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Have there been any notable recent developments concerning state and local taxation in your state, including any regulatory changes or case law?
During the 2017 legislative session, the Legislature overrode the governor’s veto of legislation which repealed the exclusion that had existed since January 1, 2013 for non-wage business income reported by individuals from pass-through entities and sole proprietorships in connection with Federal Schedules C, E, and F, and lines 12, 17, and 18 of Federal Form 1040. That same legislation increased individual income tax rates retroactively for the 2017 tax year and increased the rates for tax year 2018 and future years.
Pursuant to a Kansas Supreme Court decision, the 2018 Kansas Legislature was required to add a significant amount of funding for K-12 education. A subsequent Kansas Supreme Court decision determined that while the previous funding authorized by the Legislature came close to fulfilling the constitutional mandate for necessary educational funding, some additional funding was still necessary. Consequently, the 2019 Legislature will need to add some additional funding, although the amount needed will be much more modest than what was added during the past session.
The Kansas Department of Revenue (KDOR) has been fairly active in recent years with respect to tax residency cases. One particular case has been pending for several years. The Bicknell case involves whether Mr. Bicknell continued to be a Kansas resident or had established residency in the state of Florida. The matter has been up to the Kansas Court of Appeals, back down to the Kansas Board of Tax Appeals, and is now pending in the Crawford County District Court where a trial was held and a decision is awaited. The matter will likely be appealed from the district court to the Kansas Court of Appeals and could potentially be reviewed by the Kansas Supreme Court.
In the property tax arena, several cases have been litigated involving the proper appraisal of “Big Box” stores. Counties around the country have characterized these cases as involving the “dark store theory”. The Kansas Board of Tax Appeals and the Kansas Court of Appeals have ruled in favor of the taxpayers and ruled that the county had not properly valued these properties. The outcome of the Kansas cases has been consistent with the majority of the decisions handed down around the country with respect to this issue. Additional cases involving these issues are pending either at the Board of Tax Appeals or the Kansas Court of Appeals.
What primary and secondary legislation governs the collection and remittance of taxes in your state?
With few exceptions, the legislation governing taxes is set forth within Chapter 79 of the Kansas Statutes Annotated. The taxes referenced within Chapter 79 are administered by the Kansas Department of Revenue (KDOR), which has promulgated administrative regulations set forth within Chapters 14, 92, and 93 of the Kansas Administrative Regulations. Mortgage registration tax is collected by the county register of deeds for the county in which such property is located. However, this section was repealed effective January 1, 2019.
Local taxes (city or county) are remitted to the KDOR which is responsible for remitting the taxes to the applicable cities or counties. The KDOR is responsible for auditing with respect to both state and local taxes and assuring that any applicable local taxes are being collected, but the local jurisdictions have some ability to monitor the collection and remittance of the local taxes.
What government authorities (at both state and local level) are charged with the collection and administration of taxes, and what are the extent of their powers?
The KDOR administers most taxes, including with respect to:
- sales and use tax;
- income tax;
- motor fuels;
- vehicle taxes;
- vehicle registration;
- cigarettes and tobacco;
- liquor and beer;
- transient guest;
- mortgage registration;
- motor carrier property; and
- state assessed property taxes.
The KDOR has broad authority to administer the collection of the taxes referenced above. Specifically, it can:
- investigate to determine whether an individual or business is in compliance with applicable tax laws or regulations;
- issue assessments;
- promulgate regulations; and
- impose civil and criminal penalties with respect to individuals who violate any applicable tax laws or regulations.
Regarding ad valorem property taxes, the Division of Property Valuation within the KDOR is responsible for administering and collecting property taxes from public utilities (state assessed). Other property taxes, both real and personal, are administered and collected by the county appraiser and county treasurer within their respective counties.
How would you describe the balance between taxes collected at state and local level?
