NEW TAX REFORM! Effective Tax Year 2013, certain Kansas businesses will enjoy significant tax relief. Kansas passed a business income tax exemption which eliminates certain non-wage business income on lines 12, 17 and 18 of IRS Form 1040 for Partnerships, Limited Liability Corporations, Limited Liability Partnerships, Sole Proprietorships and Subchapter-S Corporations that have elected at the federal level to be taxed as a pass-through entity.
In addition, effective for tax year 2013, Kansas collapsed the current three-bracket structure for individual state income taxes (3.5, 6.25 and 6.45 percent respectively) into a two-bracket system using rates of 3.0 and 4.9 percent. A new series of individual income tax rate cuts will begin in tax year 2014, when the current bottom bracket of 3.0 percent is reduced to 2.7 percent, and the current top bracket of 4.9 percent is reduced to 4.8 percent. The reform also increases the standard deduction amount for single head-of-household filers from $4,500 to $5,500 and for married taxpayers filing jointly from $6,000 to $7,500.
Income Tax Incentives
High Performance Incentive Program (HPIP)
This program provides a 10 percent corporate income tax credit on the qualified capital investment of an eligible company. Qualified capital investment can include such items as the purchase or lease of a facility or equipment, remodeling or build-out costs, fixtures, furniture and computers. Equipment transferred to Kansas from out-of-state is also credited at the original acquisition cost. The 10 percent tax credit is awarded to companies that operate an eligible business, pay above-average wages and invest in employee training. The credits can be used to significantly reduce a company’s corporate income tax liability in a given year. Credits must be used within a consecutive 16-year period. The minimum investment threshold to qualify for HPIP is $1 million for the urban counties of Douglas, Johnson, Sedgwick, Shawnee and Wyandotte. For all other counties, the minimum investment threshold is $50,000. A key component of HPIP is the completion of the Project Description form, which must be submitted to the Department of Commerce prior to the company signing any document, such as a lease or purchase agreement, which commits the company to locating or expanding in Kansas.
Machinery & Equipment Expensing Deduction
Eligible Kansas taxpayers are allowed to claim an expense deduction for business machinery and equipment, placed into service in Kansas. This is a one-time deduction for each qualified purchase of machinery and equipment in the year that it is placed in service. Unused expense deduction is treated as a Kansas net operating loss that may be carried forward for 10 years. Eligible investment is machinery and equipment depreciable under the Modified Accelerated Cost Recovery System (MACRS) in section 168 of the Internal Revenue Code, or canned software as defined in section 197 of the Internal Revenue Code. Examples of eligible equipment include manufacturing equipment, office furniture, computers, software and racking.
Property Tax Incentives
Machinery and Equipment Property Tax Exemption
Commercial and industrial machinery and equipment acquired by qualified purchase or lease or transferred into the state is exempt from state and local property tax. The exemption pertains to machinery and equipment used in the expansion of an existing facility or the establishment of a new facility. The exemption covers machinery and equipment used in manufacturing or warehousing/distribution, commercial equipment, computers, desks and chairs, copiers and fax machines.
Property Tax Abatement
Cities or counties may exempt real property from ad valorem taxation. The tax abatement can include all or any portion of the appraised buildings, land and improvements. A total or partial tax abatement may be in effect for up to 10 years after the calendar year in which the business commences its operations. Any property tax abatement is the decision of the city or county.
Sales Tax Exemptions
Effective July 1, 2013, the Kansas state sales and use tax rate will be 6.15 percent. However, there are several sales tax exemptions available which include:
Rural Opportunity Zones
Rural Opportunity Zones (ROZ)
Labor services related to original construction
Remodeling costs, furnishings, furniture, machinery and equipment for qualified projects
New machinery and equipment for manufacturing and distribution. This also includes pre- and post-production machinery and equipment, including raw material handling, waste storage, water purification and oil cleaning, as well as ancillary property such as gas pipes, electrical wiring and pollution control equipment
Tangible personal property that becomes an ingredient or component part of a finished product
Tangible personal property that is immediately consumed in the production process, including electric power, natural gas and water
Incoming and outgoing interstate telephone or transmission services (WATTS)
Real and personal property financed with an Industrial Revenue Bond
are designed to spur economic development in and expand job growth in 73 key counties around the state. The program has two main incentives:
Other Tax Incentives and Business Initiatives
A state income tax exemption for up to five years to individuals who move to a ROZ county from outside the state. Individuals must not have lived in Kansas for the past five years, nor have Kansas source income of more than $10,000 per year over the past five years.
Student loan forgiveness of up to $3,000 per year ($15,000 maximum benefit) for individuals who graduate from an accredited post-secondary institution and move to a ROZ county. The student loan forgiveness portion of the program is a county-state partnership, and counties must opt in to participate.
Right-to-Work State – Union membership in Kansas is 6.8 percent, well below the national average.
Inventory Tax Exemption – All merchant and manufacturers’ inventories are exempt from property taxes.
Research Tax Credit – Kansas offers an income tax credit equal to 6.5 percent of a company’s investment in research and development above the average expenditure of the previous three-year period. Twenty-five percent of the allowable annual credit may be claimed in any one year.
No Local Income Taxes – Kansas cities and counties do not impose an earnings tax on personal or corporate income.
No Kansas Franchise Tax – Kansas eliminated its franchise tax in 2011.
Workers’ Compensation – Kansas ranks 9th lowest in the U.S. for worker compensation rates.
Kansas State Contact:
Barbara Hake, CEcD
Business Recruitment Manager
Kansas Department of Commerce
22201 W. Innovation Drive, Suite 180D
Olathe, KS 66061
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.