The Kentucky Department of Revenue issued guidance confirming that artificial intelligence software is classified as prewritten computer software for sales tax purposes. The ruling states that AI's ability to alter responses or generate output based on user data does not qualify it as custom software. All AI software applications must be treated according to Kentucky's existing definition of taxable prewritten computer software.

The bottom line: Businesses selling AI-powered applications, machine learning tools, or any software with adaptive capabilities should treat these products as taxable prewritten software in Kentucky. The state's position is clear: self-learning or adaptive features do not convert prewritten software into custom software for tax purposes.