then an alternative form of participation should be provided. The employees recoup the wage assessment through a state income tax credit equal to the amount of the wage assessment withheld. The tax incentives remain in place until the authorized recovery amount (approved cost) is realized or for the term of the tax incentive agreement, whichever occurs first. Unused credits that have been authorized for the project may be carried forward for the term of the tax incentive agreement; however, unused credits expire at the maturity of the agreement.
For more information on the KBI program, please visit:http://thinkkentucky.com/kyedc/pdfs/KBIFactSheet.pdf?02032016
Kentucky Revitalization Act (KRA)
Eligible Companies: Any Kentucky company engaged in manufacturing and related functions at a location operating within the Commonwealth on a permanent basis for a reasonable period of time preceding the request for assistance.
Eligible Projects: The project must involve a minimum of eligible equipment and related costs of at least $2,500,000. Eligible equipment and related costs must be related to a qualifying Reinvestment Project which includes the acquisition, construction, and installation of new equipment and the construction, rehabilitation, and installation of improvement to facilities necessary to house the new equipment; and the development of an occupational training program to train or retrain the full-time employees of the company to support the Reinvestment Project. Eligible equipment and related costs does not include costs related to the replacement or repair of existing machinery or equipment resulting from normal wear and usage.
Projects must also agree to maintain a full-time employment base of at least 85% of employment at the facility as of the date of preliminary approval. Companies cannot have been awarded incentives under the Kentucky Industrial Revitalization Act (KIRA) within the previous five years.
Eligible Costs: Eligible costs include eligible equipment and related costs incurred after the date of preliminary approval that are approved by KEDFA for recovery and may be up to 50% of the eligible equipment and related cost and 100% of the job skills upgrade training costs incurred in connection with an occupational training program for full-time employees specifically related to training or retraining employees as part of the reinvestment project. The minimum requirements of incurring eligible equipment and related cost expenditures of at least $2,500,000 and maintaining 85% of the full-time employment level at the facility must be achieved in order to proceed with final approval.
Incentives: A tax incentive is available for up to 10 years from the date of final approval via tax credits up to 100% of tax paid on corporate income or limited liability entity tax generated by or arising from the project. The tax incentive remains in place until the authorized incentive amount is realized or for the term of the reinvestment agreement, however, unused credits expire at the maturity of the agreement.
For more information on the KBI program, please visit: http://thinkkentucky.com/kyedc/pdfs/KRAFactSheet.pdf?02032016
Kentucky Enterprise Initiative Act (KEIA)
Eligible Companies: Any business entity that establishes a new or expanded service or technology, manufacturing, or tourism attraction activity in Kentucky.
Eligible Projects: The project must involve a minimum investment of $500,000. Eligible investment costs include expenditures for research and development equipment, acquisition of real property, building, and construction materials, construction, installation, and rehabilitation of fixtures and facilities, necessary or desirable for improvement of real estate owned, used, or occupied by the approved company.
Tax Incentives: A KEIA approved company is eligible to receive a refund of sales and use tax paid for construction materials and building fixtures and for equipment used in research and development purchased during the life of the project not to exceed the amount authorized in the memorandum of agreement. An approved company has 18 months from the date of KEDFA approval to purchase materials eligible for refund. KEDFA may grant a 12 month extension for good cause. The total tax refund incentive available for commitment by KEDFA for all projects, for each fiscal year, is limited to $20,000,000 for building and construction materials and $5,000,000 for equipment used for research and development. Sales tax paid on expenditures made prior to KEDFA approval as an “approved company” will not be refunded.
For more information on KEIA, please visit: http://thinkkentucky.com/kyedc/pdfs/keia.pdf?02032016
Kentucky Economic Development Finance Authority (KEDFA)
KEDFA offers a mortgage loan program to work in conjunction with private financing. The program is designed to allow businesses to obtain the long term financing needed to encourage growth.
