Kansas 2023-2024 Regular Session

Kansas House Bill HB2110 Compare Versions

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Old	New	Differences
1	1	Session of 2023
2	2	HOUSE BILL No. 2110
3	3	By Committee on Taxation
4	4	1-19
5	5	AN ACT concerning income taxation; relating to apportionment of
6	6	business income; allowing sales factor for certain taxpayers; election;
7	7	requiring the secretary of revenue to report to the legislature; amending
8	8	K.S.A. 79-3271 and 79-3279 and repealing the existing sections.
9	9	Be it enacted by the Legislature of the State of Kansas:
10	10	Section 1. K.S.A. 79-3271 is hereby amended to read as follows: 79-
11	11	3271. As used in this act, unless the context otherwise requires:
12	12	(a) For tax years commencing prior to January 1, 2008, "business
13	13	income" means income arising from transactions and activity in the regular
14	14	course of the taxpayer's trade or business and includes income from
15	15	tangible and intangible property if the acquisition, management, and
16	16	disposition of the property constitute integral parts of the taxpayer's
17	17	regular trade or business operations, except that a taxpayer may elect that
18	18	all income constitutes business income. For tax years commencing after
19	19	December 31, 2007, "business income" means: (1) Income arising from
20	20	transactions and activity in the regular course of the taxpayer's trade or
21	21	business; (2) income arising from transactions and activity involving
22	22	tangible and intangible property or assets used in the operation of the
23	23	taxpayer's trade or business; or (3) income of the taxpayer that may be
24	24	apportioned to this state under the provisions of the Constitution of the
25	25	United States and laws thereof, except that a taxpayer may elect that all
26	26	income constitutes business income. Any election made under this
27	27	subsection shall be effective and irrevocable for the tax year in which the
28	28	election is made and the following nine tax years and shall be binding on
29	29	all members of a unitary group of corporations.
30	30	(b) "Commercial domicile" means the principal place from which the
31	31	trade or business of the taxpayer is directed or managed.
32	32	(c) "Compensation" means wages, salaries, commissions and any
33	33	other form of remuneration paid to employees for personal services.
34	34	(d) "Financial organization" means any bank, trust company, savings
35	35	bank, industrial bank, land bank, safe deposit company, private banker,
36	36	savings and loan association, credit union, cooperative bank, or any type
37	37	of insurance company, but such term shall not be deemed to include any
38	38	business entity, other than those hereinbefore enumerated, whose primary
39	39	business activity is making consumer loans or purchasing retail installment
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76	76	contracts from one or more sellers.
77	77	(e) "Nonbusiness income" means all income other than business
78	78	income.
79	79	(f) "Public utility" means any business entity which owns or operates
80	80	for public use any plant, equipment, property, franchise, or license for the
81	81	transmission of communications, transportation of goods or persons, or the
82	82	production, storage, transmission, sale, delivery, or furnishing of
83	83	electricity, water, steam, oil, oil products or gas.
84	84	(g) "Original return" means the first return filed to report the income
85	85	of a taxpayer for a taxable year or period, irrespective of whether such
86	86	return is filed on a single entity basis or a combined basis.
87	87	(h) "Sales" means, except as otherwise provided in K.S.A. 79-3285,
88	88	and amendments thereto, all gross receipts of the taxpayer not allocated
89	89	under K.S.A. 79-3274 through 79-3278, and amendments thereto.
90	90	(i) "State" means any state of the United States, the District of
91	91	Columbia, the Commonwealth of Puerto Rico, any territory or possession
92	92	of the United States, and any foreign country or political subdivision
93	93	thereof.
94	94	(j) "Telecommunications company" means any business entity or
95	95	unitary group of entities whose primary business activity is the
96	96	transmission of communications in the form of voice, data, signals or
97	97	facsimile communications by wire or fiber optic cable.