Kansas has historically had a broad-based state and local tax structure. Although the mix has evolved over the years, Kansas has referred to its tax structure as a three-legged stool, made up of income, sales and use, and property taxes. For fiscal year 2017, property taxes accounted for approximately 34% of state and local taxes (about 37% if various vehicle taxes which are levied in lieu of the general property tax are included). Income and privilege taxes accounted for approximately 19% of state and local tax revenue in fiscal year 2017 and sales and use tax revenue represented approximately 31% for fiscal year 2017. The addition of local sales taxes has been a major factor with respect to the growth of sales tax revenue since 1970.
Tax year and filing deadlines
What is the prescribed tax year in your state and what filing deadlines apply?
Income tax Income tax returns are due the 15th day of the fourth month following the end of the tax year. For a calendar year taxpayer (January 1 to December 31), the due date is April 15. Federal extensions that are approved will also extend the Kansas due date.
Business taxes Retailers’ sales, compensating use, and most excise tax returns are due on the 25th of the month following the end of the reporting period. Reporting periods are determined based on the annual amount of tax paid. Due dates with respect to withholding tax payments depend on the size of one's payroll. The larger one's payroll, the more frequently one will need to report and pay the applicable tax. Kansas has five options: annual, quarterly, monthly, semi-monthly, and quad-monthly. Sales and use taxes are typically filed on a monthly basis, although in some instances taxpayers can be permitted to file on a quarterly or yearly basis.
By statute, businesses are now required to submit their sales tax, compensating use tax, and withholding tax returns electronically.
- Real property – public utilities (state assessed) are required to file real property renditions by March 20.
- Personal property – taxpayers are required to file personal property renditions by March 15. Oil and gas property renditions are required to be filed by April 1.
How competitive is your state in terms of taxation in relation to other states? What is the government’s general policy and approach to taxation?
If one looks at the surrounding states (eg, Arkansas, Colorado, Iowa, Missouri, Nebraska, and Texas), Kansas would be viewed as being on the high end with respect to most taxes. With respect to sales tax, Kansas is tied with Arkansas for the highest state sales tax rate which is currently 6.5% and when the city and county taxes that many jurisdictions impose are added, the total rate of many jurisdictions jumps to 9% or higher. At least two jurisdictions have total rates that exceed 10%. With respect to state-assessed taxpayers, Kansas is typically viewed as being on the high end regarding property taxes. With respect to locally assessed property, the mill levies fluctuate from county to county with significant differences between the mill levies that are imposed by the various counties. However, in general, Kansas is typically viewed as being on the higher end of the property tax spectrum. With respect to corporate income tax, the Kansas base rate of 4% is near the lower end of the states within the region but with the 3% surtax that Kansas imposes on taxable income over $50,000, Kansas moves near the higher end of the states in our region. The individual income tax rates range from to 3.1% to 5.7% for tax year 2018, which places Kansas at the higher end for the lowest brackets but fairly competitive for the higher brackets.
Historically, Kansas has relied on the concept of a three-legged stool with some sort of balance between sales tax, income tax, and property tax. Although the general property tax continues to be the most significant revenue producer, its proportion of total state and local tax revenue has declined significantly over the years, currently accounting for approximately 37% (if various vehicle taxes are included). Sales and use tax revenue has been increasing significantly over the years with said taxes accounting for approximately 31% of the tax mix as of 2017. Income and privilege taxes have fluctuated in recent years, but as of 2017 they account for approximately 19% of the state and local tax revenue.
Corporate income and franchise taxes
How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?
In Kansas, a corporate income tax return must be filed by all corporations doing business in or deriving income from sources within Kansas which are required to file a federal income tax return, whether or not tax is due. If any member of a unitary group has activity in Kansas that exceeds that protected by 15 U.S.C. Section 381, all unitary group members having Kansas property, payroll, or sales must file Kansas returns and pay the applicable tax.
Generally, Kansas income tax laws conform to federal income tax laws. There are certain modifications set forth within the Kansas statutory scheme.
How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?
In instances where corporations have business income, both inside and outside the state, the net income attributed to the Kansas operation is based on the percentage of the corporation's business located in Kansas. A business’s tax obligation is calculated based on a three-factor formula utilizing the proportion of property, payroll, and sales in Kansas compared to total property, payroll, and sales. In instances where the Kansas Department of Revenue determines that a unitary group exists, a combined report has historically been required. There is an opportunity to use a two-factor (sales and property) formula under certain limited circumstances. The payroll factor for a taxable year must exceed 200% of the average of the property and sales factors. A two-factor election is effective and irrevocable for the taxable year of the election and the following nine years, and is binding on all members of a unitary group of corporations.
