New Tax Reform
Effective with the 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, 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. The individual income tax withholding rates for tax year 2013 and all tax years thereafter are:
Married individuals filing joint returns:
- Taxable income not over $30,000 --> 3% of Kansas taxable income
- Taxable income over $30,000 --> $900 plus 4.9% of excess over $30,000
All other individuals:
- Taxable income not over $15,000 --> 3% of Kansas taxable income
- Taxable income over $15,000 --> $450 plus 4.9% of excess over $15,000
The reform also increases the standard deduction amount for single head-of-household filers from $4,500 to $9,000 and for married taxpayers filing jointly from $6,000 to $9,000.
Promoting Employment Across Kansas (PEAK)
This program offers qualified companies the ability to retain 95% of their payroll withholding tax for up to seven years. PEAK is available for new operations in Kansas as well as relocated operations to the state. In 2013, it will be available for qualifying business retention projects as well. Companies need to create at least 10 new jobs within two years in metropolitan areas or five new jobs within two years in all other counties of the state. High-impact projects that create 100 new jobs within two years can retain 95% of payroll withholding tax for up to a period of 10-years. The number of years that the withholding tax can be retained depends on how much the annual median or average wage of the jobs at the Kansas worksite will exceed the current county median wage and the discretion of the Secretary of the Kansas Department of Commerce. A PEAK application must be submitted before locating or creating PEAK-eligible jobs in Kansas.
Wind And Solar Bond Financing
This allows for up to $5 million in bond financing per project for eligible wind and solar energy manufacturers. The bonds are paid off from the payroll withholding tax of the new jobs. To qualify, a project must create at least 200 new jobs within five years, pay at least a $32,500 average salary and generate a minimum capital investment of $30 million.
Workforce Development Programs
The Department of Commerce has two workforce training programs to offset a company's training costs. Companies creating new jobs may qualify for Kansas Industrial Training (KIT) assistance. Eligibility for the program depends on the number of jobs created and the corresponding wages. The Department of Commerce also offers the Kansas Industrial Retraining (KIR) program to retrain a Kansas company's existing workforce on new technology or production activities. Projects involving a Kansas Basic Industry - which includes manufacturing, distribution or regional/national service facilities - may qualify for these programs. Both of these programs offer direct financial assistance to pay a negotiated portion of the costs to train a company's employees. Companies may apply the assistance towards items such as instructor's salaries; meals, travel and lodging (including out-of-state or international travel); video development; textbooks and training manuals; supplies and materials; temporary training facilities and curriculum planning and development.
Income Tax Incentives
High Performance Incentive Program (HPIP)
This program provides a 10% 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, remodel 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% 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 o 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 includes 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 and 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
Sales Tax Exemptions available include:
- 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 handing, 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
Other Tax Incentives And Business Initiatives
Union membership in Kansas is 7.6%, 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% 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.
Kansas ranks 7th lowest in the U.S. for worker compensation rates.