[As Amended by House Committee of the Whole]
         

         
As Amended by House Committee
         

         
As Amended by Senate Committee
         

          Session of 1997
                   
SENATE BILL No. 44
         
By Senators Ranson, Becker, Bleeker, Bond, Brownlee, Clark, Corbin,
                Emert, Hardenburger, Harrington, Harris, Jordan, Kerr, Langworthy,
                Lawrence, Morris, Oleen, Praeger, Salisbury, Salmans, Schraad, Stef-
                fes, Tyson, Umbarger and Vidricksen
               
1-16
                17             AN ACT relating to sales taxation; concerning the exemption of certain
18             labor services used in conjunction with the remodeling of certain build-
19             ings and facilities; amending K.S.A. 1996 Supp. 79-3603 and repealing
20             the existing section. relating to income taxation; providing certain
21             credits therefrom; amending K.S.A. [79-3230 and] 79-32,117
22             [and 79-32,117h] and repealing the existing section [sections].
23            
24       Be it enacted by the Legislature of the State of Kansas:
25           Section 1. K.S.A. 1996 Supp. 79-3603 is hereby amended to read as
26       follows: 79-3603. For the privilege of engaging in the business of selling
27       tangible personal property at retail in this state or rendering or furnishing
28       any of the services taxable under this act, there is hereby levied and there
29       shall be collected and paid a tax at the rate of 4.9%:
30           (a) The gross receipts received from the sale of tangible personal
31       property at retail within this state;
32           (b) (1) the gross receipts from intrastate telephone or telegraph serv-
33       ices and (2) the gross receipts received from the sale of interstate tele-
34       phone or telegraph services, which (A) originate within this state and
35       terminate outside the state and are billed to a customer's telephone num-
36       ber or account in this state; or (B) originate outside this state and ter-
37       minate within this state and are billed to a customer's telephone number
38       or account in this state except that the sale of interstate telephone or
39       telegraph service does not include: (A) Any interstate incoming or out-
40       going wide area telephone service or wide area transmission type service
41       which entitles the subscriber to make or receive an unlimited number of
42       communications to or from persons having telephone service in a speci-
43       fied area which is outside the state in which the station provided this

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  1       service is located; (B) any interstate private communications service to
  2       the persons contracting for the receipt of that service that entitles the
  3       purchaser to exclusive or priority use of a communications channel or
  4       group of channels between exchanges; (C) any value-added nonvoice
  5       service in which computer processing applications are used to act on the
  6       form, content, code or protocol of the information to be transmitted; (D)
  7       any telecommunication service to a provider of telecommunication serv-
  8       ices which will be used to render telecommunications services, including
  9       carrier access services; or (E) any service or transaction defined in this
10       section among entities classified as members of an affiliated group as
11       provided by federal law (U.S.C. Section 1504);
12           (c) the gross receipts from the sale or furnishing of gas, water, elec-
13       tricity and heat, which sale is not otherwise exempt from taxation under
14       the provisions of this act, and whether furnished by municipally or pri-
15       vately owned utilities;
16           (d) the gross receipts from the sale of meals or drinks furnished at
17       any private club, drinking establishment, catered event, restaurant, eating
18       house, dining car, hotel, drugstore or other place where meals or drinks
19       are regularly sold to the public;
20           (e) the gross receipts from the sale of admissions to any place pro-
21       viding amusement, entertainment or recreation services including admis-
22       sions to state, county, district and local fairs, but such tax shall not be
23       levied and collected upon the gross receipts received from sales of ad-
24       missions to any cultural and historical event which occurs triennially;
25           (f) the gross receipts from the operation of any coin-operated device
26       dispensing or providing tangible personal property, amusement or other
27       services except laundry services, whether automatic or manually operated;
28           (g) the gross receipts from the service of renting of rooms by hotels,
29       as defined by K.S.A. 36-501 and amendments thereto;
30           (h) the gross receipts from the service of renting or leasing of tangible
31       personal property except such tax shall not apply to the renting or leasing
32       of machinery, equipment or other personal property owned by a city and
33       purchased from the proceeds of industrial revenue bonds issued prior to
34       July 1, 1973, in accordance with the provisions of K.S.A. 12-1740 through
35       12-1749, and amendments thereto, and any city or lessee renting or leas-
36       ing such machinery, equipment or other personal property purchased
37       with the proceeds of such bonds who shall have paid a tax under the
38       provisions of this section upon sales made prior to July 1, 1973, shall be
39       entitled to a refund from the sales tax refund fund of all taxes paid
40       thereon;
41           (i) the gross receipts from the rendering of dry cleaning, pressing,
42       dyeing and laundry services except laundry services rendered through a
43       coin-operated device whether automatic or manually operated;

