The structure of Kansas' financial incentives, tax levies and tax credits has been thoughtfully planned to be fair and favorable for your business. Our tax base ensures that no single industry is disproportionately burdened. Our incentives reflect an awareness of what it takes to attract and retain the companies that provide jobs for Kansans. Our state is constitutionally restrained from overspending, providing a foundation of fiscal integrity for our business climate.

TAXES AND FEES

New! Tax Reform Law Passed 

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, 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 - 3.0% 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 – 3.0 % 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.

Corporate Income Tax

For corporations whose business income is solely within state boundaries, the tax is four (4) percent of net income. In addition, net income in excess of $50,000 is subject to a three (3) percent surtax. For those corporations with business income both inside and outside the state, the net income attributed to the Kansas operation is based upon the percentage of the corporation’s business located in Kansas. A business’ tax obligation is determined by a three-factor formula using the proportion of sales, property and payroll in Kansas compared to total sales, property and payroll.

State law allows net operating losses to be carried forward to each of the 10 years following the taxable year of the net operating loss.

Three-Factor Formula

Sales in KS   Property in KS   Payroll in KS
Total Sales Total Property Total Payroll

After adding the percentages calculated for the three factors, the result is divided by three to provide an average percentage. Total apportionable income is multiplied by the average percentage to determine Kansas net income. Kansas corporate income tax is calculated using the apportioned net income multiplied by the corporate income tax rate mentioned above.

Corporations may opt to use a two-factor (sales and property) apportionment formula to calculate tax liability if the payroll factor for a taxable year exceeds 200 percent of the average of the property and sales factors.

Two-Factor Formula

Sales in KS   Property in KS
Total Sales Total Property

After adding the percentages calculated for the two factors, the result is divided by two to provide an average percentage. Total apportionable income is multiplied by the average percentage to determine Kansas net income. Kansas corporate income tax is calculated using the apportioned net income multiplied by the corporate income tax rate mentioned above.


Single-Factor Formula

Investment funds services companies headquartered in Kansas and employing at least 100 individuals on a full-time equivalent basis are taxed only on their income earned from the administration of funds of Kansas residents. An investment funds service corporation is defined as any corporation or S corporation headquartered and doing business in Kansas that derives more than 50 percent of its gross income from the provision of management, distribution or administration services to or on behalf of an investment company, or from trustees, sponsors and participants of employee benefit plans that have accounts in an investment company.

These companies may compute their tax liability using a single-factor formula, which multiplies their qualifying income from funds management services by the percentage of their funds’ shares that are owned by Kansas residents. Qualifying income is business income derived from the provision of management, distribution or administration services to or on behalf of an investment company or from trustees, sponsors and participants of employee benefit plans that have accounts in an investment company. A separate calculation must be performed on each fund administered by a company. To continue to use this computation method, companies must maintain at least 95 percent of the Kansas jobs that they had when they first used the computation method. All income that is not from the management, distribution or administration of services is apportioned using the three-factor formula of property, payroll and sales.

Example: Single-Factor Formula, Investment Funds Services Company Tax Liability

Assumptions:  Tax liability calculated from three-factor formula: $50,000  Percent of funds' shares owned by Kansans: 20%  Tax Liability Using single-factor formula:  Tax liability calculated        X        Percent of funds' shares        =        Tax liability using single  from three-factor formula      X           owned by Kansans            =            factor formula          $50,000                     X                     20%                       =                 $10,000

        
Individual Income Tax until Tax Year 2013

Rates for joint returns:
3.5% on first $30,000 income
$1,050 plus 6.25% of income over $30,000
up to $60,000
$2,925 plus 6.45% of income over $60,000

Rates for individuals:
3.5% of first $15,000 income
$525 plus 6.25% of income over $15,000
up to $30,000
$1,462.50 plus 6.45% of income over $30,000

Nonresidents pay taxes equal to the amount computed as though they were residents. The result is multiplied by the ratio of modified Kansas-source income to Kansas adjusted gross income.

Individual Income Tax Effective Tax Year 2013

Married individuals filing joint returns:
• Taxable income not over $30,000 - 3.0% 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 – 3.0 % 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.

Major Classes of Property
Rate	Class
11.5%	Real Property used for residential purposes including multi-family residential real property
12%	Vacant lots, real property owned and operated by not-for-profit organizations
25%	Real property used for commercial and industrial purposes and buildings and other improvements located upon land devoted to agricultural use (Commercial and industrial machinery and equipment are also taxed at this rate)
30%	Agricultural land, mineral leasehold interests and motor vehicles
33%	Public utility real and personal property
Property meeting certain requirements can be exempted from ad valorem taxation. (See Tax Exemptions for Industrial Revenue Bonds and Property Tax Exemptions previously described.)

Insurance Tax and Salary Tax Credit

The premium tax rate for domestic and foreign companies doing business in Kansas is two percent. Kansas law K.S.A. 40-252d provides for a tax credit for insurance companies equal to 15 percent of Kansas-based employees’ salaries (not including commissions or fringe benefits), or up to a maximum of 1.125 percent of taxable premiums dependent on the company’s affiliation. The company can claim either the 15 percent credit or up to the 1.125 percent, whichever is less. This could make the effective tax rate on such companies as low as 0.875 percent. This is an annual credit that is recalculated each year.

For example, if a company qualified for the 15 percent tax credit, the estimated credit would be calculated as follows: 100 jobs at a $50,000 salary produces an annual payroll of approximately $5,000,000. The 15 percent salary credit would generate a yearly tax credit of $750,000 which can potentially offset up to 1.125 percent of the company’s two percent premium tax.

Insurance companies may also qualify for the High Performance Incentive Program (HPIP) tax credits to further offset their tax liability. Filings are done electronically with the Kansas Insurance Department.

