Wayfair Safe Harbor, GILTI Exclusion & Other Changes on the Horizon

If there’s one constant when it comes to state taxes, it’s frequent change. Earlier this spring, Kansas state sales tax underwent several amendments, including some that took place immediately and some that won’t be enacted until 2024. More recently, Kansas tax reform got the green light, bringing a Wayfair safe harbor, GILTI exclusion and other business tax changes, and higher standard deductions for all Kansas filers.

Kansas Sales Tax Updates

In April 2021, House Bill 2143 became law, making the following sales tax changes permanent.

  • The temporary sales tax exemption on cash rebates to a purchaser or lessee of new motor vehicles was extended.
  • Section 2-b grants exempt status to government institutions, non-profit hospitals, etc.
    • This has been amended to include nonprofit integrated community care organizations.
    • While the above exemptions generally do not apply to construction for human habitation, there have been a few exceptions for some Kansas non-profit organizations and foundations.
  • Effective January 1, 2024, the thresholds that determine filing frequency are increasing.
    • The threshold that requires a sales tax prepayment is also increasing as well as noting that estimate calculations based on the prior year should be adjusted to reflect any rate changes.

There are several ways to calculate prepaid sales tax. The basic requirement is to pay the tax liability for the first 15 days of the month and can be calculated as follows.

  • 90% of the liability for the first 15 days of that month
  • 50% of the liability for the same month in the previous year

Finally, several Kansas jurisdictions have new sales tax rate changes as of April 1, 2021 and July 1, 2021.

Safe Harbor for Wayfair and Marketplace Facilitators

In a veto override passed in May 2021, Kansas legislators voted to establish a $100,000 de minimis exemption for remote sellers. This decision will help small online retailers avoid complicated state and local sales tax issues if Kansas revenue doesn’t exceed the threshold. Since October 2019, Kansas has required all retailers to collect and remit state sales tax regardless of how much money a seller made in the state or how many transactions occurred. Also, sellers that exceed the new $100,000 de minimis threshold will not have to remit state sales taxes from sales that occurred before July 1, 2021.

Marketplace facilitators also have a July 1, 2021 implementation date for the same $100,000 de minimis exemption. For many marketplace facilitators, this may be the first time they will be subject to state sales tax. Marketplace facilitators are people or entities that sell products or goods on sites like Amazon or Ebay, as examples. The full definition goes on to say that marketplace facilitators:

“Contract or otherwise agree with marketplace sellers to facilitate for consideration, regardless of whether deducted as fees from the transaction, the sale of the marketplace seller’s products or rooms, lodgings or accommodations through a physical or electronic marketplace operated, owned or otherwise controlled by the person.”

Online platforms that only provide advertising services, payment processing services, and certain commodity futures trading are excluded from the definition. Beginning January 1, 2022, marketplace facilitators will be required to collect and remit local transient guest taxes, and certain prepaid wireless 911 fees starting April 1, 2022.

Therefore, like remote sellers, some marketplace facilitators that do not meet the $100,000 threshold may not need to renew their Kansas sales tax permit.

Though states have been free to adopt their own economic nexus rules following the Supreme Court’s Wayfair decision, most states do operate with some level of de minimis exemption.

GILTI Exclusion and Business Tax Changes

GILTI, or Global Intangible Low-Taxed Income, will be excluded from Kansas corporate income tax base for 2021 and beyond. The exclusion is available through a modification allowing corporate taxpayers to subtract 100 percent of GILTI from their federal adjusted gross income to determine taxable income for Kansas.

Other business tax changes in the legislation provide that:

  • Disallowed business interest expense deduction under Sec. 163(j) for 2021 and beyond.
  • Exemption from federal taxable income for capital contributions as it existed prior to the Tax Cuts and Jobs Act.
  • Unlimited carry forward of net operating losses beginning with the 2018 tax year (previously, the carry forward was limited to 10 years).
  • Business meal deductions are changed to pre-TCJA levels
  • Kansas corporate income tax returns have a revised filing date of one month after the federal due date.

These tax changes will reduce the burden on multinational businesses and corporations operating in Kansas, though the state is expected to bring in around $300 million less in revenue over the next three years as a result. Still, the legislation was vetoed in part because state tax revenue collection has been up.

The Tax Foundation predicts that Kansas will advance from 35th to 24th overall in states’ competitive business tax index; in other words, living and doing business in Kansas is expected to improve as a result of the tax code changes.

Other Kansas Tax Changes

In addition to the above tax changes, the standard deduction for all Kansas filers has been increased by $500. Kansans now also have the option to itemize their state tax return, even if they select the standard deduction on the federal return.

Taken together, these tax changes will mean a much different landscape for businesses and corporations in Kansas. The economic nexus de minimis threshold will help provide certainty to online and remote sellers, and an increased state standard deduction along with the option to itemize could help individuals reduce their overall tax liability.

Do you have questions about how recent Kansas state tax changes will impact you or your business? Contact your Adams Brown advisor or a member of our State and Local Tax Team for assistance.