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  1           (j) the gross receipts from the rendering of the services of washing
  2       and washing and waxing of vehicles;
  3           (k) the gross receipts from cable, community antennae and other sub-
  4       scriber radio and television services;
  5           (l) the gross receipts received from the sales of tangible personal
  6       property to all contractors, subcontractors or repairmen of materials and
  7       supplies for use by them in erecting structures for others, or building on,
  8       or otherwise improving, altering, or repairing real or personal property
  9       of others;
10           (m) the gross receipts received from fees and charges by public and
11       private clubs, drinking establishments, organizations and businesses for
12       participation in sports, games and other recreational activities, but such
13       tax shall not be levied and collected upon the gross receipts received from:
14       (1) Fees and charges by any political subdivision, or any youth recreation
15       organization exclusively providing services to persons 18 years of age or
16       younger which is exempt from federal income taxation pursuant to section
17       501(c)(3) of the federal internal revenue code of 1986, for participation
18       in sports, games and other recreational activities; and (2) entry fees and
19       charges for participation in a special event or tournament sanctioned by
20       a national sporting association to which spectators are charged an admis-
21       sion which is taxable pursuant to subsection (e);
22           (n) the gross receipts received from dues charged by public and pri-
23       vate clubs, drinking establishments, organizations and businesses, pay-
24       ment of which entitles a member to the use of facilities for recreation or
25       entertainment;
26           (o) the gross receipts received from the isolated or occasional sale of
27       motor vehicles or trailers but not including: (1) The transfer of motor
28       vehicles or trailers by a person to a corporation solely in exchange for
29       stock securities in such corporation; or (2) the transfer of motor vehicles
30       or trailers by one corporation to another when all of the assets of such
31       corporation are transferred to such other corporation; or (3) the sale of
32       motor vehicles or trailers which are subject to taxation pursuant to the
33       provisions of K.S.A. 79-5101 et seq., and amendments thereto, by an
34       immediate family member to another immediate family member. For the
35       purposes of clause (3), immediate family member means lineal ascendants
36       or descendants, and their spouses. In determining the base for computing
37       the tax on such isolated or occasional sale, the fair market value of any
38       motor vehicle or trailer traded in by the purchaser to the seller may be
39       deducted from the selling price;
40           (p) the gross receipts received for the service of installing or applying
41       tangible personal property which when installed or applied is not being
42       held for sale in the regular course of business, and whether or not such
43       tangible personal property when installed or applied remains tangible

