Why a Kentucky Business Files a Local Tax Return in Every City It Works In

2026-10-15 · RKube Services

Kentucky cities and counties tax business net profits with their own returns. How Form OL-S, Louisville's OL-3 and Lexington's Form 228 work: rates, due dates, estimates and penalties.

Most states stop at a state income tax return. Kentucky adds a local layer. Cities and counties across the state charge an occupational license tax on wages and on business net profits, and a business owes its own return to each district where it works. If you run an LLC, an S corporation or a sole proprietorship in Louisville, KY or Lexington, that means a local net profits return every year, on top of your Kentucky return and your federal one.

People find out about this layer late. A founder files federal and state on time, then gets a letter from the Louisville Metro Revenue Commission about a return they never knew existed. Or a Lexington sole proprietor with a small side business assumes they're too small to file, when the exemption only works if you file a return to claim it.

This guide walks through the three forms most small businesses run into: Kentucky's standard local return (Form OL-S), Louisville Metro's Form OL-3, and Lexington-Fayette's Form 228. It covers the rates, the due dates, the estimate rules and the penalties, using the current forms and instructions from each tax office.

What the occupational license tax is

An occupational license tax is a local tax on the privilege of working or doing business in a city, county or school district. In Kentucky it comes in two parts:

On wages. Employers withhold it from employee paychecks and file local withholding returns.
On business net profits. The business (or the owner, for a sole proprietor) files an annual net profits return with each district.

This article is about the second part, the annual business return. If you have employees, the withholding side is a separate set of filings with each district, and it's worth setting up when you register for state payroll accounts.

The tax is local, so the rate, the minimum and the forms depend on where you work. That's why Kentucky created a standard form.

Form OL-S: Kentucky's standard local return

The Kentucky Secretary of State publishes standard occupational license return forms, including Form OL-S for a single tax district. Under Kentucky's local tax law, every tax district has to accept the standard form, so a business that works in several counties doesn't need a different layout for each one.

The OL-S asks for what you'd expect: filing status (resident or nonresident individual, corporation, S corporation, partnership or other), the tax district's account number, your principal business activity, the number of employees who worked in that locality, and whether you paid $600 or more to non-employees for services there. The calculation runs from adjusted net profit (Schedule N) or adjusted gross receipts (Schedule G, for districts that tax receipts), times an apportionment percentage, times the district's rate. Then it applies any district minimum or maximum, any non-refundable credits, and penalties if you're late.

Two practical points:

The standard form doesn't set the rate or the due date. Those still come from the district. Check the district's own instructions before you file.
Some districts publish their own version. Louisville Metro and Lexington-Fayette both have their own forms, covered below. Most smaller cities and counties take the OL-S.

Louisville Metro: Form OL-3

Every business working in Louisville Metro (Jefferson County) files Form OL-3, the occupational license return on business net profits, with the Louisville Metro Revenue Commission (LMRC). The current version is the 2025 OL-3, with line-by-line instructions on the LMRC site.

The rate

According to the OL-3 instructions, the tax has two pieces:

Louisville Metro and Mass Transit: 1.45%
School Boards: 0.75%

That's 2.2% for businesses and resident individuals. A nonresident individual pays only the 1.45% column. For example, a Louisville S corporation with $180,000 of net profit, all earned in Louisville Metro, owes about $3,960 on its OL-3.

Apportionment

If you work both inside and outside Louisville Metro, you don't pay on all of your profit. The OL-3 uses a two-factor formula:

Gross receipts factor: Louisville Metro receipts divided by receipts everywhere.
Wage factor: wages paid for work in Louisville Metro divided by wages everywhere (officer pay counts; partner guaranteed payments and subcontract labor don't).
Average the two if both have numbers. If you have no payroll, the receipts factor stands alone.

Each percentage is carried to five decimal places. A contractor based in Louisville that does 60% of its work in Jefferson County and pays 80% of its wages there would apportion 70% of net profit to Louisville.

This is where clean books matter. You need receipts and payroll split by location, and that's much easier if your bookkeeping tracks job location as you go instead of rebuilding it in March.

Due date

The OL-3 is due on the 15th day of the 4th month after your fiscal year ends. For a calendar-year business that's April 15. If you need more time, LMRC has a separate extension request, Form OL-3EXT, and its worksheet is built around paying in 90% of your expected tax with the request.

Quarterly estimates (and the December date)

Once a business's Louisville tax is more than $5,000 for a year, LMRC expects quarterly estimated payments on Form OL-3D from then on. This is the part that catches people: for a calendar-year business, LMRC's OL-3 instructions (tax year 2024) list the estimate dates as April 15, June 15, September 15 and December 15. The last one is in December, not January like federal and Kentucky estimates.

