Kansas Basic Business Taxes 2010
Kansas's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include sales tax exemptions, performance incentive program, and enterprise zone program.
Kansas has two corporate income tax credit programs available to eligible companies: the Enterprise Zone Program and the High Performance Incentive Program. These programs can substantially reduce a company's income tax liability depending on their job creation and capital investment.
• Enterprise Zone Program:
This program offers corporate income tax credits for new job creation and qualified capital investment in Kansas. The entire state of Kansas is designated as an Enterprise Zone. Eligibility for this program depends on the type of business and the number of jobs created. For example, a firm classified as a manufacturer would need to create at least two net new jobs, while a non-manufacturer would need to create five net new jobs. The job creation tax credit in the metropolitan areas of Kansas City, Topeka, Wichita and Lawrence is $1,500 per new job created. Designated non-metropolitan areas can provide a credit of $2,500 per new job created. The investment tax credit is 1 percent of qualified investment. Up to 100 percent of corporate income tax liability can be eliminated in a given year and unused credits may be carried forward indefinitely.
• High Performance Incentive Program:
This program provides a 10 percent corporate income tax credit on the qualified capital investment of an eligible company. The 10 percent tax credit is awarded to companies that operate an eligible business, pay above-average wages, and invest in training their employees. The credits can be used to reduce 100 percent of corporate income tax liability in a given year. In addition, the credits must be used within a consecutive 10-year period.
Please note that for both the Enterprise Zone Program and High Performance Incentive Program, 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.
A key component of the High Performance Incentive Program is the completion of the Capital Investment Project Description form. This form needs to be submitted to the Department of Commerce prior to the company signing any document, such as a lease or purchase agreement, that commits the company to locating or expanding in Kansas.
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 after June 30, 2006 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.
• Business Machinery and Equipment Credit: Kansas offers an annual tax credit against Kansas income tax equal to 25 percent of the personal property tax paid on commercial and industrial machinery and equipment that was in Kansas prior to June 30, 2006. The amount of the credit that exceeds the tax liability will be refunded for companies paying income tax.
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 and associated tangible personal property. 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 local community or county.
Sales tax exemptions:
For qualifying companies, both the Enterprise Zone Program and High Performance Incentive Program offer a 100 percent sales tax exemption on the purchase of labor and materials to construct or remodel a facility, as well as on the machinery and equipment used in the facility. This exemption includes computers, furniture, and fixtures.
Other sales tax exemptions include:
• Labor related to original construction;
• Machinery and equipment used for manufacturing and distribution;
• Utilities, electricity, gas and water used in production;
• 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 (IRB).
Other tax incentive programs and business initiatives:
• Inventory tax exemption: All merchants' and manufacturers' inventories have been exempt from property taxes by state constitutional amendment.
• Research Tax Credit: Kansas offers an income tax credit equal to 6.5 percent of a company's investment in research and development above an expenditure of the previous three-year period. Only 25 percent of the allowable annual credit may be claimed in any one year. Unused credits may be carried forward in 25 percent increments until exhausted.
• No local income taxes: Kansas cities and counties do not impose income or earnings taxes on either personal or corporate income.
• Phase-out of Kansas franchise tax: The 2007 Kansas Legislature passed legislation to phase out the franchise tax in Kansas over the next five years. The tax will be repealed altogether effective in tax year 2011.
• Reduction of unemployment insurance rates: In 2007, Kansas made significant reductions to unemployment insurance rates for existing and new employers in Kansas. Existing employers who are current on their account will see a reduction of 40 to 100 percent of their tax rate, depending on their rate category. New Kansas employers will also enjoy a drop in their tax rate, as the new rate for all non-construction industry employers is now 4 percent. Construction industry employers will pay 6 percent.
Kansas State Contact:
Kansas Department of Commerce
9001 W. 110th Street, Ste. 150
Overland Park, KS 66210
Fax: (913) 345-8548
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.