What business-income tax changes did Kansas make in 2021 Senate Bill 50?

Plain-English summary

Kansas Notice 21-08 summarizes several changes to the treatment of business income made by 2021 Senate Bill 50, generally effective beginning tax year 2021 (losses/NOLs from tax year 2018). The changes touch GILTI, business interest, business meals, capital contributions, net operating losses, and expensing.

Global Intangible Low-Taxed Income (GILTI). Section 11 amends K.S.A. 79-32,138(b) to add an addition modification for the amount of any deduction claimed under IRC section 250(a)(1)(B) (for years after December 31, 2020). Section 8 amends K.S.A. 79-32,117 to add a subtraction modification of 100% of GILTI under IRC section 951A (before the 250(a)(1)(B) deduction). The net effect is that Kansas does not tax GILTI.

Business interest (IRC 163(j)). Section 8 adds an addition modification for interest deducted by reason of a carryforward of disallowed business interest under IRC 163(j) and a subtraction modification for the amount disallowed as a deduction under IRC 163(j) (as in effect January 1, 2018) -- effectively decoupling Kansas from the federal interest limitation.

Business meal expenses. Section 8 adds a subtraction modification allowing meal expenditures disallowed under IRC section 274 to the extent they were deductible for federal purposes as allowed and in effect on December 31, 2017.

Capital contributions. Section 11 amends K.S.A. 79-32,138(a) so that, for Kansas corporation income tax, the exemption for capital contributions is IRC section 118 as in effect December 21, 2017 (for years after December 31, 2020).

Net operating losses. Section 12 amends K.S.A. 79-32,143(a) to allow Kansas taxpayers to carry NOLs forward indefinitely for losses incurred in taxable years beginning after December 31, 2017 (tax year 2018) -- replacing the prior ten-year carryforward limit; the deduction may only be carried forward.

Expense deductions. Section 13 amends K.S.A. 79-32,143a so that, for tax year 2021 and after, the Kansas expensing deduction is available to all income tax taxpayers under K.S.A. 79-32,110 and to privilege tax payers (financial institutions). A second change requires taxpayers claiming the Kansas expensing deduction to offset the federal expensing amount by the bonus depreciation (IRC 168) and Section 179 amounts claimed for the property.

What this means for you

Corporations

• GILTI is effectively removed from the Kansas base (100% subtraction, with the IRC 250(a)(1)(B) deduction added back), and the capital-contribution exemption is fixed to IRC 118 as of December 21, 2017.
• Net operating losses incurred in 2018 and later can be carried forward indefinitely (carryforward only).

Businesses with limited interest deductions

• Business interest disallowed federally under IRC 163(j) can be subtracted for Kansas, with a matching addition when a federal carryforward is later deducted.

Individuals and financial institutions with business assets

• For 2021 and later, the Kansas expensing deduction is available to individual income taxpayers and privilege taxpayers, but the federal expensing amount must be offset by bonus depreciation and Section 179 amounts.
• Business meal expenses disallowed under IRC 274 can be subtracted to the extent they were deductible as of December 31, 2017.

Common questions

How does Kansas treat GILTI now? It subtracts 100% of GILTI (IRC 951A) and adds back the IRC 250(a)(1)(B) deduction, so GILTI is effectively not taxed.

What changed for business interest? Interest disallowed under IRC 163(j) is subtracted for Kansas, and a matching addition applies when a federal carryforward is later deducted.

Can NOLs be carried forward indefinitely? Yes -- for net operating losses incurred in taxable years beginning after December 31, 2017; they may only be carried forward.

Who can take the Kansas expensing deduction now? All income tax taxpayers under K.S.A. 79-32,110 and privilege taxpayers, for tax year 2021 and after (offset by bonus depreciation and Section 179).

What about business meals? Meal expenses disallowed under IRC 274 may be subtracted to the extent deductible for federal purposes as of December 31, 2017.