Other special elections are available pursuant to K.S.A. 79-3279.
Kansas does not have any specific provisions with respect to transfer pricing.
How is nexus determined for corporate income tax purposes?
As indicated above, if any member of the unitary group has activity in Kansas that exceeds that protected by 15 U.S.C. Section 381, all unitary group members having Kansas property payroll or sales must file Kansas returns and pay the applicable tax. Public Law 86-272 sets forth the parameters with respect to when the activities within a state create income tax nexus.
Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?
Kansas does not have any specific guidance with respect to the application of affiliate nexus in the corporate income tax area. Few corporate income tax cases have been litigated in recent years, based primarily on the fact that there has been little audit activity within the corporate income tax arena. As a consequence, there are no corporate income tax cases involving affiliate nexus.
What are the applicable corporate income tax rates?
For corporations whose business is solely within the state, the tax is 4% of net income. Additionally, there is a 3% surtax imposed on any net income exceeding $50,000.
Exemptions, deductions and credits
What exemptions, deductions, and credits are available?
There is a deduction for certain depreciable property of corporations (K.S.A. 2018 Supp. 79-32,143a). There are numerous credits for different types of taxpayer or operation (K.S.A. 79-32,143 through -32,271).
What filing requirements and procedures apply? Are there special filing requirements for groups of company?
Corporations must typically file either a Form K-120 or K-120AS in the case of corporations apportioning income and corporations using the combined income method must utilize Schedule K-121. For calendar-year taxpayers, returns must be filed by April 15; if one is on a fiscal year, the return must be filed no later than the 15th day of the fourth month following the end of one’s tax year. If the original federal due date is not the 15th day of the fourth month after the close of the taxable year, the corporation must complete item “I” in the taxpayer information section of Form K-120 and enclose a letter indicating the authorizing federal statute.
Kansas has incorporated the Uniform Division of Income For Tax Purposes Act. Kansas has also been a long-time member of the Multi-state Tax Commission. Kansas has historically taken a broad view of what constitutes a “unitary group”. In the past, Kansas has determined that if a unitary group exists, a combined report has been required (K.S.A. 2018 Supp. 79-3220(b), -3221).
Corporate franchise tax
Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?
The Kansas franchise tax expired for all tax years commencing after December 31, 2010 (K.S.A. 79-5401).
If your state imposes a corporate franchise tax, please stipulate:
(a) The applicable tax base.
(b) Tax rates.
(c) Any exemptions or deductions.
(d) Filing formalities.
Personal income taxes
How is taxable personal income determined in your state?
Kansas starts with the individual’s federal adjusted gross income, subject to some modifications (K.S.A. 2018 Supp. 79-32,117p), personal exemptions (K.S.A. 79-32,121), credits for tax on income derived in other jurisdictions (K.S.A. 79-32,111), and either their itemized deductions (K.S.A. 2018 Supp. 79-32,120) or the standard deduction (K.S.A. 79-32,118, and -32,119).
Under what circumstances is an individual deemed resident in your state for personal income tax purposes?
K.S.A. 79-32,109(b) defines "resident individual" as "a natural person who is domiciled in this state. A natural person who spends in the aggregate more than six (6) months of the taxable year within this state shall be presumed to be a resident for purposes of this act in absence of proof to the contrary. A non-resident individual means an individual other than a resident individual."
Kansas has also promulgated K.A.R. 92-12-4a which sets forth the criteria that Kansas focuses on with respect to determining who constitutes a "resident individual." The regulation sets forth a variety of factors that Kansas evaluates when determining whether a person is a "resident" of Kansas.
What are the applicable personal income tax rates?