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  1       personal property or becomes a part of real estate, except that no tax shall
  2       be imposed upon the service of installing or applying tangible personal
  3       property in connection with the original construction, reconstruction, res-
  4       toration, remodeling, renovation, repair or replacement of a building or
  5       facility or the construction, reconstruction, restoration, replacement or
  6       repair of a bridge or highway.
  7           For the purposes of this subsection:
  8           (1) ``Original construction'' shall mean the first or initial construction
  9       of a new building or facility. The term ``original construction'' shall include
10       the addition of an entire room or floor to any existing building or facility,
11       the completion of any unfinished portion of any existing building or fa-
12       cility and the restoration, reconstruction or replacement of a building or
13       facility damaged or destroyed by fire, flood, tornado, lightning, explosion
14       or earthquake, but such term shall not include replacement, remodeling,
15       restoration, renovation or reconstruction under any other circumstances;
16           (2)(1) ``Building'' shall mean only those enclosures within which in-
17       dividuals customarily live or are employed, or which are customarily used
18       to house machinery, equipment or other property, and including the land
19       improvements immediately surrounding such building; and
20           (3)(2) ``facility'' shall mean a mill, plant, refinery, oil or gas well, water
21       well, feedlot or any conveyance, transmission or distribution line of any
22       cooperative, nonprofit, membership corporation organized under or sub-
23       ject to the provisions of K.S.A. 17-4601 et seq., and amendments thereto,
24       or of any municipal or quasi-municipal corporation, including the land
25       improvements immediately surrounding such facility;
26           (q) the gross receipts received for the service of repairing, servicing,
27       altering or maintaining tangible personal property, except computer soft-
28       ware described in subsection (s), and as otherwise provided by sub-
29       section (p), which when such services are rendered is not being held for
30       sale in the regular course of business, and whether or not any tangible
31       personal property is transferred in connection therewith. The Except as
32       otherwise provided by subsection (p), the tax imposed by this subsec-
33       tion shall be applicable to the services of repairing, servicing, altering or
34       maintaining an item of tangible personal property which has been and is
35       fastened to, connected with or built into real property;
36           (r) the gross receipts from fees or charges made under service or
37       maintenance agreement contracts for services, charges for the providing
38       of which are taxable under the provisions of subsection (p) or (q);
39           (s) the gross receipts received from the sale of computer software,
40       and the sale of the services of modifying, altering, updating or maintaining
41       computer software. As used in this subsection, ``computer software''
42       means information and directions loaded into a computer which dictate
43       different functions to be performed by the computer. Computer software

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  1       includes any canned or prewritten program which is held or existing for
  2       general or repeated sale, even if the program was originally developed
  3       for a single end user as custom computer software. The sale of computer
  4       software or services does not include: (1) The initial sale of any custom
  5       computer program which is originally developed for the exclusive use of
  6       a single end user; or (2) those services rendered in the modification of
  7       computer software when the modification is developed exclusively for a
  8       single end user only to the extent of the modification and only to the
  9       extent that the actual amount charged for the modification is separately
10       stated on invoices, statements and other billing documents provided to
11       the end user. The services of modification, alteration, updating and main-
12       tenance of computer software shall only include the modification, alter-
13       ation, updating and maintenance of computer software taxable under this
14       subsection whether or not the services are actually provided; and
15           (t) the gross receipts received for telephone answering services, in-
16       cluding mobile phone services, beeper services and other similar services.
17           Sec. 2. K.S.A. 1996 Supp. 79-3603 is hereby repealed.
18           Sec. 3. This act shall take effect and be in force from and after its
19       publication in the statute book.
20        New Section 1. For all taxable years commencing after De-
21       cember 31, 1997, there shall be allowed as a credit against the tax
22       liability imposed under the Kansas income tax act upon an individ-
23       ual who is certificated to instruct and educate students of grades
24       kindergarten through 12 in an accredited school, whether public
25       or otherwise, an amount, not to exceed $125, equal to the purchase
26       costs of equipment, materials or other teaching aids for use in the
27       classroom to assist in the education of the students of such indi-
28       vidual. If the amount of such tax credit exceeds the individual's
29       income tax liability for the appropriate taxable year, such excess
30       amount shall be refunded.
31           New Sec. 2. For all taxable years commencing after December
32       31, 1997, there shall be allowed as a credit against the tax liability
33       imposed under the Kansas income tax act upon an individual
34       amounts incurred during the taxable year for education expenses
35       for all dependents of such individual attending an elementary or
36       secondary school which is located in Kansas which adheres to the
37       provisions of the federal civil rights act of 1964 and the Kansas act
38       against discrimination, and attendance at which satisfies the
39       requirements of K.S.A. 72-1111, and amendments thereto. As used
40       in this section: ``Education expenses'' include, but are not limited
41       to, textbooks and other instructional materials and equipment and
42       computer hardware and software but shall not include tuition or
43       other attendance fees. The amount of such credit shall be 25% of

