An Act concerning the enterprise zone act; expanding eligibility therefor; amending K.S.A. 1995 Supp. 74-50,114, 79-32,153, 79-32,154 and 79-32,160a and repealing the existing sections.

Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 1995 Supp. 74-50,114 is hereby amended to read as follows: 74-50,114. As used in K.S.A. 74-50,113 through 74-50,117 and amendments thereto:

(a) ``Ancillary support'' means a facility which is operated by a busi- ness and whose function is to provide services in support of the business, but is not directly engaged in the business' primary function.

(a) (b) ``Business'' means any manufacturing business or nonmanu- facturing business.

(b) (c) ``Corporate Business headquarters'' means a facility where principal officers of the corporation business are housed and from which direction, management or administrative support for transactions is pro- vided for a corporation business or division of a corporation business or regional division of a business.

(c) (d) ``Full-time employee'' means a person who is required to file a Kansas income tax return and who is employed by a business or retail business to perform duties in connection with the operation of the busi- ness or retail business on:

(1) A regular, full-time basis;

(2) a part-time basis, provided such person is customarily performing such duties at least 20 hours per week throughout the taxable year; or

(3) a seasonal basis, provided such person performs such duties for substantially all of the season customary for the position in which such person is employed. The number of full-time employees during any tax- able year shall be determined by dividing by 12 the sum of the number of full-time employees on the last business day of each month of such taxable year. If the business or retail business is in operation for less than the entire taxable year, the number of full-time employees shall be de- termined by dividing the sum of the number of full-time employees on the last business day of each full calendar month during the portion of such taxable year during which the business was in operation by the num- ber of full calendar months during such period.

(d) (e) ``Manufacturing business'' means all commercial enterprises identified under the manufacturing standard industrial classification codes, major groups 20 through 39.

(e) (f) ``Metropolitan county'' means the county of Douglas, Johnson, Leavenworth, Sedgwick, Shawnee or Wyandotte.

(f) (g) ``Nonmanufacturing business'' means any commercial enter- prise other than a manufacturing business or a retail business. Nonman- ufacturing business shall also include the corporate business headquarters of an enterprise, ancillary support of an enterprise, and an enterprise designated under standard industrial classification codes 5961 or 7372 regardless of the firm's classification as a retail business if that facility for which the sales tax exemption certificate is issued facilitates the creation of at least 20 new full-time positions.

Any ancillary support business which would otherwise be eligible for a sales tax exemption or an income or privilege tax credit pursuant to this subsection shall incorporate in its tax filing for the exemption or credit a statement from the secretary of commerce and housing which includes a finding by the secretary that the job expansion incident to the exemption or credit claimed would not have occurred in the absence of the credit or exemption.

(g) (h) ``Nonmetropolitan region'' means a region established under K.S.A. 74-50,116 and amendments thereto and is comprised of any county or counties which are not metropolitan counties.

(h) (i) ``Retail business'' means: (1) Any commercial enterprise pri- marily engaged in the sale at retail of goods or services taxable under the Kansas retailers' sales tax act; (2) any service provider set forth in K.S.A. 17-2707, and amendments thereto; (3) any bank, savings and loan or other lending institution; (4) any commercial enterprise whose primary business activity includes the sale of insurance; and (5) any commercial enterprise deriving its revenues directly from noncommercial customers in exchange for personal services such as, but not limited to, barber shops, beauty shops, photographic studios and funeral services.

(i) (j) ``Secretary'' means the secretary of the Kansas department of commerce and housing.

(j) (k) ``Standard industrial classification code'' means a standard in- dustrial classification code published in the Standard Industrial Classifi- cation manual, 1987, as prepared by the statistical policy division of the office of management and budget of the office of the president of the United States of America.

Sec. 2. K.S.A. 1995 Supp. 79-32,153 is hereby amended to read as follows: 79-32,153. (a) Any taxpayer who shall invest in a qualified busi- ness facility, as defined in subsection (b) of K.S.A. 79-32,154, and amend- ments thereto, shall be allowed a credit for such investment, in an amount determined under subsection (b) against the tax imposed by the Kansas income tax act, the privilege tax on net income of insurance companies imposed under chapter 40, article 28 of the Kansas Statutes Annotated, or the privilege tax as measured by net income of financial institutions imposed pursuant to chapter 79, article 11 of the Kansas Statutes Anno- tated for the taxable year during which commencement of commercial operations, as defined in subsection (f) of K.S.A. 79-32,154, and amend- ments thereto, occurs at such qualified business facility, and for each of the nine succeeding taxable years. No credit shall be allowed under this section unless the number of qualified business facility employees, as determined under subsection (d) of K.S.A. 79-32,154, and amendments thereto, engaged or maintained in employment at the qualified business facility as a direct result of the investment by the taxpayer for the taxable year for which the credit is claimed equals or exceeds two. Where an employee performs services for the taxpayer outside the qualified business facility, the employee shall be considered engaged or maintained in em- ployment at the qualified business facility if (1) the employee's service performed outside the qualified business facility is incidental to the em- ployee's service inside the qualified business facility, or (2) the base of operations or, the place from which the service is directed or controlled, is at the qualified business facility.

