Session of 2023
HOUSE BILL No. 2110
By Committee on Taxation
1-19
AN ACT concerning income taxation; relating to apportionment of
business income; allowing sales factor for certain taxpayers; election;
requiring the secretary of revenue to report to the legislature; amending
K.S.A. 79-3271 and 79-3279 and repealing the existing sections.
Be it enacted by the Legislature of the State of Kansas:
Section 1. K.S.A. 79-3271 is hereby amended to read as follows: 79-
3271. As used in this act, unless the context otherwise requires:
(a) For tax years commencing prior to January 1, 2008, "business
income" means income arising from transactions and activity in the regular
course of the taxpayer's trade or business and includes income from
tangible and intangible property if the acquisition, management, and
disposition of the property constitute integral parts of the taxpayer's
regular trade or business operations, except that a taxpayer may elect that
all income constitutes business income. For tax years commencing after
December 31, 2007, "business income" means: (1) Income arising from
transactions and activity in the regular course of the taxpayer's trade or
business; (2) income arising from transactions and activity involving
tangible and intangible property or assets used in the operation of the
taxpayer's trade or business; or (3) income of the taxpayer that may be
apportioned to this state under the provisions of the Constitution of the
United States and laws thereof, except that a taxpayer may elect that all
income constitutes business income. Any election made under this
subsection shall be effective and irrevocable for the tax year in which the
election is made and the following nine tax years and shall be binding on
all members of a unitary group of corporations.
(b) "Commercial domicile" means the principal place from which the
trade or business of the taxpayer is directed or managed.
(c) "Compensation" means wages, salaries, commissions and any
other form of remuneration paid to employees for personal services.
(d) "Financial organization" means any bank, trust company, savings
bank, industrial bank, land bank, safe deposit company, private banker,
savings and loan association, credit union, cooperative bank, or any type
of insurance company, but such term shall not be deemed to include any
business entity, other than those hereinbefore enumerated, whose primary
business activity is making consumer loans or purchasing retail installment
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36 HB 2110 2
contracts from one or more sellers.
(e) "Nonbusiness income" means all income other than business
income.
(f) "Public utility" means any business entity which owns or operates
for public use any plant, equipment, property, franchise, or license for the
transmission of communications, transportation of goods or persons, or the
production, storage, transmission, sale, delivery, or furnishing of
electricity, water, steam, oil, oil products or gas.
(g) "Original return" means the first return filed to report the income
of a taxpayer for a taxable year or period, irrespective of whether such
return is filed on a single entity basis or a combined basis.
(h) "Sales" means, except as otherwise provided in K.S.A. 79-3285,
and amendments thereto, all gross receipts of the taxpayer not allocated
under K.S.A. 79-3274 through 79-3278, and amendments thereto.
(i) "State" means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, any territory or possession
of the United States, and any foreign country or political subdivision
thereof.
(j) "Telecommunications company" means any business entity or
unitary group of entities whose primary business activity is the
transmission of communications in the form of voice, data, signals or
facsimile communications by wire or fiber optic cable.
(k) "Distressed area taxpayer" means a corporation which: (1) Is
located in a county which has a population of not more than 45,000
persons and which, as certified by the department of commerce, has
sustained an adverse economic impact due to the closure of a state hospital
in such county pursuant to the recommendations of the hospital closure
commission; and (2) which has a total annual payroll of $20,000,000 or
more for employees employed within such county.
(l) For the purposes of this subsection and subsection (b)(5) of K.S.A.
