LEXINGTON FAYETTE URBAN COUNTY 

                                             GOVERNMENT 

                                             2017 
                                             Form 228 
                                             Net Profits License Fee 
                                             Return Instructions 

Due date of return:     FIFTEENTH DAY OF THE FOURTH MONTH FOLLOWING THE CLOSE OF THE FISCAL 
                        YEAR (APRIL 17, 201 8FOR CALENDAR YEAR FILERS). 
Make checks payable to: LEXINGTON-FAYETTE URBAN COUNTY GOVERNMENT  (LFUCG) 

Mail returns to:        DIVISION OF REVENUE 
                        LEXINGTON-FAYETTE URBAN COUNTY GOVERNMENT
                        P O BOX 14058 
                        LEXINGTON KY 40512 

Any Questions please    call: (859) 258-3340 Website: www.lexingtonky.gov/revenue Hours: 8:00am-5:00pm 

The following instructions are provided to aid the licensee in the completion of Form 228, Net Profits License Fee Return. They 
are not intended to be all-inclusive and therefore should be used only as a supplement to the existing License Fee Ordinances 
and Regulations. If you have any questions that are not addressed in these instructions please refer to the License Fee 
Ordinance. Any interpretation of these instructions which is inconsistent with the ordinance is to be resolved in favor of the 
ordinance. 

Who Must File Form 228: 

1.    Corporations, partnerships, sole proprietorships, estates and trusts, or other businesses engaged in an occupation,
      trade, profession, enterprise or other activity with 1) business activity in Fayette County, Kentucky and 2) business
      nexus in Fayette County, Kentucky, sufficient to justify the imposition of the license fee.

2.    Individuals and those fiduciaries acting on behalf of individuals or deceased individuals having rental income, if the
      gross receipts arising from the rental of real property located within Fayette County are greater than or equal to
      $50,000 a year. Any other business entity is presumed to be in business regardless of the rental income amounts.

You Must File Form 228 Even If: 

•  Your business activity resulted in a loss for the tax year. Complete Form 228 according to the instructions provided, sign
   the form and return it to the Division of Revenue.

•  You were not actively engaged in business within Fayette County during the year. Indicate “No Business Activity” on Form
   228. Sign the form and return it to the Division of Revenue.

•  Your business activity ceased prior to the completion of the tax period. Complete Form 228 according to the instructions
   provided and check “Final Return” box on the form. Complete question G, sign the form and return it to the Division of
   Revenue.

•  You applied for a business license with the intention of starting a business but never transacted business within Lexington-
   Fayette County. Check the box designated “FINAL RETURN”, complete question G, sign and date the form.

•  As a sole proprietor, your gross receipts were equal to or less than $4400.00.,You must file a return to qualify for 
   theexemption. 
                                                                   th             th 
When to File: Form 228 must be delivered or postmarked by the 15 day of the 4 month after the end of the fiscal year (April 
18, 2017 for calendar year filers). 

Where to File: All returns should be mailed to the Lexington-Fayette Urban County Government, P.O. Box 14058, Lexington, 
KY 40512, or delivered to 200 E. Main St, along with your check made payable to Lexington-Fayette Urban County Government 
(abbreviated LFUCG). 

Signature: If the return is being filed by a corporation, it must be signed and dated by a corporate officer authorized to sign. If 
the return is being filed by a partnership, it must be signed by a general partner. If the return is being filed by a sole proprietor, it 
must be signed by that individual. Additionally, the licensee who signs the return must print his/her name and phone number in 
the area provided. 

Extensions: If an extension of time for filing is required, a separate extension request to the Lexington-Fayette Urban 
County Government is mandatory in all cases. You must file Form 228 EXT or a copy of your federal extension application to 
request an automatic 6-month extension to file the Net Profit License Fee Return. All extension requests should include your 
Division of Revenue account number. The request must be postmarked or hand delivered to the Division on or before the 
original due date and it most be accompanied by the amount estimated as due. If an extension of time for the filing of a return 
has been granted, any balance of the occupational tax unpaid by the regular due date bears interest at the rate of twelve percent 
(12%) per annum. 

Estimated Tax - Taxpayers other than sole proprietors who may have a total tax obligation above $5,000.00 in any tax year 
are required to submit quarterly estimated payments. 

