If you haven’t started your tax returns yet, I must warn business owners and farmers about their Kansas taxes. If you had a bad year, you shouldn’t count on your Kansas taxes being lower. Although Governor Brownback promised business owners (sole proprietorships, LLCs and partnerships) that they would not pay taxes on their business income, it turns out that if they had losses, they pay more taxes than if they had income. Schedule S of the Kansas form K-40 takes your taxable income from your Federal 1040, then adds back any losses you claimed on your federal income, so you end up with a higher taxable income (even though the losses are clearly not income), and you pay taxes to Kansas on your losses. Plus, if you figured you would not owe Kansas taxes on this business income and therefore did not send enough in estimated taxes to Kansas, you will pay a penalty for underpayment of Kansas taxes.
How is this right, I ask? The answer given by the Department of Revenue tax helpline is that the legislature wrote it that way. Somehow the Kansas Legislature did not understand how their law would work out for some businesses. They talk about increasing business opportunity in Kansas; but since most start-up businesses plan for a loss in their first few years, the current law in Kansas means that the start-up will pay taxes on their losses, even though promised no taxes on income. Why would anyone want to start a business in Kansas? Why would anyone who experiences a business downturn want to stay in Kansas when a bad year means you owe more taxes than if you had a good year? How would this impact our farmers who can’t move out of state? It seems they will be hit with a double whammy: higher income taxes when they have a bad year, plus higher property taxes to make up for the cuts in state funding to education and local governments.
Kansas Legislators need to hear about this error in the tax law. They need to recognize that they can do more harm than good when they pursue tax policies that are out of the mainstream.
We need to vote for more constructive and fair tax policy-making in August and November this year. Ask the legislators and their challengers how they plan to respond to this situation.
— Sharon L. Gordon Udall, KS