Kansas R&D Tax Credit

Kansas has become known as the home of innovation. It has recently attracted companies like Google, Amazon, Intel, and 3M. The state also offers the Kansas research and development tax credit to certain businesses looking to create more jobs and boost the economy. If your company wants to invest in R&D activities, this incentive can offer financial relief.

Kansas Research Tax Credit Explained

Only firms subject to the Kansas corporate income tax, or C-corporations, are currently eligible for the Kansas R&D tax credit. However, that is about to change. Kansas will offer the R&D credit to all qualified taxpayers, including personal income taxpayers, for taxable years beginning after December 31, 2022.

A taxpayer can claim a credit against their corporate income tax liability for qualifying R&D expenses related to operations carried out in Kansas. QREs that qualify must focus on finding information that eliminates technical uncertainty regarding the creation or advancement of a product, service, method, formula, or idea.

However, the Kansas research and development tax credit has a limit. You can only use 25% of the credit, plus any carryforward. Up until the full amount of credit is spent, you may carry any unused credit forward in 25% increments. To put it another way, a C-Corp with sufficient tax liability must spread out the credit usage over four tax periods. You can claim the Kansas research tax credit with Schedule K-53.

As one of the changes, Kansas adopted a clause enabling taxpayers who do not owe taxes to transfer their R&D credit to another taxpayer beginning in the tax year 2023. They will be able to transfer the credit only once, and the recipient will not be entitled to a refund.

How to Calculate Kansas R&D Tax Credit

The credit is now equal to 6.5% of the difference between QREs incurred during the tax year and the average of qualified expenses incurred during the two prior tax years. However, the state will increase the credit to 10% of a taxpayer’s R&D costs for all tax years following 2022.

Takeaway

If you apply for the Kansas tax credit, do note that some changes will be set in motion after the end of 2022. Therefore, make sure to check the new incentive requirements to determine if you qualify for this valuable benefit.

FAQs

What kind of companies can apply for an R&D tax credit in Kansas?

Only a C-Corporation.

What is the deadline for applying for an R&D tax credit in Kansas?

You must submit your application with the income tax return.

What data do I need to calculate credit an R&D tax credit in Kansas?

Claim period Kansas QREs (Qualified R&D Expenses)

Is credit carryforward an option in Kansas?

Yes, until you use the credit in full (indefinite).