Kentucky Sales Tax Enforcement Actions Checklist
Sales tax enforcement actions occur when the Kentucky Department of Revenue determines that a business may not have collected, reported, or paid sales tax correctly.
These actions can range from routine audits and notices to collection proceedings.
Enforcement actions are a regular part of state tax administration. If your business has received a sales tax audit notice, deficiency letter, or collection demand, understanding what this means and how to respond is essential.
Ignoring enforcement actions typically results in additional penalties, interest charges, and more serious collection attempts. The state uses a structured process to investigate, assess, and collect unpaid sales tax. Taking prompt action, even if you believe the assessment is incorrect, can protect your business and clarify your tax obligations. This checklist explains what sales tax enforcement means in Kentucky and what steps to take after receiving notice.
What This Issue Means
A sales tax enforcement action is a formal notification from the Kentucky Department of
Revenue that your business is being investigated, assessed, or pursued for sales tax compliance issues. This may include a sales tax audit notice, a notice of deficiency, a demand for payment, or a notice of collection action. The action represents a specific stage in Kentucky's tax collection and compliance process. It does not automatically mean your business is being criminally prosecuted or closed. It means the state has identified a potential discrepancy and is taking administrative steps to resolve it.
Why the State Issued This or Requires This
The Kentucky Department of Revenue issues enforcement actions when it identifies potential sales tax compliance issues through various means. Common triggers include routine audits of business tax returns, mismatches between reported sales tax and income reported, customer complaints, or prior payment issues. The state may also issue enforcement actions based on data-matching programs, changes in business structure, or follow-up on previously unresolved tax matters.
Under Kentucky law, the Department of Revenue must assess additional sales tax within four years from the later of the due date of the return or the date the return was filed. This four-year statute of limitations is a key constraint on the state's enforcement authority.
What Happens If This Is Ignored
If a sales tax enforcement action is not addressed, the Kentucky Department of
Revenue typically escalates collection efforts. This may include issuing additional notices, assessing additional penalties and interest, filing a tax lien against business or personal property, garnishing wages or bank accounts, or referring the matter for further collection action.
The most critical consequence is missing the 60-day protest deadline. If you receive a notice of tax due, you must file a written protest within 60 days of the date of the notice to preserve your right to challenge the assessment. Missing this deadline makes the assessment final and unappealable. The longer an enforcement action remains unresolved, the more interest and penalties accumulate.
What This Does NOT Mean
A sales tax enforcement action does not automatically mean criminal charges will be filed against you or your business. It does not mean your business license will be revoked unless the state takes additional separate action. It does not mean you are being prosecuted. An enforcement action is an administrative collection or compliance procedure. Many enforcement actions are resolved through payment, corrected returns, or agreed settlement without further escalation.
Understanding Kentucky Sales Tax Penalties and Interest
Kentucky sales tax penalties under state law include specific rates you should understand. Late filing penalties are 2 percent of the total tax due for every 30 days, or fraction thereof, with a maximum of 20 percent and a minimum of $10 (or $100 after a jeopardy assessment). Late payment penalties follow the same structure: 2 percent per
30 days or fraction thereof, up to 20 percent, with a minimum of $10.
Negligence penalties are 10 percent of the tax assessed, while fraud penalties are 50 percent of the tax assessed. Additionally, a 25 percent Cost of Collection Fee may be added to unpaid tax 60 days after the original notice date. Interest for calendar year
2026 is 9 percent per year, calculated daily on unpaid balances. Interest is statutory and cannot be waived under any circumstances.
Checklist: What to Do After Receiving a Kentucky Sales
Tax Enforcement Action
Step 1: Read the Notice Carefully and Identify the Key Information
Read the entire notice from the Kentucky Department of Revenue. Look for the tax period or years covered, the specific sales tax amount being claimed, penalties and interest amounts, any Cost of Collection Fee, and the date of the notice. The date of the notice is critical because it starts the 60-day protest deadline. Identify the contact information for the revenue agent or office handling the matter, and provide payment instructions if immediate payment is requested. Do not assume you understand the notice after one reading. Many notices contain multiple sections and requirements.
