Usage Tax U-Drive-It Program (UDI)

Primary Contact: Tammi Jarboe, Branch Manager

The U-Drive-It program is an alternative method for the payment of Usage Tax as prescribed by KRS 138.460. This allows for deferment of this tax at the time of registration. Payment will be made based on rental and lease receipts generated by use of the vehicle. The laws governing this program are found in KRS 138.463 and are supplemented by the following four administrative regulations:

601 KAR 1:140 Applications & Permits

601 KAR 1:145 Tax Reporting

601 KAR 1:146 Fair Market Values

601 KAR 1:147 Records & Audits

Proper accounting systems to record all usage of the vehicles licensed under the U-Drive-It program are required. The taxpayer must account for all use of the vehicle and revenue generated from its operation on Kentucky highways.

Items to Note:

The tax due the Transportation Cabinet for vehicles rented or leased under this program are the DIRECT obligation of the taxpayer who registers the vehicle. The tax due may be passed on to the user of the vehicle. Any tax exempt status of the renter or lessee is not applied to the permit holder.
All transactions will be taxed at the Fair Market Value (FMV) of the vehicle being rented or leased.
Taxpayers should retain every void or damaged rental agreement.
You are allowed a reimbursement from insurance or auto manufacturer on service loaner vehicles but may NOT charge the customer for use thereof. Service loaner vehicles may NOT be rented for consideration.

Record Retention Requirements

All records must be retained by the taxpayer for a period of six (6) years in accordance with KRS 138.463

Rental Operation Records

Rental operation records must include:

Pre numbered rental agreements
Original Vehicle Invoice (copy)
Copies of all executed rental agreements

The rental agreement must include:

Rental Agreement Number
Beginning Date of Rental
Ending Date of Rental
Vehicle Identification (VIN, Make, Model, Year)
Beginning Odometer Reading
Ending Odometer Reading
Amount charged Rental Customer
Details of Customer Charge
Identification of person renting vehicle

Records for loaner program should be the same but may be kept in a log. There should be no charges to the customer for loaner vehicles.

Lease Operation Records

Lease operation records must include a completed and signed copy of the lease agreement.

The lease agreement must include:

Full name and address of lessee
Beginning and Ending date of lease
Lease Term
Vehicle Identification (VIN, Make, Model, Year)
Certificate of Title (copy)
Lease Calculation Worksheets
Early Termination Documentation
Lease Extension Agreements
Documentation of any alteration to the original lease agreement