Kentucky Sales Tax Nonpayment Risk Checklist
If you operate a business in Kentucky and have not paid sales tax on time, or suspect you may owe unpaid sales taxes, it's essential to understand what happens next. Sales tax nonpayment is one of the most common tax issues Kentucky businesses face, and the consequences escalate quickly if it remains unaddressed. The Kentucky
Department of Revenue tracks sales tax liability closely, and unpaid amounts trigger a series of administrative actions that can affect your business license, bank accounts, and personal finances.
Understanding the stages of this process helps you take action before enforcement actions become more serious. This checklist explains what Kentucky sales tax nonpayment risk means, what the state typically does in response, and the steps involved in addressing it.
What This Issue Means
Sales tax nonpayment occurs when a business fails to remit, by the due date set by
Kentucky law, sales tax collected from customers or that should have been collected.
This is different from underpaying by a small amount. Nonpayment means either no payment was made at all, or the payment was significantly late or incomplete.
When the Kentucky Department of Revenue identifies nonpayment, it reflects a filing or payment failure at a specific point in the collection cycle. The state maintains records of all sales tax returns filed and payments received. If a return shows tax due but no corresponding payment arrives, the account is flagged for nonpayment action.
Why the State Issued This or Requires This
The Kentucky Department of Revenue monitors sales tax accounts to identify irregularities in payment patterns. Common triggers for nonpayment action include a sales tax return filed showing tax due but no payment received by the due date, a payment received that is less than the amount shown on the return, a return not filed at all, combined with evidence of unreported sales tax liability, or multiple consecutive periods of nonpayment.
The state's role is to ensure that taxes collected from consumers are actually turned over to the state. Sales tax is considered trust money; businesses collect it on behalf of the state and must remit it to the state. When remittance fails, the state moves through a formal collection process to recover the debt.
What Happens If This Is Ignored
If sales tax nonpayment is not addressed, the Kentucky Department of Revenue typically escalates collection efforts through a defined sequence. The state generally begins with assessment notices and demand letters, which request payment within a specified timeframe.
If payment is not made or a payment plan is not established, the state may pursue enforcement actions such as tax liens, bank account levies, or wage garnishment.
Under KRS 131.1817, the state has explicit statutory authority to revoke or suspend business licenses and professional licenses for delinquent taxpayers. When the
Department notifies a licensing agency that a licensee is a delinquent taxpayer, the licensing agency must deny or revoke the license.
The longer nonpayment continues, the more collection tools become available to the state. Under KRS 131.440, a 25 percent cost-of-collection fee may be added to the amount of unpaid tax due 60 days after the original notice date. This fee is imposed in addition to standard penalties and is specifically intended to counteract the cost of collecting the liability.
What This Does NOT Mean
Receiving a notice about sales tax nonpayment does not automatically mean you are facing criminal prosecution, immediate business closure, or final determination of liability. The state has not yet seized your accounts, suspended your license, or filed a lawsuit; these are separate actions that occur only if earlier steps fail to resolve the debt.
Nonpayment identification also does not mean the amount is final or cannot be adjusted. If you believe the assessment is incorrect due to calculation errors, exemptions, or other circumstances, there are processes to challenge or discuss the amount.
Checklist: What to Do After Identifying Sales Tax
Nonpayment
Follow these steps in order if you have identified unpaid sales tax or received a nonpayment notice from the Kentucky Department of Revenue.
Step 1: Locate and Review the Notice or Assessment
Gather any written communication from the Kentucky Department of Revenue regarding the nonpayment. This may be a Notice of Assessment, a demand letter, or a Notice of
Intent to Levy. Read it carefully to identify the periods covered, the amount claimed as due, the deadline for response or payment, and any contact information provided. If you cannot locate the original notice, contact the Kentucky Department of Revenue Division
of Sales and Use Tax at (502) 564-5170 to request a copy.
Step 2: Verify Your Business Account Information with the State
Contact the Kentucky Department of Revenue at (502) 564-5170 for sales tax matters or (502) 564-4921 for collections matters to confirm the business name and tax identification number on record, whether returns were filed for the periods in question, what payments (if any) were received and credited, and the current balance owed.
Request that the state provide copies of the returns and payment history for the disputed periods. This helps you determine whether the nonpayment is accurate or due to a filing or posting error.
Step 3: Review Your Own Records
Pull together your business records for the periods in question, including copies of sales tax returns you filed (if any), bank statements showing any payments made to the state, cancelled checks or payment confirmations, and records of sales transactions and tax collected. Compare your records with what the state claims. Look for discrepancies in filing dates, amounts paid, or periods covered.
Step 4: Determine if the Assessment Is Accurate
Based on your records and the state's account information, assess whether returns were actually filed for all periods claimed, whether all payments made were properly credited to your account, and whether the tax calculation appears correct based on your sales records. Are there any exemptions or adjustments that should apply? If you cannot determine this on your own, consider consulting with a tax professional or accountant who is familiar with Kentucky sales tax.
Step 5: Calculate the Total Amount Due
Using the state's assessment and any payments you have already made, determine the current balance owed. Kentucky imposes a 2% penalty on unpaid sales tax for every 30 days, or fraction thereof, that payment is late. The maximum penalty is 20 percent of the tax not timely paid, with a minimum penalty of $10. Interest also accrues on unpaid balances at rates set annually by the Commissioner (nine percent for 2026).
Additionally, a 25 percent cost of collection fee may be added to unpaid tax due 60 days after the original notice date.
Step 6: Contact the Kentucky Department of Revenue
Call the Division of Sales and Use Tax at (502) 564-5170 or the Division of Collections at (502) 564-4921 to speak with a representative about your account. Explain your situation clearly: confirm the periods and amounts in question, provide any evidence that the assessment may be incorrect, ask whether the state will accept a payment plan or partial payment, and request written confirmation of any agreement reached. Take notes during this conversation, including the representative's name, the date, and what was discussed.