Citations and references

• Senate Bill 50 (2021), Sections 8, 11, 12, and 13 -- the business-income changes described.
• K.S.A. 79-32,117 -- individual modifications; new GILTI, 163(j) interest, and business-meal subtractions/additions.
• K.S.A. 79-32,138 -- corporate modifications; GILTI addition and the IRC 118 capital-contribution rule (as in effect December 21, 2017).
• K.S.A. 79-32,143 -- net operating losses; indefinite carryforward for losses from tax year 2018 onward.
• K.S.A. 79-32,143a -- expensing deduction, extended to income and privilege taxpayers for 2021 and after with a bonus-depreciation/Section 179 offset.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 21-08

Original ruling text

Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.org
Mark A. Burghart, Secretary Laura Kelly, Governor

                                       NOTICE 21-08

                      CHANGES REGARDING BUSINESS INCOME
                                       (JULY 1, 2021)

   During the 2021 Legislative Session Senate Bill 50 was passed and signed into law. Several

Sections of the Bill make changes to the treatment of business income. This includes changes
regarding global intangible low-taxed income (GILTI), business income, business meal expenses,
capital contributions, federal deposit insurance corporation premiums, net operating losses, and
expensing deductions.

Global Intangible Low-Taxed Income (GILTI)

   Section 11 of Senate Bill 50 amends subsection (b) of K.S.A. 79-32,138, to add a new

addition modification to the calculation of taxable income for Global Intangible Low Taxed
Income (GILTI). Specifically, subsection (b) of the statute is amended to provide:

         (b) There shall be added to federal taxable income:

        (vii) for all taxable years commencing after December 31, 2020, the amount of
   any deduction claimed under section 250(a)(1)(B) of the federal internal revenue code
   of 1986.

  Section 8 of Senate Bill 50 amends K.S.A. 79-32,117 to include a new subtraction

modification for Global Intangible Low Taxed Income (GILTI). Specifically, the new provision
provides that, beginning in tax year 2021:

         (c) There shall be subtracted from federal adjusted gross income:

        (xxv) For all taxable years commencing after December 31, 2020, 100% of global
   intangible low-taxed income under section 951A of the federal internal revenue code
   of 1986, before any deductions allowed under section 250(a)(1)(B) of such code.

Business Interest

    Section 8 of Senate Bill 50 also amends K.S.A. 79-32,117 to include new addition and

subtraction modifications for certain business interest. Specifically, the new provisions provide
that, beginning in tax year 2021:

         (b) There shall be added to federal adjusted gross income:

       (xxvii) For all taxable years commencing after December 31, 2020, the amount
 deducted by reason of a carryforward of disallowed business interest pursuant to
 section 163(j) of the federal internal revenue code of 1986, as in effect on January 1,
 2018.

       (c) There shall be subtracted from federal adjusted gross income:

       (xxvi) For all taxable years commencing after December 31, 2020, the amount
 disallowed as a deduction pursuant to section 163(j) of the federal internal revenue
 code of 1986, as in effect on January 1, 2018.

Business Meal Expenses

 Section 8 of Senate Bill 50 further amends K.S.A. 79-32,117 to include a new subtraction

modification for certain business meal expenditures. Specifically, the new provision provides that,
beginning in tax year 2021:

       (c) There shall be subtracted from federal adjusted gross income:

       (xxvii) For taxable years commencing after December 31, 2020, the amount
 disallowed as a deduction pursuant to section 274 of the federal internal revenue code
 of 1986 for meal expenditures shall be allowed to the extent such expense was
 deductible for determining federal income tax and was allowed and in effect on
 December 31, 2017.

Capital Contributions

  K.S.A. 79-32,138 addresses the calculation of taxable income for corporate income tax

purposes. Section 11 of Senate Bill 50 amends K.S.A. 79-32,138 to specify that, beginning in tax
year 2021, for Kansas corporation income tax purposes the exemption from federal taxable income
for capital contributions will be the exemption as it existed in section 118 of the IRC as in effect
on December 21, 2017. Specifically, subsection (a) of the statute is amended to say:

       (a) Kansas taxable income of a corporation taxable under this act shall be the
 corporation's federal taxable income for the taxable year with the modifications
 specified in this section, except that in determination of such federal taxable income
 for all taxable years commencing after December 31, 2020, section 118 of the federal
 internal revenue code of 1986 shall be applied as in effect on December 21, 2017.