Example of Property Tax Calculation for Commercial and Industrial Property

Appraised Value     X    Classification Rate    =    Assessed Value    X    Mill Levy        =    Property Tax                 $1,000,000            X                 25%               =          $250,000         X 100.00 mills*       =       $25,000

*Note: 1 mill = 1/1000 of a dollar

Tangible Property Tax

Both real and tangible personal property are subject to ad valorem taxation by cities, counties and special taxing districts. Intangible property, to the extent it is taxable, is classified and taxed separately. All property is appraised at its fair market value, except for agricultural land, commercial and industrial personal property and certain vehicles.

The rate of tax depends on the levy of the local taxing district and will vary within the state by location. Both real and tangible personal property are assessed by the county appraiser in the taxing district in which the property is located. Taxes are paid to the county treasurer.

Property taxation is administered by the Division of Property Valuation of the Department of Revenue together with local taxing officers. Public utilities are treated separately for property tax purposes. Utility property is assessed and apportioned to local taxing districts by the Division of Property Valuation.

Aircraft used regularly and exclusively in the conduct of business are exempted from property or ad valorem taxes.

Intangible Property Tax

Cities, counties and townships are allowed to levy taxes on intangible property. Counties may tax such property at a rate of up to 0.75 percent, and cities or townships may impose an intangible property tax of up to 2.25 percent. The total intangible property tax burden of any individual or business cannot exceed three percent. In practice, most local governments have no tax on intangible property. One-third of the counties in Kansas, less than one-fifth of the cities and about one-third of the townships impose such a tax.

Intangible property is defined as monies and credits including gold and silver coin, United States Treasury notes and stock certificates otherwise taxable to the owner or holder. Intangibles also include: notes, bonds and debentures; claims secured by deed; liquidated claims and demands for money; accounts receivable; and all written instruments, contracts or other writings evidencing, calling for, fixing or showing a fixed obligation in favor of the owner.

Unemployment Insurance for Selected States
State	Taxable Wages	Average  Unemployment Insurance Rate on Taxable Wages
Kansas	$8,000	4.02%
California	$7,000	4.96%
New York	$8,500	4.58%
Illinois	$12,520	2.39%
Missouri	$13,000	2.14%
Oklahoma	$14,900	0.57%
Source: U.S. Department of Labor

Sales and Use Tax

The Kansas state sales and use tax rate is 6.3 percent of the sale price of tangible personal property and taxable services sold at retail to the consumer. On July 1, 2013, this rate is scheduled to go to 5.7 percent. The retailer must charge a customer the combined sales tax rate that equals the sum of the applicable state rate plus all local sales tax rates. Local rates include cities and counties. Cities are authorized to impose a maximum sales tax rate of three percent which includes two percent general and one percent special. Counties are authorized to impose a maximum one percent general sales tax rate. Special legislative action is required for more than one percent.

Workers' Compensation Premium Rate Ranking
2010 Ranking	2008 Ranking	2006 Ranking	State	Index Rate
43	42	43	Kansas	1.55
5	13	2	California	2.68
13	19	10	New York	2.34
33	28	24	Missouri	1.90
3	10	20	Illinois	3.05
4	9	13	Oklahoma	2.87
Source: Oregon Department of Consumer and Business Services, Information Management Division, October 2010

Unemployment Insurance

If an employer already has a facility in Kansas and has established an experience rating, the employer will have the same tax rate for any new facility built in Kansas. New companies locating in the state receive an entry rate based on the type of business. After three years, when original liability is established before July 1, the employer may have a tax rate computed with experience rate factors. When liability is established after June 30, the employer may have a computed rate after four years. Employers who are not eligible for a rate computation shall pay contributions at the rate of four percent, except for employers in the construction industry, who will pay at the rate of six percent. The minimum rate for positive balance employers is 0.11 percent and the maximum rate is 5.4 percent. The rate range for employers with a negative account balance will be 5.7 percent to 9.4 percent. The taxable wage base for Kansas employers is $8,000 per year.

Employees dismissed without misconduct are eligible to receive benefits after a one-week waiting period. An employee discharged for misconduct, or who voluntarily quits without good cause attributable to the work or to the employer, is disqualified from receiving benefits from the date the separation occurred until the time they return to work and begin to earn three times the weekly benefit amount of their claim.

Kansas Shared Work Unemployment Insurance

The Shared Work Unemployment Insurance Program is designed to help both employers and employees by:

• Allowing an employer to divide the workday among a group of affected employees in lieu of a layoff
• Allowing employees to receive a portion of their unemployment benefits while working reduced hours

Kansas Workers’ Compensation

The Kansas Workers’ Compensation Program has undergone major changes over the past few years. We have made dramatic annual decreases in rates and new laws have been passed which have helped reduce the costs for employers.

Premiums for workers’ compensation insurance are determined by applying the rate for occupational classes and experience ratings for individual firms. Premiums are calculated per $100 of annual employee wages. Workers’ compensation premium rates in Kansas are seventh lowest in the nation.

Kansas employers may secure workers’ compensation insurance for employees in one of three ways: 1) They may obtain insurance from private insurance companies authorized to transact workers’ compensation insurance in Kansas; 2) apply to become self-insured or; 3) become a member of a group-funded workers’ compensation insurance pool.

The maximum weekly benefit is two-thirds of the employee’s average weekly wage at the time of the injury, up to a maximum of $546 per week.

Incentives, Tax Credits and Tax Exemptions

The State of Kansas offers significant and comprehensive business incentives to encourage the construction and expansion of Kansas businesses and industries. The main corporate income tax credit in Kansas is the High Performance Incentive Program (HPIP) which is described below.

High Performance Incentive Program and Premium Example

Investment Tax Credit (ITC) may be used to offset substantial annual income and premium tax liability. Allowed unused credits can be carried forward for 16 years. Employee training tax credit is applied first and does not carry forward.