(b) The credit allowed by subsection (a) for any taxpayer who invests in a qualified business facility shall be a portion of the income tax, but not in excess of 50% of such tax, otherwise imposed by the Kansas income tax act on or measured by the taxpayer's qualified business facility income, as defined in subsection (g) of K.S.A. 79-32,154, and amendments thereto, for the taxable year for which such credit is allowed. Such portion shall be an amount equal to the sum of the following:

(1) One hundred dollars for each qualified business facility employee determined under K.S.A. 79-32,154, and amendments thereto; plus

(2) one hundred dollars for each $100,000, or major fraction thereof (which shall be deemed to be 51% or more), in qualified business facility investment as determined under K.S.A. 79-32,154, and amendments thereto.

(c) No credit shall be allowed under this section for investment in a public utility, as such term is defined in K.S.A. 66-104, and amendments thereto.

Sec. 3. K.S.A. 1995 Supp. 79-32,154 is hereby amended to read as follows: 79-32,154. As used in this act, the following words and phrases shall have the meanings respectively ascribed to them herein: (a) ``Facil- ity'' shall mean any factory, mill, plant, refinery, warehouse, feedlot, build- ing or complex of buildings located within the state, including the land on which such facility is located and all machinery, equipment and other real and tangible personal property located at or within such facility used in connection with the operation of such facility. The word ``building'' shall include only structures within which individuals are customarily em- ployed or which are customarily used to house machinery, equipment or other property.

(b) ``Qualified business facility'' shall mean a facility which satisfies the requirements of paragraphs (1) and (2) of this subsection.

(1) Such facility is employed by the taxpayer in the operation of a revenue producing enterprise, as defined in subsection (c). Such facility shall not be considered a qualified business facility in the hands of the taxpayer if the taxpayer's only activity with respect to such facility is to lease it to another person or persons. If the taxpayer employs only a portion of such facility in the operation of a revenue producing enterprise, and leases another portion of such facility to another person or persons or does not otherwise use such other portions in the operation of a rev- enue producing enterprise, the portion employed by the taxpayer in the operation of a revenue producing enterprise shall be considered a qual- ified business facility, if the requirements of paragraph (2) of this sub- section are satisfied.

(2) If such facility was acquired by the taxpayer from another person or persons, such facility was not employed, immediately prior to the trans- fer of title to such facility to the taxpayer, or to the commencement of the term of the lease of such facility to the taxpayer, by any other person or persons in the operation of a revenue producing enterprise and the taxpayer continues the operation of the same or substantially identical revenue producing enterprise, as defined in subsection (i), at such facility.

(c) ``Revenue producing enterprise'' shall mean: (1) The assembly, fabrication, manufacture or processing of any agricultural, mineral or manufactured product;

(2) the storage, warehousing, distribution or sale of any products of agriculture, aquaculture, mining or manufacturing;

(3) the feeding of livestock at a feedlot;

(4) the operation of laboratories or other facilities for scientific, ag- ricultural, aquacultural, animal husbandry or industrial research, devel- opment or testing;

(5) the performance of services of any type;

(6) the feeding of aquatic plants and animals at an aquaculture op- eration;

(7) the administrative management of any of the foregoing activities; or

(8) any combination of any of the foregoing activities.

``Revenue producing enterprise'' shall not mean a swine production facility as defined in K.S.A. 17-5903, and amendments thereto.

