How is income reported when a community service program tax credit is assigned (sold) to another taxpayer?

Plain-English summary

A taxpayer asked two questions about the community service program credit: how much income the assignor (seller) of a credit reports, and how much income the assignee (buyer) reports. The Department answered both from K.S.A. 79-32,197a.

The assignor's income is the amount received. The statute provides that "[t]he amount received by the assignor of such tax credit shall be taxable as income of the assignor." So "if the nonprofit organization (assignor) receives $400 for the assigning of a tax credit valued at $500, the amount of $400 must be reported as Kansas income" — but "only if that nonprofit organization is required to file a federal return and therefore then required to file a Kansas return."

The assignee's income uses the credit's actual value. Using an example — a nonprofit contributes $1,000 to an urban community service organization, receives a $500 credit, and sells it to a business for $400 — the question is whether the "value" is the $500 credit or the $1,000 cost of obtaining it. The statute says "the excess of the value of such credit over the amount paid by the assignee for such credit shall be taxable as income of the assignee." "The value of the credit is the actual amount of credit ($500)." So the business gets a $500 credit and "must report $100 as taxable income (the excess of value of the credit ($500) over the amount paid by the assignee to receive the credit ($400))."

What this means for you

Nonprofits selling (assigning) a credit

The cash you receive for the credit is Kansas taxable income — the full amount received, not just your profit over the donation. This applies if you are required to file a federal (and therefore Kansas) return.

Businesses buying (taking assignment of) a credit

You claim the credit at its actual face value, and you report income equal to that value minus what you paid. Buying a $500 credit for $400 gives you a $500 credit and $100 of income.

The credit's "value" is its face amount

For the assignee's income calculation, ignore the donor's original cost of generating the credit. The relevant number is the actual credit amount.

Common questions

Q: Is money a nonprofit gets for selling a community service credit taxable?
A: Yes. Under K.S.A. 79-32,197a the amount the assignor receives is taxable income — reported if the organization must file a federal and Kansas return.

Q: How much income does the buyer of the credit report?
A: The excess of the credit's value over what the buyer paid. A $500 credit bought for $400 produces $100 of taxable income.

Q: Is the credit's "value" the face amount or the donor's cost?
A: The actual face amount of the credit ($500 in the example), not the $1,000 the donor spent to obtain it.

Citations and references

• K.S.A. 79-32,197a — governs assignment of the community service contribution credit: the amount received by the assignor is taxable income to the assignor, and the excess of the credit's value over the amount the assignee paid is taxable income to the assignee. The "value" is the actual credit amount.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2000-008

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

April 25, 2000

XXX
XXX
XXX

Dear XXX:

Thank you for your letter of March 13, 2000 regarding the community service program.

You have posed two questions in your letter in regards to the amount received by the assignor to be included as income and any income to be reported by the assignee.

Question 1: Is the full amount of money that the nonprofit organization (the assignor) receives by assigning a credit considered taxable income or is it the amount in excess of its donation to the qualified community service organization?

Answer: K.S.A. 79-32,197a provides in part:

“The amount received by the assignor of such tax credit shall be taxable as income of the assignor, . . . ” (emphasis added)

Therefore, if the nonprofit organization (assignor) receives $400 for the assigning of a tax credit valued at $500, the amount of $400 must be reported as Kansas income to the nonprofit organization (assignor), only if that nonprofit organization is required to file a federal return and therefore then required to file a Kansas return.

Question 2: In making a determination about the amount of taxable income of the assignee, how is the value of the credit determined? Is it the face value of the credit or is it the original cost of obtaining the credit, i.e., twice the face value for contributions made to urban community service organizations, and ten/sevenths of the face value for contributions made to rural community service organizations?

Answer: An example may be best to explain the answer. Assume a nonprofit organization makes a contribution of $1,000 to a community service organization located in an urban area and receives a credit in the amount of $500. The nonprofit organization then sells the credit to a Kansas business entity (assignee) for $400. Your question is: Is the value of the credit the actual amount of credit ($500) or the original cost of obtaining the credit by the nonprofit organization making the contribution ($1,000)?

K.S.A. 79-32,197a provides in part:

“ . . . and the excess of the value of such credit over the amount paid by the assignee for such credit shall be taxable as income of the assignee.” (emphasis added)

The value of the credit is the actual amount of credit ($500). Therefore, the Kansas business entity (assignee) will be allowed a tax credit in the amount of $500 and must report $100 as taxable income (the excess of value of the credit ($500) over the amount paid by the assignee to receive the credit ($400)).

If I may be of further assistance, please contact me at your earliest convenience.

Sincerely,

Kathleen M. Smith, Tax Specialist
Office of Policy and Research

Date Composed: 04/25/2000 Date Modified: 10/10/2001

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