How does a Kansas taxpayer living abroad report foreign income and get credit for foreign tax?

Plain-English summary

A tax preparer had a client who owns a home in Kansas but lives and works in Brazil, visiting the U.S. for 75 days in 2015, and asked whether she must file a Kansas return, how to report foreign-source income, and whether Kansas gives credit for tax paid to Brazil. The Department could not say whether the client was domiciled in Kansas or in Brazil on the facts given, but laid out the rules.

Who must file: A Kansas resident (someone who lives in Kansas, or is away temporarily but intends to return) must file if they must file a federal return, or if their Kansas adjusted gross income exceeds their Kansas standard deduction plus exemption allowance. A nonresident must file if they received income from Kansas sources, regardless of amount.

Foreign income and the credit: The first step is to compute the Kansas tax "as if" all income were from Kansas sources. Then a person domiciled in Kansas may claim a credit against that tax for income taxes paid to another state, country, or political subdivision — including Brazil. A person not domiciled in Kansas instead prorates the computed tax by the ratio of Kansas income to total income.

What this means for you

Kansas residents with foreign income

Kansas taxes residents on all income but lets a Kansas-domiciled taxpayer credit the income tax paid to a foreign country, reducing double taxation on the same income.

Tax preparers

Pin down domicile first — it drives both the filing requirement and the method. A Kansas domiciliary computes tax on all income and takes the other-jurisdiction credit; a nondomiciliary prorates by the Kansas income share. The client's detailed filing rules are in the Kansas individual income tax return (Form K-40) instructions.

Common questions

Q: Does a Kansas homeowner living abroad have to file a Kansas return?
A: It depends on domicile. A Kansas resident/domiciliary files under the resident rules; a nonresident files only if they have Kansas-source income.

Q: Can Kansas give credit for income tax paid to Brazil?
A: Yes, for a person domiciled in Kansas — the credit covers income taxes paid to another state, country, or political subdivision.

Q: How is the tax computed for someone not domiciled in Kansas?
A: Compute the tax as if all income were Kansas-source, then prorate it by the ratio of Kansas income to all income.

Q: Does this ruling apply to me?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department reasons.

Citations and references

• The Department relied on the Kansas individual income tax return (Form K-40) instructions (residency definitions and filing requirements on pages 3–4; Kansas source income on page 19) rather than citing a specific statute. It states that a Kansas-domiciled taxpayer computes tax as if all income were Kansas-source and then credits income taxes paid to another state, country, or political subdivision.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2016-004

Original ruling text

Private Letter Ruling

Body:

July 20, 2016

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX

Re: Kansas Income Tax

Dear XXXXX:

Your correspondence of July 12, 2016, has been referred to me for response. Thank you for your inquiry.

By your e-mail you have requested our advice regarding Kansas income tax. Specifically, your e-mail states:

I have a client who owns a home in Kansas but who works and lives in Brazil. She visited the US for 75 days during 2015.

Is she required to file a Kansas return? If so, how do we report the foreign source income? Is there any kind of credit available for taxes paid to Brazil?

Any guidance you can provide would be appreciated.

Based on the limited information you have provide it is not clear whether your client is domiciled in Kansas or Brazil. However, as explained in the instructions for the Kansas individual income tax return (pages 3 & 4), filing requirements are as follows:

KANSAS RESIDENTS

A Kansas resident for income tax purposes is anyone who lives in Kansas, regardless of where they are employed. An individual who is away from Kansas for a period of time and has intentions of returning to Kansas is a resident.

If you were a Kansas resident for the entire year, you must file a Kansas individual income tax return if: 1) you are required to file a federal income tax return; or, 2) your Kansas adjusted gross income is more than the total of your Kansas standard deduction and exemption allowance.

NONRESIDENTS

If you are not a resident of Kansas but received income from Kansas sources, you must file a Kansas return regardless of the amount of income received from Kansas sources (see Kansas Source Income on page 19).

With regard to your questions about reporting foreign source income to Kansas and whether any credit is available for taxes paid to a foreign country, please note the first step in determining an individual’s Kansas income tax liability is to compute the tax “as if” all of the taxpayer’s income was from Kansas sources. Then, after the total amount of tax has been computed, a person domiciled in Kansas is allowed to claim a credit against the computed tax for the amount of taxes paid to another state, country, or political subdivision. This would include Brazil. An individual who is not domiciled in Kansas will prorate the computed tax using the ratio of their income in Kansas to all their income.

As previously noted, additional information regarding the questions you have presented can be found in the instructions for the Kansas individual income tax return, form K-40. They are available through our web site at: http://www.ksrevenue.org/pdf/ip15.pdf

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

JW:jw

NOTE: This opinion letter is based solely on the facts provided in your request for advice. If material facts or information were not disclosed this letter is null and void. This letter will be revoked without further action by the Department if the statutes, administrative regulations, published revenue rulings, or court decisions that materially affect this opinion are changed.

Date Composed: 09/16/2016 Date Modified: 09/16/2016

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