Last updated: April 30, 2026. Kentucky LLC fees verified from sos.ky.gov; LLET and income tax rates verified from revenue.ky.gov; UI wage base verified from Kentucky Office of Unemployment Insurance.

Starting a Business in Kentucky: Licenses, Permits & Requirements (2026)

Three things set Kentucky apart for first-time founders. First, Kentucky’s Limited Liability Entity Tax (LLET) under KRS 141.0401 is a gross-receipts/gross-profits surtax that hits every LLC and corporation on top of regular income tax — most states don’t have anything equivalent, and the $175 minimum applies even in years you make no profit. (A new $100,000 gross-receipts exemption begins January 1, 2026.) Second, Kentucky has no local sales tax — the rate is a flat 6% statewide — but House Bill 8 of 2022 and HB 487 of 2018 expanded that 6% to cover dozens of services including landscaping (since July 1, 2018) and janitorial services; if you run a service business, your effective revenue is now 6% smaller than it was before HB 487 unless you reprice. Third, the state minimum wage is the federal $7.25/hour under KRS 337.275 with city preemption — Louisville’s $9.00 and Lexington’s $10.10 ordinances were both struck down by the Kentucky Supreme Court in October 2016, and no city can raise the local wage. Plan all three from day one.

This guide compiles the specific Kentucky agency requirements, portal links, fee amounts, and city-level overlays that apply to starting a business in Kentucky in 2026. The source agencies referenced are the Kentucky Secretary of State, Kentucky Department of Revenue, Kentucky Labor Cabinet, Kentucky Office of Unemployment Insurance, KEMI (Kentucky Employers’ Mutual Insurance), Cabinet for Health and Family Services (CHFS), Department of Housing, Buildings and Construction (DHBC), and the Department of Professional Licensing.

Kentucky Business Requirements at a Glance

Requirement	Agency / Portal	Cost	Timeline
LLC Articles of Organization	Kentucky Secretary of State via Kentucky Business One Stop	$40	1-3 business days online
Annual Report	Kentucky Secretary of State	$15/year (waived for veteran-owned)	Due June 30 each year (window opens Jan 1)
Certificate of Assumed Name (DBA)	Kentucky Secretary of State (and county clerk for sole props)	$20 SOS / varies county	Immediate
Federal EIN	IRS	Free	Immediate online
Sales & Use Tax Account	Kentucky Business One Stop / Department of Revenue	Free	Before first taxable sale; $12,000 small-seller threshold for services
Limited Liability Entity Tax (LLET)	Kentucky Department of Revenue	Lower of 0.095% gross receipts or 0.75% gross profits; $175 minimum; $100K exemption from Jan 1, 2026	Annual return Form 720 due April 15
Income Tax (individual flat rate, pass-through)	Kentucky Department of Revenue	3.5% effective Jan 1, 2026 (HB 1 of 2024)	Annual return due April 15
Corporate Income Tax (C-corp)	Kentucky Department of Revenue	Flat 5% under KRS 141.040	Annual Form 720 due April 15
Withholding tax account	Kentucky Department of Revenue	Free	Register before first payroll
Unemployment Insurance	Kentucky Office of Unemployment Insurance	2.7% new employer (9% new construction); $12,000 wage base for 2026	Register before first payroll
Workers’ Compensation	KEMI or private carrier	Varies by NCCI class & payroll	Required at first employee under KRS 342.340
New Hire Reporting	Kentucky New Hire Reporting Center	Free	Within 20 days of hire (KRS 405.435)
Local Occupational License Tax	City/county revenue commissions	Louisville Metro 2.2% resident / 1.45% non-resident; LFUCG 2.25%; varies elsewhere	Register before first payroll or first sale in jurisdiction

How to Start a Business in Kentucky (Step by Step)

Step 1: Form Your Kentucky LLC

File Articles of Organization through Kentucky Business One Stop (onestop.ky.gov) or directly through the Kentucky Secretary of State. The fee is $40 regardless of online or mail filing. Online filings typically post within 1-3 business days.

LLC name: Your name must include “LLC,” “L.L.C.,” or “Limited Liability Company” and must be distinguishable from existing entities in the SOS database. The SOS provides a name availability search at sos.ky.gov.