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  1       the amounts paid for education expenses in excess of $250, but
  2       shall not exceed $300 expended for all dependents in any taxable
  3       year. If the amount of such tax credit exceeds the individual's in-
  4       come tax liability for the appropriate taxable year, such excess
  5       amount shall be refunded.
  6           Sec. 3. K.S.A. 79-32,117 is hereby amended to read as follows:
  7       79-32,117. (a) The Kansas adjusted gross income of an individual
  8       means such individual's federal adjusted gross income for the tax-
  9       able year, with the modifications specified in this section.
10           (b) There shall be added to federal adjusted gross income:
11           (i) Interest income less any related expenses directly incurred
12       in the purchase of state or political subdivision obligations, to the
13       extent that the same is not included in federal adjusted gross in-
14       come, on obligations of any state or political subdivision thereof,
15       but to the extent that interest income on obligations of this state
16       or a political subdivision thereof issued prior to January 1, 1988,
17       is specifically exempt from income tax under the laws of this state
18       authorizing the issuance of such obligations, it shall be excluded
19       from computation of Kansas adjusted gross income whether or not
20       included in federal adjusted gross income. Interest income on ob-
21       ligations of this state or a political subdivision thereof issued after
22       December 31, 1987, shall be excluded from computation of Kansas
23       adjusted gross income whether or not included in federal adjusted
24       gross income.
25           (ii) Taxes on or measured by income or fees or payments in
26       lieu of income taxes imposed by this state or any other taxing ju-
27       risdiction to the extent deductible in determining federal adjusted
28       gross income and not credited against federal income tax. This
29       paragraph shall not apply to taxes imposed under the provisions
30       of K.S.A. 79-1107 or 79-1108, and amendments thereto, for privi-
31       lege tax year 1995, and all such years thereafter.
32           (iii) The federal net operating loss deduction.
33           (iv) Federal income tax refunds received by the taxpayer if the
34       deduction of the taxes being refunded resulted in a tax benefit for
35       Kansas income tax purposes during a prior taxable year. Such re-
36       funds shall be included in income in the year actually received
37       regardless of the method of accounting used by the taxpayer. For
38       purposes hereof, a tax benefit shall be deemed to have resulted if
39       the amount of the tax had been deducted in determining income
40       subject to a Kansas income tax for a prior year regardless of the
41       rate of taxation applied in such prior year to the Kansas taxable
42       income, but only that portion of the refund shall be included as
43       bears the same proportion to the total refund received as the fed-

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  1       eral taxes deducted in the year to which such refund is attributable
  2       bears to the total federal income taxes paid for such year. For
  3       purposes of the foregoing sentence, federal taxes shall be consid-
  4       ered to have been deducted only to the extent such deduction does
  5       not reduce Kansas taxable income below zero.
  6           (v) The amount of any depreciation deduction or business ex-
  7       pense deduction claimed on the taxpayer's federal income tax re-
  8       turn for any capital expenditure in making any building or facility
  9       accessible to the handicapped, for which expenditure the taxpayer
10       claimed the credit allowed by K.S.A. 79-32,177, and amendments
11       thereto.
12           (vi) Any amount of designated employee contributions picked
13       up by an employer pursuant to K.S.A. 12-5005, 20-2603, 74-4919
14       and 74-4965, and amendments to such sections.
15           (vii) The amount of any charitable contribution made to the
16       extent the same is claimed as the basis for the credit allowed pur-
17       suant to K.S.A. 79-32,196, and amendments thereto.
18           (viii) The amount of any contribution made to an elementary or sec-
19       ondary school to the extent the same is claimed as the basis for the credit
20       allowed pursuant to section 1.
21           (c) There shall be subtracted from federal adjusted gross in-
22       come:
23           (i) Interest or dividend income on obligations or securities of
24       any authority, commission or instrumentality of the United States
25       and its possessions less any related expenses directly incurred in
26       the purchase of such obligations or securities, to the extent in-
27       cluded in federal adjusted gross income but exempt from state
28       income taxes under the laws of the United States.
29           (ii) Any amounts received which are included in federal ad-
30       justed gross income but which are specifically exempt from Kansas
31       income taxation under the laws of the state of Kansas.
32           (iii) The portion of any gain or loss from the sale or other dis-
33       position of property having a higher adjusted basis for Kansas in-
34       come tax purposes than for federal income tax purposes on the
35       date such property was sold or disposed of in a transaction in which
36       gain or loss was recognized for purposes of federal income tax that
37       does not exceed such difference in basis, but if a gain is considered
38       a long-term capital gain for federal income tax purposes, the mod-
39       ification shall be limited to that portion of such gain which is in-
40       cluded in federal adjusted gross income.
41           (iv) The amount necessary to prevent the taxation under this
42       act of any annuity or other amount of income or gain which was
43       properly included in income or gain and was taxed under the laws