(d) ``Qualified business facility employee'' shall mean a person em- ployed by the taxpayer in the operation of a qualified business facility during the taxable year for which the credit allowed by K.S.A. 79-32,153, and amendments thereto, is claimed.: (1) A person shall be deemed to be so engaged if such person performs duties in connection with the operation of the qualified business facility on: (1) (A) A regular, full-time basis; (2) (B) a part-time basis, provided such person is customarily per- forming such duties at least 20 hours per week throughout the taxable year; or (3) (C) a seasonal basis, provided such person performs such duties for substantially all of the season customary for the position in which such person is employed. The number of qualified business facility employees during any taxable year shall be determined by dividing by 12 the sum of the number of qualified business facility employees on the last business day of each month of such taxable year. If the qualified business facility is in operation for less than the entire taxable year, the number of qualified business facility employees shall be determined by dividing the sum of the number of qualified business facility employees on the last business day of each full calendar month during the portion of such taxable year during which the qualified business facility was in operation by the number of full calendar months during such period. Notwithstanding the provisions of this subsection, for the purpose of com- puting the credit allowed by K.S.A. 79-32,153, and amendments thereto, in the case of an investment in a qualified business facility, which facility existed and was operated by the taxpayer or related taxpayer prior to such investment, the number of qualified business facility employees employed in the operation of such facility shall be reduced by the average number, computed as provided in this subsection, of individuals employed in the operation of the facility during the taxable year preceding the taxable year in which the qualified business facility investment was made at the facility.

(2) In the case of a taxpayer claiming a credit against the privilege tax on net income of insurance companies imposed under chapter 40, article 28 of Kansas Statutes Annotated, or the privilege tax as measured by net income of financial institutions imposed pursuant to chapter 79 article 11 of the Kansas Statutes Annotated, ``qualified business employee'' shall not mean any person who is employed in the operation of a qualified business facility in the state due to the merger, acquisition or other re- configuration of the taxpayer unless such employee's position represents a net gain of total positions created by the tax payer and the employee's position was not in existence at the time of the merger acquisition or other reconfiguration of the taxpayer.

(e) ``Qualified business facility investment'' shall mean the value of the real and tangible personal property, except inventory or property held for sale to customers in the ordinary course of the taxpayer's business, which constitutes the qualified business facility, or which is used by the taxpayer in the operation of the qualified business facility, during the taxable year for which the credit allowed by K.S.A. 79-32,153, and amend- ments thereto, is claimed. The value of such property during such taxable year shall be: (1) Its original cost if owned by the taxpayer; or (2) eight times the net annual rental rate, if leased by the taxpayer. The net annual rental rate shall be the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals. The qualified business facility investment shall be determined by dividing by 12 the sum of the total value of such property on the last business day of each calendar month of the taxable year. If the qualified business facility is in operation for less than an entire taxable year, the qualified business facility investment shall be determined by dividing the sum of the total value of such property on the last business day of each full calendar month during the portion of such taxable year during which the qualified business fa- cility was in operation by the number of full calendar months during such period. Notwithstanding the provisions of this subsection, for the purpose of computing the credit allowed by K.S.A. 79-32,153, and amendments thereto, in the case of an investment in a qualified business facility, which facility existed and was operated by the taxpayer or related taxpayer prior to such investment the amount of the taxpayer's qualified business facility investment in such facility shall be reduced by the average amount, com- puted as provided in this subsection, of the investment of the taxpayer or a related taxpayer in the facility for the taxable year preceding the taxable year in which the qualified business facility investment was made at the facility.

(f) ``Commencement of commercial operations'' shall be deemed to occur during the first taxable year for which the qualified business facility is first available for use by the taxpayer, or first capable of being used by the taxpayer, in the revenue producing enterprise in which the taxpayer intends to use the qualified business facility.

(g) ``Qualified business facility income'' shall mean the Kansas taxable income, as defined in article 32 of chapter 79 of the Kansas Statutes Annotated and amendments thereto, derived by the taxpayer from the operation of the qualified business facility. If a taxpayer has income de- rived from the operation of a qualified business facility as well as from other activities conducted within this state, the Kansas taxable income derived by the taxpayer from the operation of the qualified business fa- cility shall be determined by multiplying the taxpayer's Kansas taxable income, computed in accordance with article 32 of chapter 79 of the Kansas Statutes Annotated and amendments thereto, by a fraction, the numerator of which is the property factor, as defined in paragraph (1), plus the payroll factor, as defined in paragraph (2), and the denominator of which is two. In the case of financial institutions, the property and payroll factors shall be computed utilizing the specific provisions of the apportionment method applicable to financial institutions, if enacted, and the qualified business facility income shall be based upon net income.

(1) The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in connection with the operation of the qualified business facility during the tax period, and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period. The average value of all such property shall be determined as provided in K.S.A. 79- 3281 and 79-3282, and amendments thereto.

(2) The payroll factor is a fraction, the numerator of which is the total amount paid during the tax period by the taxpayer for compensation to persons qualifying as qualified business facility employees, as determined under subsection (d), at the qualified business facility, and the denomi- nator of which is the total amount paid in this state during the tax period by the taxpayer for compensation. The compensation paid in this state shall be determined as provided in K.S.A. 79-3283, and amendments thereto.

