As part of House Bill 2239, the Salt Parity Act was signed into law on April 14, 2022, along with many other provisions. One key provision for certain manufacturers is the Aviation and Aerospace Tax Credits.
Why are the credits needed?
Kansas has long been a major aviation hub. However, the state continues to face increasing competition from other states and regions. Not only for aviation manufacturing work, but also for skilled workers in the industry. Coupling this competition along with the overall post-pandemic labor upheaval has placed severe strain on Kansas aviation manufacturers.
The state legislature has made tax credits available to incentivize aviation manufacturers and their employees to seek available education and training that will help them enter the aviation workforce and support industry growth in Kansas.
What is in the law?
There are three types of credits available beginning with tax year 2022: tuition reimbursement, qualified compensation credit, and direct employee credit. All three credits refer to a “qualified employee.”
A qualified employee is one who graduated from:
- An accredited engineering or technology undergraduate or graduate degree program
- An associate of applied science degree program, or
- A career technical program and
- One of the three qualified programs within one year prior to or following of the commencement of employment by an employer whose principal business activity is in the aviation sector.
Tuition reimbursement credit – For employers to receive this credit, their principal business activity is in the aviation sector and tuition or certain program-specific course reimbursements must be paid to a full-time qualified employee.
The tuition reimbursement credit is capped at 50% of the total amount of tuition reimbursement paid, is nonrefundable, and may not be carried forward. The credit can be claimed each year for up to the fourth year of employment with the qualified employer.
Qualified compensation credit – A nonrefundable tax credit for taxpayers of 10% of the compensation paid to qualified employees in each of the first five years of employment with the employer. The tax credit cannot exceed $15,000 per year and cannot be carried forward. When calculating compensation, benefits or reimbursable expenses cannot be included.
Direct employee credit – A $5,000 nonrefundable tax credit is available for qualified employees hired during the taxable year, and for each of up to four succeeding years. Qualified employees with income tax liability of less than $5,000 are eligible to carry any unused credit forward for up to four additional tax years.
The law only generally defines terms such as “aviation sector” and “qualified employee”. The Kansas Secretary of Revenue will need to adopt rules and regulations to put the tax credits into effect. Once adopted, the credits will be effective for the 2022 tax year and are scheduled to sunset on December 31, 2026.
If you have questions about the tax credits and your situation, contact your AGH advisor or Shawn Sullivan using the information below.
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.
Executive Vice President
Shawn leads the firm’s tax group and serves on AGH’s board of directors. In addition to enhancing business performance to minimize tax consequences, he has extensive experience in mergers and acquisitions, international tax and business structuring. Shawn has public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, automotive, wholesale distribution, real estate development and construction industries.
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.