K.S.A. 2018 Supp. 79-32,110 provides for the following income tax rates for the 2018 tax year and all tax years thereafter:
- married filing jointly:
- $0 to $30,000—3.10%;
- $30,001 to $60,000—5.25%; and
- $60,001 and over—5.70%; and
- single, head of household, or married filing separately:
- $0 to $15,000—3.10%;
- $15,001 to $30,000—5.25%; and
- $30,001 and over—5.70%.
Exemptions, deductions and credits
What exemptions, deductions, and credits are available?
Modifications include 25 types of addition to federal adjusted gross income and 24 subtractions (K.S.A. 2018 Supp. 79-32,117p). The standard deductions are as follows:
- single individual filing status—$3,000;
- married filing status—$7,500; and
- head of household filing status—$5,500 (K.S.A. 79-32,119).
For 2018, itemized exemptions include 100% of federal deductions for charitable contributions and 50% each of federal deductions for medical care, qualified residence interest, and taxes on real and personal property (K.S.A. 2018 Supp. 79-32,120). There is a credit for tax on income derived in other jurisdictions (K.S.A. 79-32,111). There are numerous credits for different types of taxpayer or operation (K.S.A. 79-32,143 through -32,271).
What filing requirements and procedures apply?
Those individuals filing federal income tax returns or whose gross income exceeds the Kansas standard and personal exemptions are required to file a return (K.S.A. 2018 Supp. 79-3220(a)). Returns are in the form provided by the secretary of revenue and are to be filed by the 15th day of the fourth month following the close of the taxable year, subject to extensions (id.; K.S.A. 2018 Supp. 79-3221).
What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (eg, withholding)?
Every employer who is required by federal law to withhold upon wages shall also withhold wages at the state level, with the exception of wages paid to extras in motion picture or television productions working for less than 14 days in a calendar year (K.S.A.79-3296(a), (b)). Such taxes are to be remitted to and returns filed with the secretary of revenue on a frequency that depends on the amount of withholding by the employer in a calendar year (K.S.A. 79-3298(a)).
Sales and use taxes
What goods are subject to sales and use tax in your state (at both state and local level)?
Subject to numerous exemptions and exclusions, Kansas imposes sales and use tax on the sale of tangible personal property and certain enumerated services (K.S.A. 2018 Supp. 79-3603). Although sales of vehicles are subject to such tax, there are exceptions where the transfer of a vehicle is to a corporation or limited liability company solely in exchange for an interest in the entity, transfers of vehicles from one entity to another when all of the assets are being transferred, and sales between immediate family members (K.S.A.2018 Supp. 79-3603(o)). Exemptions are set forth at K.S.A. 79-3606.
What is the state sales tax rate?
Sales and use taxes are imposed at 6.5% (K.S.A. 2018 Supp. 79-3603, -3703). Counties and cities may also impose local sales taxes in addition to the state’s rate.
What is the range of local sales tax rates levied in your state?
Kansas allows local governments to collect a local option sales tax of up to 4%. Kansas has 284 local tax jurisdictions collecting an average local tax of 1.542%. Currently the highest sales tax rate in Kansas is 10.60% in the city of Shawnee Mission. There are presently two counties that collect no local tax.
What goods are exempt from sales and use tax?
Kansas has over 90 sales tax exemptions, including (generally, and not limited to) exemptions for:
- items subject to other, more specific excise taxes;
- sales to (or used by or in connection with) government, educational, and medical entities;
- sales to certain industries important to the state; and
- purchases made by a variety of identified non-profit organizations (K.S.A. 2018 Supp. 79-3606).
With the exception of motor vehicles, isolated or occasional sales of tangible personal property and services are exempt (K.S.A. 2018 Supp. 79-3606(i)). Kansas has some manufacturing exemptions, including the exemption for ingredient or component parts of tangible personal property or services for products to be sold at retail (K.S.A. 2018 Supp. 79-3606(m)) and the exemption from sales tax for the sales of machinery and equipment used in the state as an integral or essential part of an integrated production operation, by a manufacturing or processing plant or facility (K.S.A. 2018 Supp. 79-3606(kk)).
Are any services taxed?