Step 2: Mark the 60-Day Protest Deadline Immediately
Calculate the 60-day deadline from the date of the notice. Under Kentucky law, you must file a written protest within 60 days of the date of the notice of tax due to preserve your right to challenge the assessment. Mark this date on your calendar and set reminders. Missing this deadline makes the assessment final and unappealable. A timely protest grants you the right to an informal conference with the Department of
Revenue. If you are still dissatisfied after the conference, you may appeal to the
Kentucky Board of Tax Appeals.
Step 3: Locate and Review Your Business Sales Tax Records
Gather your sales tax records for the period covered by the enforcement action. These include sales tax returns filed during that period, sales receipts, invoices, and point-of-sale records, documentation of sales tax collected from customers, records of sales tax payments made to Kentucky, any exemption certificates from customers for tax-exempt sales, and business income records and financial statements for that period.
Organize these records in chronological order. Do not discard or alter any records.
Step 4: Determine the Nature of the Enforcement Action
Identify which type of enforcement action you received. Common types include: sales
tax audit notice (the state intends to examine your records), notice of deficiency or
assessment (the state claims you owe additional sales tax), demand for payment (the state is requesting immediate payment), notice of tax lien (the state has filed a lien against your property), wage or bank garnishment notice (the state is seizing funds), or collection referral notice (the matter has been referred to a collection agency or legal counsel). The type of notice determines your next steps.
Step 5: Calculate or Verify the Amount Being Claimed
Review the amount the state claims you owe, including tax, penalties, interest, and any
Cost of Collection Fee. Compare this to your own records of sales tax collected and paid, sales tax returns you filed, and payment records showing what was sent to
Kentucky. If the amount matches your records and you believe it is correct, proceed to
payment arrangements. If the amount differs from your records, note the difference clearly. Document what information you will need to calculate the proper amount.
Step 6: Contact the Kentucky Department of Revenue
Contact the appropriate division based on your enforcement action type. For Sales and
Use Tax enforcement matters, contact the Division of Sales and Use Tax at (502)
564-5170 or email KRC.WebResponseSalesTax@ky.gov. For collection matters, contact the Collections Division at (502) 564-4921. Request a detailed account statement or explanation of how the penalties, interest, and any Cost of Collection Fee were calculated. Provide the notice number or account identifier—request written confirmation of the information provided over the phone.
Step 7: Decide Whether to File a Written Protest
If you disagree with the assessment, you must file a written protest within 60 days of the date of the notice. Your protest should include your business name and tax identification number, the notice number or reference number, a clear statement of what you agree with and what you disagree with, an explanation of why you disagree supported by your records, documentation, or attachments supporting your position, a proposed correct amount if you have calculated one, and your contact information and the date. Keep the protest clear and organized. Attach copies of supporting documents, not originals.
Step 8: Submit Your Written Protest to the Correct Address
Mail or deliver your written protest to the address specified in the enforcement action notice. Include your written protest, copies of supporting documentation, and a cover letter listing what you are submitting. If the notice does not specify an address, contact the Kentucky Department of Revenue to confirm where to send your protest. Send your protest by certified mail, return receipt requested, to create a record that the state received it before the 60-day deadline.
Step 9: If You Agree With the Assessment and Can Pay, Arrange Payment
If you agree with the amount owed, arrange payment as instructed in the notice.
Payment options include online payment via the Kentucky Department of Revenue website, mailing a check or money order to the specified address, or electronic payment through the state's system. Check the notice for specific payment instructions. If you cannot pay the full amount by the due date, contact the Collections Division at (502)
564-4921 to ask about payment plan options.
Step 10: If You Cannot Pay in Full, Request a Payment Plan
If the amount owed is too large to pay immediately, contact the Collections Division at
(502) 564-4921 to request an installment agreement or payment plan. Provide your business name and tax identification number, the notice number, the amount you can pay monthly, the date by which you can begin payments, and any relevant financial circumstances. Do not ignore the notice. Requesting a payment plan demonstrates a good-faith effort to comply and may prevent enforcement actions, such as liens or garnishments.
