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On May 3, 2021, the Kansas legislature voted to override Governor Laura Kelly's veto of SB 50 (the bill), which changes the state's sales and use tax and income tax codes. Key provisions of the bill include:

• Establishing marketplace facilitator provisions and an economic nexus threshold for remote sellers under Kansas's sales tax code
• Decoupling Kansas's income tax law from certain provisions of the federal Tax Cuts and Jobs Act (TCJA) related to the treatment of global intangible low-taxed income (GILTI) and the limitation on business interest expense under IRC Section 163(j)
• Allowing an indefinite carryforward of Kansas net operating losses (NOLs)
• Extending the Kansas corporate income tax return filing deadline to one month after the federal return filing deadline, including any applicable extensions

These provisions have various effective dates, as discussed below.

Sales and use tax changes

For sales occurring on or after July 1, 2021,¹ a marketplace facilitator² that sells or facilitates the sale of property or services in Kansas must collect and remit sales, use or state/local transient guest tax if, in the current or immediately preceding calendar year, it:

• Makes over $100,000 in sales of taxable property or services in Kansas or
• Makes or facilitates over $100,000 in taxable sales of property or services in Kansas on its own behalf or on behalf of one or more marketplace sellers for delivery into the state

The bill allows the Kansas Department of Revenue (KS DOR) to waive collection and remittance requirements if the marketplace facilitator demonstrates that substantially all of its marketplace sellers already are collecting and remitting taxes to the KS DOR.³ If the KS DOR grants the waiver, tax is collectible from the marketplace seller.⁴ Alternatively, marketplace facilitators and marketplace sellers that meet certain conditions can contractually agree to have the marketplace seller collect and remit tax.⁵

Retailers, including marketplace facilitators, that meet the threshold for the first time in the current calendar year must collect and remit tax only on the cumulative gross receipts from sales of over $100,000 into Kansas in that year.⁶

The bill also establishes an economic nexus threshold for remote sellers. In August 2019, the KS DOR issued Notice 19-04 Sales Tax Requirements for Retailers Doing Business in Kansas (August 1, 2019), requiring all remote sellers to register, collect, and remit sales and use tax without meeting an economic or transactional threshold. Specifically, the bill modifies the definition of "retailer doing business in this state" to include a retailer that otherwise does not satisfy any of the requirements of "retailer doing business in this state" (e.g., a remote seller) that has over $100,000 of cumulative gross receipts from sales to Kansas customers.⁷

Remote sellers meeting the economic nexus threshold will not be required to collect and remit tax from sales occurring before July 1, 2021.⁸

Effective April 1, 2022, marketplace facilitators will also be responsible for collecting and remitting prepaid wireless E911 fees for taxable retail sales made through its marketplace.⁹

The bill repeals click-through nexus provisions for affiliated persons.¹⁰

Corporate income tax changes

In computing Kansas taxable income for tax years beginning after December 31, 2020, corporate taxpayers are required to:

• Add to federal taxable income "the amount deducted by reason of a carryforward of disallowed business interest" under IRC Section 163(j)(2) (as in effect on January 1, 2018), and subtract the amount of the deduction disallowed under IRC Section 163(j) (as in effect on January 1, 2018)¹¹
• Subtract the amount disallowed as a deduction under IRC Section 162(r) (as in effect on January 1, 2018) for federal deposit insurance corporation premiums paid by the taxpayer¹²
• Add to federal taxable income the amount of any deduction claimed under IRC Section 250(a)(1)(B) (i.e., the GILTI deduction);¹³ and subtract 100% of GILTI under IRC Section 951A before the related GILTI deduction¹⁴

The bill also clarifies that the term "dividends" for purposes of the subtraction modification for dividends under K.S.A. 79-32,138(c)(v) includes amounts included under IRC Section 965 (federal repatriation dividends) net of the deduction permitted by IRC Section 965(c).

The amount disallowed as a deduction under IRC Section 274 for meal expenditures will be allowed for Kansas income tax purposes to the extent the expense was deductible for determining federal income tax in effect on December 31, 2017.¹⁵ This change also applies for individual income tax purposes.¹⁶

The bill decouples Kansas's income tax law from the changes made to IRC Section 118 (dealing with the federal income tax treatment of certain capital contributions) by the TCJA. This change requires corporate taxpayers, in determining federal taxable income for tax years beginning after December 31, 2020, to apply the capital contributions exemption under IRC Section 118 as in effect on December 21, 2017 (the day before the TCJA's enactment).¹⁷

The bill also provides that Kansas NOLs incurred in tax years beginning after December 31, 2017, can be carried forward indefinitely. ¹⁸ NOLs incurred prior to tax year 2018 can only be carried forward for 10 years. ¹⁹

For tax years commencing after December 31, 2019 (i.e., tax year 2020 and thereafter), Kansas corporate income tax returns are due one month after the due date of the federal return, including any applicable extensions granted by the IRS.²⁰ Penalties will not be imposed if the return is filed within one month after receiving a federal filing extension.²¹

Individual income tax changes

For tax years beginning after December 31, 2020, Kansas individual income taxpayers, in computing their Kansas adjusted taxable income, are required to:

• Add to federal taxable income "the amount deducted by reason of a carryforward of disallowed business interest" under IRC Section 163(j)(2) (as in effect on January 1, 2018), and subtract the amount of the deduction disallowed under IRC Section 163(j) (as in effect on January 1, 2018²²
• Subtract from federal adjusted gross income 100% of GILTI under IRC Section 951A before any deduction allowed under IRC Section 250(a)(1)(B)²³

For tax years beginning after December 31, 2020 (i.e., tax years 2021 and thereafter), individual income taxpayers may claim the expense deduction under IRC Section 179 for certain depreciable property.²⁴

For tax year 2021 and thereafter, individuals may elect to itemize deductions in lieu of taking the standard deduction, regardless of whether the individual itemized deductions on his/her federal return.²⁵ Before 2021, an individual who itemized deductions on his/her federal return could elect to itemize deductions on the Kansas income tax return, but those electing the federal standard deduction could not make such election.