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  1       of this state for a taxable year prior to the effective date of this act,
  2       as amended, to the taxpayer, or to a decedent by reason of whose
  3       death the taxpayer acquired the right to receive the income or
  4       gain, or to a trust or estate from which the taxpayer received the
  5       income or gain.
  6           (v) The amount of any refund or credit for overpayment of
  7       taxes on or measured by income or fees or payments in lieu of
  8       income taxes imposed by this state, or any taxing jurisdiction, to
  9       the extent included in gross income for federal income tax pur-
10       poses.
11           (vi) Accumulation distributions received by a taxpayer as a ben-
12       eficiary of a trust to the extent that the same are included in federal
13       adjusted gross income.
14           (vii) Amounts received as annuities under the federal civil serv-
15       ice retirement system from the civil service retirement and disa-
16       bility fund and other amounts received as retirement benefits in
17       whatever form which were earned for being employed by the fed-
18       eral government or for service in the armed forces of the United
19       States.
20           (viii) Amounts received by retired railroad employees as a sup-
21       plemental annuity under the provisions of 45 U.S.C. 228b (a) and
22       228c (a)(1) et seq.
23           (ix) Amounts received by retired employees of a city and by
24       retired employees of any board of such city as retirement allow-
25       ances pursuant to K.S.A. 13-14,106, and amendments thereto, or
26       pursuant to any charter ordinance exempting a city from the pro-
27       visions of K.S.A. 13-14,106, and amendments thereto.
28           (x) For taxable years beginning after December 31, 1976, the
29       amount of the federal tentative jobs tax credit disallowance under
30       the provisions of 26 U.S.C. 280 C. For taxable years ending after
31       December 31, 1978, the amount of the targeted jobs tax credit and
32       work incentive credit disallowances under 26 U.S.C. 280 C.
33           (xi) For taxable years beginning after December 31, 1986, div-
34       idend income on stock issued by Kansas Venture Capital, Inc.
35           (xii) For taxable years beginning after December 31, 1989,
36       amounts received by retired employees of a board of public utili-
37       ties as pension and retirement benefits pursuant to K.S.A. 13-1246,
38       13-1246a and 13-1249 and amendments thereto.
39           (xiii) For taxable years beginning after December 31, 1993, the
40       amount of income earned on contributions deposited to an indi-
41       vidual development account under K.S.A. 79-32,117h, and amend-
42       ments thereto.
43           (xiv) For all taxable years commencing after December 31,

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  1       1996, that portion of any income of a bank organized under the
  2       laws of this state or any other state, a national banking association
  3       organized under the laws of the United States, an association or-
  4       ganized under the savings and loan code of this state or any other
  5       state, or a federal savings association organized under the laws of
  6       the United States, for which an election as an S corporation under
  7       subchapter S of the federal internal revenue code is in effect,
  8       which accrues to the taxpayer who is a stockholder of such cor-
  9       poration and which is not distributed to the stockholders as divi-
10       dends of the corporation.
11           [(xv) For all taxable years commencing after December 31,
12       1997, the amount, not to exceed $2,000, of contributions to an
13       education savings account pursuant to section 5.]
14           (d) There shall be added to or subtracted from federal adjusted
15       gross income the taxpayer's share, as beneficiary of an estate or
16       trust, of the Kansas fiduciary adjustment determined under K.S.A.
17       79-32,135, and amendments thereto.
18           (e) The amount of modifications required to be made under
19       this section by a partner which relates to items of income, gain,
20       loss, deduction or credit of a partnership shall be determined un-
21       der K.S.A. 79-32,131, and amendments thereto, to the extent that
22       such items affect federal adjusted gross income of the partner.
23           New Sec. 4. (a) As used in this section:
24           (1) ``Agricultural cooperative'' means any corporation which is
25       organized pursuant to the provisions of K.S.A. 17-1601 et seq., and
26       amendments thereto, and which engages in the activity of devel-
27       oping and promoting the processing and marketing of agricultural
28       commodities grown, made or manufactured in this state through
29       marketing contracts entered into pursuant to K.S.A. 17-1616, and
30       amendments thereto; and
31           (2) ``direct investment'' means the payment of money or the
32       transfer of any form of economic value, whether tangible or intan-
33       gible, other than money in exchange for stock.
34           (b) For all taxable years commencing after December 31, 1997,
35       there shall be allowed a credit against the tax liability of a member
36       of an agricultural cooperative imposed under the Kansas income
37       tax act in an amount equal to 10% of the direct investment in an
38       agricultural cooperative. The credit allowed by this subsection in
39       any taxable year to a taxpayer shall not exceed $500, or the amount
40       of tax imposed under the Kansas income tax act reduced by the
41       sum of any other credits allowable pursuant to law, whichever
42       amount is less. If the amount of such tax credit exceeds the tax-
43       payer's income tax liability for any such taxable year, such excess

