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STARTING AND OPERATING A BUSINESS IN KANSAS Copyright © 2009, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Kansas has a fairly typical tax and legal structure under which businesses must operate, but has some desirable features such as no property taxes on business inventories (generally), or, after June 30, 2006, on business machinery and equipment, no bulk sales law on the purchase of a business, no required fictitious name registration. All of those factors plus relatively low income tax rates make Kansas an attractive and hassle-free place to do business. Like most states, Kansas imposes income taxes on individuals and corporations, a sales and use tax, various excise taxes, with property taxes imposed at the local level. The state has also adopted a limited liability company law, and a limited liability partnership law, so that businesses operating in Kansas in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Unlike most states, Kansas also imposes a franchise tax on the capital of corporations, limited partnerships, limited liability partnerships (LLP's) and limited liability companies (LLC's). In another business-friendly move, the Kansas franchise tax, a tax on capital of all businesses except sole proprietorships and general partnerships, is being phased out, beginning in 2007, and is now applicable only to taxable capital in excess of $1 million. The exempted amount was only $100,000 before 2007. In addition, the 2007 tax rate of $1.25 per $1,000 of capital is being reduced each year from 2008 through 2010 (limited to a maximum tax of $20,000), until final repeal after December 31, 2010:
At present, the state's economy is relatively solid compared to most of the rest of the country, in terms of the level of unemployment and other economic measures. For example, in March, 2008, the Kansas unemployment rate was only 4.1%, and while unemployment has risen to 6.1% in March, 2009, it is still well below the national unemployment rate of 8.5%. To view the latest federal Bureau of Labor Statistics unemployment rate data for Kansas or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Kansas can do so as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Kansas also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. UPDATE NOTE: Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The income tax or franchise tax treatment of each form of legal entity is discussed in Section IV(c) below. (b) Sole Proprietorships. In general, sole proprietorships in Kansas can be established with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. In addition, if you sell any kind of tangible personal property at retail or provide certain types of services, you may be required to obtain a sales tax license and collect sales tax, as discussed in Section IV(d). No separate tax form filing is required, generally, for a sole proprietorship, under the Kansas income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Kansas income tax and filing requirements for individuals. Doing business as a sole proprietor in Kansas is generally much simpler than operating as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, or obtain workers' compensation coverage for yourself. (c) Partnerships. Kansas partnership laws allow creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, usually. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain exceptions). As discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. Partnerships, as entities, are not subject to state income tax in Kansas. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). However, as noted above, franchise tax of up to $20,000 a year (repealed after 2010) applies to many limited partnerships and LLP's. A general partnership is not subject to the annual Kansas franchise fee or the franchise tax discussed in Section IV(c). All partnerships are required to file an annual income tax information return with the state. For more on Kansas partnership income tax filing requirements and, for limited partnerships and LLP's, franchise tax return filing requirements, see Section IV(c). A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
As a rule, general partnerships in Kansas can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. General partnerships may also file a Statement of Authority ($35 fee) with the Kansas Secretary of State. This document serves as notice to the public that certain members of the partnership are authorized (or are not authorized) to enter in to specified types of transactions, such as real estate transactions, on behalf of the partnership. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Kansas law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the secretary of state, together with a filing and recording fee of $165. Foreign limited partnerships must also register before being allowed to do business in Kansas, and must pay a registration fee of $165. Both domestic and foreign limited partnerships are also required to file an annual report with the secretary of state and pay an annual franchise fee of $55, and those with a net worth of $1 million or more in 2007-2010 must pay a franchise tax on capital of up to $20,000 to the Department of Revenue. The franchise tax is repealed after December 31, 2010. See the discussion in Section IV(c) for details on the franchise tax, which also applies to corporations, LLP's, and LLC's. For information on limited partnership filing requirements, see the contact information for the offices of the Kansas Secretary of State, listed in Section VI(a). LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Kansas. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Kansas state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. Partners in a general partnership can obtain limited liability by simply registering the partnership with the state as an LLP. To form an LLP in Kansas, a partnership must file a statement of qualification (Form QLLP) as an LLP with the secretary of state and pay a filing fee set by the secretary of state, currently $165. Foreign LLP's, those created under the laws of another state, must also register with the secretary of state, on Form QLLP, and pay the same filing fee as a domestic LLP. For either a domestic or foreign LLP, the Kansas franchise tax applies to the net capital accounts located in the state as reported on the federal partnership income tax return. The franchise tax is levied at the rate of 0.0625% (2009) of the LLP's taxable equity (capital accounts) attributable to Kansas, with a maximum franchise tax of $20,000. The franchise tax only applies to LLP's with at least at least $1 million in 2007-2010. (Repealed after 2010.) The annual franchise tax on LLP's, and its eventual repeal, is discussed in Section IV(c). Every LLP doing business in Kansas, including both domestic and foreign LLP's, must file an annual report and pay an annual franchise fee of $55, payable to the secretary of state. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). Note that one potential drawback of LLP's, if you will do business in other states besides Kansas, is that some states, like California and New York, only recognize certain types of professional partnerships as LLP's. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. (d) Corporations. To form a corporation in Kansas, you must file articles of incorporation with the Kansas Secretary of State and pay a fee of $90. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Kansas, by filing an application for a certificate of authority and paying a single filing fee of $115. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Kansas, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file annual reports and pay an annual $55 franchise fee, filed with and paid to the secretary of state. Failure to file the annual report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income, a corporation that does business in Kansas must also file corporate income tax returns with the state, as well as paying an annual franchise tax on capital. See Section IV(c) for a discussion of state corporate income tax rates and corporate income tax and franchise tax return filing requirements. For tax forms and more information on corporate income and franchise taxes in Kansas, see the contact information for the offices of the Kansas Department of Revenue (for income taxes and franchise tax) and the Kansas Secretary of State (franchise fee), both of which are listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Kansas recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment. However, S corporations are subject to the Kansas franchise tax like other business corporations and other limited liability entities, as described in Section IV(c). (The franchise tax is being phased out from 2007 through 2010, with full repeal effective in 2011.) (f) Limited Liability Companies. Kansas, like every state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Kansas may also choose to operate in the form of an LLC. In most states, including Kansas, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. To form an LLC under the laws of Kansas, one or more persons must file articles of organization with the secretary of state, which must be accompanied by filing fees of $165. Formerly, an LLC in Kansas was required to have at least two members. However, since July 1, 1998, Kansas law has permitted the creation of 1-member LLC's. Foreign LLC's, those formed under the laws of another state, must submit a registration application, before they may do business in Kansas, the secretary of state and paying a registration and recording fee of $165. In addition to initial filing fees, an LLC formed in Kansas must subsequently file annual reports along with a $55 franchise fee with the secretary of state and pay an annual franchise tax, ranging up to $20,000, to the Department of Revenue. See Section IV(c) for a summary of the income tax and franchise tax treatment of LLC's under Kansas tax laws. For more information on filing articles of organization for an LLC, see the contact information for the offices of the secretary of state, listed in Section VI(a). (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Kansas is one of the states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Kansas. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Kansas, you should require the seller to obtain an unemployment tax release from the Department of Labor, showing the amount of unemployment tax, if any, that must be withheld from the purchase price. You should also obtain a sales tax release before closing. Contact the Kansas Department of Revenue regarding the sales tax liability of the seller and how to protect your business from being liable for any such unpaid sales or use tax of the seller. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. To obtain the seller's favorable experience rating as a successor employer, you will need to apply on a timely basis (within 120 days) to the Division of Employment Security of the Kansas Department of Labor, requesting that you be treated as a successor employer. If you acquire less than 100 percent of the seller's annual payroll, both you and the seller must apply within 120 days for the transfer of the seller's experience rating with respect to the transferred portion of the seller's business. Where the same interests own the employing unit that is transferred (such as where an unincorporated business transfers its operations to a corporation owned by the same persons), the acquiring entity automatically and mandatorily becomes a successor employer. PLANNING POINT: EXAMPLE: IV. KANSAS TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Income tax rates in Kansas are neither very high or very
low, compared to other states, with a maximum individual tax
rate of 6.45% and a top corporate tax rate of 7.1%. Kansas
generally exempts business inventories and business machinery
and equipment from property taxation, and has relatively low
combined state and local sales tax rates. Unlike most states,
Kansas does not require businesses that operate under assumed
or fictitious names (trade names) to register such names or
publish any kind of fictitious business name statement in the
newspapers.
