What major Kansas tax changes did the Department summarize from the 2006 legislative session?

Plain-English summary

Notice 06-05 is an omnibus summary of major 2006 Kansas tax legislation. It is a roadmap, not a substitute for the bills or detailed Department notices.

Income tax and refunds

• Senate Bill 432 created a 25% employer credit for salary paid to National Guard and U.S. reserve members, capped at $7,000 per employee, expanded the adoption credit, allowed a Kansas subtraction for contributions to another state's IRC § 529 program for tax years after 2006, added two return checkoffs, changed farm-NOL refund/carryforward treatment, and required more information for HPIP and business/job credits.
• Senate Bill 324 increased specified entrepreneurship and regional-foundation contribution credits to 75%; House Bill 2122 created a 50% credit for cash contributions to the Kansas Law Enforcement Training Center.
• Senate Bill 303 created energy-investment credits of 10% on the first $250 million of qualified investment and 5% above that.
• The 2006 long-term-care-insurance subtraction was capped at $600 per contract per taxpayer, and Senate Bill 330 removed the one-year waiting problem for qualified Learning Quest education withdrawals.
• The food-sales-tax refund was inflation-indexed to $75 or $37 for the income bands stated in the notice, while homestead-refund rules increased the qualifying income ceiling and refund table.

Withholding, property, and estate tax

• Employers filing a KW-3 with 51 or more Kansas-withholding statements had to submit the W-2s and 1099s electronically.
• Intentional employee misclassification as an independent contractor became subject to penalties effective July 1, 2006.
• Commercial and industrial machinery and equipment acquired by purchase or lease after June 30, 2006 became property-tax exempt.
• Senate Bill 365 created a stand-alone Kansas estate tax for deaths after 2006 and before 2010.

Sales tax

The legislation exempted qualifying cargo-bed work-site utility vehicles used under the farm-machinery exemption, temporarily excluded qualifying manufacturer rebates paid directly to dealers on new motor vehicles, exempted prescribed dietary supplements, and created numerous organization-specific purchase, sale, and project-certificate exemptions. Senate Bill 55 addressed uniform city retailers' sales-tax application.

Motor fuel and liquor

• Senate Bill 544 defined E-85 and set its tax at $0.17 per gallon beginning January 1, 2007.
• Senate Bill 388 created a $0.30-per-gallon qualified biodiesel producer incentive with filings beginning July 1, 2007.
• House Bill 2756 created a fuel-storage-tank upgrade reimbursement fund, and House Bill 2878 authorized 24- or 72-hour multi-trip permits.
• House Bill 2955 classified flavored malt beverage as cereal malt beverage, and Senate Bill 297 allowed winery shipment to purchasers/consumers effective July 1, 2006.

What this means for you

Use this notice to identify which 2006 bill may affect a historical transaction, then read the bill, detailed notice, form, or schedule named in the source. Many provisions had special effective dates, caps, sunsets, and qualification rules.

Common questions

Q: Did the notice provide every rule in the enacted bills?
A: No. It expressly summarized major enactments and pointed readers to bills, credit schedules, booklets, and separate notices.

Q: What was the electronic withholding threshold?
A: A KW-3 containing 51 or more W-2s or 1099s with Kansas withholding.

Q: What new fuel rates or incentives were highlighted?
A: E-85 tax of $0.17 per gallon and a qualified biodiesel producer incentive of $0.30 per gallon.

Q: What period did the new estate tax cover?
A: Decedents dying after December 31, 2006 and before January 1, 2010.

Citations and references

• 2006 Senate Bills 432, 324, 303, 330, 404, 365, 76, 55, 544, 388, and 297.
• 2006 House Bills 2122, 2583, 2772, 2756, 2878, and 2955.
• 2004 House Bill 2545 and 2005 Senate Bill 133.
• Credit Schedules K-31, K-32, K-34, K-47, K-59, K-67/K-139F, K-72, K-73, K-74, and K-77 through K-81.