Only those services specifically enumerated within K.S.A. 79-3603 are subject to sales tax. Kansas does impose sales tax on the services of "installing, applying, altering, repairing, servicing, or maintaining tangible personal property." Kansas does not tax professional services and has taken the position that the following services are not taxable:
- chimney sweeping;
- hair styling;
- legal services;
- snow removal;
- towing/moving; and
- trash hauling.
Kansas also provides an exclusion from tax for the labor services associated with the original construction of a "building or facility." Additionally, there is an exclusion for work associated with the "restoration, reconstruction, remodeling, or renovation" of a residence.
What filing requirements and procedures apply?
Retailers are to file returns, including by electronic means, in the manner and forms provided by the secretary of revenue. The frequency of the filings, which shall also include the payment of tax, depends on the tax liability in a calendar year (K.S.A. 2018 Supp. 79-3607). Typically, sales tax returns are due on the 25th day of the month following the reporting period.
How is the value of property assessed for tax purposes in your state? Which types of property are subject to tax?
Real property is classified into seven categories:
- real property used for residential purposes, including multi-family residential real property;
- land devoted to agricultural use;
- vacant lots;
- real property which is owned and operated by a not-for-profit organization not subject to federal income taxation pursuant to Section 501 of the Federal Internal Revenue Code and which is included in this subclass by law;
- public utility real property except railroad real property which shall be assessed at the average rate that all other commercial and industrial property is assessed;
- real property used for commercial and industrial purposes and buildings and other improvements located upon land devoted to agricultural use; and
- all other urban and real property not otherwise specifically subclassified.
Personal property is classified into six categories:
- mobile homes used for residential purposes;
- mineral leasehold interests except oil leasehold interests, the average daily production from which is five barrels or less, and natural gas leasehold interests, the average daily production from which is 100,000 cubic feet or less;
- public utility tangible personal property including inventories thereof, except railroad personal property including inventories thereof;
- all categories of motor vehicle not defined and specifically valued and taxed pursuant to law enacted prior to January 1, 1985;
- commercial and industrial machinery and equipment; and
- all other tangible personal property not otherwise specifically classified.
The assessed value of property is determined based on the percentage assigned to each class of property. For instance, in the case of real property, residential real property's classification rate is 11.5%, while real property used for commercial and industrial purposes is assigned a classification rate of 25%. In the case of personal property, commercial and industrial machinery and equipment has a classification percentage of 25%. Mobile homes used for residential purposes have a classification percentage of 11.5%.
In the case of real property, one must start with the appraised value, then apply the classification percentage to obtain the assessed valuation and ultimately multiply that times the mill levy to obtain the actual tax due. In the case of personal property, a different formula is applied prior to utilizing the county's mill levy.
In the case of state assessed property, the Property Valuation Division of the Kansas Department of Revenue is responsible for valuing public utility property (state assessed). Real property and personal property are subject to tax. Commercial and industrial machinery and equipment has been exempt from property tax since July 1, 2006. Additional exemptions are available for certain personal property. Cities, counties, and townships are permitted to levy taxes on intangible property. A relatively small percentage of the cities, counties, or townships impose such a tax.
What is the state property tax rate?
Property taxes are almost exclusively a local (ie, city or county) issue.
What is the range of local property tax rates levied in your state?
The mill levies established by the various counties vary dramatically. The lowest average county rate as of 2017 was 92.178% in Coffey County which happens to be where a nuclear power plant is located. The highest average county rate is 217.193% in Clark County, which is a very rural county located in southwest Kansas. The classification percentages attached to the various classes of property are referenced above.
Exemptions and deductions
What exemptions and deductions are available?
Some of the various property tax exemptions are as follows:
- Since July 1, 2006, commercial and industrial machinery and equipment has been exempt.
- All merchants’ and manufacturers’ inventories have been exempt from property taxes by constitutional amendment since 1989. This exemption does not apply to public utility inventories.
- Economic development exemption – cities and counties can pass resolutions subject to approval by the Kansas Board of Tax Appeals (BOTA) that can exempt up to 100% of real property (land and improvements) and personal property for a maximum of 10 years. Certain criteria must be met pursuant to the constitutional provisions set forth within Article 11, Section 13 of the Kansas Constitution.
