When a taxpayer makes a payment on a past-due Kansas tax account, is it applied to tax, interest, or penalty first?

Plain-English summary

This is a Policy Council Determination Memorandum from the Department's Office of Policy and Research, recording an internal policy change about how a payment on a past-due tax account is split among tax, interest, and penalty.

The question the Policy Council took up was: "Should the application of payments to past due accounts be applied to tax liability first, interest second, and penalty last?"

The decision was yes. The memo states that "effective with the implementation of the new integrated tax system, the application of payments to past due accounts will be assigned to tax liability first, interest second, and penalty last," and that "[c]urrent programs will not be changed" — in other words, the new ordering took effect with the new system rather than retroactively.

The memo also gives the reason: "The number one reason to change the policy on application of past due payments is to bring Kansas more in line with its neighboring states and the IRS. The states surrounding Kansas and the IRS all apply payments to tax liability first and then to interest and penalty."

Because this is a general administrative policy about how the Department posts payments, it is listed against the full range of tax types the Department administers — from income, sales, and compensating tax through the various excise and privilege taxes — rather than being specific to one tax.

What this means for you

Taxpayers paying down a past-due balance

When you make a partial payment on an old Kansas tax bill under the integrated tax system, the Department applies it to the underlying tax first, then to accrued interest, and finally to penalty. Paying the tax portion down first can matter because interest generally continues to accrue on the unpaid tax.

Accountants and tax professionals

This is the ordering convention to assume for Kansas past-due accounts posted under the modern system: tax, then interest, then penalty — the same order the IRS and surrounding states use. It makes cross-state and federal reconciliations more consistent.

A note on scope and timing

This was a forward-looking system change ("[c]urrent programs will not be changed"), so older balances processed under the prior programs may have followed a different ordering. The memo is a 1997 internal policy statement, not a statute; confirm current Department practice for any specific present-day account.

Common questions

Q: In what order does Kansas apply a payment on a past-due account?
A: Tax liability first, interest second, and penalty last.

Q: Why did Kansas adopt this order?
A: To bring Kansas in line with its neighboring states and the IRS, all of which apply payments to tax first and then to interest and penalty.

Q: Did this change apply to balances already in the system?
A: No. The memo says the new ordering took effect with the implementation of the Department's new integrated tax system and that current programs would not be changed.

Q: Which taxes does this cover?
A: It is a general administrative policy, so it is listed across the many tax types the Department administers rather than a single tax.

Citations and references

• Policy Council decision of August 27, 1997 — the internal determination that payments on past-due accounts are applied tax first, interest second, penalty last, effective with the new integrated tax system.
• The memo does not cite a specific Kansas statute or regulation; it is an internal administrative policy, so statutes_cited is left empty.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: MEMO-AppofPaymentsPastDueAccounts

Original ruling text

Memorandum

Body:

Policy Council Determination Memorandum

From: Shirley Sicilian, Director
Office of Policy and Research

Date: September 9, 1997

RE: Policy Change - Application of Payments to Past Due Accounts

On August 27, 1997, the Policy Council met to determine a policy change regarding the application of payments to past due accounts. The change is set out below. Please advise all associates of this change.

Issue:

Should the application of payments to past due accounts be applied to tax liability first, interest second, and penalty last?

Policy Council Decision:

The Policy Council has determined that effective with the implementation of the new integrated tax system, the application of payments to past due accounts will be assigned to tax liability first, interest second, and penalty last. Current programs will not be changed.

Reason for Policy Change:

The number one reason to change the policy on application of past due payments is to bring Kansas more in line with its neighboring states and the IRS. The states surrounding Kansas and the IRS all apply payments to tax liability first and then to interest and penalty.

Date Composed: 02/10/1998 Date Modified: 10/09/2001

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