98	98	(k) "Distressed area taxpayer" means a corporation which: (1) Is
99	99	located in a county which has a population of not more than 45,000
100	100	persons and which, as certified by the department of commerce, has
101	101	sustained an adverse economic impact due to the closure of a state hospital
102	102	in such county pursuant to the recommendations of the hospital closure
103	103	commission; and (2) which has a total annual payroll of $20,000,000 or
104	104	more for employees employed within such county.
105	105	(l) For the purposes of this subsection and subsection (b)(5) of K.S.A.
106	106	79-3279(b)(5), and amendments thereto, the following terms are defined:
107	107	(1) "Administration services" include clerical, fund or shareholder
108	108	accounting, participant record keeping, transfer agency, bookkeeping, data
109	109	processing, custodial, internal auditing, legal and tax services performed
110	110	for an investment company;
111	111	(2) "distribution services" include the services of advertising,
112	112	servicing, marketing, underwriting or selling shares of an investment
113	113	company, but, in the case of advertising, servicing or marketing shares,
114	114	only where such service is performed by a person who is, or in the case of
115	115	a closed end company, was, either engaged in the services of underwriting
116	116	or selling investment company shares or affiliated with a person who is
117	117	engaged in the service of underwriting or selling investment company
118	118	shares. In the case of an open end company, such service of underwriting
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162	162	or selling shares must be performed pursuant to a contract entered into
163	163	pursuant to 15 U.S.C. § 80a-15(b), as in effect on the effective date of this
164	164	act;
165	165	(3) "investment company", means any person registered under the
166	166	federal Investment Company Act of 1940, as in effect on the effective date
167	167	of this act, or a company which would be required to register as an
168	168	investment company under such act except that such person is exempt to
169	169	such registration pursuant to § 80a-3(c)(1) of such act;
170	170	(4) "investment funds service corporation" includes any corporation
171	171	or S corporation headquartered in and doing business in this state which
172	172	derives more than 50% of its gross income from the provision of
173	173	management, distribution or administration services to or on behalf of an
174	174	investment company or from trustees, sponsors and participants of
175	175	employee benefit plans which have accounts in an investment company;
176	176	(5) "management services" include the rendering of investment
177	177	advice to an investment company making determinations as to when sales
178	178	and purchases of securities are to be made on behalf of the investment
179	179	company, or the selling or purchasing of securities constituting assets of an
180	180	investment company, and related activities, but only where such activity or
181	181	activities are performed:
182	182	(A) Pursuant to a contract with the investment company entered into
183	183	pursuant to 15 U.S.C. § 80a-15(a), in effect on the effective date of this
184	184	act; or
185	185	(B) for a person that has entered into such contract with the
186	186	investment company;
187	187	(6) "qualifying business income" is business income derived from the
188	188	provision of management, distribution or administration services to or on
189	189	behalf of an investment company or from trustees, sponsors and
190	190	participants of employee benefit plans which have accounts in an
191	191	investment company; and
192	192	(7) "residence" is the fund shareholder's primary residence address.
193	193	(m) As used in this subsection and K.S.A. 79-3279(b)(7), and
194	194	amendments thereto:
195	195	(1) "Agricultural activities" means all commercial enterprises
196	196	identified under the following North American industry classification
197	197	system (NAICS) codes:
198	198	(A) 423820, farm and garden machinery and equipment merchant
199	199	wholesalers;
200	200	(B) 4245, farm product raw material merchant wholesalers;
201	201	(C) 424910, farm supplies merchant wholesalers;
202	202	(D) 493130, farm product warehousing and storage; or
203	203	(E) 112210, hog and pig farming;
204	204	(2) "manufacturing" means all commercial enterprises identified
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248	248	under the North American industry classification system (NAICS) sectors
249	249	31 through 33;
250	250	(3) "production of electricity" means all commercial enterprises
251	251	identified under the North American industry classification system
252	252	(NAICS) industry codes 221114 and 221115;
253	253	(4) "storage of electricity" means storing electric energy for a period
254	254	of time using commercially available technology that is capable of storing
255	255	electric energy by chemical, thermal, mechanical or other means and then
256	256	delivering energy after storage;
257	257	(5) other scientific and technical consulting services for a biofuel
258	258	facility identified under the North American industry classification system
259	259	(NAICS) industry code 541690;
260	260	(6) petroleum and petroleum products merchant wholesalers
261	261	identified under the North American industry classification system
262	262	(NAICS) industry code 424720;
263	263	(7) paper and paper product merchant wholesalers identified under
264	264	the North American industry classification system (NAICS) industry code
265	265	4241; and
266	266	(8) wireless telecommunications carriers, except satellite, identified
267	267	under the North American industry classification system (NAICS) industry
268	268	code 517112.