The formula set forth in this subsection (g) shall not be used for any purpose other than determining the qualified business facility income attributable to a qualified business facility.

(h) ``Related taxpayer'' shall mean (1) a corporation, partnership, trust or association controlled by the taxpayer; (2) an individual, corporation, partnership, trust or association in control of the taxpayer; or (3) a cor- poration, partnership, trust or association controlled by an individual, cor- poration, partnership, trust or association in control of the taxpayer. For the purposes of this act, ``control of a corporation'' shall mean ownership, directly or indirectly, of stock possessing at least 80% of the total com- bined voting power of all classes of stock entitled to vote and at least 80% of all other classes of stock of the corporation; ``control of a partnership or association'' shall mean ownership of at least 80% of the capital or profits interest in such partnership or association; and ``control of a trust'' shall mean ownership, directly or indirectly, of at least 80% of the ben- eficial interest in the principal or income of such trust.

(i) ``Same or substantially identical revenue producing enterprise'' shall mean a revenue producing enterprise in which the products pro- duced or sold, services performed or activities conducted are the same in character and use, are produced, sold, performed or conducted in the same manner and to or for the same type of customers as the products, services or activities produced, sold, performed or conducted in another revenue producing enterprise.

Sec. 4. K.S.A. 1995 Supp. 79-32,160a is hereby amended to read as follows: 79-32,160a. (a) Any taxpayer who shall invest in a qualified busi- ness facility, as defined in subsection (b) of K.S.A. 79-32,154, and amend- ments thereto, and also meets the definition of a business in subsection (a) (b) of K.S.A. 74-50,114 and amendments thereto, shall be allowed a credit for such investment, in an amount determined under subsection (b) or (c), as the case requires, against the tax imposed by the Kansas income tax act or where the qualified business facility is the principal place from which the trade or business of the taxpayer is directed or managed and the facility has facilitated the creation of at least 20 new full-time positions, against the privilege tax on net income of insurance companies imposed under chapter 40, article 28 of the Kansas Statutes Annotated or as measured by the net income of financial institutions im- posed pursuant to chapter 40, article 11 of the Kansas Statutes Annotated, for the taxable year during which commencement of commercial opera- tions, as defined in subsection (f) of K.S.A. 79-32,154, and amendments thereto, occurs at such qualified business facility. In the case of a taxpayer who meets the definition of a manufacturing business in subsection (c) (d) of K.S.A. 74-50,114 and amendments thereto, no credit shall be al- lowed under this section unless the number of qualified business facility employees, as determined under subsection (d) of K.S.A. 79-32,154, and amendments thereto, engaged or maintained in employment at the qual- ified business facility as a direct result of the investment by the taxpayer for the taxable year for which the credit is claimed equals or exceeds two. In the case of a taxpayer who meets the definition of a nonmanufacturing business in subsection (e) (f) of K.S.A. 74-50,114 and amendments thereto, no credit shall be allowed under this section unless the number of qualified business facility employees, as determined under subsection (d) of K.S.A. 79-32,154, and amendments thereto, engaged or maintained in employment at the qualified business facility as a direct result of the investment by the taxpayer for the taxable year for which the credit is claimed equals or exceeds five. Where an employee performs services for the taxpayer outside the qualified business facility, the employee shall be considered engaged or maintained in employment at the qualified business facility if (1) the employee's service performed outside the qualified busi- ness facility is incidental to the employee's service inside the qualified business facility, or (2) the base of operations or, the place from which the service is directed or controlled, is at the qualified business facility.

(b) The credit allowed by subsection (a) for any taxpayer who invests in a qualified business facility which is located in a designated nonmetro- politan region established under K.S.A. 74-50,116 and amendments thereto, on or after the effective date of this act, shall be a portion of the income tax imposed by the Kansas income tax act on the taxpayer's Kansas taxable income, the privilege tax on net income of insurance companies imposed under chapter 40, article 28 of the Kansas Statutes Annotated or the privilege tax as measured by the net income of financial institutions imposed pursuant to chapter 40, article 11 of the Kansas Statutes Anno- tated, for the taxable year for which such credit is allowed, but in the case where the qualified business facility investment was made prior to Janu- ary 1, 1996, but not in excess of 50% of such tax imposed by the Kansas income tax act on the taxpayer's Kansas taxable income, for the taxable year for which such credit is allowed. Such portion shall be an amount equal to the sum of the following:

(1) Two thousand five hundred dollars for each qualified business facility employee determined under K.S.A. 79-32,154, and amendments thereto; plus

(2) one thousand dollars for each $100,000, or major fraction thereof, which shall be deemed to be 51% or more, in qualified business facility investment, as determined under K.S.A. 79-32,154, and amendments thereto.