79-3279(b)(5), and amendments thereto, the following terms are defined:
(1) "Administration services" include clerical, fund or shareholder
accounting, participant record keeping, transfer agency, bookkeeping, data
processing, custodial, internal auditing, legal and tax services performed
for an investment company;
(2) "distribution services" include the services of advertising,
servicing, marketing, underwriting or selling shares of an investment
company, but, in the case of advertising, servicing or marketing shares,
only where such service is performed by a person who is, or in the case of
a closed end company, was, either engaged in the services of underwriting
or selling investment company shares or affiliated with a person who is
engaged in the service of underwriting or selling investment company
shares. In the case of an open end company, such service of underwriting
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 3
or selling shares must be performed pursuant to a contract entered into
pursuant to 15 U.S.C. § 80a-15(b), as in effect on the effective date of this
act;
(3) "investment company", means any person registered under the
federal Investment Company Act of 1940, as in effect on the effective date
of this act, or a company which would be required to register as an
investment company under such act except that such person is exempt to
such registration pursuant to § 80a-3(c)(1) of such act;
(4) "investment funds service corporation" includes any corporation
or S corporation headquartered in and doing business in this state which
derives more than 50% of its gross income from the provision of
management, distribution or administration services to or on behalf of an
investment company or from trustees, sponsors and participants of
employee benefit plans which have accounts in an investment company;
(5) "management services" include the rendering of investment
advice to an investment company making determinations as to when sales
and purchases of securities are to be made on behalf of the investment
company, or the selling or purchasing of securities constituting assets of an
investment company, and related activities, but only where such activity or
activities are performed:
(A) Pursuant to a contract with the investment company entered into
pursuant to 15 U.S.C. § 80a-15(a), in effect on the effective date of this
act; or
(B) for a person that has entered into such contract with the
investment company;
(6) "qualifying business income" is business income derived from the
provision of management, distribution or administration services to or on
behalf of an investment company or from trustees, sponsors and
participants of employee benefit plans which have accounts in an
investment company; and
(7) "residence" is the fund shareholder's primary residence address.
(m) As used in this subsection and K.S.A. 79-3279(b)(7), and
amendments thereto:
(1) "Agricultural activities" means all commercial enterprises
identified under the following North American industry classification
system (NAICS) codes:
(A) 423820, farm and garden machinery and equipment merchant
wholesalers;
(B) 4245, farm product raw material merchant wholesalers;
(C) 424910, farm supplies merchant wholesalers;
(D) 493130, farm product warehousing and storage; or
(E) 112210, hog and pig farming;
(2) "manufacturing" means all commercial enterprises identified
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 4
under the North American industry classification system (NAICS) sectors
31 through 33;
(3) "production of electricity" means all commercial enterprises
identified under the North American industry classification system
(NAICS) industry codes 221114 and 221115;
(4) "storage of electricity" means storing electric energy for a period
of time using commercially available technology that is capable of storing
electric energy by chemical, thermal, mechanical or other means and then
delivering energy after storage;
(5) other scientific and technical consulting services for a biofuel
facility identified under the North American industry classification system
(NAICS) industry code 541690;
(6) petroleum and petroleum products merchant wholesalers
identified under the North American industry classification system
(NAICS) industry code 424720;
(7) paper and paper product merchant wholesalers identified under
the North American industry classification system (NAICS) industry code
4241; and
(8) wireless telecommunications carriers, except satellite, identified
under the North American industry classification system (NAICS) industry
code 517112.
Sec. 2. K.S.A. 79-3279 is hereby amended to read as follows: 79-
3279. (a) All business income of railroads and interstate motor carriers of
persons or property for-hire shall be apportioned to this state by
multiplying the business income by a fraction, in the case of railroads, the
numerator of which is the freight car miles in this state and the
denominator of which is the freight car miles everywhere, and, in the case
of interstate motor carriers, the numerator of which is the total number of
miles operated in this state and the denominator of which is the total
number of miles operated everywhere.
(b) All business income of any other taxpayer shall be apportioned to
this state by one of the following methods:
(1) By multiplying the business income by a fraction, the numerator
of which is the property factor plus the payroll factor plus the sales factor,
and the denominator of which is three; or
(2) at the election of a qualifying taxpayer, by multiplying the
business income by a fraction, the numerator of which is the property
factor plus the sales factor, and the denominator of which is two.