269	269	Sec. 2. K.S.A. 79-3279 is hereby amended to read as follows: 79-
270	270	3279. (a) All business income of railroads and interstate motor carriers of
271	271	persons or property for-hire shall be apportioned to this state by
272	272	multiplying the business income by a fraction, in the case of railroads, the
273	273	numerator of which is the freight car miles in this state and the
274	274	denominator of which is the freight car miles everywhere, and, in the case
275	275	of interstate motor carriers, the numerator of which is the total number of
276	276	miles operated in this state and the denominator of which is the total
277	277	number of miles operated everywhere.
278	278	(b) All business income of any other taxpayer shall be apportioned to
279	279	this state by one of the following methods:
280	280	(1) By multiplying the business income by a fraction, the numerator
281	281	of which is the property factor plus the payroll factor plus the sales factor,
282	282	and the denominator of which is three; or
283	283	(2) at the election of a qualifying taxpayer, by multiplying the
284	284	business income by a fraction, the numerator of which is the property
285	285	factor plus the sales factor, and the denominator of which is two.
286	286	(A) For purposes of this subsection (b)(2), a qualifying taxpayer is
287	287	any taxpayer whose payroll factor for a taxable year exceeds 200% of the
288	288	average of the property factor and the sales factor. Whenever two or more
289	289	corporations are engaged in a unitary business and required to file a
290	290	combined report, the fraction comparison provided by this subsection (b)
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334	334	(2) shall be calculated by using the payroll factor, property factor and sales
335	335	factor of the combined group of unitary corporations.
336	336	(B) An election under this subsection (b)(2) shall be made by
337	337	including a statement with the original tax return indicating that the
338	338	taxpayer elects to apply the apportionment method under this subsection
339	339	(b)(2). The election shall be effective and irrevocable for the taxable year
340	340	of the election and the following nine taxable years. The election shall be
341	341	binding on all members of a unitary group of corporations.
342	342	Notwithstanding the above provisions of this paragraph, the secretary of
343	343	revenue may upon the request of the taxpayer, grant permission to
344	344	terminate the election under this subsection (b)(2) prior to expiration of the
345	345	ten-year 10-year period.
346	346	(3) At the election of a qualifying telecommunications company, by
347	347	multiplying the business income by a fraction, the numerator of which is
348	348	the information carrying capacity of wire and fiber optic cable available
349	349	for use in this state, and the denominator of which is the information
350	350	carrying capacity of wire and fiber optic cable available for use
351	351	everywhere during the tax year.
352	352	(A) For purposes of this subsection (b)(3), a qualifying
353	353	telecommunications company is a telecommunications company that is a
354	354	qualifying taxpayer under paragraph (A) of subsection (b)(2).
355	355	(B) A qualifying telecommunications company shall make the
356	356	election under this subsection (b)(3) in the same manner as provided under
357	357	paragraph (B) of subsection (b)(2).
358	358	(4) At the election of a distressed area taxpayer, by multiplying the
359	359	business income by the sales factor. The election shall be made by
360	360	including a statement with the original tax return indicating that the
361	361	taxpayer elects to apply this apportionment method. The election may be
362	362	made only once, it must be made on or before December 31, 1999 and it
363	363	shall be effective for the taxable year of the election and the following nine
364	364	taxable years for so long as the taxpayer maintains the payroll amount
365	365	prescribed by subsection (j) of K.S.A. 79-3271, and amendments thereto.
