Memorandum

City of Lawrence

Legal Services Department

TO:	David L. Corliss, City Manager
FROM:	Toni Ramirez Wheeler, Director of Legal Services
CC:	Cynthia Boecker, Assistant City Manager Jonathan Douglass, Assistant to the City Manager Ed Mullins, Finance Director
Date:	October 8, 2007
RE:	Gross Earnings Tax (Intangibles)

This memorandum provides an overview of the gross earnings tax on intangible property under K.S.A. 12-1,101 et seq.

Limitations on the Rate of Tax

A gross earnings tax is considered a property tax. Cogswell v. Sherman County, 238 Kan. 438 (1985). Under the statute, cities may levy up to 2.25% of the total gross earnings derived from “money, notes and other evidence of debt during the taxable year of the taxpayer ending during the last preceding calendar year” for the benefit of such city. Counties can levy up to .75%, for a total tax of 3%. “Money” includes gold and silver, U.S. treasury notes, and other commonly used currency. K.S.A. 12-1,102(a). “Notes and other evidence of debt” is defined as,

Certificates evidencing shares of stock otherwise taxable to the owner or holder, notes, bonds, debentures, claims secured by deed, liquidated claims and demands for money, accounts receivable, and all written instruments, contracts or other writings evidencing, calling for, fixing or showing a fixed obligation, determined or determinable, at present or in the future, in favor of the holder thereof. Notes and other evidence of debt shall not mean oil or gas leases or any interests created thereby or arising therefrom or any royalty or interests in oil or gas. K.S.A. 12-1,102(b).

Exempt Income

The intangibles tax does not apply to: interest on notes secured by Kansas real estate mortgages on which a registration fee has been paid, earnings on individual retirement and Keogh accounts, and other qualified retirement plans, bonds and other evidences of indebtedness issued by the federal government, the State of Kansas, or any of its municipal or taxing subdivisions, certain distributions of Subchapter S corporations, certain reimbursements of interest paid on notes, the proceeds of which were the source of funds of another note, and dividends from stock of a bank, savings and loan association or regulated investments company located in Kansas or from doing business in Kansas. National bank associations, state banks, federal and state chartered savings and loan associations, trust companies, credit unions, and certain non-profit corporations operating or providing hospitals, psychiatric hospitals, adult care homes, private children’s homes and housing for the elderly are exempt from intangibles tax.

Who Must File an Intangibles Tax Return?

The tax situs of intangibles is presumed to be the taxpayer’s domicile or place of business. Kansas residents living in jurisdictions which levy an intangibles tax, corporations owning taxable property, and non residents owning accounts receivable or other intangible property with a Kansas business situs, receiving earnings from the property during the preceding calendar year are required to file an intangibles tax return, unless the tax due is less than $5.00. Parents of minors owning intangible property, conservators, trustees, beneficiaries, of trusts, executors, administrators, receivers, and certain agents are required to file a local intangibles tax return. Senior citizens or disabled persons must also file a return, but may be entitled to a special senior citizen or disability exemption. See K.S.A. 12-1,109(c). The intangibles tax return is due on April 15^th. The State of Kansas processes gross earnings tax returns in conjunction with state income tax returns. The county clerk computes the tax and the taxpayer is billed for the tax in November.

According to information provided by the Kansas Department of Revenue, 31 counties, 107 cities, and a large number of townships were levying the tax for calendar year 2006. Voters may initiate the issue of imposing or eliminating the tax under K.S.A. 12-1,101. Attached please find instructions for completing a local intangibles tax return prepared by the Kansas Department of Revenue.

Let me know if you need additional information.