TWIST - This Week in State Tax

House Bill 2098, which was recently enacted over Governor Laura Kelly’s veto, makes a number of changes to Kansas’ sales and use tax laws.  This summary covers the more significant changes that affect retailers and benefit telecommunications businesses.  First, the bill revises the treatment of manufacturer’s coupons so that they are treated the same as any retailer’s coupons. Effective July 1, 2024, the amount of any coupon issued by a manufacturer, supplier, or distributor the amount of which is reimbursed by the manufacturer, supplier, or distributor reduces the “sales price” upon which tax will be computed. In other words, only the amount paid by the purchaser for the item is included in the sales price.

House Bill 2098 also creates a broad new sales tax exemption for the purchase of equipment, machinery, software, ancillary components, appurtenances, accessories, or other infrastructure purchased for use in the provision of communications services. “Communications service" means internet access service, telecommunications service, video service or any combination thereof. The exemption also extends to all services purchased by a provider of communications service that are used in the repair, maintenance, or installation of such communications service. The bill includes a non-exhaustive list of what is included in the definition of "equipment, machinery, software, ancillary components, appurtenances, accessories or other infrastructure." The exemption is effective July 1, 2024, and is currently set to expire on July 1, 2029.

Finally, House Bill 2098 creates a new sales tax exemption for purchases by disabled veterans that retailers will need to be aware of. The exemption is effective January 1, 2026 and applies to all sales of tangible personal property or services, except sales of motor vehicles, alcoholic beverages, tobacco, and electronic cigarettes. Purchases for the benefit of such individuals or made on behalf of such individuals will also qualify for the exemption, and the maximum benefit eligible under the exemption is capped at $24,000 of taxable sales per year per eligible person. Surviving spouses of eligible persons continue to be eligible for the exemption until remarriage. Individuals claiming the exemption will apply to the Secretary of Revenue for a veteran exemption identification number, which will be provided on a card the size of a driver’s license that may be presented to retailers when claiming the exemption. Please contact Jeff Cook with questions on these changes. 

For tax years beginning on or after January 1, 2025, section 11 of Nebraska LB 1023 (signed into law on April 23, 2024) allows businesses to deduct research or experimental expenditures as defined under 26 CFR Section 1.174-2 rather than amortizing the expenses over a five- or 15-year period. If the taxpayer does not fully deduct the research or experimental expenditures in the taxable year in which the expenditures are paid or incurred, the taxpayer may elect to amortize the expenditures over a five-year irrevocable term. The bill does not appear to distinguish between domestic and foreign expenditures. Nebraska LB 1023 also allows “full expensing” for qualified property and qualified improvement property, as defined with reference to the IRC. “Full expensing” means a method for taxpayers to recover their costs for investing in depreciable business assets by immediately deducting sixty percent of the full cost of such expenditures in the tax year in which the property is placed in service. If a taxpayer elects not to fully expense the costs in the tax year in which the property is placed in service, the taxpayer may elect to depreciate the costs over a five-year irrevocable term. Please contact Sarah McGahan with questions on LB 1023.

On April 16, 2024, Representative Fitzgerald Scott of Wisconsin introduced H.R. 8021, the “Interstate Commerce Simplification Act of 2024.”  If enacted, this bill would amend section 101(d) of P.L. 86-272 to add a definition of the term “solicitation of orders.” Recall, P.L. 86-272 prohibits a state from imposing a net income tax on a person if the person’s only business activities within the state are the solicitation of orders for sales of tangible personal property (and certain other conditions are met). Under current U.S. Supreme Court jurisprudence, most notably the Wrigley case, solicitation means activities that are “entirely ancillary to requests for purchases — those that serve no independent business function apart from their connection to the soliciting of orders.” H.R. 8021 would define “solicitation of orders” to mean any “business activity that facilitates the solicitation of orders even if that activity may also serve some independently valuable business function apart from solicitation.” As such, this would broaden the scope of permissible activities to include activities that have some independent business function. As currently drafted, the bill does not extend the scope of P.L. 86-272 to sales of other than tangible personal property or provide guidance on where business activities are deemed to occur, especially in instances when they are conducted over the Internet. Please stay tuned to TWIST for future updates.