- Industrial revenue bonds – businesses using industrial revenue bonds as a financing mechanism may, if a city or county passes the necessary resolution and it is approved by the BOTA, receive up to a 100% 10-year abatement with respect to property purchased with the proceeds of the industrial revenue bonds. The exemption would encompass the cost of construction, labor, building materials, and machinery and equipment.
- A variety of exemptions are available in connection with projects undertaken by electric power generators. Additionally, there are exemptions available for those pursuing projects involving renewable energy.
- Exemptions are also available for the construction of or additions to refineries based on criteria set forth within the relevant statutes.
- Certain crude oil or natural gas liquid pipelines can be eligible for up to a 100% 10-year abatement if certain statutory criteria are met.
What filing requirements and procedures apply?
In general, exemption applications must be filed first with the county and then the BOTA. Pursuant to K.S.A. 79-213, said statute does identify several instances where the provisions of 79-213 do not apply. Statutory provisions do exist to address clerical errors or other enumerated mistakes under certain very specific circumstances.
Real estate transfer tax
How is the transfer of real estate taxed in your state (including tax base, rates, exemptions, and filing formalities)?
Other than the somewhat nominal filing fees, there is no transfer tax (K.S.A. 2018 Supp. 28-115). There is a mortgage registration tax of .05% of the principal debt, but the same is reduced to zero for 2019 (K.S.A. 2018 Supp. 79-3102).
Unclaimed and abandoned property
Reporting and remittance
Describe your state’s regime for reporting and remitting unclaimed and abandoned property. How is the value of such property calculated? How assertive is your state in enforcing its rights to unclaimed property?
A holder of property presumed to be abandoned must file a report with the state treasurer regarding the nature of the property by November 1 of each year, covering the 12 months preceding July 1 of that year, although life insurance company reports must be filed by May for the preceding calendar year (K.S.A. 2018 Supp. 58-3950). The holder is supposed to try to contact the apparent owner if that information is available (id.). The holder is to pay or deliver the presumed abandoned property to the state treasurer at the time of the report (K.S.A. 2018 Supp. 58-3952). Generally, no report is required if the holder does not hold a single property valued at over $100 or an aggregate of property the value of which is under $250 (K.S.A. 2018 Supp. 58-3950(i)). Failure to file a report results in a civil penalty of $100 for each day the report goes unfiled, not to exceed $5,000 total. Kansas has emphasized voluntary compliance and has not typically conducted audits.
Excise and other indirect taxes
What excise taxes are levied in your state, including applicable goods, rates, and filing formalities?
The following taxes are levied:
- cigarette tax:
- package of 20—$1.29 (K.S.A. 79-3310);
- package of 25—$1.61 (K.S.A. 79-3310); and
- $0.05 per milliliter of consumable material for electronic cigarettes (effective July 1, 2017; K.S.A. 79-3399);
- liquor gallonage tax:
- strong beer and cereal malt beverages—$0.18 per gallon (K.S.A. 41-501);
- alcohol and spirits—$2.50 per gallon (K.S.A. 41-501);
- light wine—$0.30 per gallon (K.S.A. 41-501); and
- fortified wine—$0.75 per gallon (K.S.A. 41-501);
- liquor drink tax (liquor by the drink, on-premises consumption; ie, drinking establishments)—10% of gross receipts (K.S.A. 79-41a02);
- liquor enforcement tax (off-premises consumption; ie, liquor stores)—8% of gross receipts (K.S.A. 79-4101);
- mineral tax:
- oil—8% of gross taxable value with 3.67% property tax credit (K.S.A. 79-4217, 4219);
- gas—8% of gross taxable value with 3.67% property tax credit (K.S.A. 79-4217, 4219); and
- coal—$1.00 per ton (K.S.A. 79-4217, 4219);
- motor fuel tax:
- regular motor fuel—$0.24 per gallon (K.S.A. 79-34,141);
- gasohol—$0.24 per gallon (K.S.A. 79-34,141);
- diesel—$0.26 per gallon (K.S.A. 79-34,141);
- liquefied petroleum gas—$0.23 per gallon (K.S.A. 79-34,141);
- E-85—$0.17 per gallon (K.S.A. 79-34,141);
- compressed natural gas—$0.24 per 126.67 cubic feet or 5.66 pounds (gasoline gallon equivalent) (K.S.A. 79-34,141);
- liquefied natural gas—$0.26 per 6.06 pounds (diesel gallon equivalent) (K.S.A. 79-34,141); and
- trip permits (each)—$13.00 per 24 hours; $25.00 per 72 hours (effective July 1, 2006) (K.S.A. 79-34,118);
- tire tax (new tires)—$0.25 per tire (K.S.A. 65-3424d);
- tobacco tax (wholesale price)—10% (K.S.A. 79-3371);
- vehicle rental excise tax (for rentals not exceeding 28 consecutive days)—3.5% of gross receipts (K.S.A. 79-5117);
- water protection fee:
- $0.03 per 1,000 gallons (82a-954); and
- $0.03 is collected for the Kansas Water Office and $.002 is collected for the Department of Health and Environment (K.A.R. 28-15-12); and
- clean drinking water fee—$0.03 per 1,000 gallons (K.S.A. 82a-2101).