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  1       amount may be carried over for deduction from the taxpayer's
  2       income tax liability in the next succeeding taxable year or years
  3       until the total amount of the tax credit has been deducted from tax
  4       liability, except that no such excess amount shall be carried over
  5       for deduction after the fourth taxable year succeeding the taxable
  6       year in which the direct investment was made.
  7           [Sec. 5. K.S.A. 79-3230 is hereby amended to read as follows:
  8       79-3230. (a) The amount of income taxes imposed by this act shall
  9       be assessed within three years after the return was filed or the tax
10       as shown to be due on the return was paid, whichever is the later
11       date, and no proceedings in court for the collection of such taxes
12       shall be begun after the expiration of such period. For purposes
13       of this act any return filed before the 15th day of the fourth month
14       following the close of the taxable year shall be considered as being
15       filed on the 15th day of the fourth month following the close of
16       the taxable year, and any tax shown to be due on the return and
17       paid before the 15th day of the fourth month following the close
18       of the taxable year shall be deemed to have been paid on the 15th
19       day of the fourth month following the close of the taxable year.
20           [(b) In the case of a false or fraudulent return with intent to
21       evade tax, the tax may be assessed, or a proceeding in court for
22       collection of such tax may be begun at any time.
23           [(c) No refund or credit shall be allowed by the director of tax-
24       ation after three years from the date prescribed by law for filing
25       the return, provided it was filed before the due date, unless before
26       the expiration of such period a claim therefor is filed by the tax-
27       payer. If the return was filed after the due date, a refund claim
28       must be filed not later than three years from the time the return
29       was actually filed, or two years from the date the tax was paid,
30       whichever of such periods expires later. Where the assessment of
31       any income tax imposed by this act has been made within the pe-
32       riod of limitation properly applicable thereto, such tax may be col-
33       lected by distraint or by a proceeding in court, but only if begun
34       within one year after the period of limitation as defined in this act.
35           [(d) In case a taxpayer has made claim for a refund, the tax-
36       payer shall have the right to commence a suit for the recovery of
37       the refund at the expiration of six months after the filing of the
38       claim for refund, if no action has been taken by the director of
39       taxation.
40           [(e) Before the expiration of time prescribed in this section for
41       the assessment of additional tax or the filing of a claim for a refund,
42       the director of taxation is authorized to enter into an agreement
43       in writing with the taxpayer consenting to the extension of the