Step 11: Request Penalty Waiver if Appropriate
The Kentucky Department of Revenue may waive penalties (but not interest) for reasonable cause. You must demonstrate that the tax liability resulted from circumstances beyond your control, that you acted reasonably to pay timely, or that strict enforcement would cause undue financial hardship. Examples of reasonable cause include human error on first occurrence, reliance on written Department of
Revenue advice, serious illness, natural disaster, or death of the responsible person.
Submit a separate written request for penalty waiver with supporting documentation.
Interest is statutory and cannot be waived.
Step 12: Keep Records of All Communications
Document all communications with the Kentucky Department of Revenue regarding the enforcement action. Keep copies of all notices received, copies of all responses you send, proof of mailing (certified mail receipts or email confirmations), names and titles of state employees you speak with, dates and summaries of phone calls, notes about what was discussed, and confirmation of payment or payment plan arrangements. These records are essential if questions arise later or if you need to pursue an appeal to the
Kentucky Board of Tax Appeals.
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 13: Monitor for Follow-Up Notices or Requests
After you respond or pay, the state may send additional notices or requests. Standard follow-ups include requests for further information or clarification, revised assessments if your protest results in a recalculation, confirmation of a payment arrangement, hearing scheduling notices, or appeals decision letters. Watch your mail and email for these communications. Respond to all requests within the provided deadlines.
What Happens After This Is Completed
After you respond to or pay a Kentucky sales tax enforcement action, the Department of
Revenue typically acknowledges receipt and processes your response. If you file a timely written protest within 60 days, the state schedules an informal conference and sends you the hearing details. If you disputed the assessment with supporting
documentation, the revenue agent will review your response and may adjust the evaluation, request additional information, or schedule a conference.
If you are dissatisfied with the final determination after the conference, you have the right to appeal to the Kentucky Board of Tax Appeals. The appeal must be filed within the time specified in the final determination letter. If you made a payment, the state applies it to the amount owed and sends confirmation. Processing times vary depending on the complexity of the matter and the revenue office's current workload.
Common Mistakes to Avoid
Failing to respond to the notice or missing the 60-day deadline is the most serious mistake. Missing this deadline makes the assessment final and eliminates your right to challenge it. Sending original documents instead of copies may result in lost or delayed documents. Failing to keep copies of responses sent to the state prevents you from proving timely filing if questions arise later. Responding verbally without following up in writing creates no record of your position.
Providing incomplete or disorganized documentation makes it difficult for the state to evaluate your position. Missing a conference date or deadline after requesting a hearing damages your credibility. Assuming a verbal agreement or conversation resolves the matter without requesting written confirmation leaves you without proof. Not requesting clarification if you do not understand the notice delays appropriate action.
Altering or destroying records undermines your position and may constitute obstruction.
Frequently Asked Questions
Does receiving a Kentucky Sales Tax Enforcement Action mean my business will be shut down?
No. A sales tax enforcement action is an administrative collection or compliance procedure. It does not automatically result in the closure of your business. The state takes license revocation through a separate process, typically only after significant unpaid tax debt and unsuccessful collection efforts.
What is the 60-Day Protest deadline?
Under Kentucky law, you must file a written protest within 60 days of the date of the notice of tax due to preserve your right to challenge the assessment. Missing this deadline makes the assessment final and unappealable. A timely protest grants you the right to an informal conference with the Department of Revenue.
Can penalties be removed or reduced?
The Kentucky Department of Revenue may waive penalties (but not interest) for reasonable cause. You must demonstrate that circumstances were beyond your control, that you acted reasonably to pay timely, or that strict enforcement would cause undue financial hardship. Examples include human error on the first occurrence, serious illness, a natural disaster, or the death of the responsible person. Interest is statutory and cannot be waived.
What if I cannot pay the amount owed?
Contact the Collections Division at (502) 564-4921 to discuss payment plan options.
The state may offer an installment agreement that allows you to pay over time.
Requesting a payment plan demonstrates good-faith effort and may prevent enforcement actions.
What if I disagree with the decision after a conference?
If you are unsatisfied with the Department of Revenue's final determination after an informal conference, you have the right to appeal to the Kentucky Board of Tax Appeals.
The appeal must be filed within the time specified in the final determination letter. The
Board of Tax Appeals is an independent body separate from the Department of
Revenue.
Facing State Tax Enforcement Action?
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