Can Kansas financial institutions subtract FDIC premiums disallowed on their federal return for privilege tax?

Plain-English summary

Kansas Notice 21-16 explains a new privilege tax subtraction modification for FDIC premiums.

The law. Section 11 of 2021 Senate Bill 50 amended subsection (c) of K.S.A. 79-32,138 to add a new subtraction modification in computing taxable income. The new subsection (c)(vi) provides that, "for all taxable years commencing after December 31, 2020, the amount disallowed as a deduction pursuant to section 162(r) of the federal internal revenue code of 1986, as in effect on January 1, 2018," is subtracted from federal taxable income.

What it does. Federal law (IRC section 162(r)) disallows a deduction for a portion of the FDIC deposit-insurance premiums paid by larger financial institutions. Because Kansas privilege tax starts from federal taxable income, that disallowed amount would otherwise be taxed by Kansas. The new subtraction lets a financial institution remove the federally disallowed FDIC premium amount from its Kansas privilege tax base.

Who it affects. The notice stresses this subtraction modification only affects taxpayers filing Kansas privilege tax returns -- banks and similar financial institutions -- not general corporate income or individual income taxpayers.

What this means for you

Banks and other financial institutions

• For tax years after December 31, 2020, subtract the FDIC premium amount that federal IRC 162(r) disallowed when computing your Kansas privilege tax.
• The subtraction is taken on your Kansas privilege tax return, starting from federal taxable income.

Other taxpayers

• This is a privilege tax provision only -- it does not change general corporate income tax or individual income tax.

Common questions

What does the subtraction cover? The amount of FDIC premiums disallowed as a deduction under section 162(r) of the federal Internal Revenue Code (as in effect January 1, 2018).

When does it apply? For all taxable years commencing after December 31, 2020.

Who can take it? Only taxpayers filing Kansas privilege tax returns (financial institutions).

Which statute was amended? K.S.A. 79-32,138(c), by Section 11 of Senate Bill 50.

Citations and references

• Senate Bill 50 (2021), Section 11 -- amended K.S.A. 79-32,138(c) to add the FDIC-premium subtraction, effective for tax years after December 31, 2020.
• K.S.A. 79-32,138 -- privilege tax modifications statute; new subsection (c)(vi) allows the subtraction.
• IRC section 162(r) (as in effect January 1, 2018) -- the federal provision disallowing part of larger institutions' FDIC premium deduction.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 21-16

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 21-16

                            PRIVILEGE TAX
   Subtraction of Federal Deposit Insurance Corporation Premiums

                                       (JULY 1, 2021)

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

11 amends subsection (c) of K.S.A. 79-32,138, to add a new subtraction modification for the
calculation of taxable income. The new subtraction modification is for Federal Deposit Insurance
Corporation premiums that have been disallowed at the federal level. Specifically, subsection (c)
of the statute is amended to provide:

         (c) There shall be subtracted from federal taxable income:

         (vi) for all taxable years commencing after December 31, 2020, the amount
   disallowed as a deduction pursuant to section 162(r) of the federal internal revenue
   code of 1986, as in effect on January 1, 2018.

   It is important to note this subtraction modification will only affect those taxpayers that are

filing Kansas privilege tax returns.

                                   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