Other indirect taxes
Are any other indirect taxes levied in your state?
Everything of significance has been included.
Do any other taxes apply to businesses in your state? If so, please include applicable tax bases, rates, exemptions/deductions, and filing formalities.
The following are levied:
- bingo enforcement tax:
- bingo faces—$0.002 per face (K.S.A. 75-5176);
- instant bingo (pull-tabs)—1% of printed retail sales price (K.S.A. 75-5176); and
- reusable bingo cards, admission fees and other charges—3% of gross receipts (K.S.A. 75-5176);
- car line tax—2.5% of gross earnings (K.S.A. 79-907);
- dry cleaning:
- environmental surcharge—2.5% of gross receipts (K.S.A. 65-34,150);
- chlorinated solvent fee—$5.50 per gallon (K.S.A. 65-34,150); and
- non-chlorinated solvent fee—$0.55 per gallon (K.S.A. 65-34-151);
- drug stamp tax:
- processed—$3.50 per gram or portion of gram (K.S.A. 79-5202);
- wet plant—$0.40 per gram or portion of gram (K.S.A. 79-5202); and
- dry plant—$0.90 per gram or portion of gram (K.S.A. 79-5202);
- controlled substance:
- $200 per gram or portion of gram (K.S.A. 79-5202); and
- $2,000 per 50-dose unit or portion of unit (K.S.A. 79-5202);
- environmental fee—$0.01 per gallon of petroleum product (each of two funds has maximum and minimum limits) (K.S.A. 65-34,117);
- oil inspection fee—$0.015 per barrel (50 gallons) (K.S.A. 55-426);
- pre-paid wireless 911 fee—1.06% per retail transaction (K.S.A. 75-5133);
- privilege tax:
- 2.25% of banks’ total net income plus 2.125% surtax on taxable income over $25,000 (K.S.A. 79-1107); and
- 2.25% of trusts’ and savings and loan associations’ total net income plus 2.25% surtax on taxable income over $25,000 (K.S.A. 79-1108); and
- raffle license fee (required for organizations where annual gross receipts from raffles is greater than $25,000) (K.S.A. 75-5175):
- more than $25,000 but not exceeding $50,000—$25;
- exceeding $50,000 but not exceeding $75,000—$50;
- exceeding $75,000 but not exceeding $100,000—$75; and
- exceeding $100,000—$100.
Does your state offer any tax incentive schemes to attract businesses and promote investment?
Kansas provides a host of sales and use tax exemptions and exclusions. Some of the major ones involve consumables, ingredient or component parts, and an exemption for manufacturing machinery or equipment, as well as repair and replacement parts and the installation of such equipment. Kansas also offers a variety of income tax credits. In the property tax arena, there is a long list of available exemptions. Many exemptions are available to those within the public utility industry. There are exemptions with respect to transmission lines, pipelines (if statutory requirements are met), pollution control equipment, and certain projects relating to renewable energy. There are also 10-year property tax abatements available in connection with the use of industrial revenue bonds and projects that meet the requirements of the economic development exemption provided for in Article 11, Section 13 of the Kansas Constitution.
