On March 25, 2019, Kansas Gov. Laura Kelly, vetoed Kansas Senate Bill 22, a comprehensive state tax bill which would have primarily 1) decoupled the state from federal income tax changes made by the Tax Cuts and Jobs Act, and 2) addressed remote seller nexus in the wake of South Dakota v. Wayfair. A brief description of some of the proposals is below.
Individual income tax
Senate Bill 22 proposed to retroactively remove restrictions on Kansas individual income taxpayers that prohibited taxpayers from itemizing deductions for state income tax purposes unless the taxpayer also itemized deductions for federal income tax purposes. Accordingly, taxpayers would have been allowed to itemize deductions or claim the standard deduction, regardless of the methodology claimed for federal tax purposes. Taxpayers could have amended 2018 tax year returns until Dec. 31, 2019, for this purpose.
Business income tax
The bill also aimed to address various changes to business income tax, including:
- Decoupling the state from the global intangible low-taxed income (GILTI) deduction under section 951(A)
- Exempting repatriated income under section 965(a)
- Decouple from the 30 percent limitation on net interest expense deductions under section 163(j)
Sales and use tax provisions
The following sales and use tax-related provisions were proposed in Senate Bill 22:
- A reduction of the sales tax rate on food and food ingredients from 6.50 percent to 5.50 percent
- The enactment of the Kansas Main Street Parity Act (KMSPA), requiring remote sellers to collect sales or compensating use tax if they made more than $100,000 in total gross sales sourced to Kansas
Takeaways
In her veto message, Gov. Kelly indicated that she believed the bill would “give significant tax breaks to entities who need them the least.” The bill now returns to the state legislature for a potential veto override. However, the bill did not originally pass with enough votes for an override, so it remains unclear whether such an attempt would be successful. Taxpayers impacted by these provisions should continue to follow Senate Bill 22 and speak to their tax advisers with questions about the state’s response to