Subject

2006 Tax Legislation

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 06-05

Original ruling text

Notice
Notice Number: 06-05
Tax Type: All
Brief Description: Summary of 2006 Legislative Session enacted bills.
Keywords:
Approval Date: 06/15/2006

Body:
Kansas Department of Revenue

                                            NOTICE 06-05
                                         2006 Tax Legislation

The following is a summary of the major 2006 legislative enactment’s relating to taxes administered by the
Kansas Department of Revenue. Unless otherwise noted, the reference to House Bills (HB) and Senate
Bills (SB) are for the 2006 legislative session. An electronic copy of all bills are available from the Kansas
Legislature web site: http://www.kslegislature.org/legsrv-legisportal/index.do Copies of Kansas Credit
Schedules and Tax Publications are available from the Kansas Department of Revenue web site:
http://wwwksrevenue.org

Income Tax:
SB 432 – Creates an income tax credit for employers of National Guard and United States reserve
members. The credit is 25% of the salary or compensation paid – capped at $7,000 credit per employee.
See Credit Schedule K-74.

SB 432 – Increases the Adoption Credit. Resident individuals allowed a Kansas credit equal to 25% of
federal credit. 50% of federal credit if the adopted child is a Kansas resident and 75% credit if the adopted
child is a Kansas resident and is a child with special needs. See Credit Schedule K-47.

SB 432 – Learning Quest – contributions to another state’s IRC 529 program are eligible for a Kansas
Subtraction Modification FOR TAX YEARS BEGINNING AFTER DECEMBER 31, 2006. See
http://kansasstatetreasurer.com/prodweb/cs_main.php

SB 432 – Adds two Check-offs to the Kansas Individual Income Tax return. Kansas Military Emergency
Relief Fund and the Kansas Breast Cancer Research Fund.

SB 432 – Farm NOL – Any overpayment of tax in excess of $1,500 (as a result of a Farm NOL) may be
carried forward to future tax years and may be claimed as a credit against the tax. The refundable portion
still limited to $1,500 per year. See Schedule K-67 or K-139F.

SB 432 – Additional information is required in order to qualify for the High Performance and Incentive
Program (HPIP) Credit – K-59 and the Business and Job Development Credit – K-34. See Credit
Schedules K-34 and K-59.

SB 324 – Income tax credit (75%) of amount contributed to the Kansas Center for Entrepreneurship. See
Credit Schedule K-31.

SB 324 – Income tax credit (75%) of amount contributed to a Regional Foundation (was previously a 50%
credit). See Credit Schedule K-32.

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HB 2122 – Creates an income tax credit (50%) of amount of cash contributed to the Kansas Law
Enforcement Training Center. See Credit Schedule K-72.

SB 303 – Provides for a number of energy related income tax credits. The credit is 10% of the “qualified
investment” for the first $250,000,000 and 5% of additional investment. See Credit Schedule K-73 for
Petroleum Refinery, K-77 for Qualifying Pipeline, K-78 for Coal or Coke Gasification Nitrogen Fertilizer
Plant, K-79 for Cellulosic Plant, K-80 for Integrated Coal Gasification Power Plant, K-81 for Refinery –
Environmental Standards.

2004 HB 2545 – Subtraction Modification for premium costs paid for Qualified Long-Term Care Insurance
Contracts. For Tax Year 2006 – maximum subtraction modification is $600 per LTC Contract per Taxpayer.
See line by line instructions for Schedule S, line A12 in the 2006 Kansas Individual Income Tax Booklet.

SB 330 – Learning Quest – Withdrawals for pay for post-secondary education expenses made within one
(1) year of opening a Learning Quest account is NO LONGER a “nonqualified withdrawal”. Thus,
immediate withdrawals from the Learning Quest program to pay education expenses incurs no Kansas
income tax liability. See http://kansasstatetreasurer.com/prodweb/cs_main.php

Food Sales Tax Refund:
SB 404 – Indexes the food sales tax refund to inflation. For Tax Year 2006 the refund amounts are $75 for
qualifying income of $0 to $14,300 and $37 for qualifying income of $14,301 to $28,600. See the 2006
Kansas Individual Income Tax Booklet.

Homestead Refund:
2005 SB 133 – Indexed “Household Income” to inflation. For Tax Year 2006 claimants with household
income less than $28,000 may qualify for a refund of up to $600. See the 2006 Kansas Homestead
Booklet.

HB 2583 – Adjusted the Refund Percentage Table to allow for larger Homestead refunds. See the 2006
Kansas Homestead Booklet.

