House Bill 2117, signed by Kansas Governor Sam Brownback on May 22, 2012, calls for significant tax cuts to boost the economy and encourage businesses to move to Kansas.
The bill makes two significant changes regarding income taxes. It lowers individual income tax rates, and it provides deductions that eliminate income taxes on non-wage business operating income for businesses taxed as pass-through entities. These businesses (including LLC’s, S corporations, partnerships, farms, and sole proprietorships) are generally taxed on the income “passed through” to the tax return of the business owner, and thus taxed under the individual income tax.
Business owners usually pay themselves a salary taxed as wage income on their income tax return. Additional profit above and beyond the business’s cost of doing business is reported as one of several forms of business income on the business owner’s tax return (federal tax Schedules C, E, and F) and also taxed under the personal income tax. The Kansas House Bill 2117 exempts this non-wage income from taxation, a change that will eliminate income tax on 191,000 businesses.