Penalties for Failure to File and/or Pay: There is a five percent (5%) penalty per month, or a fraction of a month, to a 
maximum of twenty-five percent (25%) of the total license tax liability for failure to file and/or pay a tax return by the regular or 
extended due date. Pursuant to KRS 67.790, there is a minimum $25.00 penalty for failure to file and/or pay any return or 
report by the due date. 

Interest: Interest is computed at 1% penalty per month, or a fraction of a month from the original due date until the date of 
payment. 

Refund Request: Claims for refund or credit must be submitted within two (2) years from the due date of the tax return, or two 
(2) years from payment, whichever is later. 

State Exemptions The following persons are exempt under Kentucky law from the net profits license fee and are not required 
to file a return. 
1.    Any company that pays both an ad valorem tax and a franchise tax pursuant to the provisions of KRS 136.120.

2.    Persons whose     sole business activity is the manufacture of and/or sale of alcoholic beverages. (However, persons
      having  only a  portion  of  their  business  activity  being  derived  from  the  manufacturing and/or selling  of  alcoholic
      beverages are required to file a return, but may exclude that portion of their net profits derived from such manufacture
      and/or sale of alcoholic beverages on the appropriate Line of the Worksheet)

3.    Insurance companies incorporated under the laws of and doing business in the Commonwealth of Kentucky, except as
      provided in KRS 91A.080.

4.    Banks, trust companies, combined banks and trust companies, combined trust, banking and title businesses and
      savings and loan associations, whether state or federally chartered.

5.    Persons whose sole wages, salaries, commissions or other compensations for work performed or services rendered in
      Fayette County, Kentucky, are derived from service as members of the Kentucky National Guard for active duty
      training, unit training assemblies and annual field training.

6.    Persons engaged in the business of conducting a race track at which races are run for stakes, purses or prizes, under
      the jurisdiction of the State Racing Commission, whose only activity in Fayette County is the conducting of such race
      track and/or the operating or maintenance of pari-mutuel machines.

Note: Those organizations that pay wages, salaries, commissions or other compensation for work performed or services 
rendered within Fayette County must apply for a license fee account and submit withholdings on those wages, salaries, 
commissions or other compensation. 

Special Provisions of Local Laws: The following persons are exempt under Fayette County ordinances from the net 
profits license fee and are not required to file a Net Profits License Fee Return: 

a)    With regards to income or entities, Proof of Internal Revenue Service approval of not-for-profit status must be furnished
      upon application for a license fee account and/or upon the request of the Division of Revenue.

b)    Nonresidents  who  sell  farm  products,  other  than  trees,  shrubs,  or  ornamental  plants,  in  the  Urban  County,  or
      nonresident owners who sell or who board livestock in the Urban County for breeding purposes.

c)    Persons authorized by the Lexington-Fayette Urban County Government to demonstrate, sell or offer for sale any
      goods, wares or merchandise at any festival or event sponsored it.

d)    Funds received from the state as a share of the various tobacco settlement funds to be paid to farmers are exempt
      from inclusion in net profits for the purpose of calculating the net profits which are subject to this occupational license
      fee.

Licensee Information - In order for your return to be processed properly you must: 

•  file using Division of Revenue’s Form 228, Net Profits License Fee Return.
•  complete the Worksheet on the reverse of Form 228, Net Profits License Fee Return.
•  enter or verify the account number assigned to your business, the tax year for which the return is filed and the federal
   identification number or social security number under which your federal tax return was filed.
•  clearly indicate or verify the name and address of the business and note any changes.
•  Check the appropriate box(es) to indicate whether this is an initial, amended or final return and if a new address is entered.
   In case of Amended return please attach statement indicating reason for amendment.
•  attach copies of the appropriate federal tax forms and all supporting documentation.
•  sign and date the return.

Fully answer all questions which apply.  If the question does not apply to your business indicate “NA”. 

Minimum License Fee Exemption - Check the box if gross receipts from all Federal Form 1040 Schedules C, E and F plus all 
Form 1099-MISC were equal to or less than $4400.00. Attach all federal forms sign and date the form and return by April 15, 
2015. 