366	366	(5) At the election of the taxpayer made at the time of filing of the
367	367	original return, the qualifying business income of any investment funds
368	368	service corporation organized as a corporation or S corporation which
369	369	maintains its primary headquarters and operations or is a branch facility
370	370	that employs at least 100 individuals on a full-time equivalent basis in this
371	371	state and has any investment company fund shareholders residenced in this
372	372	state shall be apportioned to this state as provided in this subsection, as
373	373	follows:
374	374	(A) By multiplying the investment funds service corporation's
375	375	qualifying business income from administration, distribution and
376	376	management services provided to each investment company by a fraction,
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420	420	the numerator of which shall be the average of the number of shares
421	421	owned by the investment company's fund shareholders residenced in this
422	422	state at the beginning of and at the end of the investment company's
423	423	taxable year that ends with or within the investment funds service
424	424	corporation's taxable year, and the denominator of which shall be the
425	425	average of the number of shares owned by the investment company's fund
426	426	shareholders everywhere at the beginning of and at the end of the
427	427	investment company's taxable year that ends with or within the investment
428	428	funds service corporation's taxable year.
429	429	(B) A separate computation shall be made to determine the qualifying
430	430	business income from each fund of each investment company. The
431	431	qualifying business income from each investment company shall be
432	432	multiplied by the fraction calculated pursuant to paragraph (A) for each
433	433	fund of such investment company.
434	434	(C) The qualifying portion of total business income of an investment
435	435	funds service corporation shall be determined by multiplying such total
436	436	business income by a fraction, the numerator of which is the gross receipts
437	437	from the provision of management, distribution and administration
438	438	services to or on behalf of an investment company, and the denominator of
439	439	which is the gross receipts of the investment funds service company. To
440	440	the extent an investment funds service corporation has business income
441	441	that is not qualifying business income, such business income shall be
442	442	apportioned to this state pursuant to subsection (b)(1).
443	443	(D) For tax year 2002, the tax liability of an investment funds service
444	444	corporation that has elected to apportion its business income pursuant to
445	445	paragraph (5) shall be increased by an amount equal to 50% of the
446	446	difference of the amount of such tax liability if determined pursuant to
447	447	subsection (b)(1) less the amount of such tax liability determined with
448	448	regard to paragraph (5).
449	449	(E) When an investment funds service corporation is part of a unitary
450	450	group, the business income of the unitary group attributable to the
451	451	investment funds service corporation shall be determined by multiplying
452	452	the business income of the unitary group by a fraction, the numerator of
453	453	which is the property factor plus the payroll factor plus the sales factor,
454	454	and the denominator of which is three. The property factor is a fraction,
455	455	the numerator of which is the average value of the investment funds
456	456	service corporation's real and tangible personal property owned or rented
457	457	and used during the tax period and the denominator of which is the
458	458	average value of the unitary group's real and tangible personal property
459	459	owned or rented and used during the tax period. The payroll factor is a
460	460	fraction, the numerator of which is the total amount paid during the tax
461	461	period by the investment funds service corporation for compensation, and
462	462	the denominator of which is the total compensation paid by the unitary
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506	506	group during the tax period. The sales factor is a fraction, the numerator of
507	507	which is the total sales of the investment funds service corporation during
508	508	the tax period, and the denominator of which is the total sales of the
509	509	unitary group during the tax period.
510	510	(F) A taxpayer seeking to make the election available pursuant to
511	511	subsection (b)(5) of K.S.A. 79-3279, and amendments thereto, shall only
512	512	be eligible to continue to make such election if the taxpayer maintains at
513	513	least 95% of the Kansas employees in existence at the time the taxpayer
514	514	first makes such an election.