Program Guidelines: Projects financed must be agribusiness, tourism, industrial ventures, or service industry. No retail projects are eligible. KEDFA may participate in projects with loans ranging from $25,000 to $500,000. The amount of KEDFA participation is dependent on the project fixed asset cost, based on the following:
Project Cost KEDFA Participation
- Up to $200,000 50%
- $200,000 to $500,000 40%
- Above $500,000 30%
The project owners must inject a minimum of 10% toward the fixed assets. KEDFA financing may be combined with a Community Development Block Grant; however, in no case will the total involvement from both exceed 33% of the project cost. KEDFA financing may be combined with SBA 504 financing. Projects must create new jobs or have a significant impact on the economic growth of a community.
Only fixed assets (land, building, and equipment) may be financed. No refinancing will be undertaken. Term and repayments are based on that of the private lending institution. Personal guarantees are required of the company's owners who control at least 20% of the stock of the company.
The borrower must provide KEDFA proof that the project is underway (invoices, etc.) within 4 months of the approval date, or the commitment will expire. KEDFA funds are not disbursed until the entire project, as outlined in the application, is complete.
Interest Rates and Fees:
The interest rate is fixed, and is tied to the term of the loan. Rates are as follows: Term Interest Rate
- 3 yrs. 1.0%
- 5 yrs. 2.0%
- 7 yrs. 3.5%
- 10 yrs. 5.0%
For more information on KEDFA, please visit: http://thinkkentucky.com/kyedc/pdfs/kedfadcp.pdf?02032016
Kentucky Skills Network
The Kentucky Skills Network partners with new and existing companies to match employer needs with available workforce resources. Through options such as reimbursable grants and tax credits for classroom training, on-the-job training, tuition and certification training, train-the-trainer travel, and entry level and skills upgrade training; Kentucky has resources that allow flexible and customizable training specific to company needs. Through the Cabinet for Economic Development and the Kentucky Community and Technical College System (KCTCS), the Kentucky Skills Network administers the following training programs for new and expanding industry:
1. Grant-in-Aid (GIA) The GIA program provides up to 50 percent reimbursement of eligible costs to companies/consortia for approved training activities.
2. Skills Training Investment Credit (STIC)
The STIC program provides tax credits to companies for up to 50 percent of company specific training activities.
3. KCTCS - Workforce Solutions Through the Kentucky Community and Technical College System, Workforce Solutions provides companies with grant funding to assist with the cost of KCTCS workforce training and assessment services to current, as well as, potential employees. Workforce Solutions funding is divided into incumbent worker and location/expansion projects.
For more information, please visit: http://www.thinkkentucky.com/Workforce/Workforce_Resources.aspx
Kentucky Small Business Tax Credit
Eligible Companies: Any for-profit small business, including sole proprietorships, partnerships, limited partnerships, corporations, limited liability companies, joint ventures, associations, or cooperatives that has fifty or fewer employees.
Eligible Projects: The project must create and fill one or more eligible positions and invest $5,000 or more in qualifying equipment or technology. The position must be filled for 12 months and pay at least 150 percent of the federal minimum wage.
Eligible Costs: Eligible costs include qualifying equipment or technology that is tangible property bought by the business for use in the business with a per-unit cost of a minimum of $300 and an expected life of more than one year.
Incentives: The tax credit amount will be equal to $1,000 multiplied by the number of eligible positions plus 50 percent of the actual purchase price of qualifying equipment or technology. This program provides a nonrefundable state tax credit of $3,500-$25,000.
For more information on the KSBIC program, visit: http://www.thinkkentucky.com/KSBTC/Default.aspx
Kentucky Small Business Credit Initiative (KSBCI)
Eligible Companies: Corporations, partnerships, joint ventures, sole proprietorships, state-designated charitable, religious, and other nonprofits, government-owned corporations, consumer and marketing cooperatives, and faith-based organizations with 500 or fewer employees.
Eligible Projects: The loan may be used for eligible purposes such as, but not limited to, start-up costs, working capital, business asset acquisitions and expansions, franchise financing, equipment loans, inventory financing, owner occupied commercial real estate acquisitions, renovation, and construction.
