What four changes did 2002 Senate Bill 39 make to Kansas withholding tax?

Plain-English summary

2002 Senate Bill 39 made four changes to the Kansas Withholding Tax Act, all effective June 6, 2002:

1. Nonresident pass-through distributions (Sections 29-30). Kansas withholding now extends to distributions distributed or distributable to nonresident shareholders or partners of an S corporation, a Kansas LLC, or a partnership. SB39 added defined terms "distributee" and "distribution," and requires every payor making such a distribution to withhold from amounts distributed/distributable to each nonresident shareholder or partner (amending K.S.A. 79-3295 and 79-32,100a).
2. Professional athletes' prizes (Section 29). "Wages" now include any prize or award paid to a professional athlete at a sporting event held in Kansas.
3. Permissive non-wage withholding (Section 30). Withholding on certain non-wage payments is now permissive rather than mandatory — required only when federal withholding is required (for a payee whose primary residence is in Kansas). Previously Kansas withholding was required whenever federal tax was withheld, even permissively; now if federal withholding is permissive, Kansas withholding is permissive too.
4. Professional employer organizations (New Section 32). A PEO (a business providing employees under professional employer arrangements) is considered the employer for withholding Kansas income tax on the assigned workers.

Anyone making payments or distributions subject to withholding must register for Kansas withholding (see Publication KW-100).

What this means for you

If you run an S corporation, LLC, or partnership with nonresident owners, from mid-2002 you must withhold Kansas tax on distributions to those owners. Sports venues paying prizes to professional athletes in Kansas must withhold. Payors of non-wage amounts get relief — Kansas withholding follows the federal requirement rather than being triggered by any federal withholding. And if you use a PEO, the PEO is the employer for Kansas withholding on leased workers.

Common questions

Q: Do I withhold on distributions to nonresident owners?
A: Yes — for nonresident shareholders/partners of S corporations, Kansas LLCs, and partnerships, effective June 6, 2002.

Q: Are professional athletes' prizes subject to withholding?
A: Yes, if the prize or award is paid at a sporting event held in Kansas.

Q: Is non-wage withholding still mandatory?
A: Only when federal withholding is required; if federal withholding is permissive, Kansas withholding is permissive.

Q: Who withholds when a PEO supplies my workers?
A: The PEO is treated as the employer for Kansas withholding on the assigned workers.

Citations and references

• 2002 Senate Bill 39, Sections 29, 30, and New Section 32 -- withholding changes (effective June 6, 2002).
• K.S.A. 2001 Supp. 79-3295; K.S.A. 2001 Supp. 79-32,100a -- withholding definitions and distribution/non-wage withholding.

Subject

2002 Changes to Kansas Withholding Tax

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 02-06

Original ruling text

Notice
Notice Number: 02-06
Tax Type: Withholding and Declaration of Estimated Tax
Brief Description: 2002 Changes to Kansas Withholding Tax
Keywords:
Approval Date: 06/25/2002

Body:
Office of Policy & Research

                                                 NOTICE 02-06

                                  2002 Changes To Kansas Withholding Tax

Senate Bill 39 of the 2002 Legislative Session made four changes to the Kansas Withholding Tax Act. First, it extends
withholding to certain distributions from Subchapter S corporations, limited liability companies, and partnerships.
Second, it extends withholding to prizes or awards paid to professional athletes. Third, it makes withholding on
certain non-wage payments permissive, rather than mandatory. Fourth, it defines professional employer organizations
and provides that they shall be considered an employer for purposes of the Kansas withholding tax. These changes
became effective June 6, 2002.

Sections 29 and 30 of the bill extend Kansas withholding to distributions that are distributed or distributable to
shareholders or partners who are nonresidents of Kansas. Section 29 amends K.S.A. 2001 Supp. 79-3295 to include
the terms “distributee”, that is defined to mean “. . . any person or organization who receives a distribution . . .”, and
the term “distribution” that is defined to mean “. . . a distribution from a corporation for which an election as an S
corporation under subchapter S of the federal internal revenue code is in effect, from a limited liability company
formed under the laws of the state of Kansas, or from a partnership.” Section 30 amends K.S.A. 2001 Supp. 79-
32,100a to provide that “Every payor who makes a distribution . . . shall withhold . . . from amounts distributed or
distributable to each nonresident shareholder or partner.”

Section 29 of the bill also extends withholding to prizes or awards paid to professional athletes. Section 29 amends the
definition of wages found in K.S.A. 2001 Supp. 79-3295 to provide that the term wages “ . . . shall include any prize
or award paid to a professional athlete at a sporting event held in this state.”

Section 30 of the bill also makes withholding on certain non-wage payments permissive, rather than mandatory.
Section 30 amends K.S.A. 2001 Supp. 79-32,100a to provide that, “Every payor who is required under federal law to
withhold upon payments other than wages . . . shall withhold . . . whenever the payee is a person whose primary
residence is in Kansas.” Prior to this amendment, withholding on non-wage payments was required whenever federal
income tax was withheld, whether federal withholding was required or permissive. Now, withholding of tax on non-
wage payments is required only when federal withholding is required; if federal withholding is permissive, state
withholding is permissive.

New Section 32 of the bill concerns professional employer organizations. A professional employer organization is
defined to mean “any person engaged in providing the services of employees pursuant to one or more professional
employer arrangements or any person that represents itself to the public as providing services pursuant to a
professional employer arrangement.” New Section 32 also provides that “A professional employer organization shall
be considered an employer for the purposes of withholding state income tax of the assigned workers pursuant to the
Kansas income tax act.”

If you make payments or distributions that are subject to withholding you must register for Kansas withholding. The
registration process is explained in Kansas Department of Revenue publication KW-100 (Rev. 4/01). Copies of this
publication are available through our forms request line or our web site.

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To obtain additional copies of this or any other notice call the Kansas Department of Revenue’s voice mail forms
request line at (785) 296-4937 or download them from our web site: www.ksrevenue.org. If you have any questions
about this notice or Kansas withholding tax, please contact our Taxpayer Assistance Center.
Taxpayer Assistance Center
Docking State Office Building
915 SW Harrison St., 1st Floor
Topeka, KS 66625-0001
In Topeka call: 368-8222
Outside Topeka call toll free: 1-877-526-7738
Fax: (785) 296-8989

Date Composed: 06/26/2002 Date Modified: 06/26/2002

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