State licensing requirements are described in
Section IV(b) and state income and
franchise taxes are discussed in Section IV(c).
For state tax forms and tax information, see the contact
information for the Kansas Department of Revenue
in Section VI(a).
(b) State and Local Licensing.
Nearly any business, operated anywhere in the United States, will
have to have at least one government license of some kind. In most
cases, this will be a local license, issued by your city or county.
Before you open your business, contact your local city or county
hall and find out if your particular business needs one or more
local licenses. Most kinds of local business licenses are
granted upon payment of a fee, with no further requirements,
except possibly for annual or other periodic renewal fees.
However, if you are engaging in any kind of food business,
you will usually need to also obtain a health department
permit and show that you are in compliance with health
department food-handling requirements. In addition, be
sure to check with an attorney or local government zoning
or planning department officials to determine if your
business will be in compliance with all local zoning and
planning restrictions. If you own or rent any type of
facility, you will generally need fire department permits,
showing that you meet fire safety codes and any construction
or improvements to an existing structure will usually
require a building permit. If you intend to simply operate
your business from your home, you may be in violation of
local zoning requirements, but this is less likely to be a
concern if you don't have clients, customers, suppliers,
or employees coming to your house on business, on a
regular basis.
State governments have traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Kansas has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing.
In Kansas, you can register on a single application
form, Form CR-16, Business Tax Application,
for a number of state taxes, including sales and use tax,
income tax withholding, corporate income tax, transient
guest tax, vehicle rental excise tax, and a variety of
other Kansas taxes, other than unemployment tax. For
information on registering for state unemployment tax,
see Section V(b).
For help with state licensing and business registration
requirements in Kansas, the state's Department of Commerce has
set up a First Stop Clearinghouse office in Topeka to help you
find your way through the maze of business licenses, permits,
taxes and regulations you must deal with under Kansas laws.
See the contact information for the First Stop Clearinghouse
listed in Section VI(a).
(c) Income and Franchise Taxes.
Kansas has both an individual income tax and a corporate income
tax, as well as a franchise tax on corporations, limited
partnerships, LLP's, and LLC's. Each of these taxes is discussed
below in this Section.
All "pass-through" entities, including LLC's, LLP's, general
and limited partnerships and S corporations, effective since
July 1, 2003, are required to withhold Kansas income tax on
taxable income (whether or not distributed) that is allocable
to nonresident owners -- members, partners or shareholders.
Tax must be withheld at the highest Kansas income tax rate,
currently 6.45%, and is reported to the Department of Revenue
on Form KW-7/KW-7S, and to the nonresident
owner on Form K-19.
TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS
The Kansas individual income tax is imposed at graduated tax
rates, with a maximum tax rate of 6.45% in the highest bracket.
Individual taxpayers generally pay state income tax on
their business earnings from a sole proprietorship, or on
their share of the earnings of a pass-through entity, such
as a partnership, S corporation, or LLC. The Kansas personal
income tax return is Form K-40, which must be
filed with the Kansas Department of Revenue by April 15th each
year for a calendar year taxpayer.
Sole proprietorships, unlike most business entities,
are exempt from the Kansas franchise tax on net worth.
Partnerships, or entities taxable as partnerships, such
as LLC's, are not subject to state income taxation in Kansas,
but must file an information return with the Department of
Revenue each year, showing each partner's share of taxable
income, losses, and credits, on Form K-120S,
which is also used by LLC's and S corporations. (Prior to the
2005 tax year, partnerships filed on Form K-65.)