(A) For purposes of this subsection (b)(2), a qualifying taxpayer is
any taxpayer whose payroll factor for a taxable year exceeds 200% of the
average of the property factor and the sales factor. Whenever two or more
corporations are engaged in a unitary business and required to file a
combined report, the fraction comparison provided by this subsection (b)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 5
(2) shall be calculated by using the payroll factor, property factor and sales
factor of the combined group of unitary corporations.
(B) An election under this subsection (b)(2) shall be made by
including a statement with the original tax return indicating that the
taxpayer elects to apply the apportionment method under this subsection
(b)(2). The election shall be effective and irrevocable for the taxable year
of the election and the following nine taxable years. The election shall be
binding on all members of a unitary group of corporations.
Notwithstanding the above provisions of this paragraph, the secretary of
revenue may upon the request of the taxpayer, grant permission to
terminate the election under this subsection (b)(2) prior to expiration of the
ten-year 10-year period.
(3) At the election of a qualifying telecommunications company, by
multiplying the business income by a fraction, the numerator of which is
the information carrying capacity of wire and fiber optic cable available
for use in this state, and the denominator of which is the information
carrying capacity of wire and fiber optic cable available for use
everywhere during the tax year.
(A) For purposes of this subsection (b)(3), a qualifying
telecommunications company is a telecommunications company that is a
qualifying taxpayer under paragraph (A) of subsection (b)(2).
(B) A qualifying telecommunications company shall make the
election under this subsection (b)(3) in the same manner as provided under
paragraph (B) of subsection (b)(2).
(4) At the election of a distressed area taxpayer, by multiplying the
business income by the sales factor. The election shall be made by
including a statement with the original tax return indicating that the
taxpayer elects to apply this apportionment method. The election may be
made only once, it must be made on or before December 31, 1999 and it
shall be effective for the taxable year of the election and the following nine
taxable years for so long as the taxpayer maintains the payroll amount
prescribed by subsection (j) of K.S.A. 79-3271, and amendments thereto.
(5) At the election of the taxpayer made at the time of filing of the
original return, the qualifying business income of any investment funds
service corporation organized as a corporation or S corporation which
maintains its primary headquarters and operations or is a branch facility
that employs at least 100 individuals on a full-time equivalent basis in this
state and has any investment company fund shareholders residenced in this
state shall be apportioned to this state as provided in this subsection, as
follows:
(A) By multiplying the investment funds service corporation's
qualifying business income from administration, distribution and
management services provided to each investment company by a fraction,
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 6
the numerator of which shall be the average of the number of shares
owned by the investment company's fund shareholders residenced in this
state at the beginning of and at the end of the investment company's
taxable year that ends with or within the investment funds service
corporation's taxable year, and the denominator of which shall be the
average of the number of shares owned by the investment company's fund
shareholders everywhere at the beginning of and at the end of the
investment company's taxable year that ends with or within the investment
funds service corporation's taxable year.
(B) A separate computation shall be made to determine the qualifying
business income from each fund of each investment company. The
qualifying business income from each investment company shall be
multiplied by the fraction calculated pursuant to paragraph (A) for each
fund of such investment company.
(C) The qualifying portion of total business income of an investment
funds service corporation shall be determined by multiplying such total
business income by a fraction, the numerator of which is the gross receipts
from the provision of management, distribution and administration
services to or on behalf of an investment company, and the denominator of
which is the gross receipts of the investment funds service company. To
the extent an investment funds service corporation has business income
that is not qualifying business income, such business income shall be
apportioned to this state pursuant to subsection (b)(1).
(D) For tax year 2002, the tax liability of an investment funds service
corporation that has elected to apportion its business income pursuant to
paragraph (5) shall be increased by an amount equal to 50% of the
difference of the amount of such tax liability if determined pursuant to
subsection (b)(1) less the amount of such tax liability determined with
regard to paragraph (5).