Registered agent: Every Kentucky LLC must designate a registered agent with a physical Kentucky street address (no P.O. boxes). You can serve as your own agent if you have a Kentucky address, or hire a third-party agent service ($100-$300/year typical).

Annual report: File between January 1 and June 30 each year after formation. The fee is $15. Failure to file by June 30 puts the entity in bad standing; continued non-filing leads to administrative dissolution. The annual report fee is waived if the LLC is at least 51% owned by a military veteran or active-duty service member.

Certificate of Assumed Name (DBA): If you operate under a name different from your LLC’s legal name, file a Certificate of Assumed Name with the SOS for $20. Sole proprietors file directly with the county clerk in their home county; fees and procedures vary by county.

Get your free federal EIN immediately at IRS.gov — required before opening a business bank account, registering for state taxes, or hiring employees.

Step 2: Register for State Taxes Through Kentucky Business One Stop

Kentucky’s unified business registration portal is Kentucky Business One Stop (onestop.ky.gov). Use it to register for sales/use tax, withholding tax, unemployment insurance, and your Department of Revenue account in a single session.

Kentucky Sales Tax — 6% Statewide, No Local Add-Ons

Kentucky imposes a flat 6% state sales and use tax under KRS 139.200. There are no local sales taxes in Kentucky — no Louisville add-on, no Lexington add-on, no special transit district. The rate is exactly 6% from Paducah to Pikeville. This is one of the simpler sales-tax regimes in the country and is meaningfully different from neighboring Tennessee (combined rates up to 9.75%), Ohio (up to ~8%), and Indiana (7%).

What’s changed since 2018 is the scope of services subject to the 6%. House Bill 487 of 2018 first added landscape services and janitorial services to the tax base effective July 1, 2018. House Bill 8 of 2022 added 30+ additional service categories effective January 1, 2023, including (verify each against the Department of Revenue’s current TaxAnswers FAQ before relying):

• Photography and photofinishing
• Marketing services and lobbying
• Telemarketing
• Personal training, recreation, and fitness club memberships
• Massage services (non-medical)
• Cosmetic surgery (non-medical)
• Body modification, tattoo, piercing
• Limousine and transportation network company services (Uber/Lyft fares above $1.50 surcharge)
• Parking and valet services
• Repair, installation, and maintenance services
• Several others — full list at taxanswers.ky.gov

The de minimis exemption for service providers was raised from $6,000 to $12,000 in gross receipts effective for 2024 and later. Below the threshold, no sales tax registration or collection is required for the affected services. Above it, you must collect 6% from the first dollar of taxable receipts that calendar year.

Kentucky Individual Income Tax — Flat 3.5% in 2026

Kentucky’s individual income tax rate is a flat 3.5% for tax years beginning on or after January 1, 2026, under HB 1 of 2024. The rate dropped from 4.0% in 2025. The phase-down was triggered by General Fund balance and Budget Reserve Trust Fund conditions specified in HB 1; the Office of State Budget Director’s September 2025 review confirmed the conditions were met. A further reduction to 3.0% may apply for tax year 2027 if the fiscal triggers are again satisfied (the General Assembly must affirmatively act on the September 2026 Office of State Budget Director report). Pass-through income from your LLC, S-corp, or partnership flows to your personal Kentucky return at the flat rate.

Kentucky Corporate Income Tax — Flat 5%

C-corporations pay a flat 5% Kentucky corporation income tax under KRS 141.040 (set in HB 366 of 2018). This is separate from and in addition to the LLET. Most small businesses choose LLC or S-corp to avoid C-corp double taxation; the 5% C-corp rate is mostly relevant if your founders/investors push for a C-corp structure for venture funding reasons.

Step 3: The LLET — Kentucky’s Surtax Most New Owners Forget

The Limited Liability Entity Tax (LLET) at KRS 141.0401 is the single Kentucky tax that catches first-time business owners off guard. Every Kentucky LLC, S-corporation, and C-corporation (with limited exceptions for sole proprietorships and certain disregarded entities) pays the LLET on top of regular income tax.

How LLET Is Calculated

The annual LLET is the lower of:

• $950 per $1 million of Kentucky gross receipts (0.095%), or
• $7,500 per $1 million of Kentucky gross profits (0.75%)

…with a $175 minimum. For most small service businesses where labor and materials eat heavily into gross receipts, the gross-receipts method (0.095%) yields the lower number and is the one you actually owe. A landscaping LLC grossing $400,000 owes $380; a cleaning LLC grossing $200,000 owes $190.