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  1       periods of limitations as defined in this act for the assessment of
  2       tax or for the filing of a claim for refund, at any time prior to the
  3       expiration of the period of limitations. The period so agreed upon
  4       may be extended by subsequent agreements in writing made be-
  5       fore the expiration of the period previously agreed upon. A copy
  6       of all such agreements and extensions thereof shall be filed with
  7       the director of taxation within 30 days after their execution.
  8           [(f) Any taxpayer whose income has been adjusted by the fed-
  9       eral internal revenue service or by the income tax collection agency of
10       another state is required to report such adjustments to the Kansas
11       department of revenue by mail within 180 days of the date the
12       federal or other state adjustments are paid, agreed to or become
13       final, whichever is earlier. Such adjustments shall be reported by
14       filing an amended return for the applicable taxable year and a copy
15       of the federal or state revenue agent's report detailing such adjust-
16       ments. In the event such taxpayer is a corporation, such report
17       shall be by certified or registered mail.
18           [Notwithstanding the provisions of subsection (a) or (c) of this
19       section, additional income taxes may be assessed and proceedings
20       in court for collection of such taxes may be commenced and any
21       refund or credit may be allowed by the director of taxation within
22       180 days following receipt of any such report of adjustments by
23       the Kansas department of revenue. No assessment shall be made
24       nor any refund or credit shall be allowable under the provisions
25       of this paragraph except to the extent the same is attributable to
26       changes in the taxpayer's income due to adjustments indicated by
27       such report.
28           [(g) In the event of failure to comply with the provisions of this
29       section, the statute of limitations shall be tolled.]
30           [New Sec. 6. (a) For all taxable years commencing after De-
31       cember 31, 1997, a credit shall be allowed against the tax liability
32       imposed under the Kansas income tax act upon an individual for
33       amounts incurred during the taxable year for tuition, textbooks
34       and associated fees for all dependents of such individual attending
35       any Kansas area vocational school, area vocational-technical
36       school, community college, technical college, municipal university,
37       state educational institution under the control and supervision of
38       the state board of regents or its successor, or accredited inde-
39       pendent postsecondary educational institution located and oper-
40       ating in Kansas.
41           [(b) The amount of such credit shall be the amount paid for
42       tuition, textbooks and associated fees but shall not exceed $500 for
43       each dependent expended in any taxable year. If the amount of

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  1       such credit exceeds the individual's income tax liability for the ap-
  2       propriate taxable year, such excess amount shall be refunded. This
  3       credit shall not be allowed, however, if the taxpayer's adjusted
  4       gross income exceeds the sum of $80,000 in the event of a married
  5       taxpayer filing a joint return, or the sum of $40,000 in the event
  6       of all other taxpayers.
  7           [(c) No credit shall be allowed for such expenses incurred for
  8       any dependent who has completed four years of attendance at any
  9       such institution after the effective date of this act.]
10           [New Sec. 7. (a) This section may be cited as the education
11       savings account act.
12           [(b) For the purposes of this section:
13           [(1) ``Account holder'' means the individual on whose behalf
14       the education savings account is established.
15           [(2) ``Dependent child'' means any person under the age of 21
16       years or any person who is legally entitled or subject to a court
17       order for the provision of proper and necessary subsistence and
18       education, and who is not emancipated, married or a member of
19       the armed forces of the United States.
20           [(3) ``Education savings account'' means a custodial account es-
21       tablished or organized to pay for post secondary education ex-
22       penses of the account holder.
23           [(4) ``Custodian'' means a chartered state bank or trust com-
24       pany authorized to act as a fiduciary, a national banking associa-
25       tion or savings and loan association authorized to act as a fiduciary,
26       or an insurance company and shall include any other qualified fi-
27       nancial custodian as defined by rules and regulations adopted by
28       the secretary of revenue.
29           [(c) For taxable years beginning after December 31, 1997, a
30       resident of this state shall be allowed to deposit contributions to
31       an education savings account. Except as provided in subsection
32       (c)(8), the amount of deposit for the first taxable year subsequent
33       to the effective date of this act shall not exceed:
34           [(1) $2,000 for the account holder; or
35           [(2) $2,000 for the account holder and $1,000 for each de-
36       pendent child of the account holder.
37           [(3) Income earned on an education savings account shall be
38       exempt from state income taxation under the Kansas income tax
39       act.
40           [(4) Upon agreement between an employer and employee, an
41       employer may contribute to the employee's education savings ac-
42       count, subject to the restrictions in subsection (6)(A).
43           [(5) The education savings account shall be established as a

