Taxes, Credits and Exemptions

Creating a climate for business growth

The tax environment in Kansas is designed to be fair and favorable to your business. Our tax base ensures that no single industry is disproportionately burdened, and tax credits and exemptions are helping to lower the cost of doing business in Kansas.

No matter the industry, Kansas is dedicated to saving companies money and providing a pro-growth environment for business.

Corporate Income Tax

For corporations whose business income is solely within state boundaries, the tax is 4% of net income. In addition, net income in excess of $50,000 is subject to a 3% percent surtax. For those corporations with business income both inside and outside the state, the net income attributed to the Kansas operation is based upon the percentage of the corporation’s business located in Kansas. A business’ tax obligation is determined by a three-factor formula using the proportion of sales, property and payroll in Kansas compared to total sales, property and payroll.

Tax Credits and Rebates

Tax Exemptions

Agriculture Exemption

The following are eligible for agricultural exemption in Kansas: ingredient or component parts; parts consumed in production; propane for agricultural use; property purchased is farm or aquaculture machinery or equipment, repair/replacement parts, or labor services on farm or aquaculture machinery; seeds, fertilizers, insecticides, herbicides, germicides, pesticides, fungicides.

Aircraft Exemption Certificate

Exempts all sales of aircraft including remanufactured and modified aircraft sold to persons using directly or through an authorized agent such aircraft as certified or licensed carriers of persons or property in interstate or foreign commerce under authority of the laws of the United States or any foreign government or sold to any foreign government or agency or instrumentality of such foreign government and all sales of aircraft, for use outside of the United States; and sales of aircraft repair, modification and replacement parts and sales of services employed in the remanufacture, modification and repair of aircraft.

Alternative-Fueled Motor Vehicle Tax Credit

Qualified expenditures for eligible alternative-fueled motor vehicles may be allowed a credit against Kansas income tax for any qualified alternative-fueled motor vehicle placed into service. The credit is equal to 40 percent of the incremental cost or conversion cost for each qualified vehicle expended, but not to exceed $2,400 (credits based on vehicle weight).

The tax credit for motor vehicles capable of operating on a blend of 85 percent ethanol and 15 percent gasoline is allowed only if the individual claiming the credit furnishes evidence of purchasing 500 gallons of an ethanol and gasoline blend during the period of time starting with the vehicle purchase and ending on Dec. 31 of the next calendar year. This credit shall only be available to C-corporations subject to Kansas corporate income tax. This credit is not available to individuals, partnerships, S-Corporations, limited liability companies or other pass-through entities.

Biomass-to-Energy Plant Exemption and Deduction

A taxpayer may be entitled to a deduction from Kansas adjusted gross income of the amortizable costs of a new facility or expansion of an existing biomass-to-energy plant. The deduction is equal to 55 percent of the amortized costs of the facility for the first taxable year and five percent for the next nine taxable years.

Carbon Dioxide Capture/ Sequestration Exemption

A taxpayer is entitled to a deduction from Kansas adjusted gross income with respect to the amortizable costs of carbon dioxide capture, sequestration or utilization machinery and equipment over a period of 10 years.

Consumed in Production

Exempts all sales of tangible personal property consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the treatment of waste or by-products derived from any such production process, the providing of services, or the irrigation of crops for ultimate sale at retail within or without the state of Kansas.

Ingredient or component part exemption

Exempts all sales of tangible personal property that becomes an ingredient or component part of tangible personal property or services produced, manufactured or compounded for ultimate sale at retail within or without the state of Kansas

Insurance Tax and Salary Tax Credit

The premium tax rate for domestic and foreign insurance companies doing business in Kansas is 2 percent. Kansas law KSA 40-252d provides for a tax credit for insurance companies equal to 15 percent of Kansas-based employees’ salaries, or up to a maximum of 1.125 percent of taxable premiums dependent on the company’s affiliation. The company can claim either the 15 percent credit or up to the 1.125 percent, whichever is less. This could make the effective tax rate on such companies as low as 0.875 percent and is an annual credit that is recalculated each year.

Integrated Production Machinery and Equipment Exemption

K.S.A. 79-3606(kk)(1) exempts all sales of machinery and equipment used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility, all sales of installation, repair and maintenance services performed on such machinery and equipment; and all sales of repair and replacement parts and accessories for such machinery and equipment.

Interstate Common Carrier Exemption

K.A.R. 92-19-28 and K.A.R. 92-20-18 exempt the sale of rolling stock (including buses and trailers), repair or replacement materials and parts for rolling stock, gasoline, distillate and other motor fuels purchased for rolling stock when purchased by a motor carrier qualifying as a public utility, for immediate and direct use in interstate commerce.

Inventory Tax Exemption

All merchants’ and manufacturers’ inventories have been exempt from property taxes by constitutional amendment since 1989 (K.S.A. 79-201m). This exemption does not apply to public utility inventories.

Labor services used in original construction

Labor services involving the installation or application of tangible personal property performed in connection with the original construction of a building or facility are exempt from sales tax.

