Why is Kentucky removing the 200 transaction threshold?

Kentucky is simplifying its sales tax compliance rules and aligning with a broader trend among US states that have moved away from transaction-based nexus standards. The previous rule often affected smaller online sellers with many low-value transactions.

Do businesses registered only because of the 200 transaction threshold need to stay registered?

Businesses that registered solely because they exceeded 200 transactions, but did not surpass USD 100,000 in annual Kentucky sales, should review their registration status. Once the new rules take effect, they may choose to keep their registration voluntarily or close their sales tax accounts.

When will Kentucky’s new sales tax nexus rules take effect?

The updated economic nexus threshold rules will take effect on August 1, 2026. From that date, only the USD 100,000 gross sales threshold will apply for remote sellers and marketplace facilitators.

What new taxes is Kentucky introducing for prediction markets?

Beginning January 1, 2027, Kentucky will impose a 14.25% excise duty on prediction market operators’ transaction fees. The taxable base will also include contract purchase payments, and operators will be required to file and pay taxes monthly.

How will Kentucky tax online fantasy sports operators?

Starting January 1, 2027, Kentucky will impose a 12% excise duty on adjusted gross fantasy contest receipts. This amount is calculated by subtracting player winnings from the total entry fees collected by fantasy sports operators.

Kentucky Sales Tax Nexus Rules Change in 2026

Q: What is changing in Kentucky’s economic nexus rules for sales tax?

Starting August 1, 2026, Kentucky will eliminate the 200 transaction threshold for economic nexus. Remote sellers and marketplace facilitators will only need to register and collect Kentucky sales tax if they exceed USD 100,000 in gross sales within the state.

In mid-April, the Kentucky General Assembly passed House Bill 757, changing the state’s economic nexus rules for sales tax purposes. The change in the economic nexus threshold simplifies Kentucky’s nexus standard, aligning it with a broader trend among the US states that have moved away from transaction-based thresholds following concerns that they disproportionately affected smaller online sellers making many low-value sales.

New Economic Nexus Threshold

Under the recently adopted Bill, starting from August 1, 2026, remote sellers and marketplace facilitators will only be required to register and collect Kentucky sales tax if they exceed USD 100,000 in gross sales in the state. The Bill effectively removes the 200 transaction threshold, leaving only the total sales revenue threshold as the defining factor for establishing an economic nexus in the state.

Importantly, taxable persons who registered for sales tax purposes in Kentucky solely because they exceeded the 200 transaction threshold, without reaching USD 100,000 in annual gross sales, should reassess their registration status, as they may no longer be legally required to maintain a Kentucky sales tax registration once the new rules take effect. These taxable persons may either keep their registration voluntarily or choose to close their sales tax accounts if they no longer meet the nexus threshold.

While the removal of the transaction-based threshold is the biggest change under the Bill, it is not the only change. The Bill also introduces new indirect taxes targeting digital betting-style platforms and online gaming activities. Starting January 1, 2027, a 14.25% excise duty will be imposed on the prediction market operators' transaction fees. Notably, the tax base will be extended beyond traditional service fees and include contract purchase payments themselves. The operators will also have to file and pay dues taxes monthly.

Additionally, Kentucky plans to impose a separate 12% excise duty for online fantasy sports contests. As a result, from January 1, 2027, online fantasy game operators will have to collect and remit excise on their adjusted gross fantasy contest receipts, which are calculated as total entry fees collected from participants minus winnings paid out to players.

Conclusion

By removing the 200 transaction threshold, Kentucky aims to simplify compliance for smaller remote sellers. In contrast, by broadening taxation into digital gaming and prediction-based markets, creating specific tax rules for platform operators, and requiring ongoing monthly compliance obligations, Kentucky seeks to ensure that these emerging industries are not left outside the scope of taxation.

Source: Kentucky General Assembly - House Bill 757, KPMG