 Ø Section 1 Calculation of License Fee Liability 
 
 Line 1:  Enter the adjusted net business income from line 19 of Worksheet 1 on the reverse side of Form 228.   This 
          worksheet must be completed in order to determine your adjusted net business income. 
 
 Line 2:  Enter the apportionment percentage from Section 2, Line 4, Column C. 
 
 Line 3:  Multiply Line 1 by Line 2. Enter the result on Line 3. 
 
 Line 4:  Sole Proprietors 65 years of age or older enter $3,000.00. All others enter zero. 
 
 Line 5:  Deduct Line 4 from Line 3.  Enter result on Line 5. 
 
 Line 6:  Multiply Line 5 by the license fee rate of 2.25%.  If less than $100.00, enter $100.00. 
 
 Line 7:  Enter the Minimum License Fee paid for 2015. If you did not pay the minimum for 2015, enter zero. 
 
 Line 8:  Deduct Line 7 from Line 6. (cannot be less than zero). This is the amount of license fee due. 
 
 IF LINE 8 IS LESS THAN ZERO, ENTER ZERO.  THE ANNUAL MINIMUM LICENSE FEE IS NOT REFUNDABLE. 
 
 Line 9:  Enter on Line 9 any credits due. Attach a schedule of the following credits are being used. Estimated payments; Prior 
          Year overpayments or Payments made with extensions 
 
 Line 10: Deduct Line 9 from Line 8. 
 
 Line 11: This is the Minimum License Fee due for calendar Year 2015 ($100.00). If this is a final return, enter zero. 
 
 Line12:   Add lines 10 and 11. If result is less than zero, enter the result here and on line 15. 
 
 Line 13: If the license fee due is not paid by the due date of the return, penalty is assessed at the rate of five (5) percent per 
          month or portion thereof, not to exceed 25%; minimum $25. This penalty is to be assessed on the first day after the 
          due date and on the first day of each succeeding calendar month until the license fee is paid, but not more than 
          25%.  Multiply the license fee due on Line 10 by the appropriate percentage. Enter the result, but not less than 
          $25.00 on the penalty Line. Interest is assessed at the rate of one (1) percent per month or portion thereof. A 
          fraction of a month is counted as an entire month. Enter the result on the interest Line. Add the penalty and interest 
          and enter on Line 13. 
 
 Line 14:   Total Amount Due (add Lines 12 and 13). 
 
 Line 15:   Enter amount of overpayment from line12. Leave blank if line 12 shows License Fee Due 
 
 Line 16:   Enter amount from Line 15 to be refunded. 
 
 Line 17: Enter amount from Line 15 to be credited to 2015. 
 
 Ø Section 2 - Calculation of Business Allocation Percentage -  must be completed by all licensees with sales 
   revenues and/or payroll both within and without Fayette County.  Completion of the schedule apportions to the 
   Lexington-Fayette Urban County Government the proportionate part of the licensee’s total business activity attributable to 
   Fayette County. If your business is conducted entirely within Fayette County it is not necessary to complete Section 2. 
   Instead, enter 100% on Section 1, Line 2 and complete Lines 3 through 17 of Section 1. 
 
 Sales factor 
 
 Line 1, Column A:  Enter the total sales revenue from the sale, lease, or rental of goods, services, or property received 
                    from all Fayette County sources           during the period covered by the Net Profits License Fee Return. 
                    Include receipts attributable to activities or work performed in Fayette County. 
 Line 1, Column B:  Enter the total sales revenue from the sale, lease, or rental of goods, services, or property received 
                    from all sources during the period covered by the Net Profits License Fee Return. 
 Line 1, Column C:  Divide Column A by Column B. Enter the result on Line 1, Column C. Carry out to at least six (6) 
                    decimal places. 
 Payroll factor 
 
 Line 2, Column A:  Enter the total compensation paid or payable to employees for work done or services performed or 
                    rendered within Fayette County during the tax period. 

