SESSION OF 2019
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2212
As Amended by House Committee on Taxation

Brief*
HB 2212, as amended, would clarify the Multistate Tax
Compact (Compact) under Kansas statutory provisions
relative to the definition of business income for corporation
income tax purposes.
The bill would clarify, relative to tax year 2019 and
thereafter, the Compact’s provisions are supplemental to the
Kansas Income Tax Act (KITA) and are not available as an
alternative method of allocating and apportioning business
income. The bill would state that should a conflict between
the Compact and KITA be determined, KITA would apply.
Additional amendments to the Compact would clarify
only the net gain from the sales of certain business assets
could be included in the sales factor of the multistate
business income distribution formula, and allocable non-
business income would be limited to the total non-business
income received in excess of related expenses allowed as
deductions.
The bill would clarify the Compact does not provide a
taxpayer an election for any separate alternative methodology
relative to the determination of business income under the
functional test utilized in KITA.
Finally, the bill would prohibit taxpayers from filing
amended returns for tax years 2008 through 2018 claiming
that an election had existed under the Compact or that certain
____________________
*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.kslegislature.org
provisions of the Compact had been inconsistent with KITA
relative to the determination of business income.

Background
The bill was introduced by the House Committee on
Taxation at the request of the Department of Revenue
(Department). A representative of the Department appeared
as the only proponent during the House Committee hearing
on February 12. During the hearing, the representative
explained legislation enacted in 2008 had reduced
corporation income tax rates but broadened the base under
KITA by replacing the transactional test for the determination
of business income with the functional test. The conferee
further explained litigation recently has been filed in a number
of states, suggesting the Compact’s provisions provide
flexibility in the determination of business income that
somehow control over more specifically enacted state law,
and many millions of dollars in refunds potentially could be
sought if such litigation were to be filed in Kansas. The
conferee added that since the change to KITA in 2008, the
assumption has been the churning of investment capital was
not to be included in the sales factor of the multistate formula.
No neutral or opponent testimony was provided.
The House Committee adopted a technical amendment,
which was suggested by the Department representative.
According to the fiscal note prepared by the Division of
the Budget on the bill, as introduced, the Department
indicates the bill would have no direct fiscal effect; however, it
has the potential to prevent large revenue losses if taxpayers
were able to assume an alternative set of apportionment rules
has been available under the Compact since 2008. Any fiscal
effect associated with enactment of the bill is not reflected in
The FY 2020 Governor’s Budget Report.


2- 2212


Statutes affected:
As introduced: 79-3271, 79-4301, 79-4302
As Amended by House Committee: 79-3271, 79-4301, 79-4302