Kentucky Revised Statutes Title XIII. Education § 164A.370.Tax exemption

The property of the trust and its income from operations shall be exempt from all taxation by the Commonwealth of Kentucky or any of its political subdivisions. Investment income earned on contributions paid by any participant and used for qualified educational expenses defined in KRS 164A.305(13) or refunded under KRS 164A.350 shall not be subject to Kentucky income tax by either a participant or any beneficiary of a participation agreement, the purposes for which the investment income was accrued being deemed and declared to be entirely public in nature. Earnings that are not used for qualified educational expenses as defined in KRS 164A.305(13) and are refunded shall be subject to Kentucky income tax, except for earnings refunded pursuant to KRS 164A.350.