Limited partnerships and LLP's are subject to the Kansas
franchise tax on capital if they have at least $1 million in
2007 through 2010 of capital accounts allocable to their
business operations in Kansas. The franchise tax is imposed
at the rate of $1.25 per $1,000 of capital, up to a maximum
tax of $20,000 a year. This tax rate decreases each year from
2008 through 2010, and is zero after 2010. The franchise tax
is payable to the Department of Revenue and is reported on
the franchise tax return, Form K-150. General
partnerships, if not registered as LLP's, are not subject to
the franchise tax.
As noted above, all "pass-through" entities, including LLP's,
general and limited partnerships, are required to withhold Kansas
income tax on taxable income (whether or not distributed) that is
allocable to nonresident partners. Tax must be withheld at the
highest Kansas income tax rate, currently 6.45%, and is reported
to the Department of Revenue on Form KW-7/KW-7S,
and to the nonresident owner on Form K-19.
Individual taxpayers doing business as sole proprietors
(or who are partners in partnerships, members of LLC's, or
shareholders in S corporations), who have taxable income from
the business, will generally be required to make advance
payments of Kansas estimated individual income taxes if their
net tax liability (not covered by withholding) exceeds $500.
Estimated tax payments are due in four quarterly installments,
on the 15th day of the 4th, 6th, and 9th months of the taxable
year, and the 15th day of the first month of the following year.
To avoid penalties for underpayment of estimated tax, an
individual taxpayer must either pay in 90% of the current
year's tax, or 100% of the previous year's tax, as shown on
the tax return.
The Kansas corporate income tax rate, on corporations
other than S corporations, is 4% on the first $50,000 of
taxable income, and 7.1% on income over $50,000 in 2008. The
top tax rate drops to 7.05% in 2009 and 2010 and to 7% in 2011.
The state corporation income tax return is Form K-120,
which must be filed with the Kansas Department of Revenue by
the 15th day of the fourth month following the end of the
taxable year, or by April 15th in the case of a corporation
whose taxable year is the calendar year.
Corporations are required to make estimated tax payments
of their state corporate income tax in advance, if their tax
liability for the year equals or exceeds $500. Estimated
tax payments are due in advance, in four equal installments,
on the 15th day of the 4th, 6th, 9th, and 12th months of
the taxable year.
A corporation is not required to file a declaration of
estimated tax in its first year of existence in Kansas.
Penalties will be imposed for failure to make the required
estimated tax payments on a timely basis, equal to 90% of the
current year's tax liability. However, if the preceding year
was a full year of 12 months, the current year payments need
only be equal to 100% of the prior year's tax liability, if less.
Corporations that have made an election to be taxed as
S corporations for federal tax purposes will also be treated
as S corporations for Kansas income tax purposes, so that
the Kansas corporate income tax generally does not apply to
such corporations. Instead, as under federal law, the income
of the S corporation is taxable to its shareholders. S
corporations file Kansas Form K-120S to report
taxable income to each of their shareholders. An S corporation
with nonresident shareholders must withhold Kansas state
income tax on their share of the corporation's Kansas-source
income (whether distributed or undistributed) at the highest
individual state income tax rate, currently 6.45%.
In addition to paying state income tax, all corporations,
including S corporations, are subject to the annual Kansas
franchise tax on their taxable equity that is allocable to
Kansas, if such equity (net worth) is at least $100,000 in 2006,
or at least $1 million thereafter. The tax has been imposed
at a rate of $1.25 per $1,000 of taxable equity (prior to 2008),
up to a maximum tax of $20,000 per year and is reported on the
Kansas Franchise Tax Return, Form K-150. The
franchise tax is payable to the Kansas Department of Revenue.
An annual franchise fee of $55 must also be paid each year
to the Kansas Secretary of State, with the annual report
that corporations must file with that office.
