How did 2024 Senate Bill 410 change Kansas's SALT Parity Act for pass-through entities?

Plain-English summary

Kansas Notice 24-15 explains changes 2024 Senate Bill 410 made to the Kansas SALT Parity Act, found in K.S.A. 79-32,284 through 79-32,289. The changes are effective for tax years beginning on or after January 1, 2022. The SALT Parity Act lets a pass-through entity (such as a partnership or S corporation) elect to pay Kansas income tax at the entity level, which helps the entity's owners work around the federal limit on deducting state and local taxes.

Senate Bill 410 made these key changes:

• Rate (K.S.A. 79-32,287(a)). The tax on an electing pass-through entity changes from a flat 5.7% to the highest individual income tax rate for the year under K.S.A. 79-32,110(a).
• Resident owners' share (K.S.A. 79-32,287(a)(2)). A resident owner's pro rata or distributive share of income may be figured two ways -- (A) income attributable to Kansas plus income not attributable to Kansas, or (B) income attributable to Kansas. The entity must use the same method for all resident owners. A nonresident's share is unchanged and stays limited to the Kansas-source portion.
• Credits (K.S.A. 79-32,287(c)). Credits are now passed through to and claimed on the owner's return.
• Modifications and expensing (K.S.A. 79-32,287(d)). Income modifications under K.S.A. 79-32,117 and 79-32,138 and the expensing deduction under K.S.A. 79-32,143a, if related to the entity's activities, are claimed on both the entity's return and each owner's return, in the same proportion and manner as would apply without the election.

What this means for you

Electing pass-through entities and their owners

• An electing entity now pays at the top individual rate under K.S.A. 79-32,110(a), not the old flat 5.7%.
• For resident owners, pick one of the two allowed methods for computing their share of income and apply it to all resident owners consistently.
• Credits now flow through to owners and are claimed on the owners' returns.
• Claim related income modifications and the expensing deduction on both the entity return and each owner's return, in the same proportion as if no election had been made.

Thinking about amending 2022 or 2023 returns

Because of these changes, many partners and shareholders will consider amending their 2022 and 2023 Kansas individual income tax returns -- for example, if modifications or the expensing deduction were not claimed on both the entity's and the owners' returns. But many owners already received the benefit of credits through interim solutions the Department allowed in those years. Before amending to claim credits for 2022 or 2023, review the returns to be sure the credit benefit was not already received. See the Department's SALT Parity Act Frequently Asked Questions for more.

Common questions

What years do these changes cover? Tax years beginning on or after January 1, 2022.

What rate does an electing entity pay now? The highest individual income tax rate for the year under K.S.A. 79-32,110(a), instead of the former flat 5.7%.

How are credits handled? They are passed through to and claimed on the owner's return.

Where do modifications and the expensing deduction go? On both the entity's return and each owner's return, in the same proportion as without the election.

Should I amend my 2022 or 2023 return? Maybe -- but first confirm you did not already get the benefit of the credits through the Department's earlier interim solutions.

Citations and references

• Senate Bill 410 (2024) -- amended the SALT Parity Act (Sections 20 and 21 of the bill).
• K.S.A. 79-32,284 -- SALT Parity Act legislative findings; expanded to state the purpose of avoiding double taxation of electing pass-through entity owners.
• K.S.A. 79-32,287 -- operation of the pass-through entity election.
• K.S.A. 79-32,287(a) -- entity-level tax rate, changed to the highest individual rate.
• K.S.A. 79-32,287(a)(2) -- two methods for a resident owner's share of income.
• K.S.A. 79-32,287(c) -- credits passed through to and claimed on the owner's return.
• K.S.A. 79-32,287(d) -- income modifications and expensing deduction claimed on both entity and owner returns.
• K.S.A. 79-32,110(a) -- the individual income tax rates that set the new electing-entity rate.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 24-15

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 24-15

                          CHANGES TO SALT PARITY PROVISIONS

                                     (AUGUST 20, 2024)

   During the 2024 Legislative Session, Senate Bill 410 was passed and signed into law. The

legislation amends provisions of the SALT Parity Act found in K.S.A. 79-32,284 through 79-
32,289 and is effective for all taxable years commencing on or after January 1, 2022.

   Section 20 of the bill amends K.S.A. 79-32,284 and expands the legislative finding that the

purpose of the credit found in K.S.A. 2023 Supp. 79-32,288, and amendments thereto, is to avoid
the double taxation of income on electing pass-through entity owners.

  Section 21 of the bill contains several amendments concerning the application of the bill.

K.S.A. 79-32,287(a) is amended to change the rate of tax applicable to pass-through entities
making the election from 5.7% to the highest rate of tax for the applicable income tax year under
K.S.A. 79-32,110(a).

   Section 21 amends K.S.A. 79-32,287(a)(2) to provide two different methods to calculate the

pro rata or distributive share of income for electing pass-through entity owners who are Kansas
residents. The resident shareholder's or partner's pro rata or distributive share of income may be
calculated as either: (A) the sum of income attributable to the state and income not attributable to
the state: or (B) income attributable to the state. Please note the electing pass-through entity must
use the same method of calculation for all resident electing pass-through entity owners.

   A nonresident's calculation of the shareholder or partner pro rata or distributive share of

income is unchanged and is limited to each nonresident's pro rata or distributive share of the
electing pass-through entity's income attributable to the state.

   Section 21 amends K.S.A. 79-32,287(c) to change the way credits are taken under the SALT

Parity Act. The amended language states that such credits shall be passed through to and claimed
on the electing pass-through entity owner's return.

   Section 21 amended K.S.A. 79-32,287(d) to change the way income modifications found in

K.S.A. 79-32,117 and 79-32,138, and the expensing deduction found in K.S.A. 79-32,143a, are
treated for the purposes of SALT Parity. If the modifications and expensing deduction are related
to the activities of the pass-through entity in the taxable year, the modification and expensing
deduction shall be claimed on both the electing pass-through entity's return and each electing pass-
through entity owner's return. The amount of modification or expensing deduction taken on the
individual returns shall be in the same proportion and manner as would have applied without the
election under K.S.A. 79-32,286.

  As outlined in the paragraphs above, Senate Bill 410 makes significant changes concerning

the recognition of credits, modifications, and expensing deduction under the SALT Parity Act.
Due to those changes, many pass-through entity owners (partners and shareholders) will consider
amending their 2022 and 2023 Kansas individual income tax returns. While the filing of amended
returns may be warranted in certain circumstances, such as if modifications or the expensing
deduction were not claimed on both the electing pass-through entity's return and each electing
pass-through entity owner's return, many of the individual returns have already received the
benefit of credits, via the various interim solutions allowed by the Department in the previous tax
years. Prior to filing amended returns to claim credits for tax years 2022 and 2023, taxpayers are
advised to review such returns to ensure the benefits of such credits were not realized in a previous
filing.

 For additional information, please see SALT Parity Act – Frequently Asked Questions

which is available through our website at: www.ksrevenue.gov.

                                  TAXPAYER ASSISTANCE

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

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