Summary — HB 2336 (2025 session)
Status
- Bill introduced: February 3, 2025.
- Referred to House Committee on Taxation / Committee on Assessment and Taxation; amended in committee and in Committee of the Whole.
- Committee reports and a Division of the Budget fiscal note are on record. The bill remained under active legislative consideration through spring 2025.
Purpose
- Change how multistate corporate income is apportioned for Kansas tax purposes from a three‑factor formula (sales, property, payroll) to a single sales factor, adopt market‑based sourcing rules for sales, create a receipts‑factor rule for financial institutions, provide a transitional/deferred‑tax deduction for certain publicly traded companies, and establish a mechanism to reduce the corporate income tax rate if receipts grow.
Key provisions
- Single sales factor apportionment: Beginning with specified tax years in the amended versions (committee reports principally show implementation for tax year 2027), most multistate corporations would apportion Kansas taxable business income using only the sales factor (share of total company sales in Kansas) rather than the traditional three‑factor average.
- Market‑based sourcing: Sales other than tangible personal property would be sourced to Kansas based on market‑based rules. The bill specifies sourcing rules for services, intangibles, loan interest, dividends and communications services.
- Financial institutions: For banks and other financial institutions, the bill uses the statutory “receipts factor” in place of the sales factor.
- Railroads and interstate motor carriers: Mileage‑based apportionment for these carriers would be repealed (timing varies across amendments) so they are apportioned like other multistate businesses once sales‑factor apportionment takes effect.
- Alcoholic‑liquor manufacturers: Manufacturers of alcoholic liquor are carved out and would continue to use the three‑factor apportionment under current law.
- Deferred tax impact deduction: Publicly traded companies (GAAP financial statements) that experience an increase in deferred tax liabilities (or decrease in deferred tax assets) due solely to the new sales‑factor rule may claim a deduction equal to the quantified deferred‑tax impact. The deduction is computed under the bill’s formula and is allowed in ten equal installments; filing and documentation requirements apply.
- Corporate tax‑rate reduction mechanism: Beginning after certain fiscal years, the Director of the Budget would certify any year‑over‑year excess in corporate income tax receipts; the Secretary of Revenue would compute and publish a corporate tax rate reduction (rounded down to nearest 0.1 percent) designed to return roughly that excess to taxpayers. The effective tax year and certification years were amended in committee—dates differ among draft versions.
Affected parties
- Multistate corporations with Kansas activity (large and small), financial institutions, previously mileage‑apportioned carriers, publicly traded companies that must compute deferred tax impacts, and the Kansas State General Fund (fiscal impact described below).
Fiscal impact (estimates from Division of the Budget / Department of Revenue)
- The Department of Revenue and Division of the Budget estimate the bill would reduce State General Fund receipts; timing and magnitude are uncertain and depend on taxpayer elections, economic conditions, and the final effective dates. Representative estimates in the fiscal note:
- Decreases of at least $115.7 million (FY2026), $89.9 million (FY2027), and $73.1 million (FY2028) under assumptions used by the Department.
- A deferred‑deduction effect projected (based on comparative state examples) to reduce receipts by about $223.7 million total, modeled as roughly $22.4 million per year over 10 years starting when the deduction becomes claimable (the fiscal note projects first impact in FY2035).
- One‑time Department of Revenue implementation cost of approximately $61,740 (FY2026) for tax‑system programming; additional contract costs possible if combined workload exceeds resources.
- The fiscal note emphasizes substantial uncertainty: actual effects depend on taxpayer behavior and final bill language.
Procedural/timing notes and uncertainties
- The bill has been amended multiple times; key implementation dates differ across versions (notably the tax year when the sales factor becomes mandatory and the fiscal years used to trigger the rate reduction). Several earlier draft provisions allowing optional early elections were removed or modified. Final dates and administrative rules would be determined in the enacted version.