Requirements: Company pays above-average wages. Company invests at least 2 percent of payroll in training or is actively participating in one of the state's workforce training programs. Business is major NAICS category of (first three numbers) 221,311-339,423-425,481-519,521-721 or 811-928. If business is in major NAICS category of (first three numbers) 221,423-425,481-519,521-721 or 811-928, more than half of sales must be to Kansas manufacturers and/or out-of-state commercial or government customers. For any investment on which the company anticipates claiming a related tax credit through HPIP, a Project Description form must be submitted before the company has committed to that investment. *For metropolitan counties of: Johnson, Shawnee, Sedgwick, Wyandotte and Douglas, the minimum threshold of $1.0M would be deducted vs. $50,000 before calculating the 10 percent investment tax credit.

Assumptions: Capital investment................................................................$500,000 (all expenses in this example go toward equipment) Number of jobs created..................................................................30 (not required to qualify for HPIP) Annual Payroll...................................................................$1,000,000 Investment in training..............................................................$60,000 (may utilize state training programs KIT, KIR) Year's income tax liability........................................................$75,000 Benefits: Employee Training tax credit....................................................$40,000 (exceeding 2 percent of annual payroll, max $50,000) Investment Tax Credit..............................................................$45,000 (10 percent of amount exceeding $50,000*) Total HPIP Income Tax Credit.........................................$85,000 Less: Total income tax liability during year of investment...$75,000 ITC's to use toward future Tax liability..............................$10,000 Sales Tax Project exemption...................................................$31,500 (capital investment X 6.3 percent tax) Total High Performance Incentive Program Benefit:             HPIP Investment Tax Credit..................................................$85,000             Sales Tax Exemption Savings...............................................$31,500 Total HPIP Benefit........................................................................$116,500

Definitions:
Sales Tax Exemption:	Eligible purchases including the purchase and installation of machinery and equipment, as well as materials used in the construction, reconstruction, enlarging, remodeling or furnishing of a qualified business facility. The exemption includes any quality control or pollution control equipment installed as part of the aforementioned activities. A business must file a Request for Project Exemption Certification (Form PR-70b) with the Department of Revenue before starting the project and making taxable purchases. The sales tax exemption is available in all counties in Kansas.
Net New Job:	For new companies, any job that is new to Kansas is a "net new job." For an expanding industry or one building a replacement facility, a "net new job" refers to any job created over and above the employee base, which is determined by averaging the preceding year's annual employment.
Qualified business facility:	Includes the value of all real and tangible personal business property except inventory or property intended for sale to customers. The value of such property is its original cost if owned by the company or eight times the first year's rental rate if leased by the company. Equipment transferred to Kansas from out-of-state to a new or expanding facility is considered qualified investment. Such equipment is valued at its original purchase cost.

HIGH PERFORMANCE INCENTIVE PROGRAM

The State of Kansas offers significant and comprehensive business incentives to encourage the construction and expansion of Kansas businesses and industries. Specifically, the High Performance Incentive Program (HPIP) offers business incentives to companies that make new capital investment in their companies, pay above-average wages for their industry, and invest in workforce training for their employees. For certain non-manufacturing firms, there may be an additional qualifier that a majority or their revenues will need to come from outside of Kansas. HPIP can offer corporate income tax credits and a sales tax exemption on purchases related to your project.

These credits can be used by corporations, as well as by other entities such as Subchapter S corporations and limited liability companies.

To be eligible for HPIP, a worksite must either pay above-average wages for its industry, or one-and-a-half times the statewide average wage exclusive of owner compensation. To determine whether a worksite pays above-average wages, the worksite’s wages will be compared to those of business establishments in like industries within the county or counties that comprise the appropriate HPIP wage region. Once the wage criterion has been met, the worksite must either invest an amount equal to two percent of its total payroll on qualified employee training or participate in the Kansas Industrial Training (KIT) program or the Kansas Industrial Retraining (KIR) program.

Firms must be certified by Commerce before filing for this credit. Participating businesses must be in the North American Industry Classification System (NAICS) categories 221, 311-425, 481-721 or 811-928. If a business is in major NAICS non-manufacturing categories 221, 423-425, 481-721 or 811-928, more than half of sales must be to Kansas manufacturers and/or out-of-state commercial or government customers.

Specific incentives extended to firms meeting the qualifications include the following:

• A 10 percent investment tax credit against corporate income tax on qualified business facility investment (as defined by K.S.A. 79-32,154) that exceeds $50,000 or $1M for metro 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 percent of a firm’s annual tax liability.
• A workforce training tax credit of up to $50,000 per annum on qualified training expenditures above two percent of reported worksite wages. Unused training tax credit cannot be carried forward for use in future tax years.
• A sales tax exemption on purchases and services relating to new investment in facility or equipment after HPIP certification is obtained.

As a critical first step in order to take advantage of HPIP tax credits, the firm must submit a Project Description (PD) Form to Commerce, estimating the scope of anticipated investment. The statute requires submittal of the Project Description form before the company commits to move forward with the investment (e.g., by making a purchase, signing a commitment document such as an equipment purchase order or lease agreement or construction contract, or moving assets into Kansas that are already owned by the company at an out-of-state location). Pre-identification of qualified investment on the PD allows the company to potentially earn tax credits on that investment.

HPIP - Sales Tax Exemption for Capital Expenditures

Companies who qualify for HPIP can also qualify for a state and local sales tax exemption for expenditures made on the materials, equipment and services purchased when building, expanding or renovating a business facility. Companies that qualify for HPIP are eligible to receive a state and local sales tax exemption without being tied to a job creation requirement. The Request for Project Exemption Certificate (PR-70b) needs to be filed prior to making taxable purchases related to the project. The application is filed with the Kansas Department of Revenue. A letter from the Kansas Department of Commerce would need to accompany the sales tax exemption request indicating the legal entity was certified under HPIP for the request to be approved. The sales tax exemption certificate will be issued effective from the latter of the date the exemption request is received by Revenue or the start of the HPIP certification period. The sales tax exemption can be effective for the term of the project if the company remains certified under HPIP.

A company may need to pay sales tax on the taxable purchases and file for reimbursement if the company is not HPIP-certified at the time of purchase.

Eligible purchases include the purchase and installation of machinery, equipment, labor and materials used in the construction, reconstruction, enlarging or remodeling of a qualified business facility. The exemption includes any telecommunications systems, quality control equipment or pollution control equipment installed as a part of the aforementioned activities.

The amount of the exemption is dependent on the portion of the building leased and the costs of renovating or developing the facility. Partial exemptions for leases where only a portion of the building is leased are calculated using a percent-of-total-square-feet-leased method or a cost-per-square-foot method for the leased space.

Visit KansasCommerce.com/HPIP which provides explanatory information, the PD form, application forms/guidelines and HPIP wage thresholds. The HPIP manager may be contacted at (785) 296-7174.

Machinery & Equipment Expensing Deduction 

Effective Tax Year 2012, eligible Kansas taxpayers are allowed to claim an expense deduction for business machinery and equipment, placed in service in Kansas during the tax year. Effective Tax Year 2013, only C-Corporations may claim the expense deduction against corporate income tax liability. The expense deduction will not be available to other types of taxpayers. The one-time deduction is allowed for each qualified purchase of machinery and equipment in the year that it is placed in service. The unused expense deduction is treated as a Kansas net operating loss that may be carried forward for ten (10) years. However, effective Tax Year 2013, the Kansas net operating loss deduction is only available to C-Corporations and is no longer available to other types of taxpayers. 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.  

Machinery and Equipment Property Tax Exemption

A state and local property tax exemption is available for new or used commercial and industrial machinery and equipment acquired by qualified purchase or lease, or transferred into the state for the purpose of expanding an existing facility or establishing a new facility after June 30, 2006. This exemption covers:

• Equipment used in manufacturing operations
• Equipment used in warehousing/distribution
• Business machinery
• Computers
• Desks and chairs
• Copiers
• Fax machines
• Semi-trailers
• Spare parts, supplies and materials

(Items not covered include: motor vehicles; oil and gas leases including the prescribed personal property; oil and gas itemized personal property such as drilling equipment and rigs, pipe and casing, and public utility personal property except telecommunications and railroads.)

Inventory Tax Exemption

All merchants’ and manufacturers’ inventories have been exempt from property taxes by constitutional amendment since 1989 (K.S.A. 79-201m).

Tax Exemptions for Industrial Revenue Bonds

Businesses using Industrial Revenue Bonds (IRBs) as a financing mechanism may enjoy certain tax exemptions:

• Property financed with IRBs is exempt from ad valorem taxation for up to 10 years after the bonds are issued. However, localities may elect to negotiate payments in lieu of taxes (K.S.A. 79-201a).
• The cost of construction labor, building materials and machinery and equipment is exempt from state and local sales taxes if financed by IRBs (K.S.A. 79-3603).

Property Tax Exemption

The board of county commissioners or the governing body of a city may exempt certain business property from ad valorem taxation. Qualifying properties must be used exclusively for manufacturing articles of commerce, conducting research and development or storing goods or commodities that are sold or traded in interstate commerce. The tax exemption includes all or any portion of the appraised value of buildings and commensurate land and improvements. Property additions and expansions of existing businesses are eligible for the property tax exemption if new jobs are created as a result of such activity.

A total or partial ad valorem tax exemption may be in effect for up to 10 years after the calendar year in which the business commences its operations or an expansion is completed (Art. 11, Sec. 13, Kansas Constitution).

Please note that items with a retail cost when new of $1,500 or less are exempt from property tax.

Property Tax Exemption for Electric Power Generators

Kansas offers incentives to increase the amount of electric power generated in the state. These incentives work for the construction or expansion of electricity generating facilities for both independent power producers (so-called “merchant power plants”) and rate-based utilities. Independent power producer facilities are exempt from property taxes from the commencement of construction and for 12 years after the taxable year in which construction is completed. The eligibility period for plants used exclusively during peak load periods is six years. Electricity generation facilities constructed by regulated public utilities are exempt for 10 years (four years for peak load plants).

Transmission lines and appurtenances constructed by regulated public utilities after Jan. 1, 2001, also receive a 10-year property tax exemption. (Nuclear power plants do not qualify for these exemptions.) The Kansas Development Finance Authority is authorized to issue revenue bonds to pay the construction costs of pollution control equipment at power plants.

Property Tax Exemption for Renewable Energy Generation

Kansas offers outstanding opportunities for electricity production from renewable sources. The Kansas Legislature enacted a property tax exemption for projects that use wind, solar, thermal, photovoltaic, biomass, hydropower, geothermal or landfill gas resources to generate electrical energy. Kansas Statute 79-201 grants a property tax exemption for all property actually and regularly used in the generation of electricity from renewable sources, whether it is an industrial, commercial, utility or personal application. Please contact the Kansas Department of Commerce for information on additional incentives related to renewable energy.

Sales Tax Exemptions

Electricity, gas and water consumed during manufacturing are exempt from the Kansas sales tax [K.S.A. 79-3606(n)]. All sales of manufacturing machinery and equipment are exempt from sales taxes [K.S.A. 79-3606(kk)]. This exemption extends to machinery and equipment purchased primarily for use in the assembly, processing, finishing, storing, warehousing or distribution of tangible personal property intended for resale.

Businesses may take advantage of several other items exempt from sales tax [K.S.A. 79-3606(kk)]:

• Labor and services used in original construction. [K.S.A. 79-3603(p)]
• Tangible personal property purchased by a railroad or public utility for direct and immediate consumption or movement in interstate commerce. [K.S.A. 79-3606(f)]
• Tangible personal property that becomes an ingredient or component part of tangible personal property or services produced, manufactured or compounded for ultimate sale at retail either inside or outside of Kansas. [K.S.A. 79-3606(m)]
• Tangible personal property that is immediately consumed or dissipated in the actual production, manufacturing, processing, mining, drilling, refining or compounding of tangible personal property for ultimate sale at retail either inside or outside Kansas. [K.S.A. 79-3606(n)]
• Purchases of animals, fowl and fish primarily used in agriculture; the production of food for human consumption; the production of animal, dairy, poultry or fish products, fiber or fur; or the production of offspring for use in any such endeavor. [K.S.A. 79-3606(o)]
• Tangible personal property purchased by a city from the proceeds of industrial revenue bonds issued prior to July 1, 1973; the cost of the building and all items of fixed equipment are entitled to exemption from Kansas sales tax at the time of initial purchase. [K.S.A. 79-3603(h)]
• Incoming and outgoing interstate-wide area telephone or transmission services (WATTS). The gross receipts from sales of interstate telephone or telegraph services utilizing a WATTS line are specifically exempted from state sales taxes. [K.S.A. 79-3603(b)]

A sales tax exemption certificate must be obtained from the Kansas Department of Revenue prior to any purchases. The exceptions to this involve the labor on residential construction, original construction and replacement or repair of bridges and highways, which does not require a certificate [K.S.A. 79-3603(p)]. The Kansas Department of Commerce can assist businesses in obtaining exemption certificates.

Kansas applies the “Integrated Plant” standard to the taxation of machinery and equipment used in production [K.S.A. 79-3606(kk)]. Adoption of the integrated plant standard makes it easier for the taxpayer to interpret the boundaries of the exemption. Traditionally, manufacturing machinery and equipment used in production qualified for the tax exemption only if they had a “direct and immediate effect” on the physical transformation of raw material into new material.

The integrated plant theory is broader and allows for additional machinery and equipment to qualify for the tax exemption. Machinery such as air conditioners, water purifiers and pollution control equipment will qualify for the tax exemption under the integrated plant theory.

The integrated plant theory is specifically intended to include the following:

• Pre-production machinery and equipment (e.g., raw material storage equipment, raw material handling equipment).
• Machinery that services the production line (e.g., machinery that purifies water, cleans oil, screens chemicals).
• Machinery that deals with byproducts of production (e.g., pollution control equipment, waste handling equipment).
• Ancillary property that might otherwise not be viewed as machinery or equipment (e.g., gas pipes, electric wiring, special foundations, clean rooms).
• Labor services for installation and repair of qualified machinery or equipment.

Tax Credit for Research and Development

In order to stimulate increased research and development activity by Kansas businesses, the State offers an income tax credit equal to 6.5 percent of a company’s investment in research and development above an average of the actual expenditures in research and development activities made in the taxable year and the two immediate preceding taxable years. Only 25 percent of the allowable annual credit may be claimed in any one year. Any remaining credit may be carried forward in 25 percent increments until exhausted. Expenditures in research and development activities are defined by Kansas law as those expenses that are allowable as deductions under the federal Internal Revenue Code. (Schedule K-53, K.S.A. 79-32,182b). The research and development tax credit will not be available for Individuals, Partnerships, S-Corps, LLCs and other pass-through entities effective tax year 2013. 

Research Tax Credit Calculations Table

Total Qualified Investment 2012....................................................................$150,000.00 2011....................................................................$125,000.00 2010....................................................................$100,000.00 Tax Year 2012 Return Calculations Total Qualified Expenditures..................................$375,000.00 Three-Year Average Expenditure............................$125,000.00 Amount of Expenditures for Credit..........................$25,000.00     ($150,000 less $125,000)* 2012 Credit Calculation 6.5% of base expenditure allowed 6.5% x $25,000......$1625.00 25% of credit claimed per year 25% x $1,625...............$406.25 _____________________________________________________ Previous Carry-Over Credits (may be claimed from previous tax years) 2011......................................................................$541.67 2010......................................................................$1,083.25 _____________________________________________________ Total Credits Against 2012 Taxes..........................$2,031.17 *Current expenditures of $150,000 minus three-year average of $125,000

Disabled Access Credit

Any taxpayer who spends money to make all or any portion of an existing building or facility accessible to persons with a disability is entitled to a tax credit. The building or facility must be on real property located in Kansas and used in a trade, business or for the production of income. The tax credit available is equal to 50 percent of expenditures of this kind, or $10,000, whichever is less. The tax credit is applied against the income tax, premium tax or privilege fees and shall be deducted from the taxpayer’s tax liability in the taxable year in which the expenditures are made. This tax credit may be carried over for a period of four years after the year the credit was earned. (Schedule K-37, K.S.A. 79-32,177, K.S.A. 79-1117 and K.S.A. 40-2813). The disabled access tax credit will not be available for Individuals, Partnerships, S-Corps, LLCs and other pass-through entities effective tax year 2013.

Tax Credit for Day Care Facilities

Tax credits are offered against Kansas income tax liability for businesses providing child day care services to employees. These credits apply to taxpayers who pay for or locate child day care services for their employees or that provide facilities and necessary equipment for child day care services.

The credit is equal to 30 percent of the amount spent in Kansas during the tax year for child day care services purchased for the dependent children of the taxpayer’s employees. However, the credit for any taxpayer cannot exceed $30,000 for any tax year.

Employers wishing to establish a child day care facility primarily for the employees’ dependent children can claim additional benefits. A credit of up to 50 percent of the amount spent in the establishment of such a facility can be taken, up to $45,000 per taxpayer, during the first year. One or more taxpayers may work together to establish such a facility. In the taxable years after the year of establishment, the annual credit available to the taxpayer would be 30 percent of the amount expended for the annual operation of the facility but not to exceed $30,000 for any tax year.

When computing the credit, amounts received by the taxpayer as payment for use of the child day care services are subtracted from the annual cost of operating the facility.

In order to receive this tax credit, the child day care facility or provider must be licensed or registered in Kansas. Should the taxpayer qualify for the credit, the amount of the credit in excess of the taxpayer’s liability for the tax year will be refunded. The aggregate amount of child day care facility credits that may be claimed for any fiscal year cannot exceed $3 million statewide. (Schedule K-56, K.S.A. 79-32,190 et seq.)

Entrepreneurship Tax Credit

Taxpayers, including corporations that invest in the Kansas Center for Entrepreneurship, can claim a state tax credit of 75 percent of the amount donated. The minimum investment to claim the tax credit is $250, and the tax credit is limited to a total of $2 million for any fiscal year.

The tax credit is limited to $50,000 per individual contributor per tax year. Funds will be used for awards to regional and community organizations that provide seed capital to qualified entrepreneurs, especially those located in distressed and rural communities. (Schedule K-31, K.S.A. 74-99c09)

Rural Business Development Tax Credit

The investment generated by this tax credit is utilized by each of the regions to stimulate economic growth, preserve jobs and provide support to Kansas businesses. Donations made to designated regional foundations by taxpayers, including corporations, are eligible for a state tax credit. The credit is 75 percent of the donation, with a minimum donation of $250. A total of $2 million in tax credits are available for each fiscal year. (Schedule K-32, K.S.A. 74-50,154)

Angel Investor Tax Credit

The credit is 50 percent of the investor’s cash investment in the qualified securities of an eligible Kansas business. If the amount of the credit exceeds the investor’s tax liability in any one taxable year, the remaining portion of the credit may be carried forward until the total amount of the credit is used. The credit is limited to $50,000 for a single Kansas business or a total of $250,000 of tax credits for a single year per investor. The cumulative aggregate amount of angel investor tax credits allowed shall not exceed $6 million for each tax year. This tax credit is slated to expire in 2016. An accredited investor is a natural person or an owner of a permitted entity investor, who is of high net worth, as defined in 17 C.F.R. 230.501(a) as in effect on the effective date of the act. The SEC defines an accredited investor as any natural person whose individual net worth, or joint net worth with that person’s spouse exceeds $1,000,000, or any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.

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Kansas Downtown Redevelopment Tax Rebate

Through the Downtown Redevelopment Act, areas designated by the Secretary of Commerce can receive a rebate of property tax collected on properties that have undergone approved improvements. The city must request and be approved by Commerce before businesses can take advantage of the rebate. The amount of the rebate depends on the city and whether or not there are inter-local agreements in place with all local taxing entities or if the rebate is only from the city’s percentage. A property owner submits a written application to the governing body of the city to request the rebate.

A rebate of the incremental tax increase between the valuation prior to the improvements and the new assessed valuation is made available for five years. For the sixth year, 80 percent of the tax increment is subject to rebate. For the seventh, eighth and ninth years, the percentage of the tax increment that is not subject to rebate will increase by 20 percent each year. Beginning in the 10th year, no rebate is available.

Community Service Program Tax Credit

The Kansas Community Service Program authorizes tax credits against the state income tax, premium tax and privilege tax for businesses that make contributions toward state-approved community service capital projects. The awarded organizations or entities must engage in activities that meet demonstrated needs in the state in the areas of community service, health care and/or crime prevention. Contributions toward approved projects are eligible for up to a 50 percent credit. Contributions toward approved projects in designated rural areas are eligible for up to a 70 percent credit. The Community Development Division of Commerce administers this program, determining the eligibility of contributing recipients by process of application (Schedule K-60 K.S.A. 79-32,194 et seq.). For a listing of eligible community services, call the Kansas Department of Commerce at (785) 296-3485.

Renewable Energy Incentives

The State of Kansas continues to develop as a leader on issues of renewable energy. Wind power, especially, is becoming a strong contender in the Kansas energy supply. Located in the heart of the nation’s growing wind industry, Kansas offers an ideal location for wind turbine manufacturing. Our central location and well-developed transportation infrastructure provide convenient and economical access to the region with the greatest wind energy activity. Since the beginning of 2008, wind generating capacity in Kansas has nearly tripled to more than 1,000 megawatts, making Kansas one of the top 10 states in the nation. Ranked second in the nation for wind energy potential, Kansas will have over 2,600 megawatts of wind generation in operation by the end of 2012, ,  In reaching the 1,000 megawatt milestone, Kansas has already met the state’s renewable energy standard requiring 10 percent of the state’s electricity from renewable sources by 2011. A further target of 20 percent by 2020 has been set, and there is strong interest in the state for expanding the use of both large and small-scale wind energy. By 2030, projections indicate that the state’s power system could provide a possible 7,000 megawatts for export per year from wind energy.

In addition, Kansas has multiple operating ethanol facilities across the state. More ethanol and biodiesel facilities are in the process of receiving permits or are in the construction phase. Please click here for more details. The State of Kansas has a number of incentives to assist the development of renewable energy. State tax credits are available for projects that utilize waste heat to convert to energy or otherwise offset local power usage via renewable sources. Incentive payments, tax credits and other development incentives are available to producers, retail dealers and individuals that utilize alternative energy sources.

Kansas has enacted a host of new renewable energy policies, including a renewable energy standard, energy efficiency measures for state-owned property and net metering. An incentive structure was also put into place for wind and solar manufacturing projects that invest a minimum of $30 million.

Petroleum Refinery

A taxpayer may be entitled to a deduction from Kansas adjusted gross income of the amortizable costs of a new, expanded or restored refinery. The deduction is in an amount equal to 55 percent of the amortizable costs for the first taxable year of production and five percent for each of the following nine years. (K.S.A. 79-32,221)

In order to qualify for these benefits, the facility must be a new refinery, expansion of an existing refinery (capacity increases at least 10 percent) or a restored refinery (a refinery which has been out of production five or more years).

For all taxable years commencing after Dec. 31, 2005, any new refinery property, any expanded refinery property, or any restored refinery property is exempt from all property taxes levied from and after purchase or commencement of construction or installation of such property and for the 10 taxable years immediately following the taxable year in which construction or installation of such property is completed. (K.S.A. 79-226)

The Kansas Development Finance Authority is authorized to issue revenue bonds in amounts sufficient to finance the construction of such a facility.

Biomass-to-Energy Plant

A taxpayer may be entitled to a deduction from Kansas adjusted gross income of the amortizable costs of a new facility or expansion of an existing biomass-to-energy plant. The deduction is equal to 55 percent of the amortized costs of the facility for the first taxable year and five percent for the next nine taxable years. This provision applies to all taxable years commencing after Dec. 31, 2005. (K.S.A. 79-32,237)

For all taxable years commencing after Dec. 31, 2005, any new biomass-to-energy plant property or any expanded biomass-to-energy plant property is exempt from all property taxes levied from and after purchase or commencement of construction or installation of such property and for the 10 taxable years immediately following the taxable year in which construction or installation of such property is completed. (K.S.A. 79-229)

The Kansas Development Finance Authority is authorized to issue revenue bonds in amounts sufficient to pay the costs of construction or expansion.

Incentives for Ethanol Production

The State of Kansas promotes renewable fuel, offering direct financial incentives for production and sale of ethanol. Effective July 1, 2011 the incentive rate is $0.035 for each gallon sold by the producer. (The previous rate was $0.075) In addition, $875,000 per quarter is planned to be added to the fund for distribution. If production exceeds the fund balance, the fund will be distributed on a prorate share. This incentive shall be payable for no more than seven years to any one producer.

Producers who were in production prior to July 1, 2001 and who increased production capacity on or after July 1, 2001 by an amount of five million gallons qualify for the incentive for a maximum of 15 million gallons sold per year. Producers who commenced production on or after July 1, 2001, but prior to July 1, 2012, and who sold at least five million gallons qualify for the incentive for a maximum of 15 million gallons sold per year.

Any producer who commences cellulosic alcohol production on or after July 1, 2012 must have sold at least five million gallons to qualify for the incentive for a maximum of 15 million gallons sold per year. This provision shall not apply to producers who commence alcohol production from grain.

Producers seeking this incentive should file necessary forms with the Kansas Department of Revenue. The program sunsets July 1, 2018.

Incentives for Biodiesel Fuel Production

Incentives for biodiesel fuels became available July 1, 2007. Facilities receive an incentive of $0.30 per gallon sold by the producer. $50,000 per quarter is planned to be added to the fund for distribution.  If production exceeds the fund balance, the fund will be distributed on a prorated share.

Producers seeking this incentive should file necessary forms with the Kansas Department of Revenue.

The program sunsets July 1, 2016.

Waste Heat Utilization System

A waste heat utilization system includes facilities and equipment for the recovery of waste heat generated in the process of generating electricity and the use of such heat to generate additional electricity or to produce fuels from renewable energy resources or technologies.


A taxpayer shall be entitled to a deduction from Kansas adjusted gross income the amortizable costs of a waste heat utilization system. Such deduction shall be equal to 55 percent of the amortizable costs of such system for the first taxable year and five percent for the next nine taxable years. The provisions of this section shall apply to all taxable years commencing after Dec. 31, 2006. (K.S.A. 79-32,250)

For all taxable years commencing after Dec. 31, 2006, any waste heat utilization system property is exempt from all property taxes levied from and after purchase or commencement of construction or installation of such property and for the 10 taxable years immediately following the taxable year in which construction or installation of such property is completed. (K.S.A. 79-231)

The Kansas Development Finance Authority is authorized to issue revenue bonds in amounts sufficient to finance the construction of waste heat utilization systems at electric generation facilities.

Alternative-Fuel Fueling Station Tax Credit

A taxpayer that makes qualified expenditures for eligible alternative-fuel fueling stations shall be allowed a credit against the income tax imposed. For any qualified alternative-fuel fueling station placed in service on or after Jan. 1, 2009, an amount equal to 40 percent of the total amount expended but not to exceed $100,000 for each fueling station is allowed as a credit. (Schedule K-62, K.S.A. 79-32, 201)

Carbon Dioxide Capture/Sequestration Tax Deduction

A taxpayer is entitled to a deduction from Kansas adjusted gross income with respect to the amortizable costs of carbon dioxide capture, sequestration or utilization machinery and equipment over a period of 10 years. The amortization deduction shall be an amount equal to 55 percent of the amortizable costs of such machinery and equipment for the first taxable year in which such machinery and equipment are in operation and five percent of the amortizable costs of such machinery and equipment for each of the next nine taxable years. (K.S.A. 79-32, 256)

The taxpayer can claim the deduction by filing a statement with the Secretary of Revenue of such election. The deduction is available in all taxable years commencing after Dec. 31, 2007.

For all taxable years commencing after Dec. 31, 2007, any carbon dioxide capture, sequestration or utilization property and any electric generation unit which captures and sequesters all carbon dioxide and other emissions is exempt from all property taxes levied from and after purchase or commencement of construction or installation of such property and for the five taxable years immediately following the taxable year in which construction or installation of such property is completed. (K.S.A. 79-233)

Alternative-Fueled Motor Vehicle Tax Credit

A taxpayer who makes qualified expenditures for eligible alternative-fueled motor vehicles shall be allowed a credit against the income tax imposed. For any qualified alternative-fueled motor vehicle placed in service on or after Jan. 1, 2005, the credit is equal to 40 percent of the incremental cost or conversion cost for each qualified vehicle expended but not to exceed $2,400 (credits based on vehicle weight).

The credit for motor vehicles which are capable of operating on a blend of 85 percent ethanol and 15 percent gasoline are allowed for taxable years commencing after Dec. 31, 1999, only if the individual claiming the credit furnishes evidence of the purchase of 500 gallons of ethanol and gasoline blend during the period of time beginning with the vehicle purchase and ending on Dec. 31 of the next succeeding calendar year. (Schedule K-62, K.S.A. 79-32, 201)

Coal Gasification Power Plant

For all taxable years commencing after Dec. 31, 2005, integrated coal gasification power plant property is exempt from all property taxes levied from and after purchase or commencement of construction or installation of such property and for the 12 taxable years immediately following the taxable year in which construction or installation of such property is completed. (K.S.A. 79-225)

The Kansas Development Finance Authority is authorized to issue revenue bonds in amounts sufficient to finance the construction of such a facility.

Nitrogen Fertilizer Plant

A taxpayer may be entitled to a deduction from Kansas adjusted gross income of the amortizable costs of a new integrated coal or coke gasification nitrogen fertilizer plant or expansion of an existing integrated coal or coke gasification nitrogen fertilizer plant. The deduction is equal to 55 percent of the amortizable costs of the new plant or expansion of an existing plant for the first taxable year and five percent for the next nine taxable years. The deduction applies to all taxable years commencing after Dec. 31, 2005. (K.S.A. 79-32,232)

For all taxable years commencing after Dec. 31, 2005, any new integrated coal or coke gasification nitrogen fertilizer plant property or any expanded integrated coal or coke gasification nitrogen fertilizer plant property is exempt from all property taxes levied from and after purchase or commencement of construction or installation of such property and for the 10 taxable years immediately following taxable year in which the construction or installation of such property is completed. (K.S.A. 79-228)

The Kansas Development Finance Authority is authorized to issue revenue bonds in amounts sufficient to finance the construction or expansion.

Qualifying Pipeline

A taxpayer may be entitled to a deduction from Kansas adjusted gross income of the amortizable costs of a new qualifying pipeline. Such deduction is equal to 55 percent of the amortizable costs of the new qualifying pipeline for the first taxable year and five percent for the next nine taxable years. The deduction applies to all taxable years commencing after Dec. 31, 2005. (K.S.A. 79-32,227)

For all taxable years commencing after Dec. 31, 2005, any new qualifying pipeline property is exempt from all property taxes levied from and after purchase or commencement of construction or installation of such property and for the 10 taxable years immediately following the taxable year in which construction or installation of such property is completed. (K.S.A. 79-227)

The Kansas Development Finance Authority is authorized to issue revenue bonds in amounts sufficient to finance the construction of such property.

Secretary of State’s Application and Recording Fee

At the time of filing articles of incorporation, each domestic corporation (any corporation organized under Kansas law) pays an application and recording fee to the Secretary of State. This fee is reduced if the filing is done online.

A corporation classified as foreign (any corporation organized under the laws of another state) must pay a filing fee to the Secretary of State to obtain a certificate of authority to do business in Kansas. More details on this can be found at the Kansas Secretary of State’s office.

First Stop Clearinghouse

The First Stop Clearinghouse serves as a link between business owners and resources available through state government and provides a central point of contact to streamline the business startup process. A NetWork Kansas referral coordinator will connect you with resources within the state that are involved in all aspects of starting a business, including legal structure, employment, taxes, licensing and some federal requirements.

First Stop Clearinghouse
Kansas Center for Entrepreneurship
(dba NetWork Kansas)
John Gendron, Senior Product Manager, Expertise
1845 Fairmount, Box 202
Wichita, KS 67260
Phone: (877) 521-8600
E-mail:
NetworkKansas.com

Foreign Trade Zones

Foreign trade zones in Kansas provide a duty-free and quota-free entry point for foreign goods into specific areas under customs supervision for an unlimited period of time. Kansas has three such zones located in Kansas City, Topeka and Wichita.

The Kansas City zone has five operations, including 400,000 square feet of underground space available for dry storage, freezer storage or refrigeration; a five-acre site with 220,000 square feet of above-ground covered space; a second five-acre site with a 26,000 square-foot warehouse, a 50,000 square-foot warehouse and 21 acres in the Leavenworth Area Business Center.

The Topeka zone encompasses nearly 3,400 acres at two locations: Forbes Field/Topeka Air Industrial Park and Phillip Billard Airport/Industrial Park.

The Wichita zone encompasses 280 acres and includes 800,000 square feet of covered warehouse and assembly space as well as building sites for new manufacturing facilities.

Goods brought into a zone or sub-zone may be stored, manipulated or mixed with domestic or foreign materials used in manufacturing processes or exhibited for sale. Anything shipped out of a zone into the United States customs territory is then subject to duties. Goods reshipped to foreign nations are never subject to U.S. customs duties.

Trade Development

The Export Assistance and Marketing works directly with Kansas companies to increase sales of products and services in international markets. The Division also takes an active role in recruiting international businesses to the state. It uses worldwide marketing initiatives to enhance awareness of Kansas around the globe and helps Kansas businesses reach the largest possible market. These initiatives also promote the advantages of doing business in Kansas in an effort to recruit international investment to the state.

Export Assistance

The Export Assistance and Marketing provides assistance to Kansas companies wishing to begin or expand their international marketing efforts. Division members counsel individual Kansas firms, provide export data and foreign market research, coordinate with domestic and foreign agencies in marketing promotions, conduct export seminars, recruit and assist company participation in international trade shows, host foreign delegations, distribute foreign trade leads to appropriate Kansas companies and assist in locating export financing packages that fit your company’s needs.

International Investment Recruitment

The Department’s international investment experts provide assistance to international companies or their consultants who are considering Kansas for new manufacturing, distribution or office facilities. Assistance includes recommendations on location, developing incentive proposals, coordinating in-state site visits, serving as a liaison with other state agencies and serving as your single Kansas contact to ensure project confidentiality.

International Offices

The Export Assitance and Marketing section has representatives located strategically throughout the world that help keep Kansas globally connected. Services and assistance available from our in-country representatives include researching local regulations, performing local market research, identifying distributors and arranging a business schedule for Kansas executives visiting the country of interest.

Kansas International Trade Show Assistance Program

The Kansas International Trade Show Assistance Program assists Kansas producers who want to exhibit at international trade shows. The program can help reimburse successful applicants for up to half of their direct exhibition-related expenses, not to exceed $3,500 per international show. (Read on)

For More Information

For more information about programs and assistance available through the Export Assistance and Marketing, contact (785) 296-5298 or .