United States: Kansas Enacts Tax Legislation Including Sales Tax Increase And Tax Amnesty Program

Kansas has enacted legislation that includes tax increases and adjustments to address an anticipated $400 million budget deficit.1 Specifically, the legislation increases the state sales tax rate and amends various individual income tax provisions such as the inclusion of guaranteed payments for certain pass-through entities, tax rate changes, modification or elimination of itemized deductions and the exclusion of low-income filers from state income taxation. The legislation also increases the cigarette tax and imposes a new tax on electronic cigarettes. In addition, the legislation includes a tax amnesty program that will run from September 1 to October 15, 2015.

State Sales and Use Tax Increase

The state sales and use tax rate increases from 6.15 percent to 6.5 percent for most transactions effective July 1, 2015.2 However, there is a special transition provision for construction contractors.3 If a contractor has entered into a qualifying written binding contract before May 1, 2015 that is properly documented, the state sales tax on the contract is remitted at the 6.15 percent rate. According to the Kansas Department of Revenue, this lower rate applies to material purchases and labor service charges for qualifying contracts made after the July rate increase.4 The contractor is required to give notice and proof of the contract by July 10, 2015.5

If tangible personal property is ordered before July 1, 2015 but delivered on or after this date, the 6.5 percent rate applies even if partial or full payment is made before July 1, 2015.6 The Department's guidance on application of the rate increase also addresses leases and rentals of tangible personal property; vending machines and coin-operated amusement devices; admission tickets; dry cleaning; installation, application, maintenance and repair services; meals or catering-service contracts; membership dues; periodic charges for taxable water, gas, heat and electricity utility service and for telecommunications, cable, direct satellite television, and similar services; and room occupancy.7 The Department's guidance generally looks to when the customer receives the goods or services in question in determining which tax rate should be applied.

Individual Income Tax

Guaranteed Payments

The legislation has modified the income tax subtraction for certain pass-through entities. Guaranteed payments from business (which previously had been subtracted) are no longer subtracted and are considered as income in calculating Kansas adjusted gross income.8 This subtraction was originally enacted by legislation that exempted certain "non-wage" business income from Kansas individual income tax for taxable years beginning after December 31, 2012.9 Non-wage business income is considered income reported by LLCs, sole proprietorships, S corporations and partnerships.10

Tax Rates

The legislation freezes, for tax year 2015 through tax year 2017, the individual income tax rates at 2.7 percent for the lowest bracket and 4.6 percent for the highest bracket.11 For tax years after 2017, the corresponding rates are 2.6 percent and 4.6 percent. Prior to this legislation, the corresponding rates were planned to be 2.4 percent and 4.6 percent for the 2016 tax year, 2.3 percent and 4.6 percent for the 2017 tax year, and 2.3 percent and 3.9 percent for tax years after 2017. Also, a statute that could result in lower individual income tax rates beginning with the 2020 fiscal year provided certain state revenue levels are met has been amended.12

Itemized Deductions

For tax years beginning on and after January 1, 2015, all itemized deductions are eliminated except for the deductions for charitable contributions, mortgage interest and property taxes.13 The charitable deduction remains fully deductible up to the amount allowed as a federal deduction. However the new legislation accelerates the planned reduction in mortgage interest and property tax deductions. These reductions for mortgage interest and property taxes were to be phased in (60 percent, 55 percent and finally 50 percent) over a three-year period with the final reduction taking place in 2017. The new legislation accelerates the reductions so the total 50 percent reduction will be in effect for the 2015 tax year.

Low-Income Taxpayers

Beginning with the 2016 tax year, the legislation eliminates income tax for single filers with income of less than $5,000 and married joint filers having income of less than $12,500.14

Social Security Number Requirement

The legislation disallows all income tax credits for any individual who does not have a valid social security number (SSN) for the entire taxable year.15 This provision, however, is not applicable if the individual's spouse has a valid SSN for the entire taxable year and they are filing as married filing jointly.

Cigarette Tax and Electronic Cigarette Tax

Effective July 1, 2015, the tax on cigarettes increases by 50 cents per pack.16 This increases the tax on cigarettes from 79 cents to $1.29 per 20 pack or to $1.61 per pack of 25 cigarettes. On or before July 31, 2015, vending machine operators, wholesale dealers and retail dealers must file a report with the Director of Revenue showing cigarettes, cigarette stamps and meter imprints on hand at the beginning of July 1, 2015.17 For these cigarettes in inventory, a tax of 50 cents is imposed per pack of 20 cigarettes and 62 cents is imposed per pack of 25 cigarettes. Also, a tax of 62 cents is imposed on all tax stamps and meter imprints not affixed to cigarettes prior to July 1, 2015.

The legislation also creates a new tax on the sale of the consumable materials used in electronic cigarettes.18 The rate will be 20 cents per milliliter of consumable material and goes into effect on July 1, 2016. The tax will be imposed upon the privilege of selling or dealing in electronic cigarettes.