TAXATION OF LIMITED LIABILITY COMPANIES
In Kansas, a limited liability company (LLC) is taxed in
the same manner as a partnership, for income tax purposes,
thus avoiding the possible double taxation of income that
can occur with a corporation. However, LLC's that are taxed
as partnerships must file an information return with the
Department of Revenue each year, showing each member's
share of taxable income, losses, and credits, on
Form K-120S.
In addition, an LLC with nonresident members must withhold
state income tax at the highest individual tax rate (currently
6.45%) on the Kansas-source income that is taxable to such
nonresidents, whether or not the income is distributed.
Kansas state law now permits one-member LLC's, effective
since July 1, 1998. For income tax and most other state tax
purposes, an LLC that is treated as a "disregarded entity"
will similarly be treated as such by Kansas. That is, if
owned by an individual, the single-member LLC will be treated
as a sole proprietorship for Kansas income tax purposes; or,
if owned by a corporation, it will be considered as just a
division of the corporation, rather than a separate legal
entity, for corporate income tax purposes, and its existence
will thus be disregarded.
Note that it is not always entirely clear whether an LLC is
a "single-member LLC" or not, where the "single owner" is a
married couple who hold the entire ownership of the LLC in some
form of co-tenancy, such as joint tenants with right of survivorship,
tenants by the entirety, or as tenants in common. The federal Internal
Revenue Service (IRS) has taken a very lenient position in Rev.
Proc. 2002-69, where a couple hold the LLC interest as
community property, ruling that the IRS will accept whatever choice
the couple make, either to disregard the LLC as an entity (treating
it as a "single-member LLC") or to treat it as a partnership between
the husband and wife.
However, Kansas is not a community property state, so where
the LLC is owned by a husband and wife in some form of co-tenancy,
it is unclear whether the IRS treatment would be as lenient as
for community property owners, since the IRS has not issued any
published rulings on whether an LLC can be a disregarded entity
if held in one of the various forms of co-tenancy by a married
couple, rather than being held as community property. Thus, it
is also unclear, where an LLC is owned by a husband and wife as
co-tenants, whether Kansas would treat the LLC as a single-member
LLC or as a partnership.
Like a corporation, limited partnership or LLP, LLC's are
subject to the Kansas franchise tax, payable to the Department
of Revenue each year, at a tax rate of $1.25 per $1,000
of capital employed in Kansas, with a maximum annual tax
of $20,000. The franchise tax is reported on the Kansas
Franchise Tax Return, Form K-150 and applies
to any LLC with at least $100,000 of net worth in allocable to
Kansas in 2006, or at least $1 million thereafter. As noted in
the section above on corporate taxation,
the franchise tax is being phased out from 2007 through 2010,
and is repealed for tax years beginning after December 31, 2007.
(d) Sales and Use Tax. Kansas imposes a general sales tax on retail sales of tangible personal property and certain types of services, including dry cleaners, laundries, car washes, cable and other subscriber radio and TV services. The statewide portion of the sales tax applies at the rate of 5.3%. Local governments and transit districts are allowed to adopt local sales taxes, at varying tax rates. Combined rates range from 5.3% in some areas to as high as 8.925%. Sellers of tangible personal property or taxable services are required to register as sellers and to collect and pay over the state and local sales and use taxes to the Kansas Department of Revenue. There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. The Kansas Department of Revenue is now authorized to release sales tax exemption information to retailers to verify that the exemption numbers being presented by their customers are valid Kansas Department of Revenue issued exemption numbers. The Department has developed an on-line application that allows retailers to verify tax exemption certificate numbers at any time. Taxpayers can access this service, at the Department of Revenue web site, which is listed in Section VI(c). Effective July 1, 2002, the former exemption for the sale of custom computer software programs was eliminated, as was the exemption for the charges for modification of computer software that was developed for a single end user. However, this exemption was restored, effective January 1, 2005. Note that the Department of Revenue has recently revoked its administrative regulations on the taxation of computer software sales. The Department of Revenue has released a guide to the sales and use tax treatment of lawn and garden care, pest control, fertilizer application, landscaping, and related retail sales. It lists numerous types of lawn and garden care services, such as mowing, raking, trimming, and hauling away brush and debris, that are not taxable. However, application of pesticides, herbicides, or fertilizers is generally a taxable sale, except where applied on agricultural property. For more details, obtain a copy of the Kansas Information Guide, EDU-25, 3/16/07. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Kansas. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. Before making any taxable sales, you will need to register with the Department of Revenue on Form CR-16, Business Tax Application, to obtain a state registration number and a sales and use tax Certificate of Registration. No fee is charged to register for the sales and use tax. Sales and use tax returns must be filed with a frequency that increases as the amount of tax due increases, as summarized in the following table: 2009 KANSAS SALES/USE TAX REPORTING SUMMARY
