Schedule Cogs (Form 41a720cogs) - Limited Liability Entity Tax Cost Of Goods Sold Page 2
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41A720COGS (10-14)
Commonwealth of Kentucky
DEPARTMENT OF REVENUE
INSTRUCTIONS — SCHEDULE COGS
on Lines (a) through (k) of each column should equal the
If the company is computing its LLET based on gross profits,
Schedule COGS, Limited Liability Entity Tax Cost of Goods
amount included on Line 2 of each column. If Lines (a)
through (k) are not sufficient to include the detail of all
Sold, must be attached to the applicable tax return.
purchases, attach a three column schedule listing the detail
KRS 141.0401(1)(d)3 provides that for any activity other than
of the additional purchases.
manufacturing, producing, reselling, retailing or wholesaling,
no costs shall be included in costs of goods sold. Therefore,
Line 10—Enter on Lines (a) through (k) the detail of additional
taxpayers that provide services or sell intangibles are not
section 263A costs included on Line 4 of each column. The
allowed to compute cost of goods sold for purposes of
total of the amounts on Lines (a) through (k) of each column
computing the limited liability entity tax (LLET).
should equal the amount included on Line 4 of each column.
If Lines (a) through (k) are not sufficient to include the detail
For taxpayers who are engaged in manufacturing, producing,
of all additional section 263A costs, attach a three column
reselling, retailing or wholesaling, KRS 141.0401(1)(d)2
schedule listing the detail of the additional section 263A
provides that amounts allowable as cost of goods sold must
costs.
be directly incurred in acquiring or producing a tangible
product generating the Kentucky gross receipts. Tangible
Line 11—Enter on Lines (a) through (k) the detail of other
product means both real and tangible personal property.
costs included on Line 5 of each column. The total of the
amounts on Lines (a) through (k) of each column should equal
Purpose of Schedule—This schedule is used by a corporation
the amount included on Line 5 of each column. If Lines (a)
or a limited liability pass-through entity to compute its
through (k) are not sufficient to include the detail of all other
Kentucky cost of goods sold and its total cost of goods sold
costs, attach a three column schedule listing the detail of the
from all sources for purposes of computing the LLET on
additional other costs.
gross profits.
Alternate Method—In completing the Schedule COGS,
Lines 1 through 8—In the Federal Form 1125-A Cost of Goods
KRS 141.0401(1)(d) requires separate accounting when
Sold column, enter the amounts from federal Form 1125-A
computing Kentucky cost of goods sold. However, if
on Lines 1 through 8.
separate accounting is not possible for the taxpayer, a
supporting statement must be attached to the Schedule
In Columns A and B, enter on Lines 1 through 8 the cost
COGS explaining why separate accounting cannot be used.
of goods sold amounts as provided by KRS 141.0401(1)
In such instances, as an alternative to separate accounting,
attributable to Kentucky gross receipts and to gross receipts
the taxpayer must then take the following four steps in filling
from all sources, respectively.
out Schedule COGS:
“Purchases” means only direct materials that are incorporated
1.
Complete the column entitled Federal Form 1125-A Cost
into the tangible product sold or manufactured.
of Goods Sold, in its entirety.
“Direct labor” means labor that is incorporated into
2.
Complete Column B, Total Costs of Goods Sold, in its
the tangible product sold or is an integral part of the
entirety. Please note that the beginning and ending
manufacturing process.
inventories may be different from the amounts reported
on Federal Form 1125-A because of costs excluded by KRS
“Additional section 263A costs” means only direct material
141.0401(1)(d) from the cost of goods sold calculation.
costs as provided by section 263A of the Internal Revenue
Code.
3.
Multiply the amount on Column B, Total Cost of Goods
Sold, Line 8 by the taxpayer’s Kentucky sales factor
“Other costs” means only direct materials that are incorporated
(Schedule A, Section I, Line 3).
into the tangible product sold or manufactured.
Line 9—Enter on Lines (a) through (k) the detail of purchases
4.
Enter the result of step 3 on Column A, Kentucky Cost of
included on Line 2 of each column. The total of the amounts
Goods Sold, Line 8.
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