Labor services for the installation and repair of machinery and equipment

Exempts all labor services to install, repair or maintain the manufacturing machinery and equipment, and all repair parts, replacement parts, and accessories for qualified equipment. These include, but are not limited to: dies, jigs, molds, patterns and safety devices that are attached to the exempt equipment; and parts and accessories that require periodic replacement such as belts, cutting bars, drill bits, grinding balls and wheels, saws and refractory brick and other refractory items for exempt kiln equipment used in production operations.

Machinery and Equipment Property Tax Exemption

 Kansas law exempts the property tax on commercial and industrial machinery and equipment purchased or transferred into Kansas after June 30, 2006. The personal property tax exemption continues each year under the law.  

This personal property tax exemption is unique and offers significant savings each year to companies. Savings will depend on the fair market value of the property, depreciation, the local mill levy rate and whether all equipment qualifies for the property tax exemption. The exemption can cover such items as: computers, furniture, office equipment, business machinery and manufacturing and warehouse equipment.

Manufacturing machinery and equipment

Exempts all sales and use tax for machinery and equipment used as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility.

Manufacturing machinery and equipment, including used in handling or storing

Exempts items include equipment used to receive, transport, convey, handle, treat or store raw materials in preparation for their placement on the production line; transport, convey, handle or store the property undergoing manufacture at any point from the beginning to the end of the process occurring at the plant or facility; and machinery that deals with by-products of production. 

Property Tax Exemptions Renewable Energy Generation

Kansas offers a property tax exemption for projects producing electricity from renewable sources, including wind, solar, photovoltaic, biomass, hydropower, geothermal or landfill gas resources. The exemption applies to all property actually and regularly used predominantly in the generation of electricity from renewable sources, whether it is an industrial, commercial, utility or personal application.

Real Property Tax Exemption

State law allows a 100% property tax abatement for 10 years on real property if industrial revenue bonds are used or if it qualifies under the state Constitution, which allows companies that manufacture articles of commerce, conduct research and development or store goods and commodities sold in commerce to receive a property tax abatement. Tax abatement on real property is offered by the city or county where the property is located.

Sales Tax Exemption for construction, remodel, equipment and furnishings

A Kansas business can receive an exemption from sales tax on all tangible personal property or services purchased for the construction, reconstruction, enlarging or remodeling of a business that has been certified through the High Performance Incentive Program (HPIP). The sale and installation of machinery and equipment purchased for installation at the business shall also be exempt from sales tax.

Tax Exemptions via Industrial Revenue Bonds

Businesses using IRBs as a financing mechanism may enjoy certain tax exemptions on property finances with IRBs and the cost of construction labor, building materials and machinery and equipment. 

Utilities Consumed in Production Exemption

The Kansas Utility Sales Tax Exemption allows businesses to claim an exemption on the portion of their utility that is consumed in the production, manufacturing, processing, mining, drilling, refining, compounding of tangible personal property or the providing of a taxable service.

Vehicle and Aircraft Exemption Certificate

Exempts the sale and delivery in Kansas of a motor vehicle, semitrailer, pole trailer or aircraft to a purchaser who is a “bona fide” resident of another state, provided the purchaser will remove the vehicle or aircraft from Kansas within 10 days and base and register it in another state. Motor vehicles include cars, trucks, SUVs, vans, motorhomes and motorcycles designed for highway use.

Green Aircraft – “Green aircraft” refers to a newly-manufactured aircraft that is the color green because a temporary green coating covers the aircraft's aluminum to protect it from damage and corrosion. Although green aircraft may be airworthy, they are not intended for consumer or commercial use until all of the avionics, instruments, seats and other interior fittings are installed. Green aircraft often are fitted out by a third-party specialty business after the purchaser takes delivery from the manufacturer. The 10-day fly-away rule does not start to run until the purchaser takes delivery after the final fitting out in Kansas is complete.

Waste Heat Utilization System Exemption

The incentive offered is a deduction from Kansas adjusted gross income based on the amortized costs of a waste heat utilization system. The deduction shall be equal to 55 percent of the amortizable costs of the system for the first taxable year and 5 percent for the next nine years.

Any waste heat utilization system is exempt from all property taxes levied at the time of purchase and after or at the start of construction or installation of such property and for 10 years immediately following the taxable year in which construction or installation of such property is completed.

The Kansas Development Finance Authority is authorized to issue revenue bonds in amounts sufficient to finance the construction of waste heat utilization systems at electric generation facilities.

Warehouse Machinery and Equipment Exemption

K.S.A. 79-3606(fff) exempts all sales of material handling equipment, racking systems and other related machinery and equipment used for the handling, movement or storage of tangible personal property in a warehouse or distribution facility in Kansas, all sales of installation, repair and maintenance services performed on such machinery and equipment; and all sales of repair and replacement parts for such machinery and equipment.

Property Tax

The rate of tax depends on the levy of the local taxing district and will vary within the state by location. There are several property tax exemptions that may be available to businesses for certain qualifying real and tangible personal property.

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