Why is the Kansas corporate income tax normal rate dropping to 3.5%?

Plain-English summary

Kansas Notice 23-10 explains why the corporate income tax normal rate is falling from 4% to 3.5% for tax years beginning in 2024.

Background rate. Under K.S.A. 79-32,110(c), Kansas imposes on every corporation a normal tax of 4% plus a surtax of 3% on Kansas taxable income.

The APEX trigger. K.S.A. 74-50,321 -- enacted as Section 11 of 2022 House Substitute for Senate Bill 347 and part of the Attracting Powerful Economic Expansion (APEX) Act -- ties a corporate rate cut to major economic-development projects. When a qualified firm first enters into an APEX agreement with the Secretary of Commerce and commences construction on a qualified business facility, the Secretary of Commerce certifies that fact to the Secretary of Revenue. On receiving the certification, the Secretary of Revenue reduces the corporate normal tax rate by 0.5% for the next tax year. The maximum reduction in any single year is 0.5%, no matter how many firms qualify, and the reductions continue until the normal rate reaches 0%.

What happened. During tax year 2023, the Secretary of Revenue received the certification from the Secretary of Commerce. As a result, for tax years beginning in 2024 the normal corporate tax rate is 3.5%. The surtax remains at 3%.

What this means for you

Corporations doing business in Kansas

• For tax years beginning in 2024, figure your Kansas corporate income tax using a 3.5% normal rate (down from 4%) plus the unchanged 3% surtax.
• The cut is automatic under the APEX Act -- it applies to all corporations, not just the firm whose project triggered it.
• Future certifications could reduce the normal rate by another 0.5% per year, eventually toward 0%; watch for Kansas Register notices published before September 15 of the year before each change.

Tax professionals

• Update rate tables and estimated-payment calculations for corporate clients for tax years beginning in 2024.

Common questions

What is the new rate? A 3.5% normal tax (down from 4%) for tax years beginning in 2024; the 3% surtax is unchanged.

Why did it change? A qualified firm's APEX project was certified in 2023, triggering the 0.5% reduction required by K.S.A. 74-50,321.

Could it drop again? Yes -- each qualifying certification reduces the normal rate by up to 0.5% per year, continuing until it reaches 0%.

Does the surtax change? No, the 3% surtax stays the same.

Citations and references

• House Substitute for Senate Bill 347 (2022), Section 11 -- enacted K.S.A. 74-50,321 as part of the APEX Act.
• K.S.A. 74-50,321 -- requires a 0.5% corporate normal-rate reduction when a qualified APEX firm is certified, until the rate reaches 0%.
• K.S.A. 79-32,110 -- imposes the corporate normal tax (4%, now reduced to 3.5% for 2024) and the 3% surtax.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 23-10

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.gov
Mark A. Burghart, Secretary Laura Kelly, Governor

                                         NOTICE 23-10

                          CHANGE TO CORPORATE INCOME TAX RATE

                                     (OCTOBER 24, 2023)

  During the 2022 Legislative Session House Substitute for Senate Bill 347 was passed and

signed into law. New Section 11 of the Bill, now K.S.A. 74-50,321, provides a reduction to the
income tax rate for corporations under certain circumstances.

   Prior to amendment, K.S.A. 79-32,110(c) imposed a normal tax at the rate of 4%, and a

surtax at the rate of 3%, on the Kansas taxable income of every corporation doing business within,
or deriving income from Kansas. K.S.A. 74-50,321, which is part of the attracting powerful
economic expansion (APEX) act, provides that when a qualified firm commences construction on
a qualified business facility and this activity is certified by the Secretary of Commerce to the
Secretary of Revenue the normal tax rate will be reduced. Specifically, the statute states:

         K.S.A. 74-50,321. (a) Commencing with fiscal year 2022, in any fiscal year that
   a qualified firm enters into an agreement with the secretary of commerce for the first
   time pursuant to section 2, and amendments thereto, and commences construction on a
   qualified business facility under this act the secretary of commerce shall certify such
   fact to the secretary of revenue, the director of the budget and the director of legislative
   research. Such certification shall be made when such fact is known to the secretary, but
   in any event on or before June 30 of such fiscal year.
         (b) Upon receipt of such certification, the secretary of revenue shall adjust the
   corporate income tax rate imposed pursuant to the provisions of K.S.A. 79-32,110, and
   amendments thereto, to go into effect for the next tax year by reducing the rate by 0.5%.
   The maximum reduction to be applied for one taxable year shall be 0.5% regardless of
   the number of eligible qualifying firms that may have satisfied the conditions of
   subsection (a).
         (c) The rate reduction of 0.5% shall be applied to reduce the normal tax on
   corporations imposed pursuant to K.S.A. 79-32,110, and amendments thereto, until
   reduced to 0%.
         (d) The secretary of revenue shall report any reduction in corporate income tax
   rates pursuant to this section to the chairpersons of the senate standing committees on
   assessment and taxation and commerce, the chairpersons of the house of
   representatives standing committees on commerce, labor and economic development
   and taxation and the governor, and shall cause notice of any such reduction to be
   published in the Kansas register prior to September 15 of the calendar year immediately
   preceding the tax year in which such reduction takes effect.

  During tax year 2023 the Secretary of Revenue received the certification provided for in

subsection (b) from the Secretary of Commerce. As a result, effective for tax years beginning in

2024, the normal tax rate imposed on corporations will be 3.5%. The surtax rate will continue at
3%.

                                TAXPAYER ASSISTANCE

 Additional copies of this notice, forms or publications are available from our website,

www.ksrevenue.gov. 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