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  1       custodial account and be placed with a custodian.
  2           [(6) Education savings account funds may be withdrawn by the
  3       account holder at any time for any purpose, subject to the follow-
  4       ing restrictions and penalties:
  5           [(A) There shall be a distribution penalty for withdrawal of ed-
  6       ucations savings account funds by the account holder; such penalty
  7       shall be 25% of the amount of interest earned as of the date of
  8       withdrawal on the account and shall be remitted by the custodian
  9       to the state and disposed of in the same manner as other penalties
10       imposed under the Kansas income tax act; and, upon such with-
11       drawal, the interest earned during the tax year in which with-
12       drawal occurs shall be subject to state income taxation; and
13           [(B) withdrawals shall be permitted without penalty for the
14       purposes for which the education savings account was created.
15           [(7) Upon the death of the account holder, the account prin-
16       cipal, as well as any interest accumulated thereon, shall be distrib-
17       uted to the decedent's estate and taxed as part of the estate.
18           [(8) There shall be no limit on the amount of earned income of
19       a dependent child, who is a recipient of aid to families with de-
20       pendent children, deposited in an educations savings account of
21       such dependent child that was created or organized to pay for
22       educational expenses of such dependent child.
23           [Sec. 8. K.S.A. 79-32,117h is hereby amended to read as fol-
24       lows: 79-32,117h. (a) This section may be cited as the individual
25       development account act.
26           [(b) For the purposes of this section:
27           [(1) ``Account holder'' means the individual on whose behalf
28       the individual development account is established.
29           [(2) ``Dependent child'' means any person under the age of 21
30       years or any person who is legally entitled or subject to a court
31       order for the provision of proper and necessary subsistence and
32       education, and who is not emancipated, married or a member of
33       the armed forces of the United States.
34           [(3) ``Individual development account'' means a custodial ac-
35       count established or organized to pay for K-12 education expenses
36       of the account holder.
37           [(4) ``Custodian'' means a chartered state bank or trust com-
38       pany authorized to act as a fiduciary, a national banking associa-
39       tion or savings and loan association authorized to act as a fiduciary,
40       or an insurance company and shall include any other qualified fi-
41       nancial custodian as defined by rules and regulations adopted by
42       the secretary of revenue.
43           [(c) (1) For taxable years beginning after December 31, 1993,

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  1       a resident of this state shall be allowed to deposit contributions to
  2       an individual development account. Except as provided in subsec-
  3       tion (c)(8), the amount of deposit for the first taxable year subse-
  4       quent to the effective date of this act shall not exceed:
  5           [(A) $2,000 for the account holder; or
  6           [(B) $2,000 for the account holder and $1,000 for each de-
  7       pendent child of the account holder.
  8           [(2) The maximum allowable amount of deposit for subsequent
  9       years shall be increased annually by a percentage equal to the
10       previous year's increase in the consumer price index as published
11       annually as soon after December 31 each year as possible by the
12       secretary of state in the Kansas register. As used in this paragraph
13       (2), ``consumer price index'' means the twelve-month average of
14       the consumer price index for all urban consumers United States
15       city average which is published by the United States department
16       of labor.
17           [(3) Income earned on an individual development account
18       shall be exempt from state income taxation under the Kansas in-
19       come tax act.
20           [(4) Upon agreement between an employer and employee, an
21       employer may contribute to the employee's individual develop-
22       ment account, subject to the restrictions in subsection (6)(A).
23           [(5) The individual development account shall be established
24       as a custodial account and be placed with a custodian.
25           [(6) Individual development account funds may be withdrawn
26       by the account holder at any time for any purpose, subject to the
27       following restrictions and penalties:
28           [(A) There shall be a distribution penalty for withdrawal of in-
29       dividual development account funds by the account holder; such
30       penalty shall be 25% of the amount of interest earned as of the
31       date of withdrawal on the account and shall be remitted by the
32       custodian to the state and disposed of in the same manner as other
33       penalties imposed under the Kansas income tax act; and, upon such
34       withdrawal, the interest earned during the tax year in which with-
35       drawal occurs shall be subject to state income taxation; and
36           [(B) withdrawals shall be permitted without penalty for the
37       purposes for which the individual development account was cre-
38       ated.
39           [(7) Upon the death of the account holder, the account prin-
40       cipal, as well as any interest accumulated thereon, shall be distrib-
41       uted to the decedent's estate and taxed as part of the estate.
42           [(8) There shall be no limit on the amount of earned income of
43       a dependent child, who is a recipient of aid to families with de-

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  1       pendent children, deposited in an individual development account
  2       of such dependent child that was created or organized to pay for
  3       educational expenses of such dependent child.]
  4           Sec. 5. [9.] K.S.A. 79-32,117 is [79-3230 and 79-32,117 and
  5       79-32,117h are] hereby repealed.
  6           Sec. 6. [10.] This act shall take effect and be in force from and after
  7       its publication in the statute book.
  8