(E) When an investment funds service corporation is part of a unitary
group, the business income of the unitary group attributable to the
investment funds service corporation shall be determined by multiplying
the business income of the unitary group by a fraction, the numerator of
which is the property factor plus the payroll factor plus the sales factor,
and the denominator of which is three. The property factor is a fraction,
the numerator of which is the average value of the investment funds
service corporation's real and tangible personal property owned or rented
and used during the tax period and the denominator of which is the
average value of the unitary group's real and tangible personal property
owned or rented and used during the tax period. The payroll factor is a
fraction, the numerator of which is the total amount paid during the tax
period by the investment funds service corporation for compensation, and
the denominator of which is the total compensation paid by the unitary
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 7
group during the tax period. The sales factor is a fraction, the numerator of
which is the total sales of the investment funds service corporation during
the tax period, and the denominator of which is the total sales of the
unitary group during the tax period.
(F) A taxpayer seeking to make the election available pursuant to
subsection (b)(5) of K.S.A. 79-3279, and amendments thereto, shall only
be eligible to continue to make such election if the taxpayer maintains at
least 95% of the Kansas employees in existence at the time the taxpayer
first makes such an election.
(6) At the election of a qualifying taxpayer, by multiplying such
taxpayer's business income by the sales factor. The election shall be made
by including a statement with the original tax return indicating that the
taxpayer elects to apply this apportionment method. The election may be
made only once and must be made on or before the last day of the taxable
year during which the investment described in paragraph (A) is placed in
service, but not later than December 31, 2009, and it shall be effective for
the taxable year of the election and the following nine taxable years or for
so long as the taxpayer maintains the wage requirements set forth in
paragraph (A). If the qualifying taxpayer is a member of a unitary group of
corporations, all other members of the unitary group doing business within
this state shall apportion their business income to this state pursuant to
subsection (b)(1).
(A) For purposes of this subsection, a qualifying taxpayer is any
taxpayer making an investment of $100,000,000 for construction in
Kansas of a new business facility identified under the North American
industry classification system (NAICS) subsectors of 31-33, as assigned
by the secretary of the department of labor, employing 100 or more new
employees at such facility after July 1, 2007, and prior to December 31,
2009, and meeting the following requirements for paying such employees
higher-than-average wages within the wage region for such facility:
(i) The taxpayer's new Kansas business facility with 500 or fewer
full-time equivalent employees will provide an average wage that is above
the average wage paid by all Kansas business facilities that share the same
assigned NAICS category used to develop wage thresholds and that have
reported 500 or fewer employees to the Kansas department of labor on the
quarterly wage reports;
(ii) the taxpayer's new Kansas business facility with 500 or fewer
full-time equivalent employees is the sole facility within its assigned
NAICS category that has reported wages for 500 or fewer employees to
the Kansas department of labor on the quarterly wage reports;
(iii) the taxpayer's new Kansas business facility with more than 500
full-time equivalent employees will provide an average wage that is above
the average wage paid by all Kansas business facilities that share the same
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 8
assigned NAICS category used to develop wage thresholds and that have
reported more than 500 employees to the Kansas department of labor on
the quarterly wage reports;
(iv) the taxpayer's new Kansas business facility with more than 500
full-time equivalent employees is the sole facility within its assigned
NAICS category that has reported wages for more than 500 employees to
the Kansas department of labor on the quarterly wage reports, in which
event it shall either provide an average wage that is above the average
wage paid by all Kansas business facilities that share the same assigned
NAICS category and that have reported wages for 500 or fewer employees
to the Kansas department of labor on the quarterly wage reports, or be the
sole Kansas business facility within its assigned NAICS category that has
reported wages to the Kansas department of labor on the quarterly wage
reports;
(v) the number of NAICS digits to use in developing each set of wage
thresholds for comparison purposes shall be determined by the secretary of
commerce;
(vi) the composition of wage regions used in connection with each set
of wage thresholds shall be determined by the secretary of commerce; and
(vii) alternatively, a taxpayer may wage-qualify its new Kansas
business facility if, after excluding the headcount and wages reported on
the quarterly wage reports to the Kansas department of labor for
employees at that new Kansas business facility who own five percent or
more equity in the taxpayer, the average wage calculated for the taxpayer's
new Kansas business facility is greater than or equal to 1.5 times the
aggregate state-wide average wage paid by industries covered by the
employment security law based on data maintained by the secretary of
labor.