Step 7: Request a Payment Plan if Full Payment Is Not Possible
If the full amount cannot be paid immediately, ask about payment plan options. The
Kentucky Department of Revenue offers installment arrangements for sales tax debts.
Request the terms of the payment plan (monthly amount and number of payments), whether interest and penalties continue to accrue during the plan, and written confirmation of the plan before making payments.
Step 8: Make Payment or Establish the Plan in Writing
If paying in full, submit payment through the state's online system or to the address provided by the Department of Revenue. Include your tax identification number and a reference to the assessment notice. If establishing a payment plan, ensure you receive written documentation confirming the amount due, the monthly payment amount and due date, the total number of payments, and the consequences if a payment is missed.
Step 9: File and Pay All Current Sales Tax Returns on Time
While addressing the nonpayment issue, ensure that all current sales tax returns are filed and all current sales tax is paid on schedule. Kentucky assigns filing frequency
(monthly, quarterly, or annual) based on the amount of sales tax reported annually. The
Department adjusts filing frequencies programmatically each June. Returns are generally due by the 20th of the month following the tax period. Continuing to file late or skip payments will add new liability and delay resolution.
Step 10: Keep Detailed Records of All Actions Taken
Maintain a file containing copies of all notices received from the state, records of all phone calls, dates, and representatives spoken to, copies of all payments made with confirmation numbers, written payment plan agreements, and proof of current return
filings and payments. This documentation protects you if questions arise later about whether you have complied with a payment plan or other agreement.
- 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 11: Monitor Your Account
Periodically check with the Kentucky Department of Revenue to confirm that payments are applied to the correct period and account, that the balance is decreasing as expected, and that no new assessments have been issued.
What Happens After This Is Completed
Once you have contacted the state and begun addressing the nonpayment, whether through full payment, a payment plan, or a formal dispute, the state typically enters a different phase of account management. If you are making regular payments or have established a payment plan, the state generally suspends further collection action while the agreement is active.
The state will continue to assess interest on unpaid balances, and the amount will not be considered resolved until the full balance is paid. If you miss a payment under a plan, the state may resume enforcement action, which can include liens or levies. If you dispute the assessment and request a formal review, the state may issue a separate notice outlining the review process and timeline.
Common Mistakes to Avoid
Missing Payment Plan Deadlines: If you establish a payment plan, missing even a single payment can trigger enforcement actions, such as liens or account levies. Pay close attention to the monthly due date.
Failing to File Current Returns: Addressing past nonpayment while continuing to miss current sales tax returns creates new problems. Stay current with all filing and payment obligations.
Not Requesting Written Confirmation: Phone agreements with the state are difficult to prove in the event of a later dispute. Always request written documentation of any payment plan, deadline extension, or informal agreement.
Ignoring Follow-Up Notices: If the state sends additional notices or demands during the resolution process, respond to them promptly. Ignoring them may be interpreted as continued nonpayment.
Not Understanding Personal Liability: Under KRS 139.185, corporate officers
(president, vice president, secretary, or treasurer) and LLC managers are personally
and individually liable, both jointly and severally, for unpaid sales and use taxes. This liability applies to each person holding the corporate office at the time the taxes become due. An exception exists only for those who had no authority to collect or pay the tax.
Frequently Asked Questions
How much does the state charge in penalties for nonpayment?
Kentucky imposes a 2% penalty on unpaid sales tax for every 30 days, or fraction thereof, that payment is late. The maximum penalty is 20 percent of the tax not timely paid. The minimum penalty is $10. Additionally, a 25 percent cost of collection fee may be added to unpaid tax due 60 days after the original notice date.
Can I dispute the assessment if I believe it is wrong?
Yes, Kentucky law provides formal processes to dispute tax assessments. The process and timeline depend on what stage your account is in. If you have not yet received a formal assessment notice, start by requesting a review of your account with the
Department of Revenue. If you have received a formal notice, ask about the appeal process when you contact the state.
Will the state suspend my business license if I owe sales tax?
Under KRS 131.1817, the Kentucky Department of Revenue has statutory authority to notify licensing agencies to deny or revoke licenses for delinquent taxpayers. Upon notification, the licensing agency must refuse or revoke the license. However, if you address the nonpayment promptly by contacting the state and establishing a payment plan, you may avoid license suspension.
If I establish a payment plan, does interest stop accruing?
Interest typically continues to accrue on unpaid tax balances even while a payment plan is active. The amount of interest should be explained when the payment plan is discussed. Ask the state representative to clarify this when you contact them.
How long does the state have to collect unpaid sales tax?
Kentucky has a four-year statute of limitations for sales and use tax assessments under
KRS 139.620(1), running from the later of the return due date or return filing date. For returns filed before the due date, the limitations period begins on the due date.
Can personal assets be taken for unpaid business sales tax?
A: Yes. Under KRS 139.185, corporate officers and LLC managers are personally and individually liable for unpaid sales and use taxes. This liability applies regardless of business structure or whether personal guarantees were signed. The statute provides an exception only for those who had no authority to collect or pay the tax.
Closing
Sales tax nonpayment is serious, but it is also manageable when addressed promptly and directly. Understanding the state's nonpayment process removes much of the confusion and fear surrounding the issue. The key is to contact the Kentucky
Department of Revenue as soon as you realize there is a problem, verify the accuracy of what the state claims, and work toward a solution, whether that is full payment, a payment plan, or a formal dispute. Taking action now, before enforcement escalates, gives you more options and typically leads to better outcomes.
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