Withholding Tax:
SB 432 – Requires employers filing a KW-3 containing 51 or more statements (W-2s or 1099s with Kansas
withholding) to electronically submit the W-2s and 1099s (web file). See Kansas Withholding Booklet, KW-
100.

HB 2772 – Provides that intentional misclassification of an “Employee” as an “Independent Contractor”
subjects the employer to penalties. Effective July 1, 2006. See Withholding Tax Booklet, KW-100.

Property Tax:
HB 2583 – Exempts from property taxes all commercial and industrial machinery and equipment acquired
by purchase or lease made after June 30, 2006.

Estate Tax:
SB 365 – Creates a stand-alone Kansas Estate Tax for deaths occurring after December 31, 2006 and
before January 1, 2010. See Kansas Estate Tax Booklet.

Sales Tax:
SB 76 – Exempts from sales tax “Work-Site Utility Vehicles” that are equipped with a bed or cargo box and
that fall within the requirements of the farm machinery and equipment sales tax exemption. Effective July 1,
2006. See NOTICE 06-02.

Page 3

SB 404 – Manufacture’s Motor Vehicle Rebates – no longer subject to sales tax when a cash rebate
granted by the manufacture to a purchaser of lessee of a new motor vehicle if the rebate is paid directly to
the dealer. Effective July 1, 2006 and ending on June 30, 2009. See NOTICE 06-03.

SB 404 – Exempts from sales tax Dietary Supplements dispensed pursuant to a prescription order.
Effective July 1, 2006.

SB 404 – Exempts the following organizations from paying sales tax on their purchases of tangible
personal property and services and from collecting sales tax on their sales of tangible personal property:
CHWC, Inc., Cross-Lines Cooperative Council, Dreams Work, Inc., KSDS, Inc., the Lyme Association of
Greater Kansas City, Special Olympics Kansas, Inc., Marillac Center, Inc., and any County Law Library.
Also exempt are purchases by the West Sedgwick County-Sunrise Rotary Club and Sunrise Charitable
Fund for the purpose of constructing a boundless playground. Also exempt are purchases by a homeless
shelter to provide emergency and transitional housing for individuals and families experiencing
homelessness. Also exempt are sales of tangible personal property made by or on behalf of a Public
Library.

SB 404 – Exempts the following organizations from paying sales tax on their purchases, as well as
providing said organizations with the ability to obtain Project Exemption Certificates: Nonprofit
Organizations which collect, store and distribute food to other nonprofit organizations which distribute such
food; TLC for Children and Families, Inc.; Catholic Charities or Youthville; Nonprofit museum purchasing
materials and labor from a contractor to remodel a former Governor’s home or facility located in a qualified
hometown; Kansas Children’s Service League.

SB 55 – Provides specific guidance for cities imposing a city retailers’ sales tax. Restores uniformity for
cities with regard to the application of sales tax.

Motor Fuel:
SB 544 – Defines “E-85” Fuel and imposes a $0.17 per gallon tax thereon beginning January 1, 2007.

SB 544 – Clarification – Motor Fuel and Special Fuel tax paid by Distributor of First Receipt or Importers.

SB 388 – Creates the Kansas Qualified Biodiesel Fuel Producer Incentive Fund – used to pay $0.30 a
gallon of biodiesel fuel produced by a Qualified Biodiesel Fuel Producer who is located in Kansas.
Producer can file for the production incentive beginning on July 1, 2007.

HB 2756 – Creates the Kansas Essential Fuel Supply Trust Fund – used to reimburse owners for expenses
to upgrade fuel storage tanks. Funded by the Environmental Assurance Fee – beginning July 1, 2006.

HB 2878 – Provides that Trip Permits may be purchased in either 24 hour or 72 hour permits – allowing
multiple trips within Kansas during the 24 or 72 hour period. See NOTICE 06-01.

Liquor:
HB 2955 – Defines Flavored Malt Beverage as a cereal malt beverage. Effective July 1, 2006.

SB 297 – Winery allowed to ship to purchaser/consumer. Effective July 1, 2006. See ABC NOTICE – 2006
Amendments to Kansas Liquor Laws.

Date Composed: 06/15/2006 Date Modified: 06/15/2006

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