Net Operating Losses

  K.S.A. 79-32,143 addresses net operating losses. Current law provides that net operating

losses can be carried forward for ten years. Section 12 of Senate Bill 50 amends K.S.A. 79-
32,143(a) to add a new subparagraph which allows Kansas income taxpayers to carry forward net
operating losses indefinitely, beginning with such losses incurred in tax year 2018. Specifically,
the new subparagraph provides:

      (B) For net operating losses incurred in taxable years beginning after December
 31, 2017, a net operating loss deduction shall be allowed in the same manner that it is
 allowed under the federal internal revenue code, except that such net operating loss
 deduction may only be carried forward.

Expense Deductions

  K.S.A. 79-32,143a addresses expense deductions. Section 13 of Senate Bill 50 amends

K.S.A. 79-32,143a to allow individual income taxpayers to claim the expensing deduction for the
costs of placing certain tangible property and computer software into service in the state beginning
in tax year 2021. Specifically, new subsection (i) provides:

       (i) For tax year 2021, and all tax years thereafter, the deduction allowed by this
 section shall be available to all taxpayers subject to the income tax imposed pursuant
 to K.S.A. 79-32,110, and amendments thereto, or the privilege tax imposed upon any
 national banking association, state bank, savings bank, trust company or savings and
 loan association pursuant to article 11 of chapter 79 of the Kansas Statutes Annotated,
 and amendments thereto, and used only to determine such taxpayer's income or
 privilege tax liability.

  A second change made in Section 13, also effective with tax year 2021, requires all taxpayers

claiming the Kansas expensing deduction to offset the amount of federal expensing deduction with
the amount of bonus depreciation being claimed for property pursuant to section 168(c) and the
amount of expensing deduction being claimed for such property pursuant to section 179 of the
Internal Revenue Code. Specifically, subsection (a) of K.S.A. 79-32,143a is amended to provide:

       (a) For taxable years beginning after December 31, 2011 2020, a taxpayer may
 elect to take an expense deduction from Kansas net income before expensing or
 recapture allocated or apportioned to this state for the cost of the following property
 placed in service in this state during the taxable year: (1) Tangible property eligible for
 depreciation under the modified accelerated cost recovery system in section 168 of the
 internal revenue code, as amended, but not including residential rental property,
 nonresidential real property, any railroad grading or tunnel bore or any other property
 with an applicable recovery period in excess of 25 years as defined under section 168(c)
 or (g) of the internal revenue code, as amended; and (2) computer software as defined
 in section 197(e)(3)(B) of the internal revenue code, as amended, and as described in
 section 197(e)(3)(A)(i) of the internal revenue code, as amended, to which section 167
 of the internal revenue code, as amended, applies. If such election is made, the amount
 of expense deduction for such cost shall equal the difference between the depreciable
 cost of such property for federal income tax purposes and the sum of the amount of
 bonus depreciation being claimed for such property pursuant to section 168(k) and the
 amount of expensing deduction being claimed for such property pursuant to section
 179 of the internal revenue code, as amended, for federal income tax purposes in such
 tax year, but without regard to any expense deduction being claimed for such property
 under section 179 of the internal revenue code, as amended, multiplied by the

 applicable factor, determined by using, the table provided in subsection (f), based on
 the method of depreciation selected pursuant to section 168(b)(1), (2), or (3) or (g) of
 the internal revenue code, as amended, and the applicable recovery period for such
 property as defined under section 168(c) or (g) of the internal revenue code, as
 amended. This election shall be made by the due date of the original return, including
 any extensions, and may be made only for the taxable year in which the property is
 placed in service, and once made, shall be irrevocable. If the section 179 expense
 deduction election has been made for federal income tax purposes for any asset, the
 applicable factor to be utilized is in the IRC § 168 (b)(1) column of the table provided
 in subsection (f) for the applicable recovery period of the respective assets.

                                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
                            Scott Office Building, 1st Floor
                                   120 SE 10th Ave
                                    P. O. Box 3506
                               Topeka, KS 66601-3506
                                 Phone: 785-368-8222
                                  Fax: 785-291-3614