The OL-3D worksheet sets each payment at a quarter of the lowest of:

90% of this year's expected tax,
100% of last year's tax (last year's OL-3, line 31), or
if your tax topped $20,000 in any of the last 3 full years, 100% of the 3-year average.

You can pay through LMRC's online portal or by filing Form OL-3D.

Penalties and interest

The OL-3EXT instructions spell these out:

Late filing: 5% of the tax per month or part of a month, up to 25%.
Minimum penalty: $25 for any late return or report, even if no tax is due.
Interest: 12% a year (1% a month) on unpaid tax from the due date.

The $25 minimum is the one that hits new businesses. A Louisville LLC that lost money in its first year still has to file, and a late zero-tax return still costs $25.

Paying contractors

The OL-3 asks whether you paid more than $600 to a non-employee for services in Louisville Metro. If you did, LMRC wants a copy of the 1099 information on its Form 1099-SF.

Lexington-Fayette: Form 228

Lexington-Fayette Urban County Government (LFUCG) charges an occupational license fee of 2.25% on both employee compensation and business net profits, according to its rates and current forms page. The business return is Form 228, the Net Profits License Fee Return. New businesses open an account with Form 228 IP.

Who files and how the minimum works

The 2025 Form 228 instructions say an LLC is treated the way it's classified for federal tax. A single-member LLC filing as a sole proprietor uses the individual column, and a multi-member LLC taxed as a partnership uses the partnership column.

The fee is 2.25% of apportioned net profit, with a $100 minimum. You still have to file if your business had a loss.

There's an exemption from the minimum for very small sole proprietors: non-rental gross receipts of $4,400 or less, or rental gross receipts (including short-term rentals) under $50,000. The catch is that you must file a Form 228 to claim it. Check the Minimum License Fee Exemption box, attach your federal schedules and sign. Skipping the return isn't the same as being exempt.

Sole proprietors 65 or older can also subtract $3,000 from apportioned net profit before the rate applies.

Due dates and extensions

Form 228 is due on the 15th day of the 4th month after your fiscal year ends. The city's 2026 due-date sheet lists April 15, 2026 for a 2025 calendar year (extended date October 15, 2026), and April 15, 2027 for 2026 (extended October 15, 2027).

To extend, file Form 228 EXT, or send a copy of your federal Form 4868, 7004 or 8736. Either way it has to include your Lexington account number, arrive by the original due date, and come with the amount you reasonably expect to owe. Tax unpaid by the original due date bears 12% interest a year.

Estimates and penalties

Taxpayers other than sole proprietors whose total obligation may be above $5,000 for the year have to make quarterly estimated payments, using Form 228 ENP. Late filing or payment costs 5% a month, up to 25% of the tax.

LFUCG now has an online portal for net profit returns, extensions and estimates, so these no longer have to go by mail and check.

Working in more than one district

Here's where small businesses get tangled. A Louisville, KY landscaping company that also works in Oldham and Bullitt counties may owe returns to each district where it has business activity, each with its own rate and minimum. A Lexington, KY consultant with clients in Scott County may have the same question.

A short process keeps it under control:

List every district where you or your employees worked during the year.
Track receipts and payroll by location in your books, monthly.
Check each district's rate, minimum and due date. Use the standard OL-S where the district accepts it.
Register before you file. Louisville and Lexington both issue account numbers, and returns without one get delayed.
Put every estimate date on one calendar, including Louisville's December 15.

Common questions

Do I have to file an occupational license return if I lost money? Yes, in both Louisville and Lexington. Louisville charges a $25 minimum penalty for a late return even with no tax due, and Lexington has a $100 minimum fee unless you qualify for and claim the exemption.

What is the Louisville occupational tax rate? 2.2% for businesses and resident individuals (1.45% Metro and Mass Transit plus 0.75% School Boards). Nonresident individuals pay 1.45%.

What is Lexington's rate? 2.25% on compensation and net profits.

When are Louisville estimated payments due? For calendar-year filers whose tax exceeds $5,000: April 15, June 15, September 15 and December 15.

Does a federal extension extend my Lexington return? Lexington accepts a copy of your federal 4868, 7004 or 8736 if it carries your local account number, arrives by the original due date and includes your estimated payment.

Is Form OL-S accepted everywhere in Kentucky? Tax districts have to accept the standard forms, but rates, minimums and due dates are still set locally.

This guide is general information about Kentucky local occupational license returns as of October 2026, not legal or tax advice for your situation. Confirm current rates and forms with each tax district before you file.

If you'd rather not keep a calendar for every district yourself, RKube Services does bookkeeping and tax prep for Kentucky businesses, local returns included: rkubeservices.com.