Legislative Engagement Reaps Benefits for Kansas McDonald’s Owners

But sometimes, it takes time and perseverance! In 2021, the Kansas Department of Revenue (KDOR) disallowed the wage modification for wages qualifying for the Federal Employee Retention Credit (ERTC). At the federal level, wages that generate a federal credit cannot also be deducted as expenses. Historically, Kansas allowed a modification to Kansas income and permitted a deduction for these wages on Kansas returns. Because pandemic-era ERTC was not described as such in the Kansas statute, the KDOR took the position that no modification would be allowed, even though the taxpayer had not received any state benefit. The result for the state was that the wages were taxed twice: once by disallowing the employer’s deduction and again on the recipient employee’s tax return.

In 2023, the KDOR expanded its interpretation of the statute in question by also disallowing a wage modification for wages generating federal Work Opportunity Tax Credits (WOTC). Again, citing the language of the statute not specifically referencing the WOTC as it references the predecessor federal credit, the KDOR began sending notices of tax due.

Carol Casale (Mize CPA’s Shareholder), Adam Mills (Kansas Restaurant and Hospitality CEO), Scott Schneider (KRHA Lobbyist), and Owner/Operator Hugh O’Reilly, who chairs the Kansas Government Relations Committee, worked together for three years to push for correction of these adverse positions on the part of the Kansas Department of Revenue. Carol was instrumental in crafting language for the changes, and she and Hugh testified about this matter before the Commerce Committee in Topeka in 2022 and 2023. Each year, corrective legislation was introduced and then dropped from the tax bill because the governor said she would veto it.

This legislative season, Commerce Committee Chair Caryn Tyson revisited the issue after connecting with Hugh at the annual Taste of Kansas Legislative Luncheon in January. In an unusually bipartisan year and with a split government, a compromise was made to allow a retroactive wage modification deduction for 50% of the ERTC wages and a retroactive and prospective wage modification deduction for 100% of WOTC wages. The bill changes the language of the statute to provide a wage modification deduction for any similar federal credit, eliminating the ability of the KDOR to interpret the statute differently than intended. Governor Laura Kelly signed the bill into law.

This will allow employers who received ERTC funds to now amend their 2020 and/or 2021 tax returns and receive refunds for the Kansas tax on 50% of the disallowed wages if they can show that they paid Kansas tax on those wages. Refund amounts will vary depending on the actual credits received. Returns can also be amended for the disallowance of 100% of the WOTC wage disallowance.

There are other benefits for business owners in this legislation, which can be accessed here.