Kansas tax cuts rolled back

ALERT: Kansas Legislature rolls back 2012 tax cuts but with an uncertain effective date; creates taxpayer planning opportunity

June 8, 2017

Bill repeals state income tax exemption for many businesses, increases individual state income tax rates.

Tax breaks rolled back

Late June 6, the Kansas Senate and House overrode the Governor’s veto of a new tax bill and have passed legislation creating new tax brackets, raising the tax rates and repealing the non-wage business income exemption.

The legislation contains three primary initiatives:

  • A complete repeal of the non-wage business income exemption that had eliminated state income tax on income from sole proprietorships, farming and rental activities and pass-through entities such as partnerships, LLCs and S corporations
  • An increase in the individual state income tax rates to a new top rate of 5.20% from a current top rate of 4.6% for 2017 and increasing to 5.7% for 2018
  • An addition to individual itemized deductions to include 100% of federal deductible medical expenses

This law clearly repeals the non-wage business income exemption and increases the current income tax rates – but with an uncertain effective date. The new law references January 1, 2017, but also states an effective date of July 1, 2017. In the past, the Kansas Department of Revenue has stated that new tax legislation is effective on January 1 of the year of passage.

If July 1, 2017, is the effective date, this creates a planning opportunity with a very small window.

Next steps

Taxpayers seeking to minimize any new tax liability should contact their tax professional as soon as possible to discuss potential strategies. For more information about how this legislation may affect you personally, contact your AGH tax professional or Jerry Capps, or Shawn Sullivan, using their information below.

Gerald Capps, JD

Senior Vice President
State & Local Tax Services

Jerry Capps and the State and Local Tax (SALT) team provide sophisticated state and local tax planning, strategic advice and advocacy to numerous mid-market, Fortune 100 and industry-leading companies. The team has returned many millions of dollars in one-time and recurring tax savings to companies.

In addition to planning and compliance, the SALT practice includes legislation and policy, litigation, and controversy matters involving income, franchise, sales and use and property taxes. Jerry's work involves critical questions on nexus, apportionment, the Multistate Tax Compact, and the equal protection, due process and commerce clauses of the United States Constitution. He is a respected advocate on issues of tax policy and he represents clients in all phases of state and local tax controversy, including audit assistance and administrative hearings. He also provides counsel on state and local income and transactional costs for mergers, acquisitions and corporate reorganizations.

Jerry is a member of the Institute for Professionals in Taxation, the Kansas Society of Certified Public Accountants, the American Bar Association and the Kansas Bar Association. He has been engaged as a keynote speaker for organizations such as the Institute for Professionals in Taxation, state and local CPA societies, university and professional accounting conferences, and chambers of commerce.

Shawn Sullivan

Executive Vice President
Tax Services

Shawn serves as one of two primary leaders in the firm’s large tax group. He has extensive public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction, and contractor industries. In addition to enhancing business performance to minimize tax consequences, he has experience in mergers and acquisitions and international tax and business structuring.

A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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