How does the Kansas Rural Opportunity Zone income tax credit work for people who move to a designated county?

Plain-English summary

Kansas Notice 11-03 explains the Rural Opportunity Zone (ROZ) program created by 2011 Senate Bill 198, which designates 50 Kansas counties as ROZ and effectively gives an income tax exemption to certain out-of-state taxpayers who relocate to them. (The full 50-county list is in the original text below.)

The credit. For tax years 2012 through 2016, a resident individual receives a credit against tax liability equal to their income tax liability if they:

1. Establish domicile in a ROZ on or after July 1, 2011 and before January 1, 2016, after being domiciled outside Kansas for five or more years immediately before;
2. Had Kansas source income (as defined by K.S.A. 79-32,109(h)) of less than $10,000 in any one year for the five or more years immediately before establishing domicile; and
3. Were domiciled in the ROZ the entire taxable year for which the credit is claimed.

Duration. The credit may be claimed for up to five consecutive years after establishing domicile. The last opportunity to claim it is the 2016 return, filed in 2017; establishing domicile later than early 2012 reduces the number of eligible years.

Ordering and refunds. A taxpayer may apply credits in the order most favorable to them; the ROZ credit is best claimed first. If the ROZ credit produces a refund, the refund is capped at the amount withheld or paid as estimated tax (other refundable credits are added on top).

When no credit is allowed. If the return is not timely filed (including extensions), the individual is delinquent on any Kansas return or tax, or domicile is not established before January 1, 2016.

Domicile. The Department applies K.A.R. 92-12-4a to any questions of domicile.

Date note. The notice bears no printed issue date; it is dated to mid-2011 by its position in the 2011 notice sequence (after Notice 11-02, June 24, 2011).

What this means for you

People considering a move to rural Kansas

• If you were out of state for at least five years, had under $10,000 of Kansas source income in those years, and move to one of the 50 ROZ counties between July 1, 2011 and January 1, 2016, you may zero out your Kansas income tax for up to five years (through tax year 2016).
• File on time and stay current on Kansas taxes, or the credit is disallowed.

Tax preparers

• Verify the five-year out-of-state and low-Kansas-income tests and full-year ROZ domicile; claim the ROZ credit first, and remember any refund is capped at amounts withheld or paid as estimated tax.

Common questions

Who qualifies for the ROZ credit? A resident who moved to a ROZ county from out of state (five-plus years away, under $10,000 Kansas source income) between July 1, 2011 and January 1, 2016 and is domiciled there all year.

How large is the credit? Equal to the individual's Kansas income tax liability for the year.

For how many years? Up to five consecutive years, with the last claim on the 2016 return.

Can it create a large refund? Any refund is capped at the amount withheld or paid as estimated tax.

Citations and references

• 2011 Senate Bill 198 -- created the Rural Opportunity Zone program and designated 50 counties.
• K.S.A. 79-32,109(h) -- defines "Kansas source income" used in the under-$10,000 eligibility test.
• K.A.R. 92-12-4a -- the regulation the Department applies to questions of domicile.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 11-03

Original ruling text

Policy & Research Phone: 785-296-3081
915 SW Harrison St FAX: 785-296-7928
Topeka KS 66612-1588 www.ksrevenue.org
Nick Jordan, Secretary Department of Revenue Sam Brownback, Governor
Richard Cram, Director

                                       NOTICE 11-03

                          RURAL OPPORTUNITY ZONES
                                   SB 198

 The 2011 Legislative Session passed Senate Bill 198 which designates 50 counties in

Kansas as Rural Opportunity Zones (ROZ). As part of the bill, certain out-of-state taxpayers
who relocate to these counties are effectively provided an income tax exemption.

 The counties which have received the ROZ designation are:

 Barber, Chautauqua, Cheyenne, Clark, Cloud, Comanche, Decatur, Edwards, Elk,
 Gove, Graham, Greeley, Greenwood, Hamilton, Harper, Hodgeman, Jewell, Kearny,
 Kingman, Kiowa, Lane, Lincoln, Logan, Marion, Mitchell, Morton, Ness, Norton,
 Osborne, Pawnee, Phillips, Pratt, Rawlins, Republic, Rooks, Rush, Russell, Scott,
 Sheridan, Sherman, Smith, Stafford, Stanton, Trego, Thomas, Wallace, Washington,
 Wichita, Wilson and Woodson.

   The income tax provisions in the Bill provide that for tax years 2012 through 2016 a

resident individual taxpayer will receive as a credit against their tax liability an amount equal to
their income tax liability when the resident individual:

 1.     Establishes domicile in a rural opportunity zone on or after July 1, 2011, and
        prior to January 1, 2016, and was domiciled outside Kansas for five or more
        years immediately prior to establishing their domicile in a rural opportunity
        zone in Kansas;
 2.     Had Kansas source income (as defined by K.S.A. 79-32,109(h)) of less than
        $10,000 in any one year for five or more years immediately prior to establishing
        their domicile in a rural opportunity zone in Kansas; and
 3.     Was domiciled in a rural opportunity zone during the entire taxable year for
        which such credit is claimed.

  A resident individual may claim this credit for not more than five consecutive years

following establishment of their domicile in a rural opportunity zone. This assumes the
individual establishes domicile in a rural opportunity zone after July 1, 2011 and prior to January
1, 2012. If an individual establishes their domicile in a rural opportunity zone at a later date, the
number of years for which they can claim the credit will be reduced. The last opportunity to
claim the credit will be on the individual's 2016 tax year return, which will be filed in 2017.

  A taxpayer may choose to apply any Kansas income tax credits for which they are eligible

in the manner or order most favorable to them. For taxpayers eligible to claim the ROZ credit,
the most favorable treatment for the taxpayer would be to claim the ROZ credit, in the amount of

their Kansas income tax liability, before any other credits are claimed. Other credits that are
refundable or that can be carried forward would then be claimed.

 With regard to the ROZ credit, if use of the credit results in a refund the maximum amount

of that refund will be equal to the amount withheld from the resident individual's wages or
payments other than wages, or paid by the resident individual as estimated taxes. Other,
refundable credits would be in addition to this amount.

 No credit shall be allowed if:

 1.   The resident individual's income tax return on which the credit is claimed is not
      timely filed, including any extension; or
 2.   The resident individual is delinquent in filing any return with, or paying any tax
      due to, the state of Kansas or any political subdivision thereof; or
 3.   The resident individual does not establish such individual's domicile in a rural
      opportunity zone prior to January 1, 2016.

  Determining where an individual is domiciled depends on the facts of each situation. The

Kansas Department of Revenue will apply Kansas Administrative Regulation (K.A.R.) 92-12-4a
in answering any questions of domicile that may arise.

                                  Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about income tax, please contact:

                              Taxpayer Assistance Center
                             Kansas Department of Revenue
                             915 SW Harrison St., 1st Floor
                               Topeka, KS 66612-1588
                                 Phone: 785-368-8222
                                  Fax: 785-291-3614