Kansas adopts Wayfair threshold; makes other business tax changes
TAX ALERT |
On May 3, 2021, the Kansas legislature overrode Gov. Laura Kelly’s veto of Senate Bill 50, adopting a remote seller nexus threshold, requiring marketplace facilitators to collect sales tax and making a number of other business income tax changes.
Economic sales tax nexus
Recall that on Aug. 1, 2019, the Kansas Department of Revenue released Notice 19-04, Sales Tax Requirements for Retailers Doing Business in Kansas, adopting an Oct. 1, 2019 enforcement date for economic sales tax nexus. The department took the position that, under existing law, remote sellers – those that sell tangible personal property and services to Kansas customers but otherwise did not have a physical presence – were required to collect the sales and use tax. Unlike every other state adopting economic sales tax nexus up to, and after, that notice, the department did not provide a ‘small-seller threshold’ that remote sellers had to meet or exceed before qualifying for registration, collection and remittance obligations. Marketplace facilitators were not required to collect under the notice.
Beginning July 1, 2021, Senate Bill 50 establishes a $100,000 sales threshold to determine whether a remote seller is doing business in the state. Remote sellers that exceed the threshold in the preceding calendar year, or the current calendar year (2021), must collect and remit the tax on sales over the threshold beginning July 1.
Marketplace facilitators must also collect beginning on July 1, 2021 when the facilitator makes sales of property or services in the state exceeding $100,000 or facilitates the sale of property or services exceeding $100,000. The definition of ‘marketplace facilitator’ is broad and includes a person that contracts or agrees with marketplace sellers to facilitate the sale of the seller's products or rooms, lodgings or accommodations through a physical or electronic marketplace operated, owned or otherwise controlled by the facilitator and collects the payment from the purchaser and transmits all or part of the payment to the marketplace seller. The definition specifically excludes a platform that exclusively provides advertising services, payment processing services, and certain commodity futures trading. Marketplace facilitators also are responsible for collecting and remitting local transient guest taxes beginning Jan. 1, 2022 and certain prepaid wireless 911 fees beginning April 1, 2022.
Finally, the legislation eliminates the state’s ‘click-through nexus’ provision.
Business income tax changes
Senate Bill 50 makes a number of additional and anticipated business tax changes. A highlighted summary of those changes is as follows:
- Provides for a subtraction modification exempting global intangible low-taxed income (GILTI) under section 951A, before any deductions allowed under section 250(a)(1)(B) for tax years beginning in 2021. This provision essentially exempts GILTI from Kansas state income taxation.
- Decouples from the Tax Cuts and Jobs Act’s business interest provisions for tax years beginning in 2021. The measure provides a subtraction for the amount of the disallowed business interest expense deduction under section 163(j).
- Decouples from federal capital contribution taxation by providing, beginning in tax year 2021, that for Kansas corporate income tax purposes the exemption from federal taxable income for capital contributions shall be the exemption as it existed in section 118 of the Code as in effect on Dec. 31, 2017.
- Provides a subtraction modification exempting certain meal expenditures, to the extent such expenditures would have been deductible under the Code as in effect on Dec. 31, 2017, but are currently disallowed for federal taxable income purposes pursuant to the current Code in effect for tax years beginning in 2021.
- Provides for an unlimited carry forward of net operating losses beginning with losses incurred in the 2018 tax year. Previously, net operating losses could be carried forward for 10 years.
- Extends the filing date of the Kansas corporate income tax returns to one month after the due date established under federal law beginning with tax year 2020.
The veto override was uncertain because, as originally passed, both chambers were unable to secure a two-thirds veto proof margin. While the senate voted favorability for the bill by a two-thirds margin, the house was three votes short. However, enough votes flipped in the house to allow the override attempt to succeed.
All businesses operating in Kansas should be aware of these significant tax changes. For remote vendors and marketplace facilitators, the economic nexus threshold provides a level of certainty as to when tax collection responsibility begins. At the same time, the $100,000 sales threshold will likely result in many remote vendors having new collection and remittance obligations.
Similarly, all business entities filing in Kansas should be aware of the income tax changes in the law. There are potential tax savings from the exclusion of GILTI, the full allowance of deductions, and the unlimited net operating loss carryforwards. Some of these provisions have retroactive applications and some are effective in 2021. Additionally, businesses should carefully track modifications relating to the period prior as those modifications may potentially be deductible in 2021. In any event, businesses should consult with their state and local tax professional for more information.