The tax-break party lasted long into the night, but owners and members of pass-through entities who have enjoyed the Kansas exemption on pass-through entity income since 2013 may be experiencing hangovers. The bad news for these taxpayers is that the retroactive repeal of this provision means tax will accrue on their income going back to the beginning of 2017. The good news is that interest or penalties will not apply as long as full payment is made by tax day 2018.
Kansas S.B. 30 retroactively imposes state income tax on pass-through income (partnerships, LLCs, S Corporations) back to Jan. 1, 2017. The legislation repeals the subtraction modification available to individuals who conduct business through S corporations, partnerships, or limited liability companies; the modification meant that these business owners did not have to pay income tax in Kansas on net profits from their businesses for taxable years beginning on or after Jan. 1, 2013, until Jan. 1, 2017.
As a result, most of the owners or members of pass-through entities are subject to Kansas income tax this year. But they probably have not been making state estimated payments to Kansas because their pass through income has not been taxed by Kansas since 2012.
Fortunately for these taxpayers, Kan. Stat. Ann. § 79-32,117(f) was added in S.B. 30 to state that no interest or penalty will be imposed on an underpayment of taxes for 2017 as long as the underpayment is remedied by April 17, 2018.
“It’s not clear if this provision was necessary because an existing provision in Kan. State Ann. § 79-32,107(b) already states that interest or penalties would not be imposed if withholding was greater than the previous year's tax burden or if the previous year's tax was less than $200,” said Jeffrey A. Wietharn, a partner with Coffman, DeFries & Nothern, P.A. in Topeka, Kan., and co-author of Bloomberg BNA’s Kansas Corporate Income Tax Navigator (subscription required). “Considering there was no taxation on the pass-through income between 2013 and 2016, arguably § 79-32,107(b) would have protected these same taxpayers from penalty or interest in 2017,” he added.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will the repeal of the Kansas exemption of pass-through enter into the federal tax reform debate?
Get a free trial to Bloomberg BNA Tax & Accounting's State Tax solution, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)