The $100,000 Exemption — New for 2026

For tax years beginning on or after January 1, 2026, entities with Kentucky gross receipts under $100,000 are exempt from LLET entirely. This is a meaningful change for solo operators — the bottom rung of LLCs no longer owes the $175 minimum. Verify the current statutory text and any implementing guidance with your Kentucky CPA before relying on this in your filing.

The $3 Million Tier

Entities with Kentucky gross receipts or gross profits $3 million or below pay only the $175 minimum LLET. The graduated 0.095%/0.75% calculation kicks in only above that threshold. Most small service businesses sit in the $175-minimum tier their entire life cycle.

Filing

LLET is reported on Form 720 (corporations) or as a separate computation on Form 725 (single-member LLC) due April 15 each year. Estimated payments are required if your prior-year LLET exceeded $5,000.

Step 4: Workers’ Compensation at One Employee

Kentucky requires workers’ compensation insurance for any employer with one or more employees under KRS 342.340 — full-time, part-time, or seasonal — with limited statutory exceptions (true independent contractors, certain agricultural workers, domestic servants in private homes earning below thresholds).

Situation	Kentucky Requirement
1+ full-time employees	Workers’ comp required
1+ part-time or seasonal employees	Workers’ comp required
Family members on payroll	Workers’ comp required (with rare exceptions)
Sole proprietor with no employees	Optional (owner may elect coverage)
Single-member LLC owner-only	Optional (owner may elect)
Misclassified independent contractors	Workers’ comp owed retroactively when audited

Where to get coverage: Quote both KEMI (Kentucky Employers’ Mutual Insurance) and at least two private carriers (Liberty Mutual, Travelers, AmTrust, Hartford). KEMI is Kentucky’s competitive state fund, statutorily required to consider any eligible Kentucky employer; it functions as the carrier of last resort for hard-to-place risks but is not always cheapest for clean books. The Kentucky Department of Workers’ Claims (under the Labor Cabinet) administers the system; penalties for operating without required coverage include daily fines, lost civil immunity, and personal liability for the full cost of any workplace injury claim.

Step 5: Unemployment Insurance and New Hire Reporting

The Kentucky Office of Unemployment Insurance assigns each new employer to Rate Schedule A (active for 2026 — rate schedule activation depends on the trust fund balance). For 2026:

• Taxable wage base: $12,000 (up from $11,700 in 2025)
• New non-construction employer rate: 2.7%
• New construction employer rate: 9.0% (the highest tier)
• Experienced employer rate range under Schedule A: 0.3%-2.4% positive-rated, 6.5%-9.0% negative-rated

Register for UI through Kentucky Business One Stop. Quarterly filings via the Kentucky Employer Web Enabled Self-Service portal (kewes.ky.gov).

New Hire Reporting: Report every new hire and rehire to the Kentucky New Hire Reporting Center within 20 days of hire under KRS 405.435 (and federal PRWORA at 42 U.S.C. § 653a). Reporting within 7 days is recommended for child-support enforcement effectiveness. Failure to report can result in penalties of up to $25 per unreported employee, or $500 if a conspiracy to avoid the requirement is shown.

Step 6: Local Occupational License Tax — Most Cities Charge One

Unlike most states, Kentucky cities and counties impose local occupational license taxes on either net profits, payroll, or both. There’s no statewide cap, and rates vary significantly. Verify the rate for every city and county you operate in.

Louisville Metro (Jefferson County)

2.2% on residents’ compensation and net profit; 1.45% on non-residents’ compensation and net profit — administered by the Louisville Metro Revenue Commission. The combined occupational tax is functionally Louisville’s “city income tax.” Form OL-3 is the annual net profits return; Form W-1 is the employer withholding return for employee compensation. The Louisville Metro Revenue Commission also collects school district occupational tax (additional 0.75% in most parts of Jefferson County for the JCPS district).

Lexington-Fayette (LFUCG)

2.25% on compensation and net profits earned within Fayette County, administered by the LFUCG Division of Revenue. The same 2.25% rate applies to both employee gross wages (employer withholds and remits) and to business net profits. As of March 2026, businesses can submit all net profit forms through LFUCG’s new digital filing system.

