Small Business/Sub-S

SALT PARITY ACT 2022 TAX YEAR FILING NOTIFICATION
(March 30, 2023)

The SALT Parity Act, enacted during the 2022 Legislative Session, is being utilized for the first time during the 2023 tax filing season. The legislature declared that the deductibility of state income taxes should be the same for C corporations, S corporations and partnerships. The SALT Parity Act allows electing pass-through entities to avoid the state and local tax or SALT deduction limitation for individuals at the federal level.

As returns are being prepared, filing questions have arisen regarding calculation of tax for electing pass-through entities that have income from Kansas and non-Kansas sources. In light of the ambiguity of the provisions of K.S.A. 79-32,287(a) and based on the legislative intent of the SALT Parity Act, the Department will accept returns filed by electing pass-through entities that calculate the tax either before or after apportionment for Kansas residents. The tax for nonresidents will continue to be calculated after apportionment. If calculating the tax before apportionment, Form K-120S-IAW will be completed and filed with form K-120S. Form K-120S-IAW can be found here. K-120S returns are due by April 18, 2023.

A Kansas corporation return must be filed by all corporations doing business within or deriving income from sources within Kansas who are required to file a Federal Income Tax return, whether or not a tax is due. Corporations which elect under subchapter S of the Internal Revenue Code not to be taxed as a corporation must file a Kansas Small Business Corporation return. S corporations are generally exempt from tax. Each shareholder includes the income, or loss, from the S corporation on his or her income tax return.

Banks and saving and loan associations allowed to file as a small business corporation at the federal level are not allowed to file as a small business corporation at the Kansas level. Those entities are required to file a privilege tax return to report any income or loss. The federal level shareholders income, or loss, which is included in their individual federal income tax returns is to be subtracted from federal adjusted gross income so as to not allow that income.