Property Tax Limitations

Beginning in 2018, counties and cities are required to obtain voter approval before implementing certain property tax increases.19

Tax Amnesty Program Begins September 1, 2015

The legislation enacts a tax amnesty program that will run from September 1 to October 15, 2015.20 The amnesty will apply to income, sales and use, estate, cigarette, tobacco products, liquor enforcement, liquor drink, severance and privilege taxes. For the eligible taxes and tax periods, amnesty applies to the underreporting of the tax liabilities, the nonpayment of such taxes and the nonreporting of such tax liabilities.21 Under the amnesty program, the Department may waive penalties and interest with respect to tax liabilities due and unpaid for tax periods ending on or before December 31, 2013.22 Amnesty is granted only to eligible taxpayers that during the amnesty period properly file a tax return for each taxable period for which amnesty is requested, pay the entire balance of tax due and obtain approval from the Department.23

A taxpayer will not be eligible for amnesty for any matter for which the following circumstances exist on or after September 1, 2015:

  • The taxpayer has received a notice of assessment;
  • The taxpayer has received a notice of the commencement of an audit;
  • An audit is in progress;
  • As a result of an audit, the taxpayer has received notice of a proposed or estimated assessment or notice of an assessment;
  • The appeal period on an issued assessment has not expired; or
  • An assessment resulting from an audit or any portion of such assessment is pending in the administrative appeals process.24

Amnesty does not apply to any matter that is the subject of an assessment that has been affirmed by a reviewing state or federal court.25 Also, amnesty does not apply to a party to any criminal investigation or to any civil or criminal litigation that is pending in any federal or state court for nonpayment, delinquency or fraud in relation to any tax imposed by Kansas. Amnesty does not apply to a matter involving corporate or individual income tax liability resulting from an audit or adjustment by the Internal Revenue Service and reported to the Department. Finally, fraud or intentional misrepresentation of a material fact in connection with an amnesty application voids the application and any waiver of penalties and interest from amnesty.26

If the taxpayer elects amnesty, the taxpayer expressly and absolutely relinquishes all administrative and judicial rights of appeal with respect to the underlying tax liability.27 No tax payment made under the amnesty program is eligible for credit or refund. The Department is authorized to promulgate rules and regulations that are necessary to administer the amnesty program.28

Commentary

Kansas Governor Sam Brownback historically has supported legislation furthering the long-term goal of the state to fundamentally alter the tax structure by drastically reducing income tax rates. The rationale for doing so was to make Kansas a more attractive state from an economic development perspective. However, as noted above, the state was confronted with a significant budget deficit that resulted from the large tax reductions enacted in 2012. The formulation of a final plan to address this budget deficit caused there to be an unusually long and contentious legislative session. Prior to the passage of this legislation, there was well-publicized disagreement between members of the legislature as well as between the governor and the legislature.

The legislation addresses the deficit by increasing the state sales tax rate, decelerating the planned individual income tax rate reductions and eliminating or reducing most of the individual income tax deductions. As a result, individuals will shoulder the burden of the tax increases. Presumably, corporate income tax provisions were not amended in an effort to retain an attractive economic business environment. The enacted changes should close the immediate projected budget deficit, but may not be adequate to address the long-term impact of the 2012 tax reduction legislation. Thus, Kansas may be forced to consider significant tax legislation in the future.

Taxpayers who believe they owe any of the Kansas taxes referenced above should consider participating in the amnesty program as a means to avoid penalties, additions to tax and interest. The Department is expected to provide guidance to taxpayers concerning administration of the program. It is important to note that the amnesty program not only eliminates penalties but also will eliminate any interest accrued throughout the applicable tax periods. Taxpayers also need to keep in mind that an election to participate in amnesty serves to relinquish all administrative and judicial rights of appeal.

The Department may issue further guidance to clarify the statutory amendments discussed above. In its notice that discusses the sales tax rate increase, the Department indicated that it would issue further guidance to explain other changes to Kansas tax laws that were made during the 2015 legislative session.29

Footnotes

1 H.B. 2109 and S.B. 270, Laws 2015, effective July 1, 2015. For further information on this legislation, see Summary of Legislation: Revenue Enhancements and Other Provisions; Senate Sub. for H.B. 2109, as amended by House Sub. for S.B. 270, Kansas Legislative Research Department, June 2015.

2 KAN. STAT. ANN. § 79-3603; Notice 15-02, Kansas Department of Revenue, June 22, 2015.

3 KAN. STAT. ANN. § 79-3695.

4 Notice 15-02, Kansas Department of Revenue, June 22, 2015.

5 KAN. STAT. ANN. § 79-3695.

6 Notice 15-02, Kansas Department of Revenue, June 22, 2015.

7 Note that the Department also has issued instructions for reporting sales receipts on sales tax returns filed for July 2015. Notice 15-03, Kansas Department of Revenue, June 30, 2015.

8 KAN. STAT. ANN. § 79-32,117(c)(xx). The effective date of this amendment is not specified in the legislation, but the legislative summary indicates that this is effective beginning in the 2015 tax year.

9 Ch. 135 (H.B. 2117), Laws 2012.

10 For further discussion of the exemption for non-wage business income, see GT SALT Alert: Kansas Eliminates Nonresident Withholding on Flow-Through Entities.

11 KAN. STAT. ANN. § 79-32,110.

12 KAN. STAT. ANN. § 79-32,269.

13 KAN. STAT. ANN. § 79-32,120(a)(4).

14 KAN. STAT. ANN. § 79-32,110(f).

15 KAN. STAT. ANN. § 79-32,265.

16 KAN. STAT. ANN. § 79-3310. For further information on the cigarette tax increase, see Notice 15- 01, Kansas Department of Revenue, June 16, 2015 (revised).

17 KAN. STAT. ANN. § 79-3310c.

18 H.B. 2109, § 12.

19 KAN. STAT. ANN. § 79-2925b(g).

20 H.B. 2109, § 1(a)(1).

21 H.B. 2109, § 1(a)(2).

22 H.B. 2109, § 1(b), (c).

23 H.B. 2109, § 1(c).

24 H.B. 2109, § 1(a)(3).

25 Id.

26 H.B. 2109, § 1(f).

27 H.B. 2109, § 1(d).

28 H.B. 2109, § 1(g).

29 Notice 15-02, Kansas Department of Revenue, June 22, 2015. The Department posts its notices at http://www.ksrevenue.org/newtaxnotices.html.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions