Incentives, Tax Credits & Tax Compensation
The State of Kansas offers significant and comprehensive business incentives to encourage the construction and expansion of Kansas businesses and industries.
Promoting Employment Across Kansas
The creation of the Promoting Employment Across Kansas (PEAK) Act, K.S.A. 2015 Supp. 74-50,210 through 74-50,219, was created by the 2009 Kansas Legislature. PEAK is intended to foster economic development in Kansas by incentivizing companies to relocate, locate, expand or retain a business facility/operations and related jobs. The Secretary of Commerce (the Secretary) has discretion to deny or approve applications of qualified companies. The PEAK benefit and term are based upon the number of PEAK Jobs/Employees to be hired, their wage levels and other economic impact variables of a project. The PEAK benefit is a fixed amount spread equally and capped annually over a benefit term of up to 10 years. During the benefit term, participating PEAK companies may retain or be refunded 95 percent (95%) of the state withholding tax of PEAK-Eligible Employees that are paid at or above the county median wage where the PEAK business facility is or will be located.
PEAK requires within a two-year period, five new PEAK Jobs in non-metropolitan counties or ten (10) new PEAK Jobs in the metropolitan counties of Shawnee, Douglas, Wyandotte, Johnson, Leavenworth and Sedgwick. Aggregate wages of the PEAK Jobs must meet or exceed the county median wage (CMW) or North American Industry Classification System (NAICS) average wage for their industry. Applicants meeting program requirements may include for-profit companies and not-for-profit headquarters. Qualified applicants also must: 1) offer an adequate health insurance policy (see Definitions) to its full-time employees within 180 days of hire and be paying at least 50 percent of the employee’s premium; 2) not owe undisputed federal, state or local taxes; and 3) not be seeking protection under the federal bankruptcy code.
Wages of PEAK-Eligible Employees may not be considered when computing the research and development tax credit (K.S.A. 79-32, 182b).
Also, PEAK-Eligible Employees who apply for the Rural Opportunity Zones (ROZs) income tax credit/waiver program would not be eligible to have their withholding taxes retained by or refunded to the qualified company for the PEAK benefit.
Companies must work with a Commerce regional project manager to apply to the PEAK program. Applications are accepted throughout the year and must be received PRIOR to hiring PEAK Employees in Kansas and within 180 days of acknowledgement from Commerce of the company’s decision to relocate, newly locate, expand or retain jobs in Kansas.
PEAK Guidelines and Application
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 of 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 Webpage available online
High Performance Incentive Program and Premium Example
Investment Tax Credit (ITC) may be used to offset income, privilege or premium tax liability. HPIP is allowed for income tax filers, privilege tax filers (banks) and insurance company filers. Allowed unused credits can be carried forward for 16 years. Employee training tax credit is applied first and does not carry forward.
- Company pays above-average wages.
- Company invests at least two percent of payroll in training or is actively participating in one of the state’s workforce training programs.
- Business in 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.
|1. Capital investment||$5,000,000 (all expenses in this example go toward equipment)|
|2. Number of jobs created||30 (not required to qualify for HPIP)|
|3. Annual Payroll||$1,000,000|
|4. Investment in training||$60,000 (may utilize state training programs KIT, KIR)|
|5. Year’s income tax liability||$75,000|
|1. Employee Training tax credit||$40,000 (exceeding 2 percent of annual payroll, max $50,000)|
|2. Investment Tax Credit||$495,000 (10 percent of amount exceeding $50,000*)|
|1. Total HPIP Income Tax Credit||$495,000|
|2. Less: Total income tax liability during year of investment||$75,000|
|3. ITC’s to use toward future Tax liability||$420,000|
|3, Sales Tax Project exemption||$307,500 (capital investment X 6.15 percent tax)|
|Total High Performance Incentive Program Benefit:|
|HPIP Investment Tax Credit||$495,000|
|Sales Tax Exemption Savings||$307,500|
|Total HPIP Benefit||$802,500|
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) at www.ksrevenue.org/pecwelcome.html 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 annual 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.
If the company purchases and takes delivery of canned software, this is tangible personal property and can be included as qualified business facility investment.
If the company developed the software for their own use (customized software), this would be considered as intangible property and not qualified business facility investment for HPIP purposes.
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.
The sales tax exemption can be accessed at www.KansasCommerce.gov/DocumentCenter/View/4618.
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.