Northern Kentucky (Boone, Kenton, Campbell)

Boone County, Kenton County, Campbell County, and most Northern Kentucky cities (Florence, Covington, Newport, Erlanger, Independence, Fort Mitchell, Edgewood) each impose their own occupational license — typically 1.0%-2.5% of net profit or gross receipts. Boone County is generally the lowest in the region. Northern Kentucky businesses serving Cincinnati customers also encounter Cincinnati’s separate 1.8% earnings tax for work performed in Cincinnati.

Other Major Cities

Bowling Green (1.85%), Owensboro (1.39%), Frankfort (1.95%), Henderson (1%), Paducah (2%), Richmond (2%) — each city sets its own rate. The Kentucky League of Cities maintains a directory at klc.org. Many small cities outside metro areas impose 1%-1.5% occupational taxes; verify before assuming you owe nothing locally.

Local Restaurant Tax

Under KRS 91A.400, cities classified as fourth or fifth class as of January 1, 2014 may levy a local restaurant tax of up to 3% on prepared food sales. The list is frozen — no new cities can adopt the tax. Cities with active restaurant taxes include Bardstown, Bowling Green’s tourism district, Bellevue, Berea, Covington, Danville, Elizabethtown, and others — full registry available through the Kentucky Department for Local Government. Funds must be turned over to the local tourism and convention commission. The Kentucky Court of Appeals affirmed KRS 91A.400’s constitutionality on October 3, 2025.

Step 7: Industry-Specific State Licenses

Kentucky has no general statewide business license. Industry-specific state licenses are administered by separate agencies:

• Cosmetology, Esthetics, Nail Tech, Barbering: Kentucky Board of Cosmetology under the Department of Professional Licensing
• Private Investigators: Kentucky Board of Licensure for Private Investigators under DPL
• HVAC, Electrical, Plumbing: Kentucky Department of Housing, Buildings and Construction (DHBC) under KRS 198B
• Landscape Pesticide Application: Kentucky Department of Agriculture Pesticide Section under 302 KAR 26:020
• Daycare: CHFS Division of Regulated Child Care under 922 KAR Chapter 2
• Food Establishments and Mobile Food Units: CHFS Department for Public Health, with permits issued through local health departments
• Real Estate: Kentucky Real Estate Commission
• Insurance Producers: Kentucky Department of Insurance
• Health professions: separate boards for medicine, dentistry, nursing, pharmacy, etc.

Kentucky’s Distinctive Tax and Payroll Environment

Three aspects of Kentucky’s tax and payroll structure require specific planning compared to most other states.

1. The LLET surtax. Most states tax business income once — at the entity level (C-corp) or pass-through to the owner (LLC, S-corp). Kentucky taxes pass-throughs twice: once at 3.5% on the owner’s individual return and again through the LLET on the entity itself. The LLET is small in absolute dollars at the $175 minimum but is a real bookkeeping line item every Kentucky LLC must file Form 720 for. Combined with the new $100,000 exemption, the LLET creates a sharp cliff at $100K gross receipts where a previously-exempt LLC suddenly owes annual filings.

2. Sales tax on services without local complexity. Kentucky’s flat 6% with no local add-ons is one of the simpler tax regimes in the U.S. — a major plus over Tennessee or Ohio. But the post-2018 service-tax expansion (HB 487) and post-2023 second wave (HB 8) means service businesses that were tax-free in 2017 are now collecting 6% from customers. Reprice or absorb. Pass-through to customers is standard but requires invoice and POS reconfiguration. The $12,000 small-seller threshold is a meaningful out for true side-hustle operators.

3. Local occupational tax overlay. Louisville Metro 2.2%, Lexington 2.25%, and 1%-2% in most other cities make Kentucky’s effective tax burden for an in-city business closer to 5.5%-5.75% (3.5% state + 2-2.25% local) before federal income tax. This is comparable to flat-rate states like Indiana (3.0% state + ~1-2% county) and lower than Ohio’s heavily local burden, but higher than no-local-tax states like Tennessee. When comparing Kentucky to neighboring states for a relocation decision, factor the local occupational tax in.

