Do Kansas composite returns recognize the 2012 income modifications for nonresident owners?

Plain-English summary

Kansas Notice 13-17 (September 12, 2013) answers whether the 2012 income modifications (which exempt certain income from Kansas tax) can be claimed on a composite return. They cannot.

Composite returns. Under K.A.R. 92-12-106, a partnership or S corporation may file a composite income tax return for its nonresident partners or shareholders, who then do not file separate Kansas returns. The composite return is filed, and tax paid, by the 15th day of the fourth month after the close of the entity's taxable year. A nonresident owner with Kansas-source income other than from the entity cannot be included, and trusts cannot be included (each files separately).

What the composite return recognizes. Form K-40C recognizes an individual's personal exemptions and a standard deduction, but it does not recognize itemized deductions or modifications (additions or subtractions).

Consequence. Because the composite return does not recognize modifications, it will not recognize the 2012 modifications that exempt certain categories of income (see Notice 12-11). A nonresident owner who wants to use those modifications must file a separate individual income tax return.

What this means for you

Nonresident partners and S corporation shareholders

• If you want the 2012 income exemptions (or itemized deductions), do not rely on the composite return -- file your own Kansas individual return.

Partnerships and S corporations

• The composite return simplifies filing but only gives owners personal exemptions and the standard deduction, not modifications.

Common questions

Does the composite return recognize the 2012 income exemptions? No.

What does Form K-40C recognize? Personal exemptions and a standard deduction only -- not itemized deductions or modifications.

How can a nonresident owner claim the modifications? By filing a separate individual income tax return.

When is the composite return due? The 15th day of the fourth month after the entity's tax year closes.

Citations and references

• K.A.R. 92-12-106 -- authorizes composite returns for nonresident partners and shareholders and sets their rules.
• Form K-40C -- the Kansas composite return; the 2012 exempting modifications are described in Notice 12-11.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 13-17

Original ruling text

Policy & Research Phone: 785-296-3081
915 SW Harrison St FAX: 785-296-7928
Topeka KS 66612-1588 www.ksrevenue.org
Nick Jordan, Secretary Department of Revenue Sam Brownback, Governor
Richard Cram, Director

                                     NOTICE 13-17

                            KANSAS COMPOSITE RETURNS
                               (September 12, 2013)

 Advice has been requested regarding the use of composite income tax returns in Kansas.

Specifically, inquiry has been made as to whether modification(s) enacted during the 2012
Legislative Session [See Notice 12-11] which exempt certain categories of income from Kansas
income tax are recognized on a composite return.

 The use of composite income tax returns is authorized by Kansas Administrative

Regulation (K.A.R.) 92-12-106. The regulation provides:

       92-12-106. Composite returns for nonresident partners and shareholders.
 (a) Any partnership or S corporation required to file a return under the Kansas income
 tax act may file a composite income tax return for all nonresident partners or
 nonresident shareholders which derive income from the partnership or S corporation.
 Nonresident partners and nonresident shareholders included in a composite return
 shall not file a separate income tax return.
       (b) Any nonresident partner or nonresident shareholder may be included in a
 composite return unless the partner or shareholder has income from a Kansas source
 other than the partnership or S corporation.
       (c) Each composite return shall list the name, address, social security number
 and the percentage ownership of each nonresident partner or nonresident shareholder.
       (d) Each composite return shall be filed and any tax paid by the partnership or S
 corporation on or before the 15th day of the fourth month following the close of the
 taxable year of the partnership or S corporation.
       (e) Each return shall be filed in the manner prescribed by the director of
 taxation.
       (f) Trusts shall not be included in a composite return. Each trust shall file a
 separate income tax return on a form provided by the director.

 The composite return, Kansas Form K-40C, recognizes an individual's personal

exemptions and a standard deduction. It does not recognize itemized deductions. Similarly, it
does not recognize modifications, either additions or subtractions.

  Because, generally, the composite return does not recognize modifications it will not

recognize those modification(s) enacted during the 2012 Legislative Session which exempt
certain categories of income from Kansas income tax. Individuals who wish to take advantage of
those modifications must file a separate individual income tax return.

                               Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about this Notice, please contact:

                           Taxpayer Assistance Center
                          Kansas Department of Revenue
                          915 SW Harrison St., 1st Floor
                            Topeka, KS 66612-1588
                              Phone: 785-368-8222
                               Fax: 785-291-3614