(c) The credit allowed by subsection (a) for any taxpayer who invests in a qualified business facility, which is not located in a nonmetropolitan region established under K.S.A. 74-50,116 and amendments thereto and which also meets the definition of business in subsection (a) (b) of K.S.A. 74-50,114 and amendments thereto, on or after the effective date of this act, shall be a portion of the income tax imposed by the Kansas income tax act on the taxpayer's Kansas taxable income, the privilege tax on net income of insurance companies imposed under chapter 40, article 28 of the Kansas Statutes Annotated or the privilege tax as measured by the net income of financial institutions imposed pursuant to chapter 40, article 11 of the Kansas Statutes Annotated, for the taxable year for which such credit is allowed, but in the case where the qualified business facility investment was made prior to January 1, 1996, but not in excess of 50% of such tax imposed by the Kansas income tax act on the taxpayer's Kansas taxable income, for the taxable year for which such credit is allowed. Such portion shall be an amount equal to the sum of the following:

(1) One thousand five hundred dollars for each qualified business facility employee as determined under K.S.A. 79-32,154, and amend- ments thereto; and

(2) one thousand dollars for each $100,000, or major fraction thereof, which shall be deemed to be 51% or more, in qualified business facility investment as determined under K.S.A. 79-32,154, and amendments thereto.

(d) The credit allowed by subsection (a) for each qualified business facility employee and for qualified business facility investment shall be a one-time credit. If the amount of the credit allowed under subsection (a) exceeds 50% of the tax imposed by the Kansas income tax act on the taxpayer's Kansas taxable income, the privilege tax on net income of in- surance companies imposed under chapter 40, article 28 of the Kansas Statutes Annotated or the privilege tax as measured by the net income of financial institutions imposed pursuant to chapter 40, article 11 of the Kansas Statutes Annotated for the taxable year, or in the case where the qualified business facility investment was made prior to January 1, 1996, 50% of such tax imposed the amount thereof which exceeds such tax liability or such portion thereof may be carried over for credit same man- ner in the succeeding taxable years until the total amount of such credit is used,. Except that, before the credit is allowed, a taxpayer, who meets the definition of a manufacturing business in subsection (c) (d) of K.S.A. 74-50,114 and amendments thereto, shall recertify annually that the net increase of a minimum of two qualified business facility employees has continued to be maintained and a taxpayer, who meets the definition of a nonmanufacturing business in subsection (e) (f) of K.S.A. 74-50,114 and amendments thereto, shall recertify annually that the net increase of a minimum of five qualified business employees has continued to be main- tained.

(e) Notwithstanding the foregoing provisions of this section, any tax- payer qualified and certified under the provisions of K.S.A. 1995 Supp. 74-50,131, and amendments thereto, and that has received written ap- proval from the secretary of commerce and housing for participation and has participated, during the tax year for which the exemption is claimed, in the Kansas industrial training, Kansas industrial retraining or the state of Kansas investments in lifelong learning program or is eligible for the tax credit established in K.S.A. 1995 Supp. 74-50,132, and amendments thereto, shall be entitled to a credit in an amount equal to 10% of that portion of the qualified business facility investment which exceeds $50,000 in lieu of the credit provided in subsection (b)(2) or (c)(2) without regard to the number of qualified business facility employees engaged or maintained in employment at the qualified business facility. The credit allowed by this subsection shall be a one-time credit. If the amount thereof exceeds the tax imposed by the Kansas income tax act on the taxpayer's Kansas taxable income for the taxable year, the amount thereof which exceeds such tax liability may be carried forward for credit in the succeeding taxable year or years until the total amount of the tax credit is used, except that no such tax credit shall be carried forward for de- duction after the 10th taxable year succeeding the taxable year in which such credit initially was claimed and no carry forward shall be allowed for deduction in any succeeding taxable year unless the taxpayer continued to be qualified and was recertified for such succeeding taxable year pur- suant to K.S.A. 1995 Supp. 74-50,131, and amendments thereto.

(f) This section and K.S.A. 1995 Supp. 79-32,160b and amendments thereto shall be part of and supplemental to the job expansion and in- vestment credit act of 1976 and acts amendatory thereof and supplemen- tal thereto.

New Sec. 5. The provisions of this act shall be applicable to all tax- able years commencing after December 31, 1995.

Sec. 6. K.S.A. 1995 Supp. 74-50,114, 79-32,153, 79-32,154 and 79- 32,160a are hereby repealed.

Sec. 7. This act shall take effect and be in force from and after its publication in the statute book.

Approved May 11, 1996.