Kentucky Market Context: Where the Demand Is

Kentucky has roughly 4.5 million residents distributed unevenly across three economic regions:

• Louisville Metro (Jefferson + 7 surrounding counties): Approximately 1.4 million in the Louisville metro area, 770,000+ in Louisville Metro proper. UPS Worldport hub, Ford Heavy Truck, GE Appliances, Brown-Forman, Humana, Yum Brands HQ all call Louisville home. The Bourbon Trail tourism economy adds steady hospitality demand. The Kentuckiana metro spans the Indiana border (Clark, Floyd, Harrison counties IN), creating dual-state operating considerations.
• Lexington-Fayette and Bluegrass Region: ~325,000 in the city plus surrounding horse country. University of Kentucky, Toyota Manufacturing Kentucky’s flagship Camry/Lexus plant in Georgetown, Keeneland, and a thoroughbred industry generate diverse demand. Distinct seasonal patterns around Keeneland’s spring and fall race meets.
• Northern Kentucky (Boone/Kenton/Campbell): ~430,000 across the three counties — economically Cincinnati-suburban. CVG airport (Amazon Air’s second-largest hub plus DHL Americas hub), Procter & Gamble’s research and engineering across the Ohio River, and Newport on the Levee tourism create strong service-business demand. Operating here often means navigating Ohio rules too.
• Bowling Green (Warren County): ~73,000 in the city, anchored by Western Kentucky University and the GM Corvette Assembly Plant. Strong manufacturing supply-chain economy.
• Eastern and Southern Kentucky: Smaller markets — Owensboro (Daviess), Paducah (McCracken), the Bourbon Trail towns of Bardstown and Lebanon, and the Lake Cumberland tourism corridor. Less competition but lower volumes.

Kentucky Business Guides by Industry

Every industry has different licensing, permit, and insurance requirements in Kentucky. Select your business type:

• How to Start a Cleaning Service in Kentucky — 6% sales tax on janitorial services since 2018, $12,000 small-seller threshold, KEMI workers comp at 1 employee
• How to Start a Food Truck in Kentucky — CHFS Department for Public Health, local health department permits, Louisville and Lexington mobile food rules, KRS 91A.400 restaurant tax in tourism cities
• How to Start a Daycare in Kentucky — CHFS Division of Regulated Child Care, STARS for KIDS NOW quality rating, ratios under 922 KAR 2:120, Child Care Assistance Program (CCAP)
• How to Start an HVAC Business in Kentucky — DHBC Master HVAC Contractor license, EPA 608, A2L refrigerant transition, Kentucky Building Code
• How to Start a Hair Salon in Kentucky — Kentucky Board of Cosmetology, 1,500-hour cosmetology, salon establishment registration
• How to Start a Landscaping Business in Kentucky — KDA Commercial Applicator + Operator licenses (302 KAR 26:020), 6% sales tax on landscape services, Kentucky 811
• How to Start a Private Investigator Business in Kentucky — Kentucky Board of Licensure for PIs, KRS 526.020 one-party consent recording, surety bond and insurance

Key Kentucky Business Resources

Resource	What It Covers
Kentucky Business One Stop	Unified registration: SOS filings, sales tax, withholding, UI, LLET
Kentucky Secretary of State	LLC formation, annual report, name searches, assumed names
Kentucky Department of Revenue	Sales tax, income tax, LLET, withholding, corporation tax
Kentucky TaxAnswers	HB 8 service-tax FAQs, landscape and janitorial guidance
Kentucky Office of Unemployment Insurance (KEWES)	UI registration, quarterly filings, rate schedules
KEMI	Workers’ compensation (Kentucky competitive state fund)
Kentucky Labor Cabinet	Wage and hour, OSH, Department of Workers’ Claims
Kentucky New Hire Reporting Center	Report new hires within 20 days (KRS 405.435)
Cabinet for Health and Family Services (CHFS)	Daycare licensing, food establishment permits, public health
Department of Housing, Buildings and Construction	HVAC, electrical, plumbing contractor licensing
Kentucky Department of Agriculture	Pesticide applicator licenses, agricultural regulation
Kentucky League of Cities	Local occupational tax directories, restaurant tax registry

Frequently Asked Questions

How much does it cost to start an LLC in Kentucky?