(B) For the purposes of the wage requirements in paragraph (A), the
number of full-time equivalent employees shall be determined by dividing
the number of hours worked by part-time employees during the pertinent
measurement interval by an amount equal to the corresponding multiple of
a 40-hour work week and adding the quotient to the average number of
full-time employees.
(C) When the qualifying taxpayer is part of a unitary group, the
business income of the unitary group attributable to the qualifying
taxpayer shall be determined by multiplying the business income of the
unitary group by a fraction, the numerator of which is the property factor
plus the payroll factor plus the sales factor, and the denominator of which
is three. The property factor is a fraction, the numerator of which is the
average value of the qualifying taxpayer's real and tangible personal
property owned or rented and used during the tax period and the
denominator of which is the average value of the unitary group's real and
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 9
tangible personal property owned or rented and used during the tax period.
The payroll factor is a fraction, the numerator of which is the total amount
paid during the tax period by the qualifying taxpayer for compensation,
and the denominator of which is the total compensation paid by the unitary
group during the tax period. The sales factor is a fraction, the numerator of
which is the total sales of the qualifying taxpayer during the tax period,
and the denominator of which is the total sales of the unitary group during
the tax period.
(D) For purposes of this subsection, the secretary of revenue, upon a
showing of good cause and after receiving a certification by the secretary
of commerce of substantial compliance with provisions of this subsection
(b)(6), may extend any required performance date provided in this
subsection (b)(6) for a period not to exceed six months.
(7) (A) At the election of a qualifying taxpayer, by multiplying such
taxpayer's business income by the sales factor.
(B) For purposes of this paragraph, a qualifying taxpayer is any
taxpayer whose principal business activity in the state is:
(i) Manufacturing as defined in K.S.A. 79-3271(m)(2), and
amendments thereto;
(ii) production of electricity or storage of electricity as defined in
K.S.A. 79-3271(m)(3) and (4), and amendments thereto;
(iii) certain agricultural activities as defined in K.S.A. 79-3271(m)
(1), and amendments thereto;
(iv) scientific and technical consulting services for a biofuel facility
as provided in K.S.A. 79-3271(m)(5), and amendments thereto;
(v) wholesale distribution of petroleum products as provided in
K.S.A. 79-3271(m)(6), and amendments thereto;
(vi) wholesale trade as provided in K.S.A. 79-3271(m)(7), and
amendments thereto; and
(vii) wireless telecommunications carriers as provided in K.S.A. 79-
3271(m)(8), and amendments thereto.
(C) An election under this paragraph shall be made by including a
statement with the original tax return for which the election is made,
indicating that the taxpayer elects to apply this apportionment method.
The election shall be effective and irrevocable for the taxable year of the
election and the following nine taxable years. The election shall be
binding on all members of a unitary group of corporations.
Notwithstanding the provisions of this paragraph, the secretary of revenue
may upon the request of the taxpayer, grant permission to terminate the
election under this subsection (b)(7) prior to expiration of the 10-year
period.
(c) On or before March 1, 2028, the secretary of revenue shall submit
a written report to the house of representatives committee on taxation and
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43 HB 2110 10
the senate committee on assessment and taxation concerning the use of the
election pursuant to subsection (b)(7) and the number of taxpayers that
have elected the sales factor apportionment in lieu of the standard
apportionment provided by law.
Sec. 3. K.S.A. 79-3271 and 79-3279 are hereby repealed.
Sec. 4. This act shall take effect and be in force from and after its
publication in the statute book.
1
2
3
4
5
6
7