Kansas Department Of Revenue Provides Post-Wynne Guidance On Credits For Taxes Paid To Other States

On August 10, 2015, the Kansas Department of Revenue became the first state tax authority to directly respond to the U.S. Supreme Court's decision in Comptroller of the Treasury v. Wynne.1 The Department's issuance of a notice acquiesces to the Wynne decision and allows Kansas residents the ability to take a credit for taxes paid to other states and localities within those states, both on a prospective and retroactive basis.2

The Wynne Decision

On May 18, 2015, the U.S. Supreme Court affirmed a Maryland Court of Appeals decision concluding that the Maryland tax system (comprised of state-level and county-level components) was unconstitutional to the extent that it denied Maryland resident taxpayers a credit against the county-level tax for income taxes they paid to other states.3 Based on this decision, the taxpayer and similarly situated residents are now afforded the credit against both components of the Maryland tax. While the full reach of the Wynne decision is not yet known, several states have been compelled to consider whether their state tax credits offered to residents may run into similar constitutional issues without explicit inclusion of local taxes within the scope of such credits.

Kansas' Credit Statute

For purposes of the Kansas individual income tax, a credit historically has been available to Kansas resident individuals, estates and trusts for taxes paid to other states on income derived from outside the state, and included in Kansas adjusted gross income.4 The credit cannot be greater in proportion to the Kansas tax than the Kansas adjusted gross income derived outside Kansas by a Kansas resident taxpayer is to the total Kansas adjusted gross income of the taxpayer.5 For purposes of the credit, the term "state" is defined as "any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof."6

Kansas Department's Response to Wynne

The Department's notice states that while the Wynne case did not specifically address Kansas law, the Department decided to follow "the Court's direction" on a prospective basis and allow for income or earnings taxes imposed by local jurisdictions within a state to be included within the scope of the state tax credit.7 In addition, the Department will accept refund claims from Kansas residents (for periods still open under the statute of limitations) resulting from...