Are R&D Tax Credits Available in Kansas?

Yes. The state of Kansas provides the Research Development (R&D) Tax Credit which allows a taxpayer who makes expenditures in Research and Development activities in Kansas to claim an income tax credit. Here is a summary of the R&D Tax Credit for the state of Kansas:

  • NEW: For taxable years after December 31, 2022, the State of Kansas is offering the R&D credit to all eligible taxpayers, including personal income taxpayers. As it currently stands, the State of Kansas is only available to corporations that are subject to the Kansas corporate income tax (i.e., C corporations). It is not currently available to individuals, partnerships, S corporations, limited liability companies, and other pass-through entities. Kansas will also start allowing taxpayers without a current tax liability to transfer the credit.
  • NEW: The credit is currently 6.5 percent of the difference between the actual qualified research and development expenses for the year and the average of the actual expenditures made during the year and the two previous tax years. For all tax years after 2022, Kansas has increased the credit from 6.5% to 10% of a taxpayer’s R&D expenses.
  • Expenditures made for research and development purposes must be allowable under the provisions of Internal Revenue Code Section 41.
  • IRC Section 41 defines qualified research expenditures as those expenses for activities intended to discover information that eliminates uncertainty concerning the development or improvement of a product, process, technique, formula, or invention.
  • The credit allowed in any one tax year is limited to 25 percent of the credit plus any carry forward.
  • Any remaining unused credit may be carried forward in 25 percent increments until the total amount of credit is used.
  • To claim the Kansas R&D Tax Credit, Schedule K-53 must be completed and submitted with the income tax return.
  • For the tax year 2023 and all tax years thereafter, the R&D tax credit may be transferred to any person and be claimed by the transferee as a credit against the transferee's Kansas income tax liability in the tax year when it was transferred. No person shall be entitled to a refund for the transferred tax credit. Only the full credit may be transferred, and the credit may only be transferred one time.

What are the Potential Benefits of this Tax Credit?

There are several benefits to realizing the R&D tax credit. These benefits can include the following:

  • Receive up to 12-16 cents of federal and state R&D tax credits for every qualified dollar
  • Create a dollar-for-dollar reduction in your federal and state income tax liability
  • Increase earnings-per-share
  • Reduce your effective tax rate
  • Improve cash flow
  • Carry forward the credit up to 20 years
  • Perform look back studies to recognize unclaimed credits for open tax years (generally 3 or 4 years)
  • Utilize the federal R&D tax credit against payroll tax (applicable to certain startup companies)

Kansas R&D Tax Credit Case Study

A Kansas City Company designed and manufactured robotics equipment. The Company claims R&D credits each year for the development activities of its engineers. This project involved a multi-year study covering the tax years 2020 – 2023. In 2018, the Company generated $400,000 in qualified research expenses and in 2019 they generated $425,000 in qualified research expenses

The company qualified for the federal R&D Tax Credits of $314,000 and an additional $60,000 in Kansas state R&D Tax Credits.

FEDERAL
KANSAS
Year
Total QREs
Credit
Total QREs
Credit
2023
$1,300,000
$135,333
$1,300,000
$35,000
2022
$900,000
$90,417
$900,000
$15,167
2021
$650,000
$61,250
650,000
$9,208
2020
$450,000
$27,000
450,000
$1,625
Total $3,300,000 $314,000 $3,300,000 $61,000

You can read more about this Kansas tax credit case study here.