Eligible Costs: KSBCI is designed to generate jobs and increase the availability of credit to small businesses by reducing the loan risk of participating Kentucky lenders, credit unions, and Community Development Financial Institutions. The terms and conditions of the loans will be determined by the lenders and borrowers. Loans may be in the form of lines of credit, in which case the amount of each loan will be calculated as the maximum amount that can be drawn down against that line of credit. In some cases, refinancing may be available.
For more information on the KSBIC program, visit: http://www.thinkkentucky.com/smallbizlending/
Commonwealth Seed Capital Fund
Commonwealth Seed Capital, LLC, (CSC) is an independent, non-profit fund that makes debt or equity investments in early-stage Kentucky business entities to facilitate the commercialization of innovative ideas and technologies.
Investments are typically made in these specified innovation areas: health and human development; information technology and communications; bioscience; environmental and energy technologies; and materials science and advanced manufacturing.
CSC invests in companies that have a significant Kentucky presence, the prospect for substantial growth, and the potential to generate an appropriate rate of return.
For more information, contact: Gene Fuqua, President, Commonwealth Seed Capital, LLC, 502-564-1910, email@example.com
Kentucky Innovation and Commercialization Centers
The Kentucky Innovation and Commercialization Centers (ICC) are dedicated to creating and growing high-growth, knowledge driven companies. Six regional offices comprise the network and are administered by the Kentucky Science and Technology Corporation (KSTC) under contract with the Cabinet for Economic Development. The ICC network provides business-building talent and related services to the Commonwealth’s entrepreneurs, faculty, and scientists using a best practices model.
For more details about the Lexington ICC, please visit: http://gatton.uky.edu/vace/about/
SBIR/STTR Matching Program
A Small Business Innovation Research/Small Business Technology Transfer incentive program will encourage small businesses to explore their technological potential and maximize profit from commercialization. DCI will currently match all Phase 1 and Phase 2 federal awards received by Kentucky businesses after January 1, 2009. This would include matching awards of up to $100,000 to sup-port Phase 1 exploration of the technical merit or feasibility of an idea or technology. Phase II federal awards, which support full-scale research and development, can be up to $750,000, and would be matched by the Commonwealth up to the first $500,000.
For more details about the Match Program, please visit: http://thinkkentucky.com/dci/sbir/sbirsttr.aspx
Kentucky Enterprise Fund
The Kentucky Enterprise Fund, Rural Innovation Fund and Kentucky New Energy Ventures provide seed stage capital that focus on the early-stage commercialization of a technology-based product or process. By encouraging the commercialization of innovative ideas, these funds foster competitive, profitable companies that create high paying jobs and wealth in Kentucky. This fund provides grants up to $30,000 to assist businesses and individuals at the earliest stages of project feasibility and concept development, and is administered by the KSTC.
Companies seeking capital go through a rigorous due diligence process and are judged in terms of industry fit, return on investment and economic development goals.
Investments are made in small to medium-sized, innovative, technology-based companies in Kentucky that are poised for exponential growth and are: working to commercialize innovative technology in biosciences, environmental & energy technologies, human health & development, information technology & communications, materials science & advanced manufacturing; working to commercialize innovative alternative fuel/energy technology; working in collaboration with Kentucky colleges and universities; and/or located in rural areas of Kentucky (outside Fayette and Jefferson Counties).
For more information about ICC’s, KSTC, SBIR/STTR Matching, or the Enterprise Fund, visit: http://www.kstc.com/index.php?option=com_content&view=article&id=137:kentucky-enterprise-fund&catid=38:main-menu-links
Incentives for Energy Independence Act (IEIA)
For companies engaging in the creation of new, alternative forms of energy, incentives may be available through the IEIA program, including corporate income tax credits, wage assessments, and reimbursement of sales and use taxes paid on tangible personal property over a period of time up to 25 years. Advance disbursement may also be available during the construction phase of an approved IEIA project.
For more information: http://thinkkentucky.com/kyedc/pdfs/IEIA.pdf?02032016
The governing bodies of both the City of Frankfort and Franklin County have approved the use of low interest loans, tax abatement and TIF Financing for approved projects. .