 Line 2, Column B:       Enter the total compensation paid or payable to employees for work done or services performed or 
                         rendered in all business locations during the tax period. This amount should equal the total salaries 
                         and wages listed on the federal return. 
                         ***Do not include the cost of contract labor in either Column*** 
 Line 2, Column C:       Divide Column A by Column B. Enter the result on Line 2, Column C. Carry out to at least six (6) 
                         decimal places. 
 Average percentage 
 
 Line 3, Column C:       Add Column C, Lines 1 and 2. Enter the result on Line 3, Column C. 
 Line 4, Column C:       Divide Line 3, Column C by the number of percents used on Lines 1 and 2, Column C.  Enter the 
                         result on Line 4, Column C and Line 2, Section 1. 
 
 Note: If one of the factors (sales factor or payroll factor) is missing the remaining factor is the average allocation percentage 
 (Line 2 of Section 1). A factor (sales factor or payroll factor) is considered missing if: 
 
 1.      With regard to the sales factor, a licensee’s entire business operation did not recognize any receipts. (i.e. Schedule C, 
         Line 1, Columns A and B both equal zero) 
 
 2.      With regards to the payroll factor, a licensee’s entire business operation did not incur any expenditure for payroll. (i.e. 
         Schedule C, Line 2, Columns A and B both equal zero) 
 
 Ø  Worksheet 1 - Calculation of Adjusted Net Business Income - Refer to the following list to determine which column 
    should be used in completing Worksheet 1. 
 
 •       1099-MISC: Individuals receiving payments for contract services who are not claiming business expenses  should 
         complete the column marked Individual. 
 •       Schedule C, C-EZ, E or F: Individuals receiving income from the operation of a trade, business or profession should 
         complete the column marked Individual. 
 •       Form 1065: Partnerships should complete the column marked Partnership. 
 •       Form 1120, 1120A, 1120S: Corporations should complete the column marked Corporation. 
 •       Form 1041 and other associations: Fiduciaries and all others should complete the column marked Individual. 
 •       Limited liability companies: LLC’s have the same entity classification as that elected for federal income tax filings 
         and shall be assessed occupational license fees accordingly. Complete the column that corresponds to your federal tax 
         filings. 
 
 Line 1: Enter  the  amount of  non-employee compensation reported  on federal Form  1099  MISC  or  the  amount  of  other 
         income per Form 1040.  Note: Line 1 should only be completed by individuals who received payments for contract 
         services who are not claiming business expenses and did not own or operate a business during the year (attach a 
         copy of federal Form 1040 and Form 1099 MISC). 
 Line 2: Enter the net profit or (loss) per federal Schedule C or C-EZ (attach a copy of Federal Form 1040 and all applicable 
         schedule(s)). 
 Line 3: Enter 100% of the short term capital gains and long term capital gains carried over from federal Form 4797 or Form 
         6252 (installment sales) to federal Schedule D representing gain from the sale of property used in the trade or 
         business. In addition, enter the net gain or (loss) from the sale of property used in the trade or business per federal 
         Form 4797 (attach federal Form 4797, Form 6252 and/or Schedule D). 
 Line 4: For sole proprietors using Schedule E from a jointly filed Federal Form 1040 the net income (loss) from rental real 
         estate activities can be combined with the net income (loss) from other sole proprietorships of one or both spouses 
         using any reasonable method. The election to file using a certain method is considered to be made on the initial 
         return filed with the Urban County and must be consistently applied on all future returns. 
 
 NOTE: For individuals, rental income or (loss) from the rental of real property should be reported on Line 2 only if the rental 
 property constitutes a “business activity”.  Rental property is c ons idered a “ business activity” when the li censee’s Fayette   
 County rental activities produce gross rents of $50,000 or more per year. 
 
 NOTE: This test is to be applied on the same basis as the individual’s filing status for federal tax purposes. If the licensee and 
 his/her spouse file married filing joint for federal tax purposes the licensee and his/her spouse is limited to one $50,000 test 
 regardless of how the Schedule E amounts were combined on Form 228. In addition, single member LLC’s filing as sole 
 proprietors for federal tax purposes are considered to be individuals for purposes of this test. 
 
 Corporations, partnerships and other associations who have business activity in the Urban County and receive income from the 
 rental, ownership or management of real property, wherever located, are considered to be in the business of renting said 
 property, regardless of the amount of gross rental income. The net profits from such rental, ownership or management shall be 
 included in the corporation, partnership or other association’s Net Profits License Fee Return. 
 