Kentucky LLC Articles of Organization cost $40, identical online or by mail, filed with the Secretary of State through Kentucky Business One Stop. After formation, the annual report costs $15, due between January 1 and June 30 each year (waived for veteran-owned LLCs). Optional costs: Certificate of Assumed Name $20, registered agent service $100-$300/year if you hire one. Add the LLET minimum of $175 for any year your gross receipts are $100,000 or more (the new $100K exemption begins January 1, 2026).

What is the Kentucky LLET and who pays it?

The Limited Liability Entity Tax at KRS 141.0401 is a Kentucky-specific gross-receipts/gross-profits surtax that applies to every Kentucky LLC, S-corporation, and C-corporation on top of regular income tax. The annual amount is the lower of 0.095% of Kentucky gross receipts or 0.75% of Kentucky gross profits, with a $175 minimum. Effective January 1, 2026, entities with Kentucky gross receipts under $100,000 are exempt from LLET. Entities with gross receipts or profits at $3 million or below pay only the $175 minimum. Filed on Form 720 due April 15.

Are services taxable in Kentucky?

Many are. Landscape and janitorial services have been subject to Kentucky’s 6% sales tax since July 1, 2018 (HB 487 of 2018). House Bill 8 of 2022 added 30+ additional services effective January 1, 2023 — including photography, marketing, telemarketing, fitness club memberships, massage, body modification, parking/valet, repair and installation services, and several others (full list at taxanswers.ky.gov). The de minimis exemption was raised from $6,000 to $12,000 in gross receipts effective for 2024 and later. Kentucky has no local sales tax — the rate is a flat 6% statewide.

What is Kentucky’s individual income tax rate in 2026?

Kentucky’s individual income tax rate is a flat 3.5% for tax years beginning on or after January 1, 2026, under HB 1 of 2024. The rate dropped from 4.0% in 2025 after revenue triggers (General Fund balance and Budget Reserve Trust Fund conditions) were met per the Office of State Budget Director’s September 2025 review. A further reduction to 3.0% may apply for tax year 2027 if the September 2026 review confirms the conditions and the General Assembly affirmatively acts.

Does Kentucky have a state minimum wage above the federal $7.25?

No. Kentucky’s minimum wage is $7.25/hour, the federal floor, under KRS 337.275. The state has not raised its minimum wage since 2009. Cities and counties cannot enact higher local rates: in October 2016, the Kentucky Supreme Court struck down both Louisville Metro’s $9.00 ordinance and Lexington-Fayette’s $10.10 ordinance, ruling that municipalities lack the authority. Tipped workers can be paid $2.13/hour as a cash wage if tips bring them up to $7.25 total. Kentucky is one of 21 states still at the federal minimum.

When is workers’ compensation required in Kentucky?

At one employee — full-time, part-time, or seasonal — under KRS 342.340. There is no minimum-employee exemption like Tennessee’s 5-employee or South Carolina’s 4-employee thresholds. Coverage is purchased from KEMI (Kentucky Employers’ Mutual Insurance — the competitive state fund) or any licensed private carrier. Penalties for non-coverage include daily fines, lost civil immunity, and personal liability for the full cost of any workplace injury claim.

What local taxes do I owe in Louisville and Lexington?

Louisville Metro (Jefferson County): 2.2% Occupational License Tax on residents’ compensation and net profit; 1.45% on non-residents — administered by the Louisville Metro Revenue Commission via Form OL-3 (annual net profits) and Form W-1 (employer withholding). Most parts of Jefferson County add a 0.75% Jefferson County Public Schools occupational tax on top.

Lexington-Fayette (LFUCG): 2.25% on compensation and net profits earned within Fayette County, administered by the LFUCG Division of Revenue.

These are functionally local “income taxes” that stack on top of state income tax and LLET, and should be planned for in your business model.

Does Kentucky have paid family leave or paid sick leave?

No. Kentucky has no statewide paid family leave program (unlike Colorado FAMLI, Washington PFML, Massachusetts PFML, etc.) and no statewide paid sick leave law. Federal FMLA still applies to employers with 50+ employees for unpaid job-protected leave. Some Kentucky employers voluntarily offer paid leave as a benefit; some industries (federal contractors) are subject to executive-order paid sick leave rules. The absence of a state mandate is a meaningful difference from neighboring states; verify county or city-level requirements (Louisville Metro and Lexington have explored but not enacted local paid leave).