In addition, the bill increases the amount of the Kansas standard deduction as follows:

• $3,500 (from $3,000) for single filers
• $8,000 (from $7,500) for married filers
• $6,000 (from $5,500) for head of household filers²⁶

Implications

Marketplace facilitators and remote sellers making sales to customers in Kansas and meeting the sales threshold will need to update their systems and processes to reflect the new collection and remittance requirements. With the enactment of Kansas's marketplace facilitator provisions, Missouri becomes the only state with a sales and use tax that has not yet adopted an economic-nexus standard or marketplace-facilitator provisions (although bills to establish these provisions are currently being considered in the Missouri legislature).

For Kansas corporate income tax purposes, the bill's most significant changes are the decoupling of the Kansas corporate income tax law from IRC Section 163(j) (business expense limitations) and IRC Section 951A (GILTI). As these provisions become effective in tax year 2021, taxpayers may want to consider such changes immediately in calculating their tax year 2021 estimated tax payments.

In addition, certain other changes made by the bill are retroactive, notably the change to the enactment of an indefinite carryover periods for Kansas NOLs accruing after 2017.

The bill also added language clarifying that IRC Section 965 income (federal repatriation) is eligible for the state's 80% foreign dividend received deduction.

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ENDNOTES

¹ Section 4 of the bill.

² Section 1(b)(1) of the bill defines a marketplace facilitator as a person that "(A) Contracts or otherwise agrees with marketplace sellers to facilitate for consideration, regardless of whether deducted as fees from the transaction, the sale of the marketplace seller's products or rooms, lodgings or accommodations through a physical or electronic marketplace operated, owned or otherwise controlled by the person; and (B) either directly or indirectly through contracts, agreements or other arrangements with third parties, collects the payment from the purchaser and transmits all or part of the payment to the marketplace seller." Also included within this definition is a person who provides a platform through which unaffiliated third parties offer for rent (of less than 29 days) rooms, lodgings, accommodations, homes, apartments, cabins or residential dwellings (but not rooms, lodgings or sleeping accommodations provided by a hotel). A marketplace facilitator does not include a platform or forum that exclusively provides advertising services, a person whose principal activity is to provide payment processing services between two parties, or certain specified types of securities or commodity futures trading or clearing organizations.

³ Section 2(b) of the bill.

⁴ The KS DOR must promulgate rules and regulations establishing the criteria for obtaining a waiver and the waiver application process. Section 2(b) of the bill.

⁵ Section 2(c) of the bill.

⁶ Section 2(a)(2) of the bill.

⁷ Section 14 of the bill (amending the definition of "retailer doing business in this state" in K.S.A. 79-3602 of the Kansas sales tax code by adding clause (h)(1)(G)).

⁸ K.S.A. 79-3602(h)(1)(G) (as added by Section 14 of the bill).

⁹ Section 2(d) of the bill.

¹⁰ Section 14 of the bill (deleting former clauses (B), (C) and (D) of K.S.A. 79-3602(h)(2) and subsection (j) of such section (defining "affiliated person")).

¹¹ Section 11 of the bill (amending K.S.A. 79-32,138(b)(i) and (c)(i) (incorporating by reference the additions of K.S.A. 79-32,117(b)(xxvii) (addition) and (c)(xxvi) (subtraction), respectively made to the determination of Kansas adjusted gross income under the Kansas individual income tax law by Section 8 of the bill).

¹² K.S.A. 79-32,138(c)(vi) (as added by Section 11 of the bill).

¹³ K.S.A. 79-32,138(b)(vii) (as added by Section 11 of the bill).

¹⁴ K.S.A. 79-32,138(c)(i) (cross-referencing modifications to be the same as provided under K.S.A. 79-32,117(c) (including the amendments made to that paragraph by Section 8 of the bill adding paragraph (c)(xxv)).

¹⁵ K.S.A. 79-32,138(a) (incorporating by reference for Kansas corporate income tax code purposes K.S.A. 79-32,117(c)(xxvii) (of the Kansas individual income tax law as added by Section 8 of the bill)).

¹⁶ Section 8 of the bill (adding paragraph K.S.A. 79-32,117(c)(xxvii)).

¹⁷ Section 11 of the bill (amending K.S.A. 79-32,138(a)).

¹⁸ Section 12 of the bill (adding K.S.A. 79-32,143(a)(1)(B)).

¹⁹ Section 12 of the bill (amending K.S.A. 79-32,143(a)(1)(A)).

²⁰ Section 6 of the bill (adding K.S.A. 79-3221(c)(2)(A)).

²¹ Id. (adding K.S.A. 79-3221(c)(2)(B)).

²² Section 8 of the bill (adding K.S.A. 79-32,117(b)(xxvii) (addition) and (c)(xxvi) (subtraction)).

²³ Section 8 of the bill (adding K.S.A. 79-32,117(c)(xxv).

²⁴ Section 13 of the bill (K.S.A. 79-32,143a(i) (making the IRC Section 179 deduction allowed by K.S.A. 79-32,143a(a)(1) as amended by Section 13 of the bill applicable to all taxpayers subject to the Kansas individual income tax imposed under K.S.A. 79-32,110)).

²⁵ Section 10 of the bill (adding K.S.A. 79-31,120(a)(B)).

²⁶ Section 9 of the bill (adding K.S.A. 79-32,119(c)(2)).