Can a Kansas resident's credit for taxes paid to another state include local income or earnings taxes?

Plain-English summary

Kansas Notice 15-15 (August 10, 2015) explains that, after the U.S. Supreme Court's May 18, 2015 decision in Maryland v. Wynne, the Department will allow the credit for taxes paid to another state (K.S.A. 79-32,111) to include local income or earnings taxes imposed within that state -- not just the state-level tax.

The change. A Kansas resident's credit may now recognize both the other state's income or earnings tax and income or earnings taxes imposed by local units of government within that state. This applies to local jurisdictions in the United States and in a foreign country.

Which years. Returns for tax year 2015 and later, and amended returns for prior years filed within the statute of limitations in K.S.A. 79-3230. A separate amended Kansas return is required for each prior year for which the credit is sought.

Documentation. Attach: (1) the income tax return filed with the other state; (2) the local income or earnings tax return (or a completed return showing the tax paid); (3) the K-40 credit worksheet; and (4) the federal W-2. Enter the total of the state and local tax on Line 1 of the credit worksheet, then compute the credit per the worksheet.

What this means for you

Kansas residents who paid local income or earnings tax in another state

• You can include that local tax in your credit for taxes paid to another state, for 2015 and later and for still-open prior years via amended returns -- with the required state and local returns, worksheet, and W-2 attached.

Common questions

What changed after Maryland v. Wynne? Kansas now lets the credit include another state's local income or earnings taxes, not only the state-level tax.

Which years does it cover? Tax year 2015 and later, plus amended prior-year returns within the statute of limitations.

What documents are required? The other state's return, the local tax return, the K-40 credit worksheet, and the federal W-2.

How is it entered? Enter the combined state-plus-local tax on Line 1 of the credit worksheet.

Citations and references

• K.S.A. 79-32,111 -- the credit for income tax paid to another state by a resident individual, estate, or trust.
• K.S.A. 79-3271 -- defines "state" for the credit (including a foreign country or its political subdivision).
• K.S.A. 79-3230 -- statute of limitations for filing amended returns/refund claims.
• Applies the U.S. Supreme Court's decision in Maryland v. Wynne (May 18, 2015).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 15-15

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 15-15

                     CREDIT FOR TAXES PAID TO ANOTHER STATE
                                (AUGUST 10, 2015)

  Kansas law allows a credit against the individual income tax liability of a Kansas resident

for taxes paid to another state. The controlling statute, K.S.A. 79-32,111 provides, in subsection
(a):

       (a) The amount of income tax paid to another state by a resident individual,
 resident estate or resident trust on income derived from sources in another state, and
 included in Kansas adjusted gross income, shall be allowed as a credit against the tax
 computed under the provisions of this act. Such credit shall not be greater in
 proportion to the tax computed under this act than the Kansas adjusted gross income
 for such year derived in another state while such taxpayer is a resident of this state is
 to the total Kansas adjusted gross income of the taxpayer. As used in this subsection,
 "state" shall have the meaning ascribed thereto by subsection (h) of K.S.A. 79-3271,
 and amendments thereto. The credit allowable hereunder for income tax paid to a
 foreign country or political subdivision thereof shall not exceed the difference of such
 income tax paid less the credit allowable for such income tax paid by the federal
 internal revenue code. No redetermination of income tax paid for the purposes of
 determining the credit allowed by this subsection shall be required for the taxable
 year for which an income tax refund payment pursuant to the provisions of section 18
 of article 10 of the Missouri constitution is made, but the income tax paid allowable
 for credit in the next following taxable year shall be reduced by the amount of such
 refund amount, except that, for tax year 1998, the income tax paid allowable for
 credit shall be reduced by the amount of such refunds made for all taxable years prior
 to tax year 1998.

 As noted in the language quoted above, the definition of the term "state" is found in K.S.A.

79-3271. Subsection (i) of that statute provides:

      (i) "State" means any state of the United States, the District of Columbia, the
 Commonwealth of Puerto Rico, any territory or possession of the United States, and
 any foreign country or political subdivision thereof.

  On May 18, 2015, the United States Supreme Court issued its ruling in the case of

Maryland v. Wynne (Docket No. 13-485). The Court's decision indicates that, under state law
similar to that in Kansas, an income tax credit for taxes paid to another state should recognize
both income or earnings taxes imposed by the other state, and income or earnings taxes imposed
by local units of government of the other state.

  Although the Court's decision in Maryland v. Wynne did not specifically address Kansas

law, the Department of Revenue is following the Court's direction going forward. In addition,
for refund claims timely filed within the applicable statute of limitations in K.S.A. 79-3230, the
Department of Revenue will allow Kansas residents who claim a credit for taxes paid to another
state to include income or earnings taxes imposed by and paid to such state government as well
as any local jurisdiction within that state when computing the amount of the credit. This will
apply to local jurisdictions within the United States and local jurisdictions of a foreign country.

  Any taxpayer claiming a credit for income taxes paid to another state which includes tax

paid to a local jurisdiction within that state should include with the Kansas return: (1) a copy of
the income tax return filed with other state; (2) a copy of the income or earnings tax return filed
with the local jurisdiction (or, if not required to be filed with the local jurisdiction, a copy of the
completed return showing the amount of tax paid to the local jurisdiction); (3) a copy of the
Worksheet for Credit Calculation (from the instructions for Kansas Form K-40), and; (4) a copy
the federal W-2 form. This is true for both returns filed for tax year 2015 and future tax years,
and for amended returns filed to claim a refund for a prior tax year within the applicable statute
of limitations. An amended Kansas return, including the above documentation, will be required
for each prior tax year for which the credit is sought.

  Taxpayers claiming a credit for taxes paid to another state should complete and include the

appropriate Worksheet for computing the credit contained in the Form K-40 instructions. When
the taxpayer has paid both income or earnings taxes to the state government of another state as
well as to any political subdivision within such state, the total amount of such payments shall be
entered on Line 1 of the Worksheet used for computing the credit for taxes paid to that state.
Such credit shall then be computed according to the Worksheet directions.

                                   Taxpayer Assistance

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