 Licensees shall include in net profits any capital gain arising from the sale of any real property included in the licensee’s 
 business of renting real property. An individual’s or fiduciary’s real property is presumed to be included in the licensee’s 
 business of renting property if the licensee met the “business activity” test referenced above in the current or previous tax year. 

 Line 5:    Enter the net profit or (loss) per federal Schedule F (attach a copy of Federal Form 1040 and all applicable 
           schedule(s)). Farm income should be reported only if the farm is located within Fayette County. 
 Line 6:   Enter the ordinary gain or (loss) on the sale of property used in a trade or business per Federal Form 4797 (attach 
           Federal schedules). 
 Line 7:   Enter the ordinary income per Federal Form 1065 (attach Form 1065 and applicable schedules). 
 Line 8:   Enter the taxable income or (loss) per Federal Form 1120 or 1120A or Ordinary income or loss per Federal Form 
           1120S (attach applicable Federal Form and schedules). 
 Line 9:   If a deduction is taken for state or local taxes (based on income) or license fees (based on income), regardless of 
           jurisdiction, by an individual on federal Schedule C, C-EZ, E or F or on federal Form 1120, 1120A, 1120S or 1065 
           then the amount of those taxes or license fees should be entered on Line 12. 
 Line10:   The following income items which are allocated to the partners or shareholders are not included as  income on federal 
           Form 1065 or Form 1120S and thus must be added to income on Line 10. 
 
          Net income from rental real estate activities          Net long term capital gain 
          Net income from other rental activities              Other portfolio income 
          Interest income                                      Guaranteed payments to partners 
          Dividend income                                      Net gain under Sec 1231 (other than due to casualty or theft) 
          Royalty income                                       Net short-term capital gain 
          Other income items per Schedule K (attach schedule) 
          Enter the total of these items on Line 10 (attach a copy of Schedule K, and rental schedule(s), if applicable). 
 
 Line 11:  If a deduction is taken on federal Form 1120 for a net operating loss then the amount of the net operating 
           loss should be entered on Line 11. 
 
 Line 12:  Total Income – Add Line 1 through Line 11. 
 
 Line 13:  The following items which are allocated to the partners and shareholders are not included in losses or expenses on 
           federal Form 1065 or Form 1120S and are allowed as deductions for license fee purposes on Line 13. 
          Net loss from rental real estate activities          Net long-term capital loss 
          Net loss from other rental activities                Net loss under Sec 1231(other than due to casualty loss or theft) 
          Portfolio loss                                       Net short-term capital loss 
          Deductions related to portfolio income               Charitable contributions 
          Other allowable deductions per Schedule K (attach schedule) Sec 179 expense 
          Enter the total of these items on Line 13 (attach a copy of Schedule K, and rental schedule(s), if applicable). 
 
 Note:   Contributions to KEOGH plans, Simplified Employer Pension plans, and medical insurance premiums whether paid on 
           behalf of partners, shareholders or individual owners are not deductible on the Net Profits License Fee Return. 
 
 Line 14:  Enter the Alcoholic Beverage Sales Deduction. Follow the instructions below for computing the alcoholic beverage 
           deduction (attach a copy of the computation sheet). 
 
           Kentucky alcoholic beverage sales divided by total sales equals the alcoholic beverage percentage. 
 
           Multiply the alcoholic beverage percentage by Line 12 minus Lines 13 and 15.     Note: A deduction may be taken only 
           if the business engaged in the selling of alcoholic beverages had a profit. 
 
 Line 15: Enter other adjustments not included elsewhere on this Worksheet (attach a full explanation, including amounts, of all 
           items). Examples are allowable expenses for which the licensee elected to take a credit against its federal income 
           tax liability in lieu of a deduction for business expenses otherwise available to the licensee. 
 
 Line 16:  Non-Taxable Income Examples are Tobacco buyout income, interest on government securities,  (attach schedule). 
 
 Line 17:  Professional Expenses not reimbursed by the partnership (attach schedule). 
 
 Line 18:  Total Deductions – Add Line 13 through 17. 
 
 Line 19: Adjusted Net Profit – Subtract Line 18 from Line 12.  Enter here and on Line 1 of Section 1 on the front page.