*If your business is seasonal, you will file returns during the period of business operation. For example, a Christmas tree business making retail sales only in November and December will file two monthly returns. For more information on Kansas sales and use tax registration and compliance, see contact information for the offices of the Kansas Department of Revenue in Section VI(a). (e) Real and Personal Property Taxes. In Kansas, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the assessor will bill you for each year's property taxes as they come due. Kansas also imposes personal property taxes on tangible personal property. ("Personal property" is any kind of property that is not real estate.) However, certain kinds of business personal property, such as mercantile and manufacturing inventories, are exempt from personal property tax in Kansas. Effective for purchases or leases made after June 30, 2006, Kansas exempts all business machinery and equipment from property taxes and also exempts such property brought into the state in order to expand a Kansas business. Also, "low cost" items of machinery, equipment, materials, and supplies to be used in a business, costing under $400 "when new" in 2005 or 2006 were exempt, and recent legislation increases the threshold cost of such items to $1,500 for 2007 and subsequent tax years. Every business must submit a list of its tangible personal property as of January 1 each year to the county tax appraiser and assessor in each county where it has tangible personal property. The report is generally due by March 15th. The County Appraiser's office is usually located in the county courthouse of each county. As a practical matter, the state of Kansas no longer imposes a personal property tax on intangible personal property. However, cities and counties are allowed by state law to impose local intangible property taxes on the gross earnings derived from certain intangible property, such as stocks, bonds, notes, and debentures. Thus, the intangibles tax is actually more of a gross income tax than a property tax, as it is not based on the value of the intangible assets. Taxpayers are required to file Local Intangibles Tax Return, Form 200 to report and pay local intangibles taxes. Counties can impose the tax on intangibles earnings at rates of 0.125% to 0.75% and cities at rates from 0.125% to 2.25% of the income amount. (f) Other Business Taxes. Kansas imposes a number of excise and other taxes on businesses, including:
While Kansas is one of only a few states that does not impose a transfer tax on conveyances of real estate, county registers of deeds impose a tax of .26 of a cent per dollar of the principal amount of any mortgage that is recorded. (g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. Kansas does not require any type of filing for a business that uses an assumed or fictitious name. However, if your business is incorporated, you may reserve the corporate name with the secretary of state upon filing and paying a small fee. You may also reserve the names of LLC's and limited partnerships. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Kansas imposes a state income tax on the income of individuals, you will need to also withhold Kansas income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Kansas Department of Revenue, on Form CR-16, Business Tax Application. This form can also serve as your sales tax registration, if you are a seller of tangible personal property or taxable services. It does not serve as your registration for state unemployment tax, however. For information on unemployment tax registration and tax rates, see Section V(b). Employers are required to file withholding tax returns
with the Department of Revenue and pay over the withheld tax
either four times a month, twice a month, or on a monthly,
quarterly, or annual basis, depending upon how much Kansas
income tax is withheld annually. These filing requirements
are summarized in the following table:
2009 KANSAS WAGE WITHHOLDING FILING FREQUENCY SUMMARY
UPDATE NOTE: For more information on Kansas income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Revenue, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, or if you acquire nearly all of the assets of a Kansas business already subject to unemployment tax, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Kansas unemployment tax are required to register with the Employment Security Division of the Kansas Department of Labor. You must register on Form K-CNS 010, Status Determination Report, within 15 days after your first employee begins work for you, to determine if you are an employer, for unemployment tax purposes. You should also request from that agency a copy of their free publication, The Handbook for Employers. New employers are required to pay tax at a rate of 4.0% (6% for construction industry employers) in 2009 on the first $8,000 of wages paid to each employee. After you have had employees approximately 3 years, you will develop and be assigned an unemployment tax experience rating. This