The Department of Commerce oversees a variety of incentives. The department has a job creation fund that provides some discretionary dollars that can be used to incentivize the creation of jobs in Kansas. However, the Legislature has not always added additional funds during particular years, so the funds available within this program have typically been limited. Also with respect to job creation, the state has the Promoting Employment Across Kansas Act (PEAK), which was created to encourage economic development in Kansas by incentivizing companies to relocate, locate, expand, or retain a business facility or operations within the state. This is a discretionary program, so the secretary of commerce has the discretion to approve or deny applications with respect to this program. Depending on the number of jobs created and a variety of other factors, benefits can be spread equally over a benefit term of up to 10 years. During this term, the companies may retain or be refunded 95% of the state withholding taxes of PEAK-eligible employees, assuming that the wages are at or above the county median wage where the business facility is located. The number of years over which someone can receive benefits is based on a variety of factors, including the number of jobs created. While the companies can retain up to 95% of the withholding taxes, the department typically approves a lesser percentage.
The Department of Commerce also oversees the High Performance Incentive Program (HPIP). This provides what is essentially an investment tax credit to encourage the construction and expansion of Kansas businesses. The program offers incentives to companies that make new capital investments in their companies, pay above average wages for their industry, and invest in workforce training for their employees. The program provides a 10% investment tax credit against corporate income tax with respect to qualified business facility investment (as defined by K.S.A. 79-32,154) that exceeds $50,000 or $1 million for the metropolitan counties of Johnson, Shawnee, Sedgwick, Wyandotte, and Douglas. The investment tax credit is a one-time credit with a 16-year carry-forward provision subject to requalification for any unused credits and can be used to reduce up to 100% of a firm’s annual tax liability. The program also offers certain workforce training credits and a sales tax exemption on the services and purchases relating to new investments in a facility or equipment after HPIP certification is obtained. Of particular importance is the need to file a project description form (CIPD) prior to any commitment to proceed with the investment. The statutory scheme requires that this project description be submitted before a company decides to move forward with an investment.
Other incentives are available through the Department of Commerce, including certain training or retraining programs.
What tax compliance procedures and best practices should businesses operating in your state be aware of?
Given the ability of cities and counties to impose local sales taxes, the total rates vary significantly from one county or city to another. The property tax mill levies also vary dramatically from one county to another. Kansas has many more taxing jurisdictions than most states, so those doing business in multiple jurisdictions need to make sure that they comply with all of the obligations associated with the jurisdictions in which they are making sales.
Within the corporate tax arena, Kansas has always been very expansive in its view of what constitutes a “unitary business.” Kansas has offered very little guidance, whether in the form of statutes or regulations, with respect to what constitutes a “unitary business,” so taxpayers should be aware that there may well be disagreements with respect to which companies should be included as part of a “unitary group.”
What strategic planning considerations should businesses operating in your state bear in mind to optimize tax efficiency?
One should always consider choice of entity issues when structuring tax affairs. Beyond this, given the significant differences in property tax mill levies across the state and the differences with respect to total sales and use tax rates (given the ability of cities and counties to impose local taxes), taxpayers should evaluate whether there are any benefits to locating in certain areas based on their respective tax obligations.
Kansas has not yet issued guidance with respect to how one should conduct business in the post-Wayfair environment. There have been many discussions regarding how Kansas should approach this area and whether legislation is needed to allow the state to initiate collection activity, but we may well not have any guidance until next year or perhaps even during the course of the legislative session. Additionally, legislation was pursued during the last session that would have addressed the appropriate way to deal with the impact of the recent federal changes in Kansas to the extent that Kansas ‘piggybacks’ on federal income. The legislation would have specifically addressed the repatriation dividend, global intangible low taxed income, and other related issues. The legislation was not successful last session, but those areas will be revisited during the upcoming session. In the meantime, companies have been required to make a determination as to how to file based on the existing state of the law and their interpretation of what the federal changes require in Kansas.