Kansas Legislature Makes Major Tax Changes on Final Day of Session

July 2015

After spending 23 extra days in session—setting a new Kansas record for the length of the legislative session—the Kansas legislature finally adjourned with the passage of House Bill 2109. This bill makes a variety of adjustments to existing tax law, enacts a tax amnesty period and imposes a few new taxes in an attempt to close the roughly $384 million budget gap in fiscal year 2016. Here are some of the major changes.

Tax Amnesty

The bill authorizes a tax amnesty, though it will be limited to penalties and interest applied to tax periods ending on or before December 31, 2013, and only for certain taxes. Taxpayers wishing to participate must pay their outstanding tax in full between September 1, 2015, and October 15, 2015. Taxes eligible for amnesty include privilege, income, estate, cigarette, tobacco products, liquor enforcement, liquor drink, severance and state sales and use taxes.

Individual Income Tax Changes

Rate Adjustment – Previously scheduled rate reductions have been delayed until tax year 2018. The rates in effect for the 2015 tax year will remain in effect through tax year 2017.

Itemized Deduction Limitations – Retroactively enacted to January 1, 2015, the bill eliminates all Kansas itemized deductions, with the following exceptions:

  • Charitable contributions
  • Mortgage interest
  • Property taxes paid

There’s no adjustment to the rules related to charitable contributions taken on the Kansas return compared to the prior year; however, a 50 percent “haircut” scheduled for tax year 2017 will be effective immediately for itemized deductions for mortgage interest and property taxes paid.

Guaranteed Payments – Guaranteed payments from a business that previously could be included in the subtraction modification for certain pass-through nonwage business income now must be included in the taxpayer’s Kansas adjusted gross income beginning in tax year 2015.

Low-Income Taxpayer Tax Liability Relief – Beginning in tax year 2016, a special low-income exclusion provision will eliminate income tax liability for single filers with taxable income of $5,000 or less and for married taxpayers filing jointly with taxable income of $12,500 or less.

Individual Development Account Tax Credit – A tax credit for contributions to certain individual development accounts has been reinstated for tax year 2015. The credit was originally discontinued prior to tax year 2013 as part of 2012 legislative changes.

Social Security Number Requirement – The new legislation requires individuals claiming a credit against income tax to have a valid Social Security number for the entire year. The bill offers an exception for military spouses who file using the “married filing jointly” status.

Non-Income Tax Changes

Sales & Use Tax – The statewide rate for sales and use tax increased to 6.5 percent from 6.15 percent on July 1, 2015.

Cigarette Tax – On July 1, 2015, the tax on a pack of cigarettes increased by 50 cents to $1.29 per pack. Retailers with inventory on hand as of July 1 will be responsible for paying an inventory tax equivalent by October 31.

E-Cigarette Tax – Effective July 1, 2016, the privilege of selling or dealing electronic cigarettes will be taxed at the rate of 20 cents per milliliter of consumable material.

Property Tax Lid Provisions – Beginning in 2018, cities and counties will be limited in how much they can increase property tax without triggering a mandatory election. The limitation allows cities and counties to raise the rate in response to inflation and for a number of expressly allowed purposes, but any raise beyond those limits must be approved by taxpayers.

If you have questions about how these legislative changes could affect you or your organization, contact your BKD advisor.

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