rating is based on the number of employees you have terminated who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you in December when they have assigned you an individual tax rate for the following year, based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. All state unemployment taxes are imposed upon you as the employer, and, under Kansas law, cannot be charged to your employees or withheld from their wages. For more information on your Kansas unemployment tax obligations as an employer, see the contact information for the offices of Employment Security Division of the Kansas Department of Labor, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Kansas, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor, a partner in a partnership, or a member of a limited liability company is generally not considered an employee, and some family members may be excluded from coverage. In addition, firms with annual payrolls of $20,000 or less, or engaged in certain agricultural pursuits, are generally exempted, but may voluntarily elect coverage for their employees. Corporate officers are considered to be employees and must generally be covered, but any employee of a corporation who owns 10% or more of the stock of the corporation may elect not to be covered by workers' compensation. Realtors who qualify as independent contractors are not required to be covered. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. CAUTION: As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. If an employee is injured on the job and misses work on any subsequent day due to the injury, you must notify the Division of Workers' Compensation of the injury within 28 days or less. For more detailed information regarding your obligations as an employer under the Kansas workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Division of Workers' Compensation of the Kansas Department of Labor, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Kansas wage-hour laws, which provide for a state minimum hourly wage that is currently $2.65, the lowest minimum wage rate in the nation. Kansas is one of only six states whose minimum wage is lower than the federal minimum wage, as of early 2009. Kansas also requires that employers pay time-and-a-half for overtime, defined as any hours worked in excess of 46 hours a week, rather than the 40 hours a week under the federal overtime law. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees as well as outside salespersons are exempted from the Kansas wage-hour rules. Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the Employment Standards Division of the Kansas Department of Labor. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Kansas. Work permits are required for employing children under the age of 16 who are not enrolled in or attending school, and can be obtained from the superintendent of schools or a district judge in the county of residence of the child. Under the Kansas child labor laws:
Employers of children under the age of 16 are required to post a child labor poster (obtained from the Kansas Department of Labor) in the workplace where such children are employed. For more information on Kansas wage/hour and child labor laws, contact the Employment Standards Division of the Kansas Department of Labor, at the address listed for that agency in Section VI(a). (e) State Occupational Safety and Health Laws. Employers in Kansas must comply with state and federal job safety laws designed to prevent injuries resulting from unsafe or unhealthy conditions in the workplace. The Industrial Safety and Health Section of the Kansas Department of Labor offers free OSHA consultations in Kansas, but does not enforce safety laws, as Kansas leaves that function to the federal OSHA agency. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case with state safety inspections. If you request a safety consultation from the Industrial Safety and Health Section and they detect violations, they will not cite you if you promptly correct the unsafe conditions. For information on your job safety and health obligations as an employer, and required posters, contact the nearest office of the U.S. Department of Labor -- OSHA. For possible on-site safety consultations, see the contact information for the Industrial Safety and Health Section of the Kansas Department of Labor, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Kansas labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to terminated employees. The Kansas Wage Payment Act requires wages to be paid to employees at least once a month, and no later than 15 days after the end of the period in which the wages were earned. An employee who quits or is discharged must be paid any final wages by the next regular payday through the regular payment channels, or, if mailing of the payment is requested, the payment must be postmarked no later than the next such payday. An employer who willfully fails to pay wages when required may be penalized in the amount of 1% per day of the late-paid wages, up to 100%, if payment is more than 8 days late. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Kansas has a right-to-work law, prohibiting an employer from denying employment to any person on account of membership or non-membership in a labor union, which makes Kansas an attractive place to do business for employers. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Kansas, and display a poster informing employees of their rights. You can obtain this poster from the Kansas Human Rights Commission, at the address listed in Section VI(a). Kansas law prohibits discrimination in employment by any employer with 4 or more employees, on account of race, religion, color, sex, disability, national origin or ancestry, or age. An exception is made under the age discrimination law for an executive who is at least 65 years of age and is entitled to an immediate pension or retirement benefit upon retirement with a value of at least $44,000. (4) Reporting new hires. Under federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency (the Department of Labor, New Hire Directory, for Kansas employers) within 20 days after the date of hire. For contact information and for the mailing address or fax number for submitting new hire reports by mail or fax, see Section VI(a). VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Kansas, as many states have done in recent years, has set up a "one-stop" center to help your new or existing businesses to obtain all necessary state licenses and permits from a single office, without your having to go from agency to agency to meet all the legal and regulatory licensing requirements. The First Stop Clearinghouse, part of the Kansas Department of Commerce, can help you with a wide range of licensing, permitting, tax and regulatory issues in Kansas. This office also publishes the inexpensive booklet, Steps to Success: A Guide to Starting a Business in Kansas. The address for this agency is: First Stop Clearinghouse You can register your business with the state for Kansas income tax, sales and use tax, employer withholding, and various other state taxes on a single form, obtained from the Department of Revenue, Form CR-16. Its address is listed below. Addresses and other contact information for other key state and federal government agencies in Kansas, mentioned in preceding sections of this book, are listed below for your convenience. SECRETARY OF STATE. Contact the office of the secretary of state for information on:
Business Services Division TAXES. Obtain state income, sales and use tax, and other miscellaneous business tax forms, instructions and information from the Kansas Department of Revenue, which is the main tax collection agency in Kansas. Also, register with this agency as an employer, for state income tax withholding purposes, on Form CR-16. Customer Relations STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, including:
Kansas Department of Labor -or- Kansas Department of Labor STATE SALES TAX. Obtain your sales and use tax Certificate of Registration and information on the Kansas sales and use tax law from the Kansas Department of Revenue, at the address listed above for that agency. STATE UNEMPLOYMENT TAX. Contact the Division of Employment Security, Kansas Department of Labor to determine whether you are an employer subject to payment of state unemployment taxes, at the address listed above for that agency. WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the following agency for further information: Division of Workers' Compensation STATE OSHA PROGRAM. There is no state OSHA program in Kansas. The federal government provides federal OSHA enforcement instead. For information on free job safety consultations by the state, contact: Industrial Safety and Health Section STATE ANTI-DISCRIMINATION LAWS. Contact the following state agency for more detailed information on Kansas civil rights laws that may apply to your business, and to obtain notices you are required to post in the workplace: Kansas Human Rights Commission NEW HIRE REPORTING. Report newly hired or re-hired employees to the Kansas Department of Labor, New Hire Directory, within 20 days after hiring, at the following address: Kansas New Hire Directory (b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Kansas to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. SBDC: State Office (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major Kansas state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Kansas. Since new sites are appearing frequently, you might also want to search for other Kansas government Web sites by using one of the popular Internet search engines, such as MSN, Google, Alta Vista, or Yahoo. To start your Internet search for Kansas government information, you may want to begin with the following Internet sites: State of Kansas Home Page: List of Kansas state government agencies: Kansas Department of Revenue Web site, which offers state tax forms and information: Kansas Secretary of State, Corporate Division, listing of various corporate, limited partnership, and LLC filing fees: Center for Entrepreneurship at Wichita State University (d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Kansas, or contact the First Stop Clearinghouse of the Kansas Department of Commerce, at the address listed in Section VI(a) for that agency. The address of the main SBA Office in Kansas is: U.S. Small Business Administration (e) Other Sources of Help. The Center for Entrepreneurship is a nationally recognized center, at Wichita State University, which provides a number of services to small businesses, including educational courses and workshops as well as acting as a referral for individual business needs. They also publish the helpful Resource Book for Business Startups. Contact them at: Center for Entrepreneurship |
Copyright © 2009 Michael D. Jenkins
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