515	515	(6) At the election of a qualifying taxpayer, by multiplying such
516	516	taxpayer's business income by the sales factor. The election shall be made
517	517	by including a statement with the original tax return indicating that the
518	518	taxpayer elects to apply this apportionment method. The election may be
519	519	made only once and must be made on or before the last day of the taxable
520	520	year during which the investment described in paragraph (A) is placed in
521	521	service, but not later than December 31, 2009, and it shall be effective for
522	522	the taxable year of the election and the following nine taxable years or for
523	523	so long as the taxpayer maintains the wage requirements set forth in
524	524	paragraph (A). If the qualifying taxpayer is a member of a unitary group of
525	525	corporations, all other members of the unitary group doing business within
526	526	this state shall apportion their business income to this state pursuant to
527	527	subsection (b)(1).
528	528	(A) For purposes of this subsection, a qualifying taxpayer is any
529	529	taxpayer making an investment of $100,000,000 for construction in
530	530	Kansas of a new business facility identified under the North American
531	531	industry classification system (NAICS) subsectors of 31-33, as assigned
532	532	by the secretary of the department of labor, employing 100 or more new
533	533	employees at such facility after July 1, 2007, and prior to December 31,
534	534	2009, and meeting the following requirements for paying such employees
535	535	higher-than-average wages within the wage region for such facility:
536	536	(i) The taxpayer's new Kansas business facility with 500 or fewer
537	537	full-time equivalent employees will provide an average wage that is above
538	538	the average wage paid by all Kansas business facilities that share the same
539	539	assigned NAICS category used to develop wage thresholds and that have
540	540	reported 500 or fewer employees to the Kansas department of labor on the
541	541	quarterly wage reports;
542	542	(ii) the taxpayer's new Kansas business facility with 500 or fewer
543	543	full-time equivalent employees is the sole facility within its assigned
544	544	NAICS category that has reported wages for 500 or fewer employees to
545	545	the Kansas department of labor on the quarterly wage reports;
546	546	(iii) the taxpayer's new Kansas business facility with more than 500
547	547	full-time equivalent employees will provide an average wage that is above
548	548	the average wage paid by all Kansas business facilities that share the same
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592	592	assigned NAICS category used to develop wage thresholds and that have
593	593	reported more than 500 employees to the Kansas department of labor on
594	594	the quarterly wage reports;
595	595	(iv) the taxpayer's new Kansas business facility with more than 500
596	596	full-time equivalent employees is the sole facility within its assigned
597	597	NAICS category that has reported wages for more than 500 employees to
598	598	the Kansas department of labor on the quarterly wage reports, in which
599	599	event it shall either provide an average wage that is above the average
600	600	wage paid by all Kansas business facilities that share the same assigned
601	601	NAICS category and that have reported wages for 500 or fewer employees
602	602	to the Kansas department of labor on the quarterly wage reports, or be the
603	603	sole Kansas business facility within its assigned NAICS category that has
604	604	reported wages to the Kansas department of labor on the quarterly wage
605	605	reports;
606	606	(v) the number of NAICS digits to use in developing each set of wage
607	607	thresholds for comparison purposes shall be determined by the secretary of
608	608	commerce;
609	609	(vi) the composition of wage regions used in connection with each set
610	610	of wage thresholds shall be determined by the secretary of commerce; and
611	611	(vii) alternatively, a taxpayer may wage-qualify its new Kansas
612	612	business facility if, after excluding the headcount and wages reported on
613	613	the quarterly wage reports to the Kansas department of labor for
614	614	employees at that new Kansas business facility who own five percent or
615	615	more equity in the taxpayer, the average wage calculated for the taxpayer's
616	616	new Kansas business facility is greater than or equal to 1.5 times the
617	617	aggregate state-wide average wage paid by industries covered by the
618	618	employment security law based on data maintained by the secretary of
619	619	labor.
620	620	(B) For the purposes of the wage requirements in paragraph (A), the
621	621	number of full-time equivalent employees shall be determined by dividing
622	622	the number of hours worked by part-time employees during the pertinent
623	623	measurement interval by an amount equal to the corresponding multiple of
624	624	a 40-hour work week and adding the quotient to the average number of
625	625	full-time employees.
626	626	(C) When the qualifying taxpayer is part of a unitary group, the
627	627	business income of the unitary group attributable to the qualifying
628	628	taxpayer shall be determined by multiplying the business income of the
629	629	unitary group by a fraction, the numerator of which is the property factor
630	630	plus the payroll factor plus the sales factor, and the denominator of which
631	631	is three. The property factor is a fraction, the numerator of which is the
632	632	average value of the qualifying taxpayer's real and tangible personal
633	633	property owned or rented and used during the tax period and the
634	634	denominator of which is the average value of the unitary group's real and
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678	678	tangible personal property owned or rented and used during the tax period.
679	679	The payroll factor is a fraction, the numerator of which is the total amount
680	680	paid during the tax period by the qualifying taxpayer for compensation,
681	681	and the denominator of which is the total compensation paid by the unitary
682	682	group during the tax period. The sales factor is a fraction, the numerator of
683	683	which is the total sales of the qualifying taxpayer during the tax period,
684	684	and the denominator of which is the total sales of the unitary group during
685	685	the tax period.
686	686	(D) For purposes of this subsection, the secretary of revenue, upon a
687	687	showing of good cause and after receiving a certification by the secretary
688	688	of commerce of substantial compliance with provisions of this subsection
689	689	(b)(6), may extend any required performance date provided in this
690	690	subsection (b)(6) for a period not to exceed six months.
691	691	(7) (A) At the election of a qualifying taxpayer, by multiplying such
692	692	taxpayer's business income by the sales factor.
693	693	(B) For purposes of this paragraph, a qualifying taxpayer is any
694	694	taxpayer whose principal business activity in the state is:
695	695	(i) Manufacturing as defined in K.S.A. 79-3271(m)(2), and
696	696	amendments thereto;
697	697	(ii) production of electricity or storage of electricity as defined in
698	698	K.S.A. 79-3271(m)(3) and (4), and amendments thereto;
699	699	(iii) certain agricultural activities as defined in K.S.A. 79-3271(m)
700	700	(1), and amendments thereto;
701	701	(iv) scientific and technical consulting services for a biofuel facility
702	702	as provided in K.S.A. 79-3271(m)(5), and amendments thereto;
703	703	(v) wholesale distribution of petroleum products as provided in
704	704	K.S.A. 79-3271(m)(6), and amendments thereto;
705	705	(vi) wholesale trade as provided in K.S.A. 79-3271(m)(7), and
706	706	amendments thereto; and
707	707	(vii) wireless telecommunications carriers as provided in K.S.A. 79-
708	708	3271(m)(8), and amendments thereto.
709	709	(C) An election under this paragraph shall be made by including a
710	710	statement with the original tax return for which the election is made,
711	711	indicating that the taxpayer elects to apply this apportionment method.
712	712	The election shall be effective and irrevocable for the taxable year of the
713	713	election and the following nine taxable years. The election shall be
714	714	binding on all members of a unitary group of corporations.
715	715	Notwithstanding the provisions of this paragraph, the secretary of revenue
716	716	may upon the request of the taxpayer, grant permission to terminate the
717	717	election under this subsection (b)(7) prior to expiration of the 10-year
718	718	period.
719	719	(c) On or before March 1, 2028, the secretary of revenue shall submit
720	720	a written report to the house of representatives committee on taxation and
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764	764	the senate committee on assessment and taxation concerning the use of the
765	765	election pursuant to subsection (b)(7) and the number of taxpayers that
766	766	have elected the sales factor apportionment in lieu of the standard
767	767	apportionment provided by law.
768	768	Sec. 3. K.S.A. 79-3271 and 79-3279 are hereby repealed.
769	769	Sec. 4. This act